Banchiero Sports Enterprises LLC

AFA spokesman, Cherquis Bialo, announced on August 11^th that the Argentine league will recommence on August 21st, with or without a TV deal. On August 13^th, in a joint press conference after a meeting between AFA President, Julio Grondona, and Argentine President, Cristina Kirchner; AFA General Secretary, Jose Luis Meiszner, and Chief of the Argentine Cabinet, Anibal Fernandez, announced that a deal made been made but that it still was not completely finalized. Such an announcement would normally be followed by cheers and applause by the fans of a football-crazy nation such as Argentina who had its’ national pastime in limbo for the last two weeks. There was no applause or cheers this time as everyone knew there was more than met the eye on this one.

The public tale began some weeks ago when Grondona announced that there was a looming economic crisis for football clubs in Argentina mainly due to the accumulation and mismanagement of massive debts by the clubs. In those weeks, we saw a rapid and growing exodus of top-caliber Argentine players to Mexico, Italy, Germany, and Russia at transfer prices nowhere near some of the glamorous transfers that occurred in Europe this year and were even below-average for normal purchases of players in the Argentine market. The next chapter occurred when Grondona proposed to the Argentine government that proceeds from the Prode, a state-sponsored lottery based on Argentine football games, be siphoned directly to the FA.  Aside from all the ramifications (moral, economic or otherwise) that could come from such an arrangement, it would not be enough to get Argentine football out of the hole. 

Let’s define exactly what this “hole” is. The current debt accumulated by Argentine clubs totals approximately $600 million pesos (US$156 million) and includes monies due to players, back-taxes, and union fees. The exact breakdown is an actual total debt of US$137 million of which US$56 million is owed to Futbolistas Argentinos Agremiados (FAA- Players’ Union), US$78 million to Administracion Federal de Ingresos Publicos (AFIP- State Tax Authority), and US$3.1 million to UTEDYC (Workers’ Union).

Grondona’s next step to get out of the hole was to negotiate a better deal with the TV rights-holder for the Argentine league, Television Satelital Codificada (TSC), and better known as satellite channel, TyC (Torneos y Competencias). TSC is actually a corporate conglomerate between TyC and Grupo Clarin, owner of the largest newspaper in Argentina (a relevant fact for later on). In addition, DirecTV Group Inc. owns 40% of TyC, with the remaining 60% held by an investment fund of Credit Suisse Group and two private investors, Fred Vierra and Luis Nofal.

Unfortunately, the negotiations became more like strong-arm tactics by Grondona who demanded that a new deal be struck for the total of $US 156 million. This is over twice as much as the current deal. The current structure stipulates that TSC pay US$70million per year to AFA as a guaranteed minimum. According to TSC, actual revenue generated from broadcasting the games totals only US$79 million which is made up of US$51 million from cable and US$28 million from Pay-Per-View. TSC’s net revenue after taxes and expenses only totals US$2.8 million. In summary, the new deal would be not only impossible for TSC to honor but fiscally irresponsible. However, in order to alleviate the current situation, TSC offered an upfront loan of US$10.4 million which would take care of the current monies due to players thus neutralizing the FAA’s main problem of a possible players’ strike. Marcelo Bombau, President of TSC, argued that anyone who took on this deal would be paying a disproportionate amount for what the market consists of and can actually generate. Grondona turned down TSC’s offer stating that a temporary treatment will not cure the illness and the true market value of broadcasting rights for the Argentine League was severely undervalued by the current arrangement. It would be remiss to forget, that Grondona has been in power since 1979 and has negotiated and agreed to every contract currently in place for AFA.

