Well, Italy's players and owners--and their counterparts in the rest of Europe--will have to learn how to curb their appetites. While team owners still agitate for lucrative deals, media titans who once shelled out lavishly for broadcast rights are under unprecedented strain. Germany's KirchMedia was forced into bankruptcy in April and is in the process of restructuring. Britain's ITV Digital went bust in April, and France's Vivendi Universal, owner of Italian pay-TV network Telepiu, is facing a liquidity crisis. Unprofitable teams that don't balance their books risk going under or getting sold.
Nowhere is the situation more acute than in Italy. Telepiu and its rival Stream, which is co-owned by Telecom Italia and Rupert Murdoch's News Corp., lost a combined $590 million last year. So it's no surprise they're balking at paying fees seven times the level of 1995.
But Italian team owners who spent lavishly on players are themselves staggering under a combined operating loss of $212 million. While some top teams such as Juventus have lucrative long-term contracts, eight A-Division teams have none--bringing some teams to the brink of insolvency. "The frenzied grab for players became so extreme that owners lost all vision of reasonable spending," says Filippo Colasanto, a player broker in Rome.
Italy's football teams are just the latest in Europe to be slammed by cuts in broadcasting revenues. In July, Germany's Bundesliga renegotiated its $1.49 billion contract with KirchSport, resulting in a 25% cut in the per-season payment. British teams lost $271 million in promised contract income when ITV Digital went under and are renegotiating with News Corp.'s BSkyB for a four-year contract at $36 million a year. That's a far cry from the $160 million ITV was paying annually.
The shortfalls are accelerating football's transition from a poorly managed sport to a bottom-line business. Florence's Fiorentina, forced into receivership in August by owner Vittorio Cecchi Gori's mismanagement, was recently sold to Diego Della Valle, founder and chief executive of Tod's shoe company for $7.4 million. Even Prime Minister Silvio Berlusconi, owner of AC Milan, suffered an estimated $35 million loss last year. Says Deutsche Bank media analyst Alessandro Baj-Badino: "Now that the bubble has burst, it is time for serious changes in how teams' finances are managed."
For starters, salaries for new players will be slashed. Deloitte & Touche estimates that the average salary in Italy is 22% greater than in England. "The imbalance between revenues and pay has to come down to a European level," says Antonio Giraudo, president of Juventus, the pet Turin team of Fiat Honorary Chairman Gianni Agnelli. Italian clubs could learn a lesson from teams in Spain and England, which have kept a lid on salaries and employed some creative marketing. For example, Spain's Real Madrid recently signed top Brazilian player Renaldo from Inter Milan and persuaded the star to give the team a cut of his endorsement income.
Pay-TV executives share part of the blame for Italian football's woes. Now, however, survival means slashing costs across the board. Vivendi's Paris pay-TV unit, Canal+, lost $374 million in 2001, 70% attributable to Telepiu. Vivendi is trying to sell Telepiu to rival Murdoch. If the deal goes through, Murdoch is likely to merge Telepiu with Stream. That could bring the costly bidding wars for broadcast rights to an end. However it plays out, for Italian football, the go-go years have come to an end. By Kate Carlisle in Rome, with bureau reports