Saudi Arabia has been spending hundreds of millions of dollars snapping up international soccer stars in recent months, including legendary players like Cristiano Ronaldo and Karim Benzema, to boost the rosters of its Saudi Pro League. It's not the first time we've seen a country spend a lot of money to try to build up a domestic sports league, but it does have some key differences to previous attempts like we've seen in China, or in the US with Major League Soccer. For a start, the kingdom is spending a lot of money, opening up thorny questions about competition worldwide and Financial Fair Play rules in Europe, specifically. More importantly, it's also doing this at a governmental scale, with the kingdom's sovereign wealth fund and state-owned oil giant taking active roles. So what exactly is Saudi Arabia trying to accomplish and will it succeed? And what does this huge influx of money mean for soccer in the rest of the world? On this episode, we speak with Michael Caley and Mike Goodman, co-hosts of the Double Pivot Podcast, to discuss the big business of football and why turning a profit is not always the primary goal. This transcript has been lightly edited for clarity.
Key insights from the pod:
Saudi Arabia’s start in UK soccer — 5:32
The history of foreign money in the sport — 10:24
The role of Financial Fair Play — 15:28
What is Saudi Arabia's ultimate goal? — 20:18
Where are China’s soccer ambitions? — 22:15
How the sport makes money — 24:39
The global power of superstar players — 34:20
Why US soccer is a cartel — 40:19
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Tracy Alloway: (00:10)
Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway.
Joe Weisenthal: (00:14)
And I'm Joe Weisenthal.
Tracy: (00:16)
Joe, I think we need to figure out something extremely important before we even begin this discussion.
Joe: (00:23)
I know what you're going to say. And I was wondering if we should have figured this out before the episode.
Tracy: (00:29)
No, no. Let's force our work process on everyone listening to this. Are we going to call this soccer or football?
Joe: (00:35)
I knew this was… We can call whatever you want. It's fine. I say soccer, but I also don't really pay attention to this sport. And I know you do, so maybe you should get to choose.
Tracy: (00:46)
I don't as much as I used to, but for Odd Lots listeners, I lived in the UK for more than 10 years and in the UK, soccer is kind of inflicted on you whether you like it or not. So let me just say if we do start saying football in this conversation, unless otherwise specified, we mean soccer, unless we say American football...
Joe: (01:07)
What do they call in Japan?
Tracy: (01:09)
I don't know. That's a good question.
Joe: (01:11)
What do they call it in Austria?
Tracy: (01:13)
Fussball.
Joe: (01:13)
Fussball, right, of course. What do they call it in Hong Kong?
Tracy: (01:17)
Soccer, I think? No, it must be football because that's British. I have no idea. Okay, look, soccer and football are gonna be interchangeable on this discussion, but I think we've given away what we are going to be talking about.
Joe: (01:30)
Yeah. And we brought it up very briefly in episode with Brad Setser, because at the time I asked him, I was like, “What's the deal with Saudi Arabia offering like half a billion dollars to Lionel Messi?” And then two days later, that deal never actually happened, and he went to Miami. But of course it being Brad, he had this great macro answer about the Saudis’ current account surplus and all that stuff. And so there is a lot there with like the econ, the macro right of soccer.
Tracy: (01:58)
Right. It is no secret that Saudi Arabia has been on something of a soccer star spending spree recently. I think it all kicked off when they bought Ronaldo earlier in the year. And since then they've bought some prominent people like Benzema, I think, I'm probably mispronouncing all of these names.
We're recording this on June 21st, and I saw that they just picked up Kante, who's a very well known Chelsea midfielder and they had a very strange video to go along with it, which maybe we can get into. But anyway, why is Saudi Arabia doing this is I guess, the big question and what does it mean for both European football and American soccer?
Joe: (02:41)
Yeah, I have no idea about any of these things. I only found out recently that the Major League Soccer in the US was kind of big, but I didn't realize it was quite as big. It’s like booming.
Tracy: (02:55)
You know, my husband was briefly a youth coach for the New York Cosmos.
Joe: (02:59)
I had no idea. That's crazy.
Tracy: (03:00)
Yeah. Well, we have a lot to talk about, and I am very pleased to say that we truly have the perfect guests. We are going to be speaking with the co-hosts of the The Double Pivot pod, which describes itself as “the world's most agreeable soccer analytics podcast.” I love that tagline.
We have Michael Caley, who in addition to being the co-host of Double Pivot pod, is also the forthcoming author of a book with the very interesting title of The First Apocalypse of James: Martyrdom and Sexual Difference. So not necessarily what you would expect from a soccer commentator.
