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Business monthly May 04
 
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FEATURE

By Alaa Shahine

Like most other government assets, the nation’s football teams could be making a lot more money

In Europe, football – a continental obsession – is a major moneymaker. In 2003, Britain’s Manchester United chalked up £39 million ($71.4 million) in profits after winning the English Premiership for the eighth time in the last 11 years.

Although a number of European clubs are still suffering financially, most are innovating to boost their bottom lines. Spanish giant Real Madrid turned its fortunes around with the multi-million dollar sale of the club’s old training facility in 2000, and Chelsea, another English team, by the surprise takeover of Russian oil tycoon Roman Abramovich last summer.

In Egypt, by contrast, football – despite its popularity – seldom pays dividends. Introduced in the early years of the 20th century, the sport continues to remain under the dubious custodianship of the state. Ibrahim Osman, vice president of the Ismailiya club, couldn’t remember exactly how much money his club lost after winning the 2001 league championship, although he admitted that “we have a budget deficit of some £E 3 million every year.”

The situation, to talk to insiders, is dire.
Khaled Refaat, a board member of the popular Zamalek club – one of the country’s two powerhouse teams – said most clubs would be threatened with bankruptcy “in the coming few years” if alternative sources of revenue weren’t found. The claim was echoed by Mahmoud Taher, board member of Zamalek nemesis Ahly, crowned Africa’s “Club of the Century” in 2001.

What’s more, in the world of Egyptian football, winning matches isn’t necessarily the best case scenario budget-wise, as costs rise in proportion to team performance. “The more you win the more money you lose,” Osman complained. “When you win, you spend a lot of money on player bonuses and remunerations, and the income is nothing like what you have to spend.”

According to official figures, Ahly topped the list of most-profitable Egyptian football clubs in 2003 with £E 5 million, despite – or perhaps because of – the fact that it didn’t win the league championship. Zamalek, which did win, came in a distant second in terms of profits, with a relatively meager £E 800,000. “Every year, we have a constant increase in expenditure,” said Refaat, who has a degree in sports administration and marketing from the English Football Association. “And the revenues don’t match this.”

Marketing experts and club officials, meanwhile, claim that the host of regulations governing the sport makes it almost impossible for football clubs to boost revenue.

Under Egyptian law, clubs are – by definition – government-owned, non-profit organizations. They are run through a board elected by club members and aren’t allowed to produce merchandise.

Additionally, the rules for granting sports sponsorships are highly proscribed. “For example, we have to grant the concessions to the highest bidder in auctions, although others may have offers that are not necessarily better in terms of immediate cash injection, but will bring the club long-term benefits,” Taher explained.

While such a system might be suitable for a small-scale organization serving a primarily social function, and with limited financial requirements, it doesn’t work for popular sports clubs. On the contrary, many clubs say the introduction of paid players 14 years ago turned them into mass employers with rapidly increasing wage bills – not unlike other branches of the public sector.
New revenue streams, therefore, are badly needed.

“The nature of the business has changed, but the laws governing it haven’t – and this is making our lives harder,” Taher said.

In the early 1990s, many European clubs faced similar predicaments.
Manchester United found its way out by raising £7 million ($12.8 million) in a 1991 stock market flotation, in which it transferred its fixed assets and non-footballing businesses into a company, which then received substantial shares of future advertising, sponsorship and promotional revenues.

Having done this, the company now operates under Britain’s stock market laws, and is unburdened by restrictions on dividend payments – unlike clubs affiliated to the English Football Association. As a result, while the club had averaged annual pre-tax losses of £130,000 ($238,000) between 1974 and 1990, Manchester United PLC’s cumulative profit from 1991 to 1997 was £81.8 million ($150 million), according to The Business Strategy of Football, by Stefan Syzmanski and Tim Kuypers, which chronicles the team’s financial machinations.

Similar attempts at football privatization in Egypt, however, have proven unworkable, largely because of the regulatory cobweb governing the state-controlled sport.

