Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe.
Speaker 2: Why isn't Joe?
Speaker 1: I think we need to figure out something extremely important
Speaker 1: before we even begin this discussion.
Speaker 2: I know what you're gonna say, and I was wondering
Speaker 2: if we should we should have figured this out before that. No, no, no,
Speaker 2: it started.
Speaker 3: Let's do.
Speaker 1: Let's let's force our work process on everyone listening to this. Now,
Speaker 1: are we going to call this soccer or football?
Speaker 2: This is a call whatever you want. It's fine, Okay,
Speaker 2: I must I say soccer. But I also don't really
Speaker 2: pay attention to this bart and I know you do,
Speaker 2: so maybe you should get to choose.
Speaker 1: I don't as much as I used to, But for
Speaker 1: AUDLTS listeners, I lived in the UK for more than
Speaker 1: ten years, and in the UK, uh, soccer is kind
Speaker 1: of inflicted on you, whether you like it or not.
Speaker 1: So let me just say I if we do start
Speaker 1: saying football in this conversation unless otherwise specified, we mean soccer,
Speaker 1: unless we say American football.
Speaker 2: What if they call it in Japan?
Speaker 1: I don't know, that's a good question.
Speaker 2: What they call it in Austria?
Speaker 1: Football? Right?
Speaker 2: What do they call it in Hong.
Speaker 1: Kong uh soccer? I think no, it must be football
Speaker 1: because that's British. I have no idea. Okay, okay, look,
Speaker 1: soccer and football are going to be interchangeable on this discussion.
Speaker 1: But I think we've given away what we are going
Speaker 1: to be talking about.
Speaker 2: Yes, yeah, And we brought it up very briefly in
Speaker 2: episode with Brad Setzer because at the time I asked him,
Speaker 2: I was like, what's the deal of Saudi Arabia offering
Speaker 2: like half a billion dollars to Lionel Messi. Then like
Speaker 2: two days later that deal never actually happened and he
Speaker 2: went to Miami.
Speaker 3: There is but it all.
Speaker 2: But he of course he was being Brad. He had
Speaker 2: this great like macro answer about the Saudi's current account
Speaker 2: surplus and all that stuff, and so there is a
Speaker 2: lot there with like the Ecan the Macro right of soccer.
Speaker 1: Right. It is no secret that's Saudi Arabia has been
Speaker 1: on something of a soccer star spending spree recently. I
Speaker 1: think it all kicked off when they bought Rinaldo earlier
Speaker 1: in the year, and since then they bought some prominent
Speaker 1: people like Benzima. I think I'm probably mispronouncing all of
Speaker 1: these names. We're recording this on June twenty first, and
Speaker 1: I saw that they just picked up Conte, who's like
Speaker 1: a very well known Chelsea midfielder, and they had a
Speaker 1: very strange video to go along with it, which maybe
Speaker 1: we can get into. But anyway, why is Saudi Arabia
Speaker 1: doing this? Is I guess the big question, and what
Speaker 1: does it mean for both European football and American soccer?
Speaker 2: Yeah, I have no idea about any of these things.
Speaker 2: I only found out recently that, like, I mean, I knew,
Speaker 2: like the Major League soccer in the US was kind
Speaker 2: of like big, but I didn't realize it was quite
Speaker 2: as big. It was like booming.
Speaker 3: You didn't know, not.
Speaker 1: Really, you know, my husband was briefly a youth coach
Speaker 1: for the New York Cosmos.
Speaker 2: I had no idea. Yeah that's great.
Speaker 1: Yeah, all right, Well, we have a lot to talk about,
Speaker 1: and I am very pleased to say that we truly
Speaker 1: have the perfect guests. We are going to be speaking
Speaker 1: with the co hosts of the Double Pivot pod, which
Speaker 1: describes itself as the world's most agreeable soccer analytics podcast.
Speaker 1: I love that tagline. We have Michael Cayley. In addition
Speaker 1: to being the co host of Double Pivot Pod, he
Speaker 1: is also the fourth coming author of a book with
Speaker 1: the very interesting title of the First Apocalypse of James
Speaker 1: Martyrdom and Sexual Difference, So not necessarily what you would
Speaker 1: expect from a soccer commentator. And we also have Mike Goodman.
Speaker 1: He is the senior editor for soccer at cbssports dot com,
Speaker 1: so really the perfect people to thread the needle between
Speaker 1: the soccer world and also Saudi Arabia's current account surplus.
Speaker 1: Welcome to the show. Michael and Mike.
Speaker 3: Thrilled to be here. We're both big fans, so it's
Speaker 3: great that we have the chance to do this. So excited.
Speaker 4: I feel like we were probably the only soccer podcast
Speaker 4: to base an episode around Brad Setster's research on the
Speaker 4: Saudi herb account balance.
Speaker 2: So amazing, amazing, love it.
Speaker 1: Okay, so first, one more bit of housekeeping. I'm just
Speaker 1: gonna you know, Mike and Mike is a little confusing,
Speaker 1: so I'm going to refer to Michael Kayley as Kaylee
Speaker 1: and Mike Goodman as Mike or Michael, if that makes sense.
Speaker 1: I think that's what you do on your podcast anyway,
Speaker 1: So hopefully that works for everyone. But I guess the
Speaker 1: big question for me is, you know, watching all this activity,
Speaker 1: it kind of started in January when we saw Christiano
Speaker 1: Ronaldo moved from Manchester United over to a Saudi Arabian
Speaker 1: team called Al Nasser, and that was for some insane
Speaker 1: amount of money, like two hundred million euros for a
Speaker 1: two and a half year deal. And I think when
Speaker 1: that first happened, there was a lot of discussion that
Speaker 1: maybe this was just an opportunistic move by Saudi Arabia.
Speaker 1: You know, he was out of contract and maybe they
Speaker 1: just saw an opportunity there and seized on it. But
Speaker 1: since then, we've just seen them making more and more
Speaker 1: approaches to football stars and snapping some of them up.
Speaker 1: So what's happening here, Like, is this the first salvo
Speaker 1: of a long plan development in Saudi football or did
Speaker 1: the transfer open the Saudi government's eyes to what was possible?
