Can Mexican Soccer
Reform Itself?
By Kenneth
Emmond
Despite globalization, examples abound of Mexican
firms whose high returns on investment can be attributed largely to monopoly or near-monopoly markets.
Journalists Norma Lezcano and Anibal Santiago have
found a sector that consistently loses money despite monopoly advantages – professional football, or soccer as it’s
called in English.
Writing in the August 23 issue of Expansion, a Mexican
business magazine, they describe the Mexican Football Federation (Femexfut) as “the world’s only private monopoly
that loses money.”
With an estimated 31 million fans from all over Mexico,
and copious cash flows from ticket sales and spin-off businesses ranging from television rights to sweater sales, one might
think it impossible to lose money.
The authors describe how politics, power, egos, and
corruption more than offset what could be a cornucopia of riches.
Reasons for the league’s dismal financial status
are easy to find. The most obvious is the fact that many owners of the 18 teams care more about prestige than profit, don’t
treat their sports ventures as businesses, and write off losses against other income.
Shady deals between player agents and club officials,
obscured by opaque accounting practices, siphon off huge amounts of revenue. Rich teams have open-ended budgets to attract
the best players.
Four teams are owned by the national television chains
– three by Televisa and one by TV Azteca. They make money from advertising sales on televised games whether or not their
teams make money.
If anything is more prestigious than owning a team
that wins games and loses money, it’s owning a team that wins on and off the playing field. The authors quote Justino
Compean, president of the Televisa-owned Nexcaca, as saying the owners are tired of losing money.
The good news is that other professional leagues
make money and their business plans can be emulated.
One of the best-structured leagues in sports is the
32-team U.S.-based National Football League (NFL). With annual revenues of more than US$14 billion, it’s the world’s
most financially successful professional sports league.
Research into NFL operations by Pedro Aspe, Mexico’s
Finance Secretary during the presidency of Carlos Salinas de Gortari, yielded a set of concrete recommendations for turning
red ink into black.
Taken together they would professionalize the league,
putting Mexico in compliance with the standards of the Federation of the International Football Association (FIFA). That was
supposed to be completed two years ago. The goal now is to have all reforms in place by 2010.
A key change involves accounting standardization.
All teams should have identical corporate structures, with the same accounting rules. Transparency would enable the league
to measure results accurately while discouraging dodgy dealings.
The league would also be structured as a company
whose shareholders would be the team owners. It would install a revenue equalization program.
The incorporated league would focus on business administration
and be autonomous from Femexfut, whose role would be regulation of the sport’s activities.
Imposing a salary cap of 50 percent of revenues would
encourage teams to develop talent instead of buying it. Combined with revenue sharing, that should make game and season outcomes
less predictable – and more exciting for fans.
The current two-tier system would be scrapped. Now,
the poorest-performing teams in a season are demoted to the league’s “B” section, while the best-performing
“B” teams rise to the “A” section.
Keeping the 18 teams in a single “Big League”
would help all teams achieve long-term contracts with sponsors, providing more revenues and financial stability for smaller
markets.
By negotiating collectively with the television chains,
the league could lock in more lucrative arrangements, with direct results on the bottom line.
If the league adopts these measures, it’s believed
that it could double annual revenues from todays estimated US$3.9 billion to US$7.8 billion in five to eight years.
Some teams would clearly benefit more than others,
but stability and growing profits for all should provide a powerful incentive as the collective pie grows.
Won’t these reform proposals meet stiff owner
resistance? Lezcano and Santiago suggest the owners will support them. Aspe presented his conclusions to Televisa and TV Azteca
before going to the other team owners, and they approved.
Reform would allow the league to do what private
monopolies are supposed to do: make lots of money from its exclusive franchise.
Beyond profitability, it would bring the league into
line with FIFA rules. Better still, it would substantially enhance Mexico’s chances for a successful bid to host the
World Cup in 2018.
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Kenneth Emmond, an economist, market consultant and
journalist who has lived in Mexico since 1995, is also a columnist with MexiData.info.
He can be reached via e-mail at Kemmond00@yahoo.com.
