Thoughts on the 50+1 Rule

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With the Bundesliga teams, Bayern foremost amongst them, leaving the Champions League too early this year, fans’ thoughts naturally turn to the question of what went wrong, or perhaps more properly, what can be done to improve the league’s ability to compete internationally or even internally.

While some theorize that Bayern might do better internationally if it had stiffer domestic competition on a regular basis, the real question is how does that competition come about? Some have suggested that the league would become more competitive if the 50+1 rule was abolished, pointing to the greater competition in the EPL from teams flush with foreign money. I thought it prudent to have a look at the 50+1 rule and the current environment and share my conclusions to generate some conversation on what can be done to make the Bundesliga more competitive.

What is the 50+1 rule?

This is a league rule that requires that for a team to be licensed the majority of its voting rights must be held by the club, or fans, and that no single individual or commercial interest can hold more than 49% of voting shares of the club.

There are exceptions to that rule. If a commercial interest or individual has provided significant financial support to a club for a period of 20 years or more the league may allow them to take over control of the club. At this time, Bayer Leverkusen, Wolfsburg and Hoffenheim are granted exceptions to that rule. The commercial interest, or owner has to show that it has supported the club in excess of the club’s largest sponsor over that period to be considered for an exception. Hannover’s application for an exception was recently refused.

The Purpose of the 50+1 Rule

The purpose of the rule is to make sure that clubs and thus the league are at the end of the day owned and responsible to the fans. In Germany soccer is viewed as a significant part of the culture of the country, and as one executive notably said, it will be a problem in the team’s supporters are thought of as customers rather than members. Soccer culture runs deep in German communities and as the BL statements confirm the purpose of the rule is to prevent reckless individuals from taking over teams, and to maintain the democratic traditions of the sport. The 50+1 rule ensures that fans get a say on issues such as ticket prices, scheduling etc.

The 50+1 Rule does not regulate the financial stability of a team.

The Bundesliga has separate criteria for financial solvency which have to be met before a license will be issued to a team. Compared to a team seeking a UEFA license in the FFP era these are fairly lax. as we can see from the fact that Dortmund was able to run up unsustainable debt without violating the solvency criteria. There is no guarantee that a fan elected board will be competent.

The Argument for Removal of the 50+1 Rule

Those who want to remove the 50+1 Rule suggest that it will cause larger investment in German clubs by commercial interests and individuals who are deterred by not being able to have legal control over the club they are investing in. It is suggested that this would add large amounts of money into the BL that will make the league more competitive and allow the league’s currently poorer teams to obtain better players and retain them longer.

The further suggestion is that since teams in the other major European leagues are not constrained by this rule it puts German teams at a competitive disadvantage in European competitions.

Is the Bundesliga Attractive Enough to Outside Investors?

Proponents of the rule change suggest that "oil money" can be brought into the league to make smaller teams much richer and thus more competitive. But is that true? Are there a multitude of investors sitting on the sidelines waiting to snap up BL clubs and put large amounts of capital into them? The numbers and the experience in other leagues suggests not.

While some teams in England have done very well with both foreign sugar daddy and business investors, many more teams around Europe have not done well with that model at all. Spain, Italy and France are full of teams owned all or in part by foreign investors and those investments do not seem to have made those leagues more competitive at all.

The business value of the EPL and the historical, political and economic benefits of the super rich investing in England are simply impossible for the BL to compete with at this time. While there is no evidence of a line-up of billionaires to buy into the BL there is literally a line-up of billionaires lining up to buy English Championship sides for the chance to move the team up into the EPL and make a fortune. The TV money that comes to an EPL team is just so large a BL team cannot compete with that income flow. A bottom feeding EPL team will get as much or more TV money as Bayern will. In fact it appears that the parachute payments that the EPL will pay to say Aston Villa for getting relegated out of the EPL is more than Bayern will make from a year’s television income.

[As an aside, the EPL TV income may be a bubble ready to burst. For the first time the domestic deal is going downward and aspects of it may have priced themselves out of the market. The EPL is banking on growing international revenue to make up for it, but we could be in for an interesting few years]

The clearest argument that the BL is not attracting investors is that nobody has emulated the Red Bull model to build a team to bring up to the BL. Their model is simple and easy to emulate, but without what they believe is the very particular (and linked to other teams they own) brand value it offers, it just makes no business sense. In RB’s last year in the 2BL, they spent twice as much on acquisition of players as the rest of that league combined. A similar model could be used by other big corporations. It hasn’t.

Does Outside Control Work?

While some suggest that EPL fans don’t seem to mind foreign interests casually scooping up their teams, the multiple fan protests and never-ending lawsuits suggest otherwise. But all of that aside; does outside acquisition work for teams financially and competitively?

While there are a few examples of outside ownership producing good results, such as Chelsea and Man City, those kind of owners, are actually few and far between. The the lack of success of the "lessor billionaire" investors, the kind of investors that would be interested in mid to lower level BL teams are legion.

In fact German soccer has already had its first billionaire disaster with Munich 1860.