Speaker 3: So I, honestly, I think I'd start by taking a
Speaker 3: step back and doing something that maybe we do a
Speaker 3: lot on our podcast, which is sort of questioning the
Speaker 3: premise here a little bit. I would honestly say, I
Speaker 3: would honestly say that Saudi Arabia's involvement directly in soccer
Speaker 3: predated Ronaldo. They bought Newcastle United. The PIFF bought Newcastle
Speaker 3: United last summer basically, and it has been a long
Speaker 3: going actually more than like eighteen months ago. This had
Speaker 3: been sort of a longgoing negotiation where Saudi Arabia PIFF
Speaker 3: had wanted to purchase it and the UK had stood
Speaker 3: in the way, and the Premier League had stood in
Speaker 3: the way saying we despite the fact that another club,
Speaker 3: Manchester City, is owned by United Arab Emirates, we won't
Speaker 3: allow a sovereign nation to buy this club. There were
Speaker 3: ongoing negotiations. Eventually Saudi Arabia is satisfied the UK and
Speaker 3: said we are not a sovereign nation, we are PIFF,
Speaker 3: we are independent, and UK accepted this. Premier League accepted
Speaker 3: this and they bought Newcastle. I would say this was
Speaker 3: going on at the same time that PIFF founded liv
Speaker 3: Golf to be now merged with the PGA Tour. And
Speaker 3: what you've seen, I think a better way to understand
Speaker 3: it is really looking at the soccer spending first on
Speaker 3: Newcastle than on these players. In addition to some other
Speaker 3: ways that they are putting money into the game as
Speaker 3: in concert with what they were doing in golf, as
Speaker 3: a concerted effort to spend their capital on sports for
Speaker 3: various reasons. Yeah.
Speaker 4: I think the other thing to add here is in
Speaker 4: terms of what is the Saudi Arabian timeline? And obviously
Speaker 4: these things can change, but their vision twenty thirty, this
Speaker 4: big you know, economic modernization plan twenty thirty is also
Speaker 4: the next World Cup that is up forbidding, and Saudi
Speaker 4: Arabia is one of the probably the leading bidder at
Speaker 4: this point. You know, you know how the bids for
Speaker 4: for FIFA things work and so very transparent and.
Speaker 1: On the up and up. Everything's good, everything's kosher exactly.
Speaker 4: There's no advantages to being a sovereign nation that can
Speaker 4: just expense money in various random ways, and so they
Speaker 4: are like as they're looking to build for soccer. I
Speaker 4: think the timeline is probably best understood as a twenty
Speaker 4: thirty timeline, both in terms of the vision project and
Speaker 4: in terms of the World Cup.
Speaker 2: God, I already have so many questions. You know, one
Speaker 2: thing that brand brought up what we mentioned, and I
Speaker 2: think this case, this was an issue with the last
Speaker 2: where was the last World Cup. Cutter was that, Yeah,
Speaker 2: the most the most recent one.
Speaker 1: What's the much controversy offense?
Speaker 2: Too much controversy absolutely, like how difficult is it and
Speaker 2: costly to build sort of climate controlled stadiums in that climate?
Speaker 2: Like how did that even go, like with the heat
Speaker 2: and everything.
Speaker 4: So I don't know the specifics of the cost. If
Speaker 4: certainly it's a it's a massive money losing effort. They
Speaker 4: they were more or less successful at getting stadiums where
Speaker 4: players could play soccer that was recognizable as soccer in
Speaker 4: the heat. They did have to move that. The initial
Speaker 4: bid from Cutter did say they were going to play
Speaker 4: on the normal World Cup schedule, it is going to
Speaker 4: be played in June, and that just that they were
Speaker 4: not able to produce the climate controlled stadiums that would
Speaker 4: make it possible play in June. In Cutter, that was
Speaker 4: why the World Cup moved to November, and this because
Speaker 4: that was the only time that they could pull it off.
Speaker 3: And it's worth pointing out that that decision was incredibly contentious.
Speaker 3: There are contracts that had to be renegotiated, there were
Speaker 3: amends that had to be made. Media companies bid lots
Speaker 3: of dollars to broadcast the World Cup, and an American
Speaker 3: broadcaster broadcasting something in the summer Versus an American broadcaster
Speaker 3: broadcasting something when the biggest game for American audiences is
Speaker 3: the day after Thanksgiving, is a massive difference in terms
Speaker 3: of what you were paying for and why.
Speaker 1: So let me ask the big picture question that you
Speaker 1: were kind of hinting at in your first answer. But
Speaker 1: it is well known at this point that there is
Speaker 1: a lot of Middle Eastern money floating around the world
Speaker 1: of football in various ways, either through the World Cup
Speaker 1: in Katar or through ownership of teams, primarily in Europe.
Speaker 1: I know, when I was in Abu Dhabi, if you
Speaker 1: wanted to have a nice conversation with Kal Dun al Mubarak,
Speaker 1: you would bring up Manchester City and he would talk
Speaker 1: a lot about it, you know, provided that they were
Speaker 1: actually having a good season. But what is it about
Speaker 1: soccer slash sports that makes these attractive assets for a
Speaker 1: country like Saudi Arabia or even the United Arab Emirates.