And we also have Mike Goodman. He is the senior editor for soccer CBSSports.com. So really the perfect people to thread the needle between the soccer world and also Saudi Arabia's current account surplus. Welcome to the show, Michael and Mike!
Mike Goodman: (03:55)
Thrilled to be here. We're we're both big fans, so it's great that we have the chance to do this.
Michael Caley: (03:59)
Yeah, we're so excited. I feel like we were probably the only soccer podcast to base an episode around Brad Setser’s research on the Saudi current account balance.
Tracy: (04:09)
Love it. Okay, so first one more bit of housekeeping. I'm just going to, you know, Mike and Mike is a little confusing. So I'm going to refer to Michael Caley as Caley and Mike Goodman as Mike or Michael, if that makes sense. I think that's what you do on your podcast anyway, so hopefully that works for everyone.
But I guess the big question for me is, you know, watching all this activity, it kind of started in January when we saw Christiano Ronaldo moved from Manchester United over to a Saudi Arabian team called Al Nassr, and that was for some insane amount of money, like 200 million euros for a two and a half year deal.
And I think when that first happened, there was a lot of discussion that maybe this was just an opportunistic move by Saudi Arabia, you know, he was out of contract and maybe they just saw an opportunity there and seized on it. But since then, we've just seen them making more and more approaches to football stars and snapping some of them up. So what's happening here? Is this the first salvo of a long planned development in Saudi football, or did the transfer open the Saudi government's eyes to what was possible?
Mike: (05:32)
So honestly, I think I'd start by taking a step back and doing something that maybe we do a lot on our podcast, which is sort of questioning the premise here a little bit. I would honestly say that Saudi Arabia's involvement directly in soccer predated Ronaldo. They bought Newcastle United, the PIF (Public Investment Fund) bought Newcastle United last summer, basically.
And this had been a long going, actually more than like 18 months ago, this had been sort of a long ongoing negotiation where Saudi Arabia’s PIF had wanted to purchase it, and the UK had stood in the way, and the Premier League had stood in the way saying — despite the fact that another club Manchester City is owned by United Arab Emirates — “we won't allow a sovereign nation to buy this club.” There were ongoing negotiations. Eventually Saudi Arabia satisfied the UK and said “we are not a sovereign nation. We are PIF, we are independent.”
And the UK accepted this. Premier League accepted this. And they bought Newcastle. I would say this was going on at the same time that PIF founded LIV Golf to be now merged with the PGA Tour. And what you've seen, I think a better way to understand it is really looking at the soccer spending first on Newcastle, then on these players in addition to some other ways that they're putting money into the game as in concert with what they were doing in golf as a concerted effort to spend their capital on sports for various reasons.
Caley: (07:03)
Yeah, I think the other thing to add here is in terms of what is the Saudi Arabian timeline, and obviously these things can change, but their Vision 2030, this big, you know, economic modernization plan 2030 is also the next World Cup that is up for bidding. And Saudi Arabia is one of the, probably the leading bidder at this point. You know how the bids for FIFA things work...
Joe: (07:30)
They’re very transparent and...
Tracy: (07:33)
On the up and up. Everything's good. Everything's kosher.
Caley: (07:36)
Exactly. Exactly. There's no advantages to being a sovereign nation that can just dispense money in various random ways. And so they are, as they're looking to build for soccer, I think the timeline is probably best understood as a 2030 timeline, both in terms of the Vision project and in terms of the World Cup.
Joe: (07:56)
God, I already have so many questions. You know, one thing that Brad brought up when we mentioned [soccer], and I think this this was an issue with the last, where was the last World Cup? Qatar? Was that it?
Tracy: (08:10)
Qatar, yes, to much controversy obviously.
Joe: (08:11)
Obviously to much controversy. Absolutely. How difficult is it and costly to build sort of climate controlled stadiums in that climate? Like how did that even go, like with the heat and everything?
Caley: (08:24)
So I don't know the specifics of the cost. Certainly it’s a massive money losing effort. They were more or less successful at getting stadiums where players could play soccer that was recognizable as soccer. In the heat, they did have to move... the initial bid from Qatar did say they were going to play on the normal World Cup schedule. It was going to be played in June, and just that they were not able to produce the climate controlled stadiums that would make it possible play in June in Qatar. That was why the World Cup moved to November and December, because that was the only time that they could pull it off.
