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Sports Business: SOCCER
WORLD CUP SOCCER: THE REAL MATCH WON'T BE ON THE FIELD
With the games about to begin, two powerful forces are struggling to control professional soccer
The 16th World Cup opens in Paris on June 10, and France will be throwing a monthlong party. It has spent $1.5 billion to rebuild stadiums and construct new train lines for the more than 2.5 million fans expected to attend. And with a projected 37 billion TV viewers (cumulative), most of the planet will be watching.
But perhaps the most important match for professional soccer will take place two days before the games begin, at a conference center on the Left Bank. The players who will square off are hardly lithe 20-year-olds. Joseph Sepp Blatter and Lennart Johansson are slow-footed, round-bellied sixtysomethings vying for the presidency of the Federation Internationale de Football Assn. (FIFA), the powerful organization that controls global soccer.
FIFA sets the game's rules and owns the World Cup. Nearly broke two decades ago, it has parlayed World Cup TV and marketing rights into an annual cash flow exceeding $1 billion. Brazilian Joao Havelange, FIFA's current president, jets around the world like a head of state, bragging that global football generates annual sales of $250 billion.
Still, this gigantic and fast-growing enterprise is under increasing pressure. Its auctions of broadcasting rights are controversial. Bitter competition between the French hosts and FIFA plague the 1998 World Cup marketing program. And the method of selling World Cup tickets has left millions of fans bitter and dissatisfied. "We're at a turning point," concedes Alasdair Bell, a lawyer who represents Johansson. "Either soccer confirms itself as the world's No.1 sport--the only example of mass popular entertainment not dominated by the U.S.--or it self-destructs."
The Blatter-Johansson election, considered too close to call, will do much to determine soccer's commercial future. Blatter is largely seen as a proxy for the Old Guard that wants to hang on to soccer's traditional structure, while Johansson represents the forces of commercialization, eager to capitalize on the sport's popularity more efficiently.AUTHORITARIAN? Any responsible businessman would understand the problems at FIFA: Like most other longtime amateur sports, soccer lacks effective corporate governance. FIFA, based in Zurich, remains a nonprofit organization that publishes vague financial accounts. Founded in 1904, it now includes 198 national football associations, most with one vote in the upcoming presidential election. Europeans initially dominated the organization. But in 1974, the Brazilian Havelange won power by garnering support from disaffected African and Asian nations.
Critics complain that the 82-year-old Havelange has wielded authoritarian power. This year's presidential election is the first contested since he took over. "When I met Havelange, it was like meeting the Godfather," recalls John P. Sugden, a University of Brighton professor and author of the just-published FIFA and the Contest for World Football. "Two chaps with machine guns stood outside his hotel room, and this gray-haired man with piercing blue eyes greeted us."
Havelange is known to stifle dissent and curtail debate. At FIFA's 1994 executive committee meeting in New York, just after the U.S. World Cup, delegates were ready to elect members to FIFA committees. "These committees aren't silly things...they control broadcasting and marketing rights," says Andrew Jennings, a specialist on international athletic organizations and author of a book on the Olympic movement, The Lord of the Rings. When Havelange arrived, he didn't call for a vote. Instead, he handed out a list of personally chosen committee members--giving key positions to his son-in-law, Ricardo Teixeira.
"For many delegates, the 1994 committee choices signaled Havelange's final unacceptable diktat," recalls Sugden. "They vowed to get him out." Havelange's opponents include Brazilian soccer legend and former Sports Minister Pele. After Pele pushed through legislation last year to reform Brazilian soccer, Havelange threatened to disqualify Brazil from the World Cup. "It was the reaction of a dictator--precipitate and arrogant," Pele has said. After a popular outcry, Havelange withdrew his threat.
The anti-Havelange camp has rallied around Johansson, president of the Union of European Football Assns. (UEFA). The 68-year-old Swede, who served as chairman of flooring company Forbo-Forshaga, is running on a campaign to increase "openness and transparency" within FIFA.
When it comes to selling soccer, Johansson is considered a modernizer. He has promoted Champions League, an annual contest among Europe's biggest and best teams. "Without commercialization, football would stop growing," he says. Johansson also has encouraged teams such as Britain's Manchester United and the Netherlands' Ajax to raise money on the London and Amsterdam Stock Exchanges. "Johansson presents forward-looking ideas," says Ajax's David Endt.
Blatter, 62, once served as marketing director of Longines-Wittnauer Watch Co. but has spent most of his career as a sports bureaucrat. He stresses "tradition." Swiss-born Blatter joined FIFA in 1975 and became Havelange's general secretary in 1981. He opposes soccer clubs going public. To keep a "balance" between rich soccer clubs in big cities and poorer ones in small towns, he wants to limit player salaries and spread TV revenues equally among all teams.
While Johansson has been campaigning for three years, Blatter resigned his post at FIFA and threw his hat into the ring only three months ago. "If Johansson wins, the first thing he is going to do is send in the auditors and find out what happened over the past two decades," says Thomas Kistener, author of the recently released German book The Billion Dollar Game. "Havelange has put Blatter in the race in a desperate effort to keep the lid on all the dirty dealings.""DIRECT CONFLICT." Any investigation into "dirty dealings" would probably start with World Cup TV auctions. Before the 1986 Cup in Mexico City, Havelange sold the rights to Mexico's Televisa for $33 million. But Televisa chief Guillermo Canedo also served as FIFA's senior vice-president. "Canedo was sitting on both sides of the table at the
negotiations," says Kistener. "It was a direct conflict of interest." FIFA spokesperson Andreas Herren says Televisa was part of a larger Latin American TV consortium and is Mexico's top broadcaster. "We need a host broadcaster, and we usually go with the biggest station in the host country," he says.