The Fall of Munich 1860

Even the financing of big club purchases, often highly leveraged, or the decision by the foreign owners to turn your beloved soccer team into a debt vehicle, can actually hurt club cash flow rather than enhance it. A study commissioned by the UK government showed that the financing of the Glazier buy-out of Man U had drained of over 300 million pounds it could have spent for player acquisitions, salaries and operations. When a leveraged buy-out occurs it often takes money away from the football side of the operation rather than adding it.

Nor do the vast majority of either ego, enthusiast or corporate outside acquisitions produce better results on the field. My own beloved Notts Forest was acquired by a wealthy family from Kuwait who mismanaged the team and they barely escaped relegation from the Championship. The team has now been acquired by a Greek shipping magnate who has some challenging entanglements and the team is only now starting to trend upward.

The ego owners also seem to flaunt the rules. The Tuna magnate who owns Sheffield Wednesday expressed his flagrant contempt for the Championship FFP:

"If we break [Financial Fair Play rules] a little, no problem. But we broke a lot: eight figures high – this is the truth. If we don’t go up soon, we will break it anyway. If we didn’t spend, I believe we would have been relegated." – Dejphon Chansiri, Sheffield Wednesday owner, December 2018

Championship FFP Woes

Aston Villa’s billionaire enthusiast owners have spent well beyond the limits and now face penalties and the team will probably have to sell off their most prized young player to make the numbers work. Birmingham was hit with a nine point penalty for violating the Championship FFP. And this in in the league that is considered the gateway to the promised land of the EPL. Things would likely be worse with the owners that most BL teams could attract.

The French, Italian and Spanish leagues are filled with foreign owned teams. They have had no positive impact on competitiveness, and in France they have only enhanced the gap from PSG to everyone else.

Even in circumstances where lots of money can be injected, a total team culture and management maker needs to be done and the kind of people who can organize that effectively in the sports environment are thin on the ground. A chap I know bought the team he had loved as a young man, after he became successful in life, and poured money into the squad until its budget was three times the average in the league and was still unable to obtain satisfactory results over a sustained period, and made no substantial dent outside the league.

The Elephant in the Room: FFP

Without going into details, the FFP regulations require that any team that has a UEFA license more or less break even operationally on a running three-year basis. If the team fails to meet that standard UEFA has the power to impose various sanctions on them. Simply put FFP is the biggest obstacle to sugar daddy owners rocketing a team up the table through the injection of funds. They simply are not allowed to pour money into a team that is not merited by the income generated by the team. Whether or not there are any real loopholes is a lengthy discussion, but the owner or controlling interest of the team faces even tighter regulations than large but non-controlling investors. It would be easier for a sponsor that owned say 15% of the team to transmit funds around the FFP rules, than a controlling owner.

In fact there is a pretty good argument that FFP makes it harder for leagues to get more competitive by preventing teams from receiving injections of cash or taking on excessive debt. FFP makes team mobility harder not easier. The financial stability it brings also imposes a competitive stability. Man City and several other teams spent record amounts on player acquisitions in the years immediately before FFP come into force. As a number of analyists have noted the FFP regulations pulled up the drawbridge behind the most successful teams.

For the BL it means that the "sugar daddy owner" ship has sailed.

Creative and Disciplined Solutions Required

So if the elimination of the 50+1 rule offers marginal financial and competitive advantages at best, what can be done to both make the BL more competitive internally and on the European stage? It’s a tough question.

Firstly teams must be well managed and have a clearly defined competitive philosophy that is part of a long term growth philosophy. Many mid and lower table BL teams don’t seem to have a clear plan they are following to move towards better results on the field and on the books.

After that the league needs to look at ways to keep things competitive and interesting in the face of large financial gaps, without hamstringing more well off teams in their attempts to compete in Europe. While greater competition within the league has value, a great deal of of the leverage required to attract foreign fans and bigger TV contracts is gained through Champions League Success. This may require creative financial solutions. While salary caps or similar are not likely to survive EU court scrutiny other paths can be explored.

The Austrian BL faced a competition problem with RB Salzburg that was hurting the league badly. The league restricted in a way that has made the league more competitive and made late season games more meaningful even for lower level teams without harming the "Big Dog"’s ability to compete in Europe. While it may not be suitable for the German BL its creativity is to be admired and similar ideas cannot be taken off the table.

Austrian BL Changes Structure

The question of government involvement also has to be addressed. Elected officials frequently refer to the importance of the sport to national culture and community. The government could offer preferential tax treatment to advertising and sponsorship deals which would encourage arms-length business partners to utilize BL teams as advertising vehicles. While it is not clear whether or not this would be deemed an impermissible subsidy under FFP, it is worth exploring.

Lastly, a long hard look needs to be taken at reforms to FFP. While financial stability is a laudable goal, it strikes me that the regulations have gone overboard. The most obvious problem is that the three-year event horizon for recouping investments is unrealistically short. Something in the order of six to ten years wold be much more realistic. While this may delay financial accountability or encourage aggressive financial gambles, it would allow teams to either borrow or invest in players and programs with a realistic time frame for them to come to fruition.

I would be interested to hear other ways people think that BL competitiveness could be enhanced without harming the top teams' European chances.

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