Mike: (09:04)
And it's worth pointing out that that decision was incredibly contentious. There are contracts that had to be renegotiated, there were amends that had to be made. Media companies bid lots of dollars to broadcast the World Cup and an American broadcaster broadcasting something in the summer versus an American broadcaster broadcasting something when the biggest game for American audiences is the day after Thanksgiving is a massive difference in terms of what you are paying for and why.
Tracy: (09:37)
So let me ask the big picture question that, you know, you were kind of hinting at in your first answer, but it is well known at this point that there is a lot of Middle Eastern money floating around the world of football in various ways, either through the World Cup in Qatar, or through ownership of teams primarily in Europe.
I know when I was in Abu Dhabi, if you wanted to have a nice conversation with Khaldoon Al Mubarak, you would bring up Manchester City and he would talk a lot about it, you know, provided that they were actually having a good season. But what is it about soccer/sports that makes these attractive assets for a country like Saudi Arabia or even the United Arab Emirates?
Mike: (10:24)
Yeah, so I would say the starting point here is that foreign money flowing into soccer is not new. The soccer economy is set up to not really be a healthy economy. So there is a long history of soccer clubs casting around for money to either sell to a new owner, to sell their most saleable assets, which are player contracts to, you know, people outside of Europe who maybe have lots of money to spend on it.
What is new and different right now is that it's only since 2008 when Abu Dhabi in particular bought Manchester City, that we come to understand these teams as being owned by sovereign nations as opposed to rich individuals from these sovereign nations. Manchester City was not the first club to be bought by somebody with the title of sheik. It wasn’t. But before that you would understand them to be a rich individual who was doing this instead of buying a super yacht, basically. You know, sports teams have, for a long time been luxury goods. And then that changed, and that changed first with Abu Dhabi, then with Qatar and Paris Saint-Germain in 2011, then with Saudi Arabia and Newcastle.
And now what we're seeing is the sort of secondary extension of that, which is the players going the opposite direction with Saudi Arabia now attracting a number of big names and seeming to have no end in sight to what they want to do. Why they want to do that is, I think, an interesting question. It's a question of politics. It's a question of, you know, influencing the Western world in a lot of ways.
But I think the place to start is this is a vulnerability that the sport has had for a long time, this need for capital, because until very recently, these clubs have not been at all profitable and being even a little bit profitable is an extremely new development. And you've seen then American owners come in because of this. You've seen lots of different changes in ownership as it's become big business. But the fundamental sort of bedrock premise here is that soccer as an entity, especially European soccer, but all soccer as an entity, needs to find influxes of capital pretty regularly.
Caley: (12:38)
And I think it's worth here making a contrast to the way that most American League sports work. This is very, very different from MLB Baseball, from NBA basketball, from NFL football. All of those are effectively run as ownership cartels. You cannot just get a team and have it join the NBA . It has to be approved by the NBA owners. There's all sorts of rules. The NFL rules, not only explicitly do not allow for a sovereign wealth fund team, they don't even allow for a private equity to own a team. And so all of these are done in order to ensure profits for all of the ownership groups. And then there is a collective bargaining agreement with the players that sets the terms of this and continues to guarantee those profits.
And there are two really crucial ways that European soccer is different from that. One is promotion and relegation. So top teams in the second league get to join the top league. So there's a ton of teams and there is just more competition. This has historically made it very, very difficult for any individual league to put in place any kind of cost controls in the way that you expect in American sports because if your league puts in place cost controls, someone else is going to sign your players.
And then on top of that, of course, European soccer is multinational. So instead of having one league, which is, you know based in America , has a Canadian team or two, you know, there is an English league, there is a Dutch League, there is a Spanish league, there is an Italian league. And so all of these individual leagues are competing with each other at the same time as the clubs are competing.
And it creates a situation where it is just a far, far more cutthroat capitalist kind of world. And it means that, and what what it has effectively meant, is it’s very, very hard for any team to retain any kind of profitability. And there is a need for external money. And then, as people have found this opportunity, then it is an opportunity for them to use soccer to advance national interests in a way that again, just really kind of isn't happening in American sports.
Tracy: (15:13)
Let me ask a totally innocent and completely unloaded question, but in Europe, don't we have Financial Fair Play rules that are supposed to limit some of this influx of capital?
Mike: (15:28)
It is a great question. And we do. Sort of. Financial Fair Play comes about honestly, specifically because of Abu Dhabi and Qatar buying Manchester City and Paris Saint-Germain and spending tons of money in the attempt to improve their teams and what Financial Fair Play rules are, they're structured fairly differently from an American sports salary cap, right?
