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Soccer Capitalism Outperforms NFL Cronyism

Irony doesn’t come up too much when we’re talking about sports, except maybe when a color commentator is finding it “ironical” that a guy on one team went to high school with a guy on the other team.

Maybe that’s why hardly anyone finds it remarkable that in America, home of capitalism and free markets, our professional sports leagues are organized along highly collectivist models, while in collectivist Europe, professional soccer is a lightly regulated survival-of-the-fittest competition.

It has to do, I think, with the nature of international commerce. American sports are a domestic racket blessed by Congress and the courts. But if English teams tried to collude in restricting player salaries, the best players would all flee to Germany, Spain, and Italy. Still, soccer has started in on collusion, just as market demand is smashing all the old models of player valuation.

Let’s get into a little compare-and-contrast, shall we? And if you’re not into sports, just let sports here stand for commerce in general, and regulation stand for the laws meant to protect the wealthy from the force of the open market.

In the summer transfer window that just closed, Paris St. Germain broke worldwide spending records in acquiring the 25-year-old Brazilian winger Neymar, a player of such transcendent skill that some Americans are rumored to have heard of him. The club paid €222 million ($263 million) to Barcelona Football Club, simply for the right to pay the player another €600,000 per week, after tax, for the next five years. The previous record for a transfer fee was the €105 million ($124.7 million) that Manchester United paid last year to acquire the French midfielder Paul Pogba.

Its critics were already crying foul, but PSG followed up the Neymar buyout by acquiring Kylian Mbappe, the most promising 18-year-old striker in the world, on loan from Monaco, in a deal that will be consummated in a year with a purchase fee of €180 million ($216 million). The club is delaying that payment for a year only to comply with Financial Fair Play regulations imposed by the Union of European Football Associations, which Barça partisans are sure the club is violating.

Financial Fair Play is a sort of salary cap requiring clubs to operate more or less within their means, which has only been in place since 2011. Compliance is required if one wishes to compete in one of the prestigious international tournaments that UEFA organizes, which the top clubs all do.

Soccer clubs used to spend whatever they wanted on player salaries and transfer fees, but that was before some of the richest men in the world took an interest in winning European soccer trophies. Roman Abramovich bought Chelsea, Sheikh Mansour of the ruling family in Abu Dhabi bought Manchester City, and a Qatari state-owned group bought PSG, all of them pouring out hundreds of millions of euros on player acquisitions. So UEFA decided to oppose this “ultra-liberalisme,” and require clubs to turn a profit. No more billionaires driving up the market for top talent.

That was the idea anyway. The billionaires have found clever workarounds; the sheiks have a knack for getting airlines back home to pay inflated rates for stadium naming rights and such, creating enough room on the balance sheet to pull deals like PSG’s move for Neymar. Meanwhile, UEFA was warned it could face restraint-of-trade actions in court if it tried to enforce its rule too vigorously. So, aside from €20 million fines issued to PSG and Manchester City in 2014, the body has taken no major enforcement actions.

By comparison, the New York Yankees and Los Angeles Dodgers both paid higher luxury taxes last year. The Cleveland Cavaliers paid a $54 million luxury tax after their 2016 championship run.

Unlike world soccer, all the major American sports leagues impose severe restraints on player movement and earnings. The National Football League, the National Hockey League, and Major League Soccer all impose hard caps on player salaries, Major League Baseball imposes a fierce luxury tax, and the National Basketball Association imposes a luxury tax and a soft cap, plus maximums on individual player salaries.

The leagues also drive down salaries by compensating teams for free agents lost, and subsidize mediocrity through their drafts, which reward the worst teams. In soccer, the penalty for failing to get enough good players on your team to win games is you get down to a lower division, which often wrecks a club.

The collusion-driven American system produces compression on player value — nobody earns what he would in a free market. Indeed, despite the cultural fascination with player valuation that was kicked off by Michael Lewis’ blockbuster Moneyball, we still have no way of valuing players the way we would anything else — in cash, not as a percentage of a pre-established payroll, but as pure value established by how badly he’s needed.