In 2000, when the Ahly club decided to go corporate, it brought in local brokerage house EFG-Hermes to oversee the operation. But the haziness of sporting regulations doomed the move to failure. “EFG couldn’t figure out our legal structure,” Taher said. “They wondered, ‘how can we privatize our football team and form a company while the club doesn’t own its playing ground?’”
Private sector experiments in local football had been thwarted before, sometimes with disastrous results. While EFG was smart enough not to risk capital in an untried sector, two businessmen who invested heavily in a couple of mid-table clubs in 1998 – in return, reportedly, for a percentage of ad revenue – weren’t so lucky. They bailed out after reportedly suffering huge losses.

According to Osman, “Anybody who makes such an attempt is risking winding up in debt.”

The Ministry of Youth, the ultimate overseer of national football activities, is reportedly considering changes in existing laws to allow clubs the opportunity to make more cash.

According to Zohair Ammar, International Olympic Committee marketing expert and member of the Egyptian Football Association (EFA) board, a group of independent lawyers are currently studying a list of proposed amendments to current regulations. One of these amendments, Ammar said, is aimed at allowing clubs to subcontract out their marketing and promotional activities to qualified companies for one-year periods. Such arrangements could then be extended if clubs haven’t in this time developed viable marketing departments of their own.

Ammar, who himself contributed to the list of proposals, went on to criticize what he saw as clubs’ general “lack of professional business mentality,” and inability “to take advantage of existing opportunities.” He suggested that several innovative moneymaking options were open to clubs, such as the launching of Internet-based web portals, replete with exclusive team content, on sale to viewers. Another, more orthodox, means of boosting revenue is by better regulating the industry’s “bread and butter”: gate income. According to Ammar, clubs should issue season tickets and better control the illegal, unpaid attendance of matches, “which originally stems from hiring under-qualified people to handle the gates.”

While Ahly’s Taher and Zamalek’s Refaat agreed on these points, they blamed inefficiency on inherent flaws in clubs’ governing structures, saying board politics often take precedence over innovation. “Club elections produce the most popular people, not those most qualified to run, and this is not economically sound,” Taher said. “Firms are not run like that.”

He went on to recount how, three years ago, he had presented a proposal to launch a web portal featuring exclusive match highlights, accessible only to paying subscribers. “That idea only got approved recently, because there are people who don’t want anybody gaining too much popularity ahead of club elections,” which are scheduled to be held this November.

Refaat said he faced similar obstacles with other proposed projects, including one to demolish Zamalek’s home stadium – which security authorities forbid the team to train in due to its location in the commercial district of Mohandiseen – and sell the property to developers. “We could have used the money to build a state-of-the-art training facility in the outskirts of Cairo, and attracted big European teams to spend their winter breaks there,” he mused.

But while youth minister Aly Eddin Helal appears to be open to ideas of football liberalization, his appointment in March of Essam Abdel-Moneim as caretaker president of the EFA came as a surprise.
One of the president’s first decisions – to the dismay of many clubs – was to tighten the grip on Egyptian participation in the lucrative Arab Champions League, owned and broadcast exclusively by Saudi pay-TV network Arab Radio and Television (ART).

At a news conference in early April, Abdel-Moneim announced that clubs wouldn’t be allowed to bring their international players home from the $6 million pan-Arab tournament (which is held in various Middle Eastern venues), even if this prevented them from playing their home matches in the event of a scheduling conflict. “Clubs will have no choice,” he said. “They can either pressure the Arab Football Association [which runs the Arab Champions League tournament] to change their dates, or play without their international players.”

The EFA president, however, made no such restriction on less-lucrative African competitions.
Months before his appointment, Abdel-Moneim, a prominent sports journalist for state daily Al-Ahram, had called repeatedly to prevent Egyptian clubs from taking part in pan-Arab competitions, unless matches were televised on terrestrial channels.

Osman, for his part, took exception to the reasoning behind the decision. “This is hard currency coming from outside, which will be spent in Egypt. Why say no to them? Does the EFA have hard currency?” he asked.

The decision prompted Ahly to withdraw from the Arab Champions League three days before the team’s much-anticipated showdown with its historical rival Zamalek on April 15 in the tournament’s quarterfinals, which were being held in Cairo. According to the club, playing without its international players would affect the team’s performance and damage its image.