Speaker 3: Yeah, so I would say the starting point here is
Speaker 3: that foreign money flowing into soccer is not new. The
Speaker 3: soccer economy is set up to not really be a
Speaker 3: healthy economy. So there is a long history of soccer
Speaker 3: clubs testing around for money to either sell to a
Speaker 3: new owner, to sell their most saleable assets, which are
Speaker 3: player contracts, to you know, people outside of Europe who
Speaker 3: maybe have lots of money to spend on it. What
Speaker 3: is new and different right now is that it's only
Speaker 3: since two thousand and eight, when Abu Dhabi in particular
Speaker 3: bought Manchester City that we come to understand these teams
Speaker 3: as being owned by sovereign nations as opposed to rich
Speaker 3: individuals from these sovereign nations. Manchester City was not the
Speaker 3: first club to be bought by somebody with the title
Speaker 3: of Sheik. It wasn't, but before that you would understand
Speaker 3: them to be a rich individual who was doing this
Speaker 3: instead of buying super yacht. Basically, if sports teams have
Speaker 3: for a long time been luxury goods, and then that changed,
Speaker 3: and that changed first with Abu Dhabi, then with Kadar
Speaker 3: and Paris Saint Germain and twenty eleven, then with Saudi
Speaker 3: Arabia and Newcastle, and now what we're seeing is the
Speaker 3: sort of secondary extension of that, which is the players
Speaker 3: going the opposite direction. With Saudi Arabia now attracting a
Speaker 3: number of big names and seeming to have no end
Speaker 3: insight to what they want to do. Why they want
Speaker 3: to do that is I think an interesting question is
Speaker 3: a question of politics. It's a question of you know,
Speaker 3: influencing the Western world in a lot of ways. But
Speaker 3: I think the the place to start is this is
Speaker 3: a vulnerability that the sport has had for a long time,
Speaker 3: this need for capital because until very recently these clubs
Speaker 3: have not been at all profitable, and being even a
Speaker 3: little bit profitable is an extremely new development. And you've
Speaker 3: seen then American owners come in because of this. You've
Speaker 3: seen lots of different changes in ownership as it's become
Speaker 3: big business. But the fundamental of Bedrock premise here is
Speaker 3: that soccer as an entity, especially European soccer, but all
Speaker 3: soccer as an entity, needs to find find influxes of
Speaker 3: capital pretty regularly.
Speaker 4: And I think it's worth here making a contrast to
Speaker 4: the way that most American league sports work. This is
Speaker 4: very very different from MLB baseball, from NBA basketball, from
Speaker 4: NFL football, all of those are effectively run as ownership cartels.
Speaker 4: There is you cannot just get a team and have
Speaker 4: it joined the NBA be approved by the NBA owners.
Speaker 3: There's all sorts of rules.
Speaker 4: The NFL rules not only explicitly do not allow for
Speaker 4: a sovereign, well fundo team, they don't even allow for
Speaker 4: a private, private equity to own a team. And so
Speaker 4: all of these are done in order to ensure profits
Speaker 4: for all of the ownership groups. And then there is
Speaker 4: a collective bargaining agreement with the players that sets the
Speaker 4: terms of this and continue to guarantee those profits. And
Speaker 4: there are two really crucial ways that European soccer is
Speaker 4: different from that. One is promotion and relegation, So top
Speaker 4: teams in the second league get to join the top league.
Speaker 4: So there's a ton of teams and there is just
Speaker 4: more competition. This has historically made it very very difficult
Speaker 4: for any individual league to put in place any kind
Speaker 4: of cost controls in the way that you expect in
Speaker 4: American sports, because if your league puts in plays cross controls,
Speaker 4: someone else is going to sign your players. And then
Speaker 4: on top of that, of course, European soccer is multinational,
Speaker 4: so instead of having one league, which is you know
Speaker 4: bas In America as a Canadian team, or two you know,
Speaker 4: there is an English league there is a Dutch league,
Speaker 4: there is a Spanish league, there is an Italian league,
Speaker 4: and so all of these individual leagues are competing with
Speaker 4: each other at the same time as the clubs are competing,
Speaker 4: and it creates a situation where it is just a
Speaker 4: far far more cutthroat, capitalist kind of world. And it
Speaker 4: means that, and what it is effectively meant is it's
Speaker 4: very very hard for any team to retain any kind
Speaker 4: of profitability and there is a need for external money.
Speaker 4: And then as people have found this opportunity, then it
Speaker 4: is an opportunity for them to use soccer to advance
Speaker 4: national interests in a way that again just really kind
Speaker 4: of isn't happening in American sports.
Speaker 1: Let me ask a totally innocent and completely unloaded question,
Speaker 1: but in Europe, don't we have financial fair play rules
Speaker 1: that are supposed to limit some of this influx of capital.
Speaker 3: It is a great question, and we do. Sort of
Speaker 3: financial fightplay comes about, honestly, specifically because of Abu Dhabi
Speaker 3: and Katar buying Manchester City and Paris centermen and spending
Speaker 3: tons of money in the attempt to improve their teams.
Speaker 3: And what financial fireplay rules are, They're structured fairly differently
Speaker 3: from an American sports salary cap. Right, an American sports
Speaker 3: salary cap just says, here's the negotiated amount of money
Speaker 3: that each team can spend. They can't spend more than it.
Speaker 3: Here's the floor. They have to spend more than the floor.
Speaker 3: This is the range of acceptable money to spend on
Speaker 3: contracts more or less. FFP financial fair play says you
Speaker 3: cannot spend more than the revenue you are bringing in.
Speaker 3: We average it out over a number of years. There
Speaker 3: are exceptions here and there, but the bottom line is
Speaker 3: the intent of financial fair play is to structure your
Speaker 3: finances such that you are not going into increasing amounts
Speaker 3: of debt now, because those are different, you will hear
Speaker 3: not unfair critiques of financial fair play from the likes
Speaker 3: of Manchester City, who will say, this is not actually
Speaker 3: about responsible spending. This is about protecting the old rich
Speaker 3: clubs from the rise of the new rich clubs. Because
Speaker 3: we have tons of money that we can responsibly spend.
Speaker 3: We're owned by a nation state, but you are instituting
Speaker 3: rules to prevent us from spending that money in order
Speaker 3: to sort of reify your place at the top. And
Speaker 3: then you have the additional complication of the fact that
Speaker 3: FFP may not be legal under Europe in law, that
Speaker 3: it may be anti competitive. It may not be, but
Speaker 3: if it was legally challenged, nobody is super confident it
Speaker 3: would survive. So there is a lot of effort to
Speaker 3: use financial fair play to enforce some things without ever
Speaker 3: using it emphatically enough to get it challenged where it
Speaker 3: might get struck down.
Speaker 2: What is the difference between financial fair play because, as
Speaker 2: you described, the situation in which an environment of relegation
Speaker 2: and promotion a sort of lack of barriers of entry
Speaker 2: into competitive soccer competition between different nation soccer leagues, So
Speaker 2: the Premier League versus the Spanish League versus the Dutch
Speaker 2: League versus the Bundesligue the German one. So what is
Speaker 2: the mechanism via which financial fair play is supposed to
Speaker 2: constrain how much any given team spends on sailors?