We know exactly how much soccer stars are worth. But how much is Kyrie Irving worth? Apparently, it’s Isaiah Thomas, a couple draft picks, and some guy who wears No. 99. We have to resort to the barter system just to make a simple transaction. As if piling humans onto two sides of a scale wasn’t strange enough, clubs then have to pile up salaries as well, and make sure they more or less match.

Why don’t we buy and sell players under contract? Well, the NFL and NHL forbid it, the NBA limits a team’s cash transactions to $3.5 million a year, and baseball lets you pay the salary of somebody you’re trying to unload, but it still counts toward your limited payroll. The result of all these restrictions is anti-competitive; when players can’t realize their full value, the owners pocket the difference.

In the NFL, the amount a team spends on free agents corresponds inversely with its success. The New England Patriots were the first to figure out how to exploit the current system — collect draft picks, especially late-rounders, and get as many talented young players working for artificially low salaries as you can. (Also, have Tom Brady.)

In European soccer, you achieve the highest success by paying a premium for the very best talent. Teams such as Real Madrid and Bayern Munich have the depth to field two teams of all-stars. Those teams are really only interested in the peak years of the best players, say from age 24-29, and the market responds. A bright young star will appear at Monaco or Ajax in the Netherlands, then get snapped up by a competitive club just below the top tier — a Tottenham or Borussia Dortmund — and then transfer to an elite club just as he’s entering his prime, usually for a staggering fee several multiples higher than a player just a bit less talented would command. Cash greases the entire mechanism.

There is declining marginal utility at the top of the market — teams pay more and more for ever slightly better players — and that money cascades down through the market. When a Tottenham sells its star player to Real Madrid, it turns around and reinvests the money in its next generation of stars. The idea of trickle-down economics is way out of fashion, but if you stop to examine soccer, you see how it works, when it’s allowed to.

The problem is the rich don’t like it.

In the last year before Financial Fair Play, the 20 clubs in the English Premier League made a record £2.1 billion in total, but 16 of the clubs reported losses, and the league spent 68 percent of its revenue on player wages.

Contrast that to the NBA, where the aggregate salary cap is currently 44.74 percent of league revenue, give or take a few adjustments. In the NFL, it’s 48.5 percent. The free market makes the capitalists fight just to break even, while pouring money on labor. A market regulated by cronies artificially restricts capital’s downward flow.

Those limits were set in collective bargaining, but the American leagues have tremendous leverage in negotiations thanks to their presumed exemption from antitrust law.

Usually, when a bunch of business owners form a league to restrict their costs, it’s a crime. But major league baseball has been exempt from antitrust law since a 1922 Supreme Court decision found it wasn’t engaged in interstate commerce. In 1961, Congress exempted the four major sports leagues from antitrust law for the purpose of selling television broadcast rights.

In 1996, the Supreme Court weighed in on the side of the NFL’s owners in a collective bargaining dispute, but by 2010, the court was decidedly less well disposed to the league’s position on antitrust exemption.

If the issue is pressed, the courts or Congress could yet force our leagues to change their failure-subsidizing, anti-competitive ways. And in the light of what we’ve been learning about concussions and chronic traumatic encephalopathy, that may be for the best.

It may be morally defensible to have football players trading brain damage for cash. But if that’s what a player wants to do, is it right to game the system and pay him less than that sacrifice is worth?

Is it right that the NFL doesn’t guarantee player contracts — that players get hurt, then cut from the team, losing everything? How much is the security of a guaranteed contract worth? That’s not a rhetorical question. Actually, it’s the exact amount paid when a soccer club buys out a player’s contract.

That $263 million that PSG paid for Neymar is the difference between what he’s willing to work for and what PSG is willing to pay for his services. The reason Barcelona was able to collect that money was that it had Neymar under guaranteed contract. The club bore the downside risk if the player had suffered a career-ending injury, and in doing so, reaped the profit when he hit elite-level performance.

Players could sign shorter contracts, of course; they’d get more of the cash when they were sold. But there’s something lovely in the fact that they don’t, that they balance security with maximum income. And there’s something fair about the club receiving a benefit from the protection it offered.

Maybe I’m just geeking out on soccer fungibility and voluntary transactions, but there’s something right and good about the way soccer players can price their own security against misfortune. It’s better, at least, than the way our rigged football system just disposes of its wounded.

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