Havelange's judgment has been called into question in other TV deals as well. In 1988, he sold this year's World Cup rights for $90 million. "It doesn't make sense to sell off the rights to the biggest show on earth 10 years in advance for such a paltry sum," says Bell, Johansson's lawyer. Counters FIFA's Herren: "The deal allowed us to plan ahead." But when FIFA negotiated the rights for the 2002 World Cup, German commercial broadcaster Kirch and Swiss sports agency ISL Marketing coughed up about $1 billion.STRAIGHT TALK. Others question why Havelange awarded global World Cup rights to privately held ISL, which has long been FIFA's exclusive agent and whose chairman, Jean-Marie Weber, is a Havelange confidant. "An intermediary risks pushing the envelope too hard and hurting your image," says Michael Payne, director of marketing at the International Olympic Committee, which sells its own rights. "The trend in this industry is to talk directly with broadcasters in each market." While the Olympics hands over about 50% of broadcasting fees to local organizers, FIFA takes nearly everything.
FIFA's World Cup marketing seems similarly one-sided. The International Olympic Committee deals directly with sponsors and gives local organizing committees a cut. But until now, FIFA has delegated negotiating rights to ISL and taken almost all of the receipts from global sponsors such as Coca-Cola Co. and McDonald's Corp.
France's World Cup organizers have reacted by aggressively selling $100 million in "supplier" contracts to eight companies, including Hewlett-Packard, France Telecom, and Danone. "I can understand why the games need a computer and telephone supplier," says Glen Kirton, ISL's director of football. "But for the life of me, I can't understand why they need a yogurt supplier." Worse, he fears that Danone, which also has beverage interests, is promoting its World Cup connection outside of France, creating global conflicts of interest with Coke, one of ISL's most important supporters.
The French are defiant. "There's no equilibrium in the financing," complains Jacques Lambert, the World Cup Organizing Committee's general director. All told, he says France will run a deficit from the games of more than $1 billion, largely because it had to build an 80,000-seat stadium just outside Paris. "Future organizing committees should beware," he warns.
Japan and Korea are scheduled to co-host the 2002 World Cup. That unwieldy arrangement threatens duplication and ballooning costs. Korea is budgeting $1.1 billion. Japan must spend $4.5 billion to build eight new stadiums. With pressing economic conditions in both countries, they are demanding a bigger cut of the pie. "There is no system for how to divide up the money," says Ryo Nishimura of the Japanese Organizing Committee. "It's very hard to understand what will happen."ANGRY FANS. Potential World Cup organizers face another headache--too much popularity. More than 25 million requests were made for tickets this year, with only 2.5 million available. When France put its own residents at the front of the queue, the Belgian, British, and Dutch governments all protested. In Belgium and Britain, angry fans are suing.
And FIFA's problems extend well beyond the World Cup held every four years. Costs at the local level, primarily players' salaries, are soaring faster than revenues. In 1995, European players won the right to free agency, sparking an American-style bidding war. So while revenues of Britain's Premiere League grew 32% last year, wages grew by 31%. "European clubs are spending money as quick as they earn it," says Robert Elstone, an author of Deloitte & Touche's annual soccer survey. Most Italian and Spanish clubs are deep in debt.
Outside of Europe, the sport's finances look even worse. In Brazil, clubs trade players to generate revenues, and as top players leave for Europe, fans are losing interest. In Japan, the poor quality of play in the professional J. League has fans fleeing. From an average of almost 18,000 in 1993, attendance fell last year to just over 10,000 a game.
Merchandising revenues from club shirts and other items have also plunged --from $270 million in 1993 to a predicted $2.4 million this year. And in America, Major League Soccer has lost $40 million in its first two seasons. Still, soccer's increasing popularity means TV revenues in many markets are growing by as much as 50% a year.
And marketing opportunities abound. Earlier this year, the Premiere League hired its first marketing director, Stephen Pearson. "I plan to take the Premiere brand around the globe," he says. Targets include the U.S. and China. "We think they will love Arsenal and Manchester United," adds Pearson. His strategy is to sell television rights cheap, build an audience, and leverage the viewership into deals with Coke, McDonald's, and other big names.PROMISES, PROMISES. The pace of Pearson's plans, and those of other aggressive soccer marketers, will depend to a large degree on the outcome of FIFA's presidential election. Pro-business candidate Johansson started off with solid support in Europe, where soccer is most developed commercially. But Blatter is said to have won over Britain by promising Prime Minister Tony Blair that his country can host the 2006 World Cup. Johansson supports Germany.
As Blatter has picked up momentum, old ghosts could come back to haunt Johansson. In an interview several years ago, the Swede made racist comments about Africans. Since then, he has attempted to repair the damage by having UEFA make generous donations to African federations. Their votes could be decisive.
"The game is dominated by a group of medieval fiefdoms who play by their own rules and aren't accountable about their membership or finances," complains sports professor Sugden. That's probably true, but whoever becomes the new King of Soccer will have to deal with the fact that the game is hurtling headlong into the modern era of big-money sports.By William Echikson in Paris, with Ian Katz in Sao Paulo and Sebastian Moffett in TokyoReturn to top