An American sports salary cap just says, “here's the negotiated amount of money that each team can spend.” They can't spend more than it, here's the floor. They have to spend more than the floor. This is the range of acceptable money to spend on contracts more or less.
FFP says you cannot spend more than the revenue you are bringing in. We average it out over a number of years. There are exceptions here and there, but the bottom line is the intent of FFP is to structure your finances such that you are not going into increasing amounts of debt now because those are different.
You will hear not unfair critiques of FFP from the likes of Manchester City who will say, this is not actually about responsible spending, this is about protecting the old rich clubs from the rise of the new rich clubs because we have tons of money that we can responsibly spend, we're owned by a nation state, but you are instituting rules to prevent us from spending that money in order to sort of reify your place at the top.
And then you have the additional complication of the fact that FFP may not be legal under European law, that it may be anti-competitive. It may not be, but if it was legally challenged, nobody is super confident it would survive. So there is a lot of effort to use FFP to enforce some things without ever using it emphatically and enough to get it challenged where it might get struck down.
Joe: (17:19)
What is the difference between Financial Fair Play — because as you described the situation in which an environment of relegation and promotion, sort of lack of barriers of entry, into competitive soccer competition between different nation soccer leagues, so the Premier League versus the Spanish League versus the Dutch League versus the Bundesliga, the German one. So what is the mechanism via which Financial Fair Play is supposed to constrain how much any given team spends on salaries?
Caley: (17:55)
Yeah, so Financial Fair Play is, currently, there are individual leagues that have their own rules. Barcelona is presently being heavily constrained in their spending by LaLiga’s own internal rules. But the main Financial Fair Play that was put in place was put in place Europe-wide through UEFA which, so UEFA is both the entity that runs the Euros, the European International Soccer Competition, as well as the interclub competitions like the Champions League. And so the Financial Fair Play that we're mostly talking about is one that only applies to teams that are competing in a European competition such as the Champions League or the Europa League.
Mike: (18:37)
And then the penalty mechanism is one of both fines, but also if you are in violation, we can prevent you from playing in this competition even if you have qualified for it, which is itself both an expensive penalty, but also sort of, you know, the prestige of it. Like the idea is you're trying to qualify for the Champions League and then win the Champions League. So I mean, it's a significant penalty, should it be implemented.
Caley: (18:58)
And when these were put in place, it was pretty clear that Qatar and and Abu Dhabi were violating these rules. They both got very, very large sponsorship contracts from the airlines of their respective countries right at the time that Financial Fair Play was put in place. But UEFA did bring charges, tried to bring charges against them and then like settled for extremely minor levels of punishment.
So this has been, you know, continued to be a thing that they push up against even as they are no longer allowed to run the kind of humongous book losses that they did before financial fair play.
Tracy: (19:42)
So, you know, we talked a little bit about the World Cup in Qatar most recently, and I guess I understand your point about football consuming a lot of capital and Saudi Arabia at this point has spent hundreds of millions, maybe even some billions at this point on its soccer ambitions. Are there any suggestions that it wants to, I guess, succeed consistently in the world of football? Or is this basically a one-time cash splurge to try to get the World Cup?
Mike: (20:18)
So I don't think there's a lot of suggestion that they want their national team, the Saudi Arabian national team, to be competitively successful. You're not seeing from them — at least not yet — the kinds of things that you have to do as a nation. And these things all take extremely long time horizons. I mean, talk to any US men's national team fan who loses their mind every three years, right?
These things are like decade-long processes. We're not seeing any indications of that. What we are seeing possibly is the beginning of an economic plan that would basically could, in years to come, make Saudi Arabia more of the central hub of soccer in the world — club soccer. So, you know, if you want to see the best teams, the best players, the best competitions, you would be associating them, they would be owned in some manner or other by Saudi Arabia. I think that's where you could see this going, including the World Cup.
But I think that's the direction you could see this going much more so than say the Saudi Arabian national team becoming a powerhouse. How the details of that would eventually work are, I think, really cloudy and maybe it doesn't happen. We've seen instances before where if not nation states, at least actors closely associated with nation states have spent a lot of money to bring soccer talent into the country and then seen it fizzle out after a few years. So I don't think anybody wants to get too ahead of themselves, but if you're thinking about what is Saudi Arabia possibly doing, I think the answer is spending a lot of money so that Saudi Arabia conceivably could be the sort of kingmaker of club soccer.
Caley: (21:57)
One thing I think is an interesting sort of piece of context here and contrast, because I think that what is going on in Saudi Arabia is notably different from what went on in China between...
Tracy: (22:11)
Yeah, I was going to ask you about Saudi versus China, but go ahead.
