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Amid economic woes, the Euro 2012 soccer victory gave Spaniards reason to celebrate. But now Real Madrid, Barcelona and other La Liga teams must tackle skyrocketing debt.
MADRID, Spain — The Spanish soccer team’s graceful victory in the European Championship this month provided much-needed diversion to a population especially hard hit by Europe's economic crisis.
Spain's 4-0 demolition of Italy on July 1 gave the national team an unprecedented third successive major championship, following its win in the 2010 World Cup and 2008 European Championship. But the euphoria may not last long if the envy of the soccer world becomes the country’s latest financial casualty, as some are warning.
That’s because most Spanish professional soccer clubs hold large amounts of debt that are “just not sustainable,” says Jose Maria Gay, an economics professor at Barcelona University. "Spanish football is in a very tricky, very difficult financial situation,” he says.
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Gay, who has produced several studies on Spanish clubs' sorry finances, estimates their debt at 6 billion euros ($7.4 billion).
The 20 teams in La Liga, the elite first division that includes powerhouses Barcelona and Real Madrid, owe more than half that amount. Gay believes at least 10 teams are at risk of going under. Several are already under bankruptcy protection.
The government says teams in the top two divisions owed 752 million euros ($921 million) in unpaid taxes alone last spring, on top of around 600 million euros ($735 million) in missed contributions to the social security system.
The authorities have long tolerated clubs' traditionally loose finances because of the prestige and popularity they bring to a country where passion for the game runs deep.
That is changing. With finances squeezed by the euro zone debt crisis, the government is slashing spending on hospitals, schools and public-sector jobs, and Spaniards are starting to ask whether football clubs should be able to continue to enjoy their free ride.
Caridad Garcia, a lawmaker from the United Left party, raised the issue in parliament last spring. "These days, when families and businesses are going through such difficult times, it would be a tremendous mistake for the state to rescue football clubs," she warns.
Pressure has also come from Germany, where fans have been incensed that their teams are being beaten by Spanish clubs that are effectively subsidized by tax breaks at a time when German taxpayers believe they are paying to help Spain bail out the country’s debt-stricken banks.
Germany's influential tabloid Bild reflected that sentiment in a recent headline: "Debt relief for Real and Barcelona: should German taxpayers pay up for Messi and Ronaldo?"
The two players, Barcelona's Lionel Messi and Real Madrid's Cristiano Ronaldo, are considered the world's top two players. Messi's annual salary is believed to be 10.5 million euros ($13 million) and Ronaldo's, 13 million euros ($16 million). That pay comes on top of profits from advertising and other sources that give each an estimated income of around 30 million euros ($37 million).
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Suggestions that the Spanish government might be prepared to forgive clubs' tax arrears prompted outrage in Germany.
“This is the last straw, it’s unbelievable,” Bayern Munich soccer club’s president Uli Hoeness was reported as saying. “We pay them hundred of millions of euros to help get them out of the shit and then Spain’s clubs don’t pay their debts."
An anonymous complainant — presumably a disgruntled rival to the Spanish clubs — went so far as to take the issue to the European Union's anti-trust authorities, arguing that easing the clubs' tax burden would constitute unfair competition with teams in other countries. The EU’s competition commission has not launched an investigation so far.
Spanish officials have fought back against the accusations. State Secretary for Sport Miguel Cardenal has insisted comments he made last spring about making the debt "disappear" by 2020 did not mean the government is seeking to give the clubs a tax break, but that he's negotiated an agreement with La Liga for a gradual payback by the end of the decade.
The clubs agreed to a plan in June according to which they will set aside 35 percent of their television and radio revenues starting in 2014 to pay off tax debts.
"There has been no state aid to reduce football clubs' debt,” the league said in a statement. “We've drawn up a road map to permanently change the current landscape, so the debt is reduced gradually until its finally eradicated."
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Although Real and Barcelona rank among those with the biggest debts — Madrid owes 590 million euros ($723 million) and its Catalan rival 578 million euros ($708 million) — their finances do not appear at risk because both teams have a solid asset base and generate the highest revenues in world.
But their dominance has been widely blamed for exacerbating the plight of smaller clubs. Unlike major leagues in other countries that tend to have collective agreements for sharing TV revenues among clubs, Spanish sides negotiate individually, which means Real and Barca get the lion's share of revenues. The top two each earned 140 million euros ($172 million) from television rights last season. Number-three Valencia pocketed only 48 million euros ($59 million).
Other clubs are warning the big two's grip on revenues risks killing the game, and government officials have said they expect Real and Barca to bow to pressure by accepting a fairer scheme.
Economist Gay believes centralizing TV rights and boosting government supervision would be enough to solve soccer’s debt crisis.