Turkey’s crisis-hit soccer clubs face bitter pills in rescue plan(Al-Monitor, January 11, 2019)

Backed by the government, Turkey’s banking sector and soccer federation have launched an effort to salvage the soccer industry, which, like many other sectors, is in a financial bottleneck. Many fans in the soccer-mad country may rejoice at the news, but the rescue operation is likely to result in tighter government control over soccer clubs, which are not exempt from the country’s political and cultural wars.

On Jan. 7, Huseyin Aydin, the head of the Banks Association of Turkey (TBB), and Yildirim Demiroren, the chief of the Turkish Football Federation (TFF), appeared together on a television program, in which they spoke about a debt restructuring plan for soccer clubs. Referring to Turkey’s economic downturn, Aydin said, “We have been restructuring [the debts of] companies due to serious exchange-rate risks, interest-rate risks and economic contraction over the past six months. We’ve restructured companies exposed to exchange-rate risks and interest-rate risks that operate decently, face temporary disruptions in cash flow and can survive. We are doing the same with the soccer industry.”

As a result of the economic turmoil in the past six months, Turkey’s four big clubs — Besiktas, Galatasaray, Fenerbahce and Trabzonspor, which dominate 75-80% of the sector — faced a mounting risk of penalties by the Union of European Football Associations (UEFA), including bans from tournaments.

But, as a popular saying goes, soccer is never just soccer. Given the popularity of soccer in Europe, which is home to many of Turkey’s lenders, the prospect of sensational incidents involving Turkish soccer threatened to hit further the country’s image and risk premium, which has already decoupled from those of other countries, hovering around 360 basis points, and further scare off foreign investors from Turkey.

President Recep Tayyip Erdogan and his son-in-law, Treasury and Finance Minister Berat Albayrak, must have recognized the risks and moved to issue the necessary instructions. This was evident from the words of Aydin, who said, “We all knew what was going on. The president and the minister said we should resolve such problems as soon as possible. And we got down to work.”

That the president’s instructions came shortly before critical local elections on March 31 was, of course, noteworthy. Creating the perception of a “remedial touch” to a field that brings together millions of people of all political stripes and walks of life holds the promise of winning favor with Turkey’s famously fervent soccer fans. Such could be the calculus in Ankara, but what about the means required to produce an adequate and efficient remedy? Is the banking sector itself strong enough to fix the cracks in other sectors, including soccer?

Judging by what has transpired so far, the move looks more like an effort to create the perception of a rescue than an actual rescue. The two main actors in this perception operation are Aydin, who is also the director-general of Ziraat Bank, Turkey’s largest public bank, which has become the government’s tool in its populist moves ahead of elections, and TFF chief Demiroren, a businessman close to the government who last year acquired the country’s largest media group, Dogan. The acquisition, encouraged and supported by Ankara, became possible thanks to a loan of nearly $700 million extended by Ziraat, and many believe that Demiroren is now playing a similar role in the soccer sector.

The woes of the soccer industry are no different from those of other sectors. Lighthearted borrowing at a time when the dollar was cheap by an industry that spends more hard currency than it earns resulted in a crisis after the price of the dollar shot up and complicated the rollover of debt.

In the near past, when external borrowing helped the Turkish economy grow up to 7% per year, the cheap dollar encouraged soccer clubs, especially the big four, to buy marquee foreign players. In time, the limit on foreign players was lifted and even the contracts of local players were made in dollars.

In 2018, the market value of the Super League, the flagship of Turkey’s soccer industry, reached $600 million, becoming one of the top seven in Europe. The figure was still quite modest compared to Britain’s $8.3 billion and Spain’s $5.2 billion.

Yet this market value was not sustainable for Turkey — it belonged to the era of the cheap dollar. After the Turkish lira nosedived and the price of the dollar surged, the soccer sector, like many others, began to stumble under the weight of foreign-exchange liabilities, for it had little revenues in hard currency. Despite selling star players, the clubs failed to reduce their foreign-exchange deficits to manageable levels. They were beset further by the increase in interest rates on the lira, which followed the rise of foreign-exchange prices. According to soccer economist Tugrul Aksar, the clubs’ debts reached 14.5 billion liras ($2.7 billion) last year, while their revenues stood at only about 3.5 billion liras ($651.8 million).

In remarks published Jan. 8, Hakan Ates, the director-general of DenizBank, a major creditor of the industry, grumbled, “Big clubs in particular earn revenues of about $150 million per year from broadcasting proceeds, sponsorships, combined tickets and brand products. Yet we see a constantly loss-making structure in their balance sheets.” Pointing to the goal down the road, he said, “Under a plan, backed also by [Finance Minister] Berat Albayrak, managers will be kept from plunging clubs into debt spirals. Also, clubs will acquire a sustainable financing model. They will invest in and prioritize grass-roots players, rather than spending millions in hard currency on imported ones.”

With the efforts of the pro-government media in particular, the operation has been presented to the public as writing off the interests on the clubs’ debts or the public Ziraat Bank undertaking the clubs’ liabilities, but what the essence of the operation entails is not quite like that. Still, creating such a perception among millions of fans appears to be the preponderant aim in the run-up to elections.

The effort — if it succeeds — will boil down to only stopping the hemorrhage. No formal plan has emerged thus far beyond the remarks Aydin and Demiroren made on the pro-government A Haber channel. Apart from Ziraat, the clubs’ creditors include about 15 other financial institutions. It is unclear what kind of a debt restructuring plan they will take part in or whether they will have agreed to the move. Yet the operation appears aimed at besieging and placing under control the four big clubs in particular, forcing them to downsize themselves and making them repay their debt. It is perhaps unnecessary to say that such a siege would likely result in the clubs’ political submission to Ankara and this is actually what is intended.

Indeed, Demiroren warned the clubs that they face “a bitter prescription” as part of the plan. “The clubs will be able to make transfers and survive only within the framework of this prescription. The clubs are being given a lifeline. Their debts will no longer grow. Everyone will have to act according their general budgets,” he said on the Jan. 7 program.

Dropping hints on how the clubs will be disciplined, he added, “Certain individuals from the Banks Association will be appointed to our licensing board. Under the current system in the TFF, clubs that [qualify to European tournaments] are supervised by the UEFA, while the remaining are supervised by the TFF. Now, all our clubs will be coming under national supervision.”

In sum, the plan in the making is less a “rescue operation” and more a move to force clubs to downsize themselves and repay their debts while keeping them under control — financially but also politically — in the future. The operation would eventually shrink the sector, which, in turn, would reduce soccer quality and fans would have to make do with a soccer level corresponding to the realities of their country. Whether all club managements will acquiesce to such a siege remains to be seen.