Caley: (22:15)
Yeah so the China Super League, in 2014, Xi makes some remarks about how he wants China to be more of a global soccer power. And he specifically says that he wants China to have a national team that is competitive in men's and women's soccer and to host and eventually compete for World Cups. And that was part of it.
But he also said that he wanted to build a league that would be successful, and I think also suggested wanted to see, you know, major Chinese interests buy into European leagues as well. And so between 2014 and 2017 especially, you see a ton of this investment in the Chinese Super League and also, you know, owners going abroad and buying parts of teams as well.
But the biggest thing is, I think the 2015, 2016 summers, Chinese clubs spent over $800 million in transfer fees to purchase contracts of players mostly, almost entirely from Europe. And those teams also ran up massive increases in their wage bills, you know, multiple teams in the league running wage bills, many tens up to a hundred million dollars effectively. And this happened very, very quickly. And obviously you can imagine what Chinese money is going into this. The team that wins the Chinese Super League five out of six seasons is Guangzhou Evergrande.
Tracy: (23:48)
Yes, I remember!
Joe: (23:50)
I have an Evergrande jersey.
Tracy: (23:52)
Do you really? There's a great, actually, I think we did this when, when I was in Hong Kong with Bloomberg, there's a great schematic of all the random businesses that China Evergrande was into. And yes, one of them was a professional football club.
Joe: (24:06)
I'm just saying I'm enjoying this conversation a lot. I want to say Michael and Michael, you guys, I might become a soccer person after this. There's so much now I'm like fascinated by all of this. But here's a question that I have. And you sort of hinted at it, which is that for a long time soccer clubs weren't profitable, which I guess implies that more and more they are, what is the business model of a successful soccer club? Is it selling jerseys? Is it the streaming rights with various networks around the world? What does this successful soccer business look like?
Mike: (24:39)
Okay, so I suppose before we get too deep into the conversation, I do work for CBS, we do own the rights for the UEFA Champions League and a number of other rights. So I should probably just say that, not that it has anything to do with my job specifically.
But what has changed in well, what had changed, I suppose, in a large way is that because these teams were in an open environment of promotion and relegation, because it was very hard for you to say “in five years from now our situation, our revenues will be constant from where they were now,” because competition on the field could really randomly kind of blow a hole in your operation if you got relegated, it was very hard to invest capital in a team that was not a club. It was hard to build a new stadium, it was hard to do hospitality, it was hard to have a professional marketing team because you had to be flexible enough to not blow up if you got relegated.
Now that meant that all of these, in Europe specifically, clubs were kind of ripe to have their values increased by some sort of basic business management by somebody with a lot of money coming in running the club well, building up the marketing department, you know, building up the training facilities to make them sort of, you know, more attractive. Doing all the things that a normal business will do to increase revenue.
And even if they weren't increasing profitability, right? We understand how this works. You increase the value of a club. Stadiums are a massive one. The ability to come in and either renovate an existing stadium or build a new stadium. And you had that coincide with the TV boom, the Premier League itself forming in the early nineties increases TV revenues massively. Now we have international markets with streaming, it's another massive revenue stream. So especially kind of in the zero interest environment of you know, borrow-buy-die, you had a lot of people that could look at these clubs as like fun and fairly easy ways to invest in a property that would increase in value fairly quickly by doing like lots of low hanging fruit stuff.
Caley: (26:48)
Yeah, I think that the sort of one piece of context here is that before the really like early nineties, soccer is pretty small time club soccer as a business, you don't have this big growth of it. And because of that, you don't really have sort of globalization of soccer. Clubs are much more local. They draw talent locally. And once that starts growing, it was this incredible growth opportunity is what the people who bought into the Premier league early on saw.
Rupert Murdoch's BSkyB launches and gives a huge TV contract. And over the course of 1992 to 2018, the value of the clubs in the Premier League increased a hundred times over. So the possibility for what most the way that people have mostly made money if they have succeeded, and again, there's a real opportunity to lose money if you don't grow. If you get relegated, you can really lose money. But the opportunity to gain money has been an opportunity mostly about asset appreciation rather than about yearly profits.
Tracy: (28:17)
I want to go back to the China parallel, if I may. And I guess to some extent it was the US experience as well. So both the US and China tried to build leagues sort of based around star players of some sort. So in the US, you know, they brought over at Pele who ended up at the Cosmos at some point. Beckenbauer, I think for a long time, George Best.