Speaker 4: So financial fair play is as currently there are individual
Speaker 4: leagues that have their own rules. Barcelona is presently being
Speaker 4: heavily constrained in their spending by La Liga's own internal rules.
Speaker 4: But the main financial fair play that was put in
Speaker 4: place with put in place europe wide through UEFA, which
Speaker 4: so UEFA is both the entity that runs the EUROS,
Speaker 4: the European international soccer competition, as well as the interclub
Speaker 4: competitions like the Champions League. And so the financial fair
Speaker 4: play that we're mostly talking about is one that only
Speaker 4: applies to teams that are competing in a European competition
Speaker 4: such as the Champions League or the Europa League.
Speaker 3: And then the penalty mechanism is one of both fines.
Speaker 3: But also if you are in violation, we can prevent
Speaker 3: you from playing in this competition even if you were
Speaker 3: qualified for it, which is itself both an expensive penalty
Speaker 3: but also sort of you know, the prestige of it,
Speaker 3: Like the idea is you're trying to qualify for the
Speaker 3: Champions League and then win the Champions League. So I
Speaker 3: mean it's a significant penalty should it be implemented.
Speaker 4: And these were put in place, it was pretty clear
Speaker 4: that Cutter and and Abu Dhabi were violating these rules.
Speaker 4: They both got very very large sponsorship contracts from the
Speaker 4: airlines of their respective countries right at the time that
Speaker 4: financial fair play was put in place. But YUEFA did
Speaker 4: bring charge, tried to bring charges against them, and then
Speaker 4: like settled for extremely minor levels of punishment. So this
Speaker 4: has been, you know, continued to be a thing that
Speaker 4: they push up against, even as they are no longer
Speaker 4: allowed to run the kind of humongous book profits that
Speaker 4: they did before financial book losses, before financial fair play.
Speaker 1: So, you know, we talked a little bit about the
Speaker 1: World Cup in Katar most recently, and I guess when
Speaker 1: I see so, I understand your point about football consuming
Speaker 1: a lot of capital, and Saudi Arabia at this point
Speaker 1: has spent hundreds of millions, maybe even some billions at
Speaker 1: this point on its soccer ambitions. Are there any suggestions
Speaker 1: that it wants to I guess, succeed consistently in the
Speaker 1: world of football or is this basically a one time
Speaker 1: cash splurge to try to get the World Cup?
Speaker 3: So I don't think there's a lot of suggestion that
Speaker 3: they want their national team, the Saudi Arabian national team
Speaker 3: to be competitively successful. You're not seeing from them, at
Speaker 3: least not yet, the kinds of things that you have
Speaker 3: to do as a nation. And these things all take
Speaker 3: extremely long time horizons. I mean, talk to any US
Speaker 3: men's national team fan who loses their mind every three years.
Speaker 3: But these things are like decades long processes, we're not
Speaker 3: seeing any indications of that. What we are seeing possibly
Speaker 3: is the beginning of an economic plan that would basically
Speaker 3: could in years to come, make Saudi Arabia more of
Speaker 3: the central hub of size in the world club soccer.
Speaker 3: So you know that if you want to see the
Speaker 3: best teams, the best players, the best competitions, you would
Speaker 3: be associating them. They would be owned in some manner
Speaker 3: or other by Saudi Arabia. I think that's where you
Speaker 3: could see this going, including the World Cup. But I
Speaker 3: think that's the direction you could see this going, much
Speaker 3: more so than say the Saudi Arabian national team becoming
Speaker 3: a powerhouse. How the details of that would eventually work
Speaker 3: are I think, really cloudy, and maybe it doesn't happen.
Speaker 3: We've seen instances before where, if not nation states, at
Speaker 3: least actors closely associated with nation states have spent a
Speaker 3: lot of money to bring soccer talent into the country
Speaker 3: and then seen it fizzle out after a few years.
Speaker 3: So I don't think anybody wants to get to ahead
Speaker 3: of themselves. But if you're thinking about what is Saudi
Speaker 3: Arabia possibly doing, I think the answer is spending a
Speaker 3: lot of money, so that Saudi Arabia conceivably could be
Speaker 3: the sort of king maker of club soccer.
Speaker 4: One thing I think is an interesting sort of piece
Speaker 4: of context here and contrast, because I think that what
Speaker 4: is going on in saudier Aba is notably different from
Speaker 4: what went on in China.
Speaker 1: Between a bell, Yeah, I was going to ask you
Speaker 1: about Saudi versus China, but go ahead.
Speaker 4: Yeah, So the Chinese Super League in twenty fourteen, she
Speaker 4: makes some remarks about how he wants China to be
Speaker 4: more of a global soccer power, and he specifically says
Speaker 4: that he wants China to have a national team that
Speaker 4: is competitive in men's and women's soccer and to host
Speaker 4: and eventually compete for World Cups. And that was part
Speaker 4: of it, but he also said that he wanted to
Speaker 4: build a league that would be successful, and I think
Speaker 4: also suggested wanted to see Chinese you know, major Chinese
Speaker 4: interests buy into European leagues as well, and so between
Speaker 4: twenty fourteen and twenty seventeen especially, you see a ton
Speaker 4: of this investment in the Chinese Super League and also
Speaker 4: you know owners going abroad and buying parts of teams
Speaker 4: as well. But The biggest thing is I think the
Speaker 4: twenty four, twenty fifteen, twenty sixteen summers, Chinese clubs spent
Speaker 4: over eight hundred million in transfer fees to purchase contracts
Speaker 4: of players, mostly almost entirely from Europe. And those teams
Speaker 4: also ran up massive increases in their wage bills. You know,
Speaker 4: multiple teams in the league running wage bills tens many tens,
Speaker 4: up to one hundred million dollars effectively. And this happened
Speaker 4: very very quickly, and obviously you can imagine what Chinese
Speaker 4: money is going into this. The team that wins the
Speaker 4: Chinese Super League five out of six seasons is Guangzhou
Speaker 4: ever Grand.