Grondona once again turned to the government for assistance and guidance from his old friends, The Kirchners (Cristina is the current president and Nestor, her husband, is the former president). The Kirchners just happen to be the political archrivals of Grupo Clarin. Nestor Kirchner became an important advisor for Grondona and they designed a plan where the government would take on the broadcasting rights for the tournament for the amount of US$156 million  and broadcast some of the games through state-owned, Canal 7. Unfortunately, Canal 7 lacks the infrastructure to broadcast all the games and would plan to resell broadcasting rights to cable and private channels nationwide which also expected to generate important sources of funding. Canal 7 would mainly broadcast games for Boca Juniors, River Plate, and a couple of other important matches and even absorb some employees from TyC, such as commentators. As negotiations with TSC quickly broke down, Don Julio called an emergency meeting for all club presidents and presented the “New Deal” which included breaching the current contract with TSC. The decision was unanimous and the proposed “New Deal” was approved by the clubs and, soon thereafter, by the government. Either way, the season would now begin. Needless to say, there is and will continue to be considerable public backlash at the notion of the government putting up this kind of investment for a sport when the country itself has been suffering from economic and social turmoil since 2001. AFA spokesman Bialo quickly made the announcement that there would be no deal with TSC and that there should be no “direct” intervention from the government. “As of tonight the AFA is open to future negotiations to sell (the rights) as it corresponds to the price that soccer is worth,” Bialo said at a news conference. “I do not know if the state is going to fulfill some role.”  The definition of “direct role” is sketchy at best, considering it was later announced that the deal would be agreed to with a group of investors that could be “affiliated” with the government or a multimedia group partnering with the government. (Nice save.) Anibal Fernandez repeatedly stated, “Football will not be ‘nationalized’. We do, however, wish to make football profitable under the best conditions without the State [government] having to spend a single cent.”  It is still not clear where the initial funding will be coming from.

The deal consists of US$156 million per year for 10 years and would have US$26 million paid upfront and go directly to FAA and the remaining US$130 million would be paid in installments of which US$78 million would be paid to AFIP for taxes. Meiszner stated, “Without this change, there would be no football. The previous contract served its purpose at the time it was agreed to, but in the long term it did not achieve its objectives.” Even though it was a unanimous decision for the clubs, some other clubs like Independiente and current champions, Velez Sarsfield, have expressed their concerns on the deal which appears to exacerbate the huge gap between the “Big Two” and other clubs. Boca Juniors and River Plate would now be getting US$17 million a piece from this new deal, up from US$5.8 million and US$6.5 million which would have come from the TSC proposal. In addition, all the clubs asked for an exit clause in case of any political changes (Kirchner ends her term in 2011) and indemnity from all financial and legal repercussions. Grondona seems to have duly agreed to take full responsibility and promised this “New Deal” would help resolve some of the challenges the clubs have faced over the years.

TSC promptly announced legal action against AFA. The official press release from TSC stated, “We will take all pertinent legal actions to protect our rights and all TV operators (free and cable) who have executed contracts. The legal action will include all damages due to this breach of contract and compensation for all investments made to guarantee TV broadcasts. These legal claims will be made against all those directly and indirectly responsible for the decision.” The lawsuit will be for the amount of US$390 million to cover the 5 years left in the current contract.

Sadly, Argentina’s political, economic, and social crisis seems to have claimed another victim: Argentine football. Grondona claims football has been the long-time victim of greedy business and the fans should also be entitled to watch their ‘pastime’ without having to pay. The irony is that the economic troubles Argentine clubs have been facing is not something that just came about in 2009, these problems have been accumulating easily for over 10 years and the only team which has been able to somewhat weather the storm has been, Club Altletico Boca Juniors. An even more ironic fact is that Grondona has been in power for over 30 years and has been responsible for all previous negotiations and oversight. Whilst it is true that having strict and specific oversight for the financial management of each club is directly the responsibility of each club and not AFA, however, not addressing the problem is just as bad as each club’s blatant financial mismanagement. On the flip side, TSC has had a virtual monopoly of Argentine football and may be understating what they actually generate in revenues and may definitely be underpaying for the true value of the product. Now the bubble has finally burst, similar to how Argentina’s economy imploded in 2001. On the bright side, the “New Deal” with the “government” will supposedly enforce stricter controls and fiscal discipline on all clubs including severe penalties in the form of disaffiliation from AFA and relegation.

Mixing a political feud and an economic crisis with business and sport is a guaranteed recipe for disaster, even more so in Argentina. “The little money that Argentines have shouldn’t be used to finance the mismanagement of some football executives,” said Lower House Representative Francisco de Narvaez, of the Union Pro party, in a statement. “I am against this intervention, as are the vast majority of the people.” The strong overtones involving politics and corruption in this situation will “stain” and may possibly severely damage the only thing Argentines still hold sacred in their hearts: “el futbol”. It all looks like a really bad movie with the evil politicians versus evil corporations. So where’s the good guy? It may be very appropriate to remember Diego Maradona’s words at his retirement homage, “Just because I made a mistake, football should not have to pay for it. I made my mistakes and paid for it, but the ball must never be stained (la pelota no se mancha).”  For many Argentine football executives, it may be time to pay up for their mistakes.

Fabian Banchiero is a sports consultant specializing in Latin American football and owner of Banchiero Sports Enterprises LLC based in New York.