And it didn't quite work and, and, well, we can debate whether or not it might work in the future, but meanwhile in China, as you laid out, you had a lot of big corporations either starting new football teams or buying up some major names for them. And then the CCP appeared to crack down on some of that activity or signal that it wanted some of that spending to stop.
But I guess the key difference with what Saudi Arabia seems to be doing right now is, again, going back to your first answer in this conversation is, there is this government involvement. So the big sovereign wealth fund, the PIF, now owns quite a few football teams there. Even the Ronaldo transfer I think initially was done by the club itself, but then became like a government contract? What does that mean for, I guess, Saudi Arabia's ambitions and its chances of success, that this time around you have an even higher government footprint on these moves than in China and certainly than in the US.
Caley: (29:49)
Thank you, that was exactly where I sort of wanted to go with the China example because Xi makes a statement in 2017, not Xi, but some organ of the Chinese Communist Party that there have been “irrational investments” by clubs and immediately the spending goes down. Covid changes everything, but it had the decline had already hit by 2017.
And I think that it seems to me, and again somewhat this is storytelling, but it certainly seems to me that what happened with China is that they had an idea for growing a league that was not crazy. You know, there is a lot of potential revenue in Chinese consumers and then you can imagine a successful Chinese league drawing in a lot of East Asian revenue internationally as well. But they started losing money very, very quickly because European soccer as an entity, because it needs that capital, it has, through agents, through clubs, built up a real capacity for going and getting capital if there's somewhere that may give it up.
And it seems to me that the Chinese government recognized that they were getting fleeced by a bunch of soccer agents, the Carlos Teves transfer, where he came over at the very last minute before these rules were put in place. I think he made like $30 million a year, [he was] wildly over the hill. He comes in and immediately starts saying that none of the players are any good and doesn't really want to play here, but he's still getting paid.
And these sorts of deals were happening to China and because I think China, like the NASL, was I think there's really strong reasons why it probably wouldn't work, but there was an idea that there was an ultimate business growth plan here as well as an ultimate growth plan for the national team. Certainly the NASL wanted the US national team to get better, and that didn't happen for quite a while. But as you're saying, Saudi Arabia really isn't doing either of those things and it really strikes me how different it is from the Chinese Super League and from the NASL.
Mike: (32:00)
Yeah, I mean, to the extent that we see what Saudi Arabia is doing in the world of sports, it has much more, I think, similarities to soft power and the exercise of soft power that we see sort of across other industries than it does to the various ways in which other foreign leagues have for relatively short time horizons.
It's not just China. Russia has gone through this period with their domestic league. Turkey has gone through this period with their domestic league as Caley was saying, like European soccer has a lot of experience going through these cycles of, “Okay, where is the next influx of cash to our business going to come from?”
But what you can sort of clearly see with Saudi Arabia is, and this is also true of Abu Dhabi and Qatar, you know, Qatar owns PSG, Qatar's head of PSG now sits on UEFA’s board, right? And you can sort of see with Abu Dhabi with Manchester City, they now own teams under that umbrella, one that plays in MLS, one that plays in Australia. They have a South American team.
If you are trying to draw inferences about what the region is doing and about what these individual actors in the region are doing, it seems to me that it is much more of about the exercise of soft power, the exercise of in some ways having Europe, the western economic world, in various areas coming to depend on Saudi Arabia and the money coming from Saudi Arabia because that instills a degree of power in the relationship.
Joe: (33:29)
Can I ask a question about the business from the perspective of the players? You know if LeBron James were to go play the final couple of years — I don't think this will ever happen — in the Chinese basketball league. I imagine that people would pay less attention to LeBron James's basketball than they do now. Maybe some hardcore fans would start following those games, but I suspect his sort of status would diminish.
When these players go, whether they go to Saudi Arabia or whether they go in the case of Lionel Messi going to Miami, do they retain their huge global fan base and they really are massive. I mean, I was just looking on Instagram, Ronaldo, Messi, etc., have many more followers than someone like LeBron James. Do they have this huge mass that would just follow them from team to team and be fans of that new team?
Mike: (34:20)
Certainly it has been the case when massive players have moved within the top echelon of the game. When Christiana Ronaldo went from Real Madrid to Juventus for example. It is relatively untested because there is nobody like Ronaldo and Messi, because Ronaldo and Messi's super popularity, their super fan base, is unique to kind of the timing of the explosion of social media and the internet. We really don't know what this is going to mean. We don't know.