Speaker 2: Yes, what I remember I have an ever Grand jersey.
Speaker 1: Do you really? There's a great Actually, I think we
Speaker 1: did this when I was in Hong Kong with Bloomberg.
Speaker 1: There's a great schematic of all the rand the businesses
Speaker 1: that China Everground was into, and yes, one of it
Speaker 1: was a professional football club.
Speaker 2: I'm just saying I'm enjoyed this conversation a lot. I
Speaker 2: want to say, Michael and Michael, you guys, I might
Speaker 2: become a soccer person after this. I'm really there's so
Speaker 2: much now I'm like fascinated by all of this. But
Speaker 2: here's a question that I have so you sort of
Speaker 2: hinted at it, which is that for a long time,
Speaker 2: soccer clubs weren't profitable, which I guess implies that more
Speaker 2: and more they are. What is the business model of
Speaker 2: a successful soccer club? Is it selling jerseys? Is it
Speaker 2: the streaming rights with various networks around the world, Like
Speaker 2: what did a successful soccer business look like?
Speaker 3: Okay, so I suppose before we get too deep into
Speaker 3: the conversation, I do work for CVS. We do own
Speaker 3: the rights for the UEFA Champions League and a number
Speaker 3: of other rights, so I should probably just say that,
Speaker 3: not that it has anything to do with my job specifically,
Speaker 3: but what has changed. What had changed, I suppose in
Speaker 3: a large way, is that because these teams were in
Speaker 3: an open environment of promotion and relegation. Because it was
Speaker 3: very hard for you to say, in five years from
Speaker 3: now our situation, our revenues will be constant from where
Speaker 3: they were now, because competition on the field could really
Speaker 3: randomly kind of blow a hole in your in your
Speaker 3: operation if you got relegated. It was very hard to
Speaker 3: invest capital in a team that was not a club.
Speaker 3: It was hard to build a new stadium, it was
Speaker 3: hard to do hospitality, it was hard to have a
Speaker 3: professional marketing team because you had to be flexible enough
Speaker 3: to not blow up if you got relegated. Now that
Speaker 3: meant that all of these in Europe specifically clubs were
Speaker 3: kind of ripe to be to have their values increased
Speaker 3: by some sort of basic business management by somebody with
Speaker 3: a lot of money coming in running the club well,
Speaker 3: building up the marketing department, you know, building up the
Speaker 3: training facilities to make them sort of you know, more attractive,
Speaker 3: of doing all the things that a normal business will
Speaker 3: do to increase revenue. And even if they weren't increasing profitability, right,
Speaker 3: we understand how this works. You increase the value of
Speaker 3: stadiums are a massive one, the ability to come in
Speaker 3: and either renovate an existing stadium or build a new stadium.
Speaker 3: And you had that coincide with the TV boom. The
Speaker 3: Premier League its self forming in the early nineties, increases
Speaker 3: TV revenues massively. Now we have international markets with streaming,
Speaker 3: it's another massive revenue stream. So, especially kind of in
Speaker 3: the zero interest environment of you know, borrow by dye,
Speaker 3: you had a lot of people that could look at
Speaker 3: these clubs as like fun and fairly easy ways to
Speaker 3: invest in a property that would increase in value fairly
Speaker 3: quickly by doing like lots of low hanging fruit stuff.
Speaker 4: Yeah, I think that the sort of the context one
Speaker 4: piece of context here is that before the really like
Speaker 4: early nineties, their soccer is just it is pretty small
Speaker 4: time club soccer as a business. You don't have this
Speaker 4: big growth of it. And because of that, you don't
Speaker 4: have a sort of globalization of soccer. Clubs are much
Speaker 4: more local there they draw talent locally, and once that
Speaker 4: starts growing, it was this incredible growth opportunity is what
Speaker 4: the people who got bought into the Premier League early
Speaker 4: on saw. Rupert murdochs b SKYB launches and gives a
Speaker 4: huge TV contract and over the course of nineteen ninety
Speaker 4: two to twenty eighteen, the value of the clubs in
Speaker 4: the Premier League increased one hundred times over. So the
Speaker 4: possibility for what most the way that people have mostly
Speaker 4: made money if they have succeeded, and again there's a
Speaker 4: real opportunity to lose money if you don't grow, if
Speaker 4: you get relegated, you can really lose money. But the
Speaker 4: opportunity to gain money has been an opportunity mostly about
Speaker 4: asset appreciation rather than about yearly profits.
Speaker 1: I want to go back to the China parallel, if
Speaker 1: I may, and I guess to some extent it was
Speaker 1: the US experience as well. So both the US and
Speaker 1: China tried to build leagues sort of based around star
Speaker 1: players of some sort. So in the US, you know,
Speaker 1: they brought over at Pele who ended up at the
Speaker 1: Cosmos at some point beck In Bauer, I think for
Speaker 1: a long time George best and it didn't quite work.
Speaker 1: And mean, well, I mean we can debate whether or
Speaker 1: not it might work in the future. But meanwhile, in China,
Speaker 1: as you laid out, you had a lot of big
Speaker 1: corporations either starting new football teams or buying up some
Speaker 1: major names for them. And then the CCP appeared to
Speaker 1: crack down on some of that activity or signal that
Speaker 1: it wanted some of that spending to stop. But I
Speaker 1: guess the key difference with what Saudi Arabia seems to
Speaker 1: be doing right now is, again going back to your
Speaker 1: first answer in this conversation, is there is this government involvement.
Speaker 1: So the big sovereign wealth fund, the PIFF now owns
Speaker 1: quite a few football teams there. Even the Ronaldo transfer,
Speaker 1: I think initially was done by the club itself, but
Speaker 1: then became like a government contract. What does that mean
Speaker 1: for I guess Saudi Arabia's ambitions and its chances of
Speaker 1: success that this time around you have an even higher
Speaker 1: government footprint on these moves than China, and certainly than
Speaker 1: in the US.
Speaker 4: Viky that was exactly where I sort of wanted to go.