The withdrawal, however, whatever the reason, could result in heavy penalties for the fabled Cairo side. According to tournament regulations, clubs that pull out during a championship can be fined up to $13,000. Additionally, Ahly will lose out on the 400,000 Saudi riyal ($106,000) prize awarded to fourth-place finishers in the quarterfinals.

Ahly will also be obliged to pay back all the travel expenses incurred for its away matches during the competition, originally paid by ART, and may well be banned from next year’s championship, according to tournament spokesman Ali Al-Dawoud. “We offered several solutions, including postponing matches that conflict with the Egyptian national team’s preparations, but Ahly management seemed determined to pull out,” Al-Dawoud told Business Monthy.

Samir Zaher, vice president of the Arab Football Association, lashed out at Ahly, but held the EFA chiefly responsible for the fiasco. “It was a disgraceful decision by Ahly,” he said in remarks published in pan-Arab daily Al-Hayat. “But the Egyptian associations put a lot of obstacles in Ahly’s way, and forced the club to withdraw.”

According to Taher Abou Zeid, one of three Ahly board members that voted against the decision, the club’s management knew the financial consequences of withdrawing, yet did it anyway. “This is an unprecedented act in the history of a club that’s been a pillar of nationalism and sportsmanship since its foundation in 1907,” he fumed.

Despite all the trouble caused by the EFA president’s decision, Abdel-Monien has a point. In his view, ART – along with other pay-TV networks – takes advantage of the popular obsession with soccer to milk revenue from the average football fan.

Clubs, however, regard the banning of free broadcasts of live matches as a possible solution to their financial worries. To them, such a move would boost gate sales and open a bidding war between satellite channels for exclusive broadcast rights, for which private stations would pay much more than Egyptian state television does.

Currently, Ahly and Zamalek, the two biggest and most popular clubs, receive £E 150,000 per game from the state for airing matches on Egyptian TV. In games where the two are pitted against each other, arguably the most anticipated club football matches in the Middle East, each gets £E 350,000. Most other Egyptian clubs collect about £E 65,000 per game.

“This is very low when we’re providing 90 minutes every week of prime time television ads,” Taher noted. “And even at these rates, we sometime wait a whole year before getting paid.”

But demanding more money for TV rights, or banning free-to-air broadcasts, can be a sensitive issue. In 1999, police were mobilized in several cases to disperse large crowds gathered in public areas to watch the Egyptian national team playing in the Confederations Cup tournament in Mexico. At the time, ART, owned by Saudi billionaire Sheikh Saleh Kamel, had demanded sky-high fees from the Egyptian Radio and Television Union to air the game on Egyptian TV, enraging local public opinion.

A year later, Egyptian businessman Ehab Saleh proposed a scheme by which local football matches would be encoded, and households could pay £E 150 for a simple UHF decoder, paying an additional pound per match. While Saleh claims he received a verbal go-ahead from then prime minister Kamal El-Ganzouri, the project eventually died on the vine.

Nevertheless, many observers say the introduction of pay-TV to the Egyptian market is inevitable. “Eventually, encoding will be officially introduced,” said Hesham El-Kheshen, owner of Stryx marketing company. “The fact that the Ahly-Ismailiya match in the Arab Champions League was held in Cairo but not aired on Egyptian TV is a healthy sign,” he added, noting that more than 60,000 fans watched the match at the stadium.

Both Ahly and Zamalek are hoping to position themselves for any such shift in media delivery trends. Ahly, for example, is currently discussing the launch of its own private TV station, which, according to club estimates, could generate as much as £E 10 million a year in advertising. Just where project financing will come from is, however, unclear.

Zamalek, meanwhile, is reportedly considering its own radio station, although this, too, is in the early stages of discussion.

Despite the tentative baby steps towards notions of profitability, though, and the grand plans for media launches, Refaat is pessimistic. “We could go bankrupt in five or six years because our actions are only reactions,” he lamented. “The youth ministry sets up development committees after Egypt’s elimination from major tournaments – but its decisions are never carried out.”
The public sector is, after all, the public sector.