We can look at other lesser stars and the career path of hitting a point where you have been an excellent superstar player and your skills begin to decline and you basically have these choices between continuing to get paid stratospheric money but leaving the upper echelons of the game or getting paid less and staying in the upper echelons of the game. We've seen that pattern happen over and over and over again. And there is a diminishment sort of in your relevance when you leave the upper echelons of the game, it's just untested at the Messi-Ronaldo level. It really is.
Tracy: (35:23)
So I have a sort of player-focused question, but I guess from a different perspective. So, you know, Messi supposedly turned down an offer from Saudi Arabia in favor of earning millions of dollars and living in Miami. And it does seem to me like there is also a lifestyle question mark around moving to Saudi Arabia, you know, particularly if you're a football star who might be used to going out to clubs and you know, drinking a lot and having that sort of fun.
We were talking earlier about the idea of Saudi Arabia potentially making itself a sort of global capital for football, maybe attracting soccer tourists into the country. Are all these hires the first step maybe towards a relaxation of some Saudi restrictions around things like alcohol? Or maybe, you know, I should pay more attention to some of the more recent hires like practicing Muslims like Kante, the Chelsea Midfielder. Is that the direction they're going in trying to snap up Islamic players or do we think they are making a real play for superstars from the West who they can attract and keep in the kingdom?
Mike: (36:44)
So I would hit that from two angles. The first thing I would say is looking at the Qatar World Cup is I think fairly instructive here. When Qatar got the World Cup there, you know, FIFA has deals with Budweiser and the initial agreements were that Qatar as a nation would make exceptions for these things as the World Cup came.
We saw, like in the two weeks before the World Cup, there was a whole lot of “we're altering the deal, pray we don't alter it further” when it came to things like alcohol, when it came to things like LGBTQ rainbows and outward appearances of support, that had again previously been agreed to being quite rapidly unagreed to once it was too late for the tournament to go anywhere else. So I do think when you're looking at the possibility of this in the future, that is something to keep in mind.
And then you bring up the the second part, which I would say, it is unclear to me whether it is by design or whether it is just happenstance that Muslim players, north African players, players from the Middle East, have seemed to be more comfortable taking money to go to Saudi Arabia than other players or if that's who they're specifically targeting. But it is unquestionably true that Benzema and Kante, for example, who are the two biggest names from this summer, have agreed and Benzema is French, but Algerian French. Kante is French, but very publicly Muslim, that it is, you know, that it is probably an easier ask for these things.
Caley: (38:17)
One of the things I think here, is that because Saudi Arabia is, this is not a scheme aimed at making money. They have said that their hope is to grow their league revenues by 2030 to $480 million a year, which is like not remotely co comparable to the money that they're spending in wages and transfer fees.
And so when what you're trying to do isn't really constrained by profitability in the same way, it gives you a lot of room to improvise. You throw a lot of money at Ronaldo and then you try and throw a lot of money at Messi and try to be the Ronaldo-Messi League. And that doesn't work, but you've got lots of money and suddenly it turns out that a number of Muslim players, North African and Middle Eastern players are more interested? You can pivot to try to do that and try to make something out of that.
And that might work better with a plan to be more restrictive with your social laws rather than loosening them more. I think they have a lot of room to maneuver and improvise because they're not as focused on the bottom line in any kind of normal way.
Joe: (39:23)
I just have one more question, and we didn't really get too much into the US, maybe we'll have you back for like an MLS-focused episode at some point in the future, but what's the deal with the lack of relegation and promotion in the US? Because my impression is that the MLS was founded as a condition to get, what was it? The ‘94 World Cup. We had to like have our own, we had to launch our own like big time serious soccer league. Why don't we have the same back and forth as others? And would it benefit US soccer? Would it make it more exciting? Would it make people more invested in their teams If there was that thrill of are you going to like get demoted or promoted?
Tracy: (40:06)
Joe? The answer is Americans can't deal with failure. Soccer snowflakes!
Joe: (40:11)
Or is it because it's just really more profitable to have the cartel here and we just sort of like our profitable sports cartels?
Mike: (40:19)
It's mostly that. I mean there's other things around it, but it's mostly that. I mean, I think we talked a little bit about how the promotion and relegation system, which look, I mean, the majority of my job is European soccer. I love promotion or relegation. I think it is a great competitive model for sports. It is fun, it is exciting. It keeps more fan bases involved on a year out year in basis. It gives hope to like everybody in the country for their team. It's great.