Speaker 4: With the China example. She makes a statement in twenty
Speaker 4: seventeen or not, she some organ of the Chinese Kinyis
Speaker 4: Party that there have been your rational investments by clubs,
Speaker 4: and immediately the spending goes down, the spending COVID changes everything,
Speaker 4: but the decline had already hit by twenty seventeen, and
Speaker 4: I think that it seems to me, and again this
Speaker 4: is you know, somewhat this is storytelling, but it certainly
Speaker 4: seems to me that what happened with China is that
Speaker 4: they had an idea for growing a league that was
Speaker 4: not crazy. You know, there is a lot of potential
Speaker 4: revenue in Chinese consumers, and then you can imagine a
Speaker 4: successful Chinese league drawing in a lot of East Asian
Speaker 4: revenue internationally as well, but they started losing money very
Speaker 4: very quickly. Because European soccer as an entity, because it
Speaker 4: needs that capital it has through agents through clubs, built
Speaker 4: up a real capacity for going and getting capital. If
Speaker 4: they're somewhere that has that may give it up. And
Speaker 4: I think that it seems to me that the Chinese
Speaker 4: government recognized that they were getting fleeced by a bunch
Speaker 4: of soccer agents. The Carlos Tevis transfer, where he came
Speaker 4: over at the very last minute before these rules were
Speaker 4: put in place. I think he made like thirty million
Speaker 4: a year, wildly over the hill. He comes in and
Speaker 4: immediately starts saying that none of the players are any
Speaker 4: good and doesn't really want to play here be still
Speaker 4: getting paid, And like these sorts of deals were happening
Speaker 4: to China, And because I think China, like the NASL
Speaker 4: was a I think there's really there's really strong reasons
Speaker 4: why it probably wouldn't work, But there was an idea
Speaker 4: that there was an ultimate business growth plan here as
Speaker 4: well as an ultimate growth plan for the national team. Certainly,
Speaker 4: the NASL wanted the US national team to get better,
Speaker 4: and that didn't happen. For quite a while. But as
Speaker 4: you're saying, Saudi Arabia really isn't doing either of those things.
Speaker 4: And it really strikes me how different it is from
Speaker 4: the Chinese Super League and from the NASL.
Speaker 3: Yeah, I mean to the extent that we see what
Speaker 3: Saudi Arabia is doing in the world of sports, it
Speaker 3: has much more i think similarities to soft power and
Speaker 3: the exercise of soft power that we see sort of
Speaker 3: across other industries than it does to the various ways
Speaker 3: in which other foreign leagues have for relatively short time arises.
Speaker 3: It's not just China. Russia has gone through this period
Speaker 3: with their domestic league. Turkey has gone through this period
Speaker 3: with their domestic league. As Kelly was saying, like European
Speaker 3: soccer has a lot of experience going through these cycles
Speaker 3: of okay, where is the next influx of cash to
Speaker 3: our business going to come from? But what you can
Speaker 3: sort of clearly see with Saudi Arabia is and this
Speaker 3: is also true of Abu Dhabi and Kada. You know,
Speaker 3: Kater owns PSG. Cautter's head at PSG now sits on
Speaker 3: the Yuefas board, right, and you can sort of see
Speaker 3: with Abu Dhabi with Manchester City. They now own teams
Speaker 3: under that umbrella in one that plays in MLS, one
Speaker 3: that plays in Australia. They have a South American team.
Speaker 3: If you're trying to draw inferences about what the region
Speaker 3: is doing and about what these individual actors in the
Speaker 3: region are doing, it seems to me that it is
Speaker 3: much more about the exercise of soft power, the exercise
Speaker 3: of in some ways having Europe, the Western economic world
Speaker 3: in various areas coming to depend on Saudi Arabia and
Speaker 3: the money coming from Saudi Arabia, because that instills a
Speaker 3: degree of power in the relationship.
Speaker 2: Can I ask a question about the business from the
Speaker 2: perspective of the players, You know, if Lebron James were
Speaker 2: to go play the final couple of years, I don't
Speaker 2: think this over happened in the Chinese Basketball League. I
Speaker 2: imagine that like people would pay less attention to Lebron
Speaker 2: James's basketball than.
Speaker 3: They do now.
Speaker 2: Maybe some like hardcore fans would like start following those games,
Speaker 2: but I suspect his like sort of status would diminish
Speaker 2: when these players go, whether they go to Saudi Arabia
Speaker 2: or whether they go in the case of Leonel Messi
Speaker 2: going to Miami, Like, do they retain their huge global
Speaker 2: fan base and they really are massive? I mean I
Speaker 2: just look at on Instagram, Rinaldo Messi, etcetera. Money more
Speaker 2: followers than someone like Lebron James, Like, do they have
Speaker 2: this huge mass that will just follow them from team
Speaker 2: to team and be fans of that new team.
Speaker 3: Certainly it has been the case when massive players have
Speaker 3: moved within the top echelon of the game. When Cristiano
Speaker 3: Ronaldo went from Real Madrid to Juventus, for example, it
Speaker 3: is relatively untested because there is nobody like Ronaldo and Messi,
Speaker 3: because Ronaldo and Messi's super popularity, They're super fan base
Speaker 3: is unique to kind of the timing of the explosion
Speaker 3: of social media and the Internet. We really don't know
Speaker 3: what this is going to mean. We don't know. We
Speaker 3: can look at other lesser stars and the career path
Speaker 3: of hitting a point where you have been an excellent
Speaker 3: superstar player and your skills begin to decline, and you
Speaker 3: basically have these choices between continuing to get paid stratospheric
Speaker 3: money but leaving the upper echelons of the game, or
Speaker 3: getting paid less and staying in the upper echelons of
Speaker 3: the game. We've seen that pattern happen over and over
Speaker 3: and over again, and there is a diminishment sort of
Speaker 3: in your relevance when you leave the upper echelons of
Speaker 3: the game. It's just untested at the Messi Renaldo level,
Speaker 3: it really is.