Zamalek’s financial worries were compounded further after the government’s Central Auditing Agency, along with the youth ministry, accused the club of tax evasion in March 2004. The state is now demanding that the club pay some £E 14 million in taxes on several player-transfer deals signed in 2000 and 2001.
Zamalek, meanwhile, argues that the club’s former board had used tax-free bonds to pay for its players’ contracts. One Zamalek official told Business Monthly that the use of tax-free bonds was “completely legitimate,” and that they expected the dispute to be resolved soon. “Although it was a policy adopted by the former board, we can safely say that there is nothing wrong – by law – with issuing these bonds,” said Khaled Refaat, a Zamalek board member. “I am sure we can settle it with the ministry.”

 

It’s little wonder that clubs are complaining about the unsustainability of their operations. For the past 14 years, players’ salaries – following the trend in the US and Europe – have risen into the stratosphere.

1990 – The Egyptian Football Association decides to change players’ official status from amateur to professional. Thereafter, according to regulations, players must sign contracts with their clubs and abstain from engaging in other professions.

1990 – After participating in the World Cup finals in Italy, several Egyptian national team members sign new contracts with their clubs. Zamalek's Ismail Youssef, signs a three-year contract worth £E 35,000.


1998 – International player Magdi Toulba leaves Ahly after a dispute with the club's management over a contract extension. Toulba asks for £E 85,000; the club insists on its £E 75,000-per-season offer.

1998 – Ahly signs international striker Ahli Maher for a staggering £E 1 million, paid to his former Cairo club Tersana.

2000 – Zamalek poaches legendary twins Hossam and Ibrahim Hassan from Ahly, contracting the two for £E 1.2 million for two
seasons.

2002 – Ibrahim Saeed renews his contract with Ahly for three seasons, for which the club pays him £E 1.1 million.

 

While politics and religious inclinations have contributed to fierce football rivalries in Europe, such as those between Spain’s Real Madrid and Barcelona, or England’s Manchester United and Manchester City, the long-standing rivalry between Ahly and Zamalek can be largely attributed to one man.

Hussein Hegazy had – in the words of sports writers and those who saw him play football – a “charismatic” quality and “unmatched” footballing skills.

In the second decade of the 20th century, Hegazy began playing for the Ahly football club, then known as the “High School Students Club.” He secured for the freshly established association a huge fan base, which was mesmerized by his proficiency at the game that had been introduced to Egypt by the British occupation at the dawn of the 20th century.

In the 1920s, Hegazy moved to the Zamalek club, then known as “Mukhtalat.” The athlete had become so popular by that time though that many fans moved with him, switching their allegiance, and triggering what would later become the context in which the country’s most anticipated grudge matches would be fought.

The enmity deepened later.
In 1944, the Ahly team went to Palestine – still under the mandate of his Britannic Majesty – to play a friendly match, despite the objections of the Egyptian authorities. The trip, which had flown in the face of palace policy, resulted in a ban on the players that went.

The ban lasted for several months, only to be lifted shortly before Ahly was scheduled to play in the Egypt Cup final against Zamalek, a favorite of King Farouk, who watched the match from the stands.

Ahly’s rusty condition showed, in the form of a humiliating 0-6 hiding. Zamalek, meanwhile, flush with victory and the blessings of the sovereign, changed its name to the “Farouk” club, provoking criticism from the pro-independence opposition, who by this time saw Ahly as a symbol of the nationalist movement.

Player transfers continued to fan the rivalry into open flame. Apart from Hegazy, many other celebrated players moved from one team to the other. One of the most contentious of these defections happened as recently as 2001, when Ahly’s legendary twins Hossam and Ibrahim Hassan switched to Zamalek. Ahly devotees were, needless to say, outraged, but Zamalek fans considered the acquisition payback for Ahly’s signing of their midfield sensation Reda Abdel-Aal in 1993.

The teams’ first league derby – which ended in a 2-2 tie – was played in October 1948. Since then, the teams have played each other in 91 league matches, of which Ahly haswon 30 and Zamalek 23. Thirty-nine matches ended in draws.

Perhaps the most memorable league match was in the 2001/02 season, when four goals by Khaled Ali, nicknamed Bebo, and a goal each by Ahmed Belal and Reda Shehata, secured Ahly a 6-1 win over its archrival, whose sole goal was scored by former Ahly striker Hossam Hassan.

 

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