But as we were talking about, it's really hard to invest in a team as an owner in a promotion-relegation system. It's hard to make modern stadiums, it's hard to have, you know, up to par medical facilities. All of these things, it's really, really difficult to do in an open system. And now if you're telling me we're founding a league in the nineties, and at least the stated goals of the people founding and running that league is we want to this league to lead to the improvement of American players internationally and we aim to be a great league in the next 30 years. You're starting from behind and you're not giving yourself any advantages when you don't have pro-rel, in theory, you can do a lot more investment,. I think in practice, maybe that is not so much the case, but that is, I think at least on a theory level, what we're talking about.
Caley: (41:34)
Yeah, the second division in England, the Championship, I believe that the most recent data had like half of the clubs or a significant number of the clubs were spending more just in player wages than they were making in revenues. Like at lower down the pyramid as teams are trying to get into the Premier League, the incentives are crazy. The other thing I'd say about promotion and relegation...
Joe: (41:58)
Labor versus capital, man. That's grea
Caley: (42:02)
The other wild thing with with European sports, when you think about the numbers is that the salaries, these like huge salaries, “oh my god, they're making $25 million.” That's what like RJ Barrett makes for the Knicks. European soccer, there are so many more players making money than there are the number of players certainly in the NBA, but also in all of the individual of American leagues, because you have all of this competition. You both have, you know, I think generally you typically have higher amounts, higher percentage of revenue going to players and there are so many more players making good money playing soccer again because of this. There's an interesting labor angle on it.
Joe: (42:42)
Yeah, it's a great lesson in when companies actually have to compete for talent that it's good for workers.
Mike: (42:49)
Pretty much. I mean there's there's other complicating factors, I think, because it's so hard to invest in things that aren't players, it pushes players' salaries as a percentage of revenue up. Because if you get relegated, you can sell a player. I'm an Everton fan...
Tracy: (43:07)
Oh, oh, I'm an Everton fan! I was really into Everton when Moyes was still there.
Caley: (43:12)
I’m sorry for you both.
Mike: (43:14)
Yeah, right. But, you know, Everton are like three quarters of a way through horribly funding a new stadium. Had they gotten relegated this year, like they were in like, you know, club-ending type financial trouble losing the revenues of the Premier League beause you can't sell the stadium that you're building the way you can sell off a contract if you get relegated. So, you know, the open system pushes money into player salaries in a way that is just very very different than American sports.
Tracy: (43:44)
We're going to have to leave it there. I mean, we didn't even get to the, the conspiracy theory about Chelsea and Saudi Arabia, but we have like five other football episodes that we need to do off the back of this, including European soccer as a model in labor power. That’ll be fun. Well, Mike Caley and Mike Goodman, the co-hosts of The Double Pivot pod, really appreciate you coming on, you guys were indeed the perfect guests for this particular topic, so thank you so much.
Mike: (44:14)
Oh, we appreciate it. This has been a thrill.
Caley: (44:15)
Thanks for having us on.
Joe: (44:16)
It was a lot of fun. Thank you.
Tracy: (44:31)
Joe, are you a soccer person now?
Joe: (44:34)
I might be. I enjoyed that conversation so much. I learned so much. I might actually start paying attention to soccer just so I can follow the macro side of it.
Tracy: (44:43)
I mean, I will say I'm not a big sports person in general, but soccer for me is by far the more interesting game and business model, as you might have just discovered from this podcast.
Joe: (44:55)
There were so many interesting aspects of the business and I kind of knew about relegation. I was like, okay, that makes it more exciting. But actually thinking through the business elements and the unconstrained spending, the volatility, the risks that you, imagine building a gigantic stadium for your team and a huge medical facility and then getting relegated, the volatility that creates, the management. It's super interesting stuff.
Tracy: (45:19)
Yeah. And I guess, you know, with the next World Cup in 2030 or at least the next bid for the 2030 game, I guess we'll see if Saudi Arabia gets it.
Joe: (45:30)
We’ll be there! Oh, I thought that we're going to be there live doing a series...
Tracy: (45:33)
I mean I guess it'll be interesting to see if they beer and things there. But, all right.
Joe: (45:40)
And your questions though about China's strategy versus [Saudi Arabia], I thought that was like really interesting and some of the different impulses that Xi Jinping had about building up great domestic soccer. So many interesting angles.
Tracy: (45:51)
I mean, it is crazy to me, it was crazy to me to think that China Evergrande had all these business interests, you know, real estate, carmaking at one point, I think EVs, and a professional football team. And now Saudi Aramco, the state owned oil giant in Saudi Arabia, also has a football team, aside gig in football management. It’s pretty crazy to think about. But on that note, shall we leave it there?
Joe: (46:14)
Let's leave it there.
You can follow Michael Caley on Twitter at @MC_of_A and Mike Goodman @TheM_L_G