Speaker 1: So I have a sort of player focus question, but
Speaker 1: I guess from a different perspective. So, you know, Messi
Speaker 1: supposedly turned down an offer from Saudi Arabia in favor
Speaker 1: of earning millions of dollars and living in Miami, and
Speaker 1: it does seem to me like there is also a
Speaker 1: lifestyle question mark around moving to Saudi Arabia, you know,
Speaker 1: particularly if you're a football star who might be used
Speaker 1: to going out to clubs and you know, drinking a
Speaker 1: lot and having that sort of fun. We were talking
Speaker 1: earlier about the idea of Saudi Arabia potentially making itself
Speaker 1: a sort of global capital for football, maybe attracting soccer
Speaker 1: tourists into the country. Are all these hires the first
Speaker 1: step maybe towards a relaxation of some Saudi restrictions around
Speaker 1: things like alcohol, or or maybe you know, I should
Speaker 1: pay more attention to some of the more recent hires
Speaker 1: like practicing Muslims like Kante, the Chelsea midfielder. You know,
Speaker 1: is that the direction they're going in trying to snap
Speaker 1: up Islamic players or do we think they are making
Speaker 1: a real play for superstars from the West who they
Speaker 1: can attract and keep in the Kingdom.
Speaker 3: So I would hit that from two angles. The first
Speaker 3: thing I would say is looking at the Cada World Cup,
Speaker 3: as I think fairly instructive here when Kada got the
Speaker 3: World Cup there. You know, FIFA has deals with Budweiser,
Speaker 3: and the initial agreements were that as a nation would
Speaker 3: make exceptions for these things. As the World Cup came,
Speaker 3: we saw, like in the two weeks before the World Cup,
Speaker 3: there was a whole lot of we're altering the deal,
Speaker 3: pray we don't alter it further when it came to
Speaker 3: things like alcohol, when it came to things like lgbtqu
Speaker 3: rainbows and outward appearances of support that had again previously
Speaker 3: been agreed to being quite rapidly unagreed to once it
Speaker 3: was too late for the tournament to go anywhere else.
Speaker 3: So I do think when you're looking at the possibility
Speaker 3: of this in the future, that is something to keep
Speaker 3: in mind. And then you bring up the other The
Speaker 3: second part, which I would say it's is that it
Speaker 3: is unclear to me whether it is by design or
Speaker 3: whether it is just happenstance that Muslim players, North African players,
Speaker 3: players from the Middle East have seemed to be more
Speaker 3: comfortable taking money to go to Saudi Arabia than other players,
Speaker 3: or if that's who they're specific specifically targeting. But it
Speaker 3: is unquestionably true that bet and Kante, for example, who
Speaker 3: are the two biggest names from this summer, have agreed.
Speaker 3: And Benzima is French but Algerian French, Conte is French,
Speaker 3: but very publicly Muslim, that it is. You know that
Speaker 3: it is an eas probably an easier ask for these things.
Speaker 4: One of the things I think here is that because
Speaker 4: Saudi Arabia is this is not a like clearly, this
Speaker 4: is not a scheme aimed at making money. They have
Speaker 4: said that their hope is to grow their league revenues
Speaker 4: by twenty thirty to four hundred and eighty million a year,
Speaker 4: which is like not remotely comparable to the money that
Speaker 4: they are spending in wages and transfer fees. And so
Speaker 4: when what you're trying to do isn't really constrained by
Speaker 4: profitability in the same way, it gives you a lot
Speaker 4: of room to improvise. You throw a lot of money
Speaker 4: at Ronaldo, and then you try to throw a lot
Speaker 4: of money at Messi and try to be the Ronaldo
Speaker 4: Messi League, and that doesn't work. But you've got lots
Speaker 4: of money, and suddenly it turns out that a number
Speaker 4: of Muslim players, North African and Middle Eastern players are
Speaker 4: more interested.
Speaker 3: You can pivot.
Speaker 4: To do that and try to make something out of that,
Speaker 4: and that might work better with a plan to be
Speaker 4: more restrictive with your with your social laws rather than
Speaker 4: loosening them more. And like I think, I think they
Speaker 4: have a lot of room to maneuver and improvise because
Speaker 4: they're not as focused on the bottom line in any
Speaker 4: kind of normal way.
Speaker 2: I just have one more question, and we didn't really
Speaker 2: get too much into the US. Maybe we'll have you
Speaker 2: back for like an MLS focused episode at some point
Speaker 2: in the future, But what's the deal with the lack
Speaker 2: of relegation and promotion in the US, Because my impression
Speaker 2: is that the MLS was founded as a condition to
Speaker 2: get what was it, the ninety four World Cup like
Speaker 2: if we had to like have our own, like we
Speaker 2: had to launch our own like big time serious soccer league,
Speaker 2: why don't we have the same back and forth as
Speaker 2: others And would it benefit us soccer? Would it make
Speaker 2: it more exciting? Would it make people more invested in
Speaker 2: their teams if there was that thrill of are you
Speaker 2: gonna like get demoted or promoted?
Speaker 1: The answer? The answer is Americans can't deal with failure
Speaker 1: soccer snowflakes?
Speaker 2: Or is it because it's just really more profitable to
Speaker 2: have the cartel here and we just sort of like
Speaker 2: we like our profitable sports cartels.
Speaker 3: It's mostly that, I mean, there's there's other things around it,
Speaker 3: but it's mostly that. I mean, Like, I think we
Speaker 3: talked a little bit about how the promotion and relegation system,
Speaker 3: which look, I mean, the majority of my job is
Speaker 3: European soccer. I love promotion and relegation. I think it
Speaker 3: is a great competitive model for sports. It is fun,
Speaker 3: it is exciting, It keeps more fan bases involved on
Speaker 3: a year out year and basis it gives hope to
Speaker 3: like everybody in the country for their team. It's great,
Speaker 3: but as we were talking about, it's really hard to
Speaker 3: invest in a team as an owner. In a promotion
Speaker 3: relegation system, it's hard to make modern stadiums, it's hard
Speaker 3: to have you know, up to par medical facilities like
Speaker 3: all of these. It's really really difficult to do in
Speaker 3: an open system. And now, if you're telling me, we're
Speaker 3: founding a league in the nineties, and at least the
Speaker 3: stated goals of the people founding and running that league
Speaker 3: is we want to this league to lead to the
Speaker 3: improvement of American players internationally, and we aim to be
Speaker 3: a great league in the next thirty years. You're starting
Speaker 3: from behind and you're not giving yourself any advantages when
Speaker 3: you don't have prorel In theory, you can do a
Speaker 3: lot more investment. I think in practice maybe that is
Speaker 3: not so much the case, but that is I think,
Speaker 3: at least on a theory level.
Speaker 4: What we're talking about the second Division in England, the Championship.
Speaker 4: I believe that the most recent data had like half
Speaker 4: of the clubs or a significant number of the clubs.
Speaker 4: We're spending more just in player wages than they were
Speaker 4: making in revenues. Like at lower down the Pyramids, teams
Speaker 4: are trying to get into the Premier League. It becomes
Speaker 4: just like the the incentives are crazy.
Speaker 3: The other thing I'd say about promotional.
Speaker 2: Relatives capital great is labor. We're opening out the other.
Speaker 4: The other wild thing with with European sports, when you
Speaker 4: think about the numbers is that the salaries these like
Speaker 4: huge salaries. Oh my god, they're making twenty five million.
Speaker 4: That's like what like RJ. Barrett mix for the Knicks.
Speaker 4: That European soccer, there are so many more players making
Speaker 4: money then there are the number of players certainly in
Speaker 4: the NBA, but also in all of the individual of erically,
Speaker 4: because you have all of this competition you both have,
Speaker 4: you know, I think generally you typically have higher amounts
Speaker 4: of higher percentage of the revenue going to players, and
Speaker 4: there are so many more players making good money playing soccer.
Speaker 4: Again because of this, there there's an interesting labor angle. Lot.
Speaker 2: Yeah, there's a great lesson in when companies actually have
Speaker 2: to compete for talent that it's good for workers pretty much.
Speaker 3: I mean, there's there's other there's there's other complicating factors.
Speaker 3: I think because it's so hard to invest in things
Speaker 3: that aren't players, it pushes players outleries as a percentage
Speaker 3: of revenue up because if you get relegated, you can
Speaker 3: sell a player. I'm an Everton fan, Everton R.
Speaker 1: I'm an Everton fan. I was really.
Speaker 4: I'm sorry for you both.
Speaker 3: Yeah, yeah, right, But you know, Everton a three quarters
Speaker 3: of a way through horribly funding a new stadium had
Speaker 3: they gotten relegated this year like they were in like
Speaker 3: you know, club ending type financial trouble, losing the revenues
Speaker 3: of the Premier League because you can't sell the stadium
Speaker 3: that you're building the way you can sell off a
Speaker 3: contract if you get relegated. So if you know, the
Speaker 3: open system pushes money into player salaries in a way
Speaker 3: that is just very again, very different than American sports.
Speaker 1: We're gonna have to leave it there. I mean, we
Speaker 1: didn't even get to the conspiracy theory about Chelsea and
Speaker 1: Saudi Arabia. But we have like five other football episodes
Speaker 1: that we need to take off the back of this,
Speaker 1: including European soccer as a model in labor. Yeah, that'll
Speaker 1: be fun. Well, Mike Kayley and Mike Goodman, the co
Speaker 1: hosts of the Double Pivot Pod, really appreciate you coming on.
Speaker 1: You guys were indeed the perfect guests for this particular topic.
Speaker 1: So thank you so much.
Speaker 3: Oh, we appreciate it. This It's been a throw Thanks
Speaker 3: for having us on.
Speaker 2: It's a lot of fun. Thank you, Joe.
Speaker 1: Are you a Are you a soccer person?
Speaker 3: Now? I might be.
Speaker 2: I enjoyed that conversation so much. I learned so much.
Speaker 2: I might actually start paying attention to soccer just so,
Speaker 2: just so I can follow the macro side of it.
Speaker 1: I mean, I will say I'm not a big sports
Speaker 1: person in general, but soccer for me is by far
Speaker 1: the more interesting game and business model. As you might
Speaker 1: have just discovered from this podcast.
Speaker 2: There were so many interesting aspects of the business. And
Speaker 2: like I sort of, you know, I kind of knew
Speaker 2: about relegation. I was like, okay, that makes it more exciting.
Speaker 2: But actually thinking through the business elements and the unconstrained spending,
Speaker 2: the volatility, the risks that you imagine. Imagine building a
Speaker 2: gigantic stadium for your team and a huge medical facility
Speaker 2: and then getting relegated, like the volatility that creates the
Speaker 2: management it's super interesting stuff.
Speaker 1: Yeah, and I guess you know, the next World Cup
Speaker 1: in twenty thirty, or at least the next bid for
Speaker 1: the twenty thirty game. I guess we'll see Saudi Arabia gets.
Speaker 3: It will be there.
Speaker 2: I thought that we're gonna be there live doing a
Speaker 2: series of Yeah.
Speaker 1: I mean, I guess it'll be interesting to see if
Speaker 1: they have beer and things there.
Speaker 2: But it's your questions though about China's strategy versus I
Speaker 2: thought that was like really interesting and like some of
Speaker 2: the different impulses that Chijin Ping had about building up
Speaker 2: great domestic soccer, so many interesting angles.
Speaker 1: I mean, it is crazy to me. It was crazy
Speaker 1: to me to think that China Evergrand had all these
Speaker 1: business interests, you know, real estate, car making at one
Speaker 1: point I think anyvs and a professional football team and
Speaker 1: now Saudi Aramco, the state owned oil giant in Saudi Arabia,
Speaker 1: also has a football team. A side gig in football management.
Speaker 1: Is pretty crazy to think about. But on that note,
Speaker 1: shall we leave it there.
Speaker 2: Let's leave it there, all right.
Speaker 1: This has been another episode of the Odd Thoughts Podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway.
Speaker 2: And I'm Joe Wisenthal. You can follow me on Twitter
Speaker 2: at the Stalwart. Follow our guests the co hosts of
Speaker 2: the Double Pivot Pod Michael Kayley he's at MC Underscore
Speaker 2: of Underscore A, and Mike Goodman he's the m Underscore
Speaker 2: l Underscore G. Follow our producers Carmen Rodriguez at Carmen
Speaker 2: Rman and dash O Bennett at Dashbot, and check out
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