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The Capitalism of SoccerWhy Europe's favorite sport is more American than baseball.

By Daniel Gross
Posted Wednesday, June 30, 2004, at 4:36 PM ET
David Beckham displaying capitalist tendencies

"Whoever wants to know the heart and mind of America had better learn baseball," Jacques Barzun wrote a half-century ago. For decades, intellectuals like Barzun, pseudo-intellectuals like George Will, and storytellers of all types (Ken Burns, Kevin Costner) have mined the intricacies, symbols, and meaning of the national pastime to shed larger light on the politics, culture, and economy of the United States.

There is, we believe, something quintessentially American not just about baseball, but about all our major league sports. Basketball, football, and baseball engender competition and reward merit. They afford people, regardless of their background, the ability to gain fame and vast fortune. Each league marries marketing and brand-building to sex, power, and money. Sports are the ultimate market activity, with champions and losers minted every night and every season.

Just so, whoever wants to know the heart and mind of Europe—and Latin America, as well as big chunks of Africa and Asia—had better learn soccer, the national pastime of the rest of the world. And Franklin Foer's new book, How Soccer Explains the World: An Unlikely Theory of Globalization, is a great new guide. It combines a diary of an obsessive with some penetrating thoughts on globalism. It's as if Nick Hornby, author of the brilliant soccer book Fever Pitch, commandeered Tom Friedman's laptop. (Full disclosure: Foer once worked for Slate.)

As Foer notes, even though the U.S. men's national team reached the quarterfinals of the 2002 World Cup, and Major League Soccer is in its ninth season, there's a sense that there's something not quite American about high-level soccer. In 1986, Foer writes, then-Congressman Jack Kemp opposed an anodyne congressional resolution to support U.S. efforts to play host to the 1994 World Cup: "a distinction should be made that football is democratic, capitalism, whereas soccer is a European socialist [sport]," the former quarterback said.

But Kemp got it exactly backward. For when you look at the business of professional sports—in both Europe and the United States—American sports are virtually all socialistic while the European soccer leagues more closely resemble the entrepreneurial capitalism we Americans fetishize.

The Austrian-born economist Joseph Schumpeter—a tennis player, not a soccer fan—developed the concept of creative destruction, the touchstone of American-style capitalism. Schumpeter famously likened the elites of a society to a hotel, one in which rooms are always occupied but by an ever-changing roster of guests. The hotel concept almost precisely describes the soccer leagues of Europe. Every year, the worst-performing teams—three in England, four in Italy—check out. Relegated, they must play the following year in the next-lower division. Meanwhile, ambitious upstarts who have succeeded at lower levels check in. They are promoted.

This constant cycling has enormous financial consequences for the teams and their owners. Television, advertising, sponsorship, and gate receipts instantly plummet when a team is relegated. (Imagine what would happen to attendance at Shea Stadium if the New York Mets had to play AAA opponents this year.) Relegated teams release or sell off highly paid players and instantly face a renewed fight for survival. In the 2001-2002 season, St. Pauli, the Hamburg, Germany-based team, played in Germany's prestigious Bundesliga. Relegated twice in two seasons, it now plays in the strictly minor-league third division. Even long-entrenched incumbents can fall rapidly. Leeds United, which a few years ago finished fifth out of 20 in Britain's enormously competitive Premiership, was relegated this year after it ran into financial problems.

By contrast, the American professional leagues are like a Marriott Residence Inn—once you're allowed to check in, you never have to leave. There's no great punishment for consistently propping up the standings year after year. Yes, the market value of losing teams often suffers in comparison to those of winning teams. But once you're a member of the cartel, there's a floor under the price. The Montreal Expos, despite decades of gross mismanagement, these days by Major League Baseball itself, were valued at $113 million last year, according to Forbes. (Click here, and then scroll down.) To different degrees, Major League Baseball, the NFL, and the NBA are examples of European-style socialism among billionaires and Fortune 500 companies. They share revenues, tightly regulate admission to the cartel, and bargain collectively with powerful European-style unions, which act as barriers against reform. Losers not only can prosper, but they get first dibs on next year's crop of talent.

In America, someone who wishes to start a major-league sports team, or who wants to upgrade a minor-league team into a major-league one, is essentially out of luck. Not so in Europe. In 1997, Mohamed al-Fayed, the Egyptian-born immigrant who bought Harrod's, purchased London-based soccer team Fulham FC, then a middling team in England's second division (the third-highest league). The parvenu spent lavishly on new talent and brought in new coaches. In 1999, Fulham was promoted to the first division. In 2001, after winning the Division One championship, it was promoted to the Premiership, where it has stayed ever since. Last season, aided in part by the import of two American stars, Fulham finished a highly respectable ninth. Last year, Russian oligarch Roman Abramovich legitimized a portion of his fortune by purchasing Chelsea FC.

In other words, the European system rewards ambition and ruthlessly punishes sloth and incompetence. At the beginning of each year, every owner places every dollar of investment on the line. And in European soccer, that can mean a huge sum. The market capitalization of Manchester United, a publicly held company, is about $1.2 billion!

In Europe, the successful and rich teams grow richer. (For assembling and stockpiling talent, the New York Yankees have nothing on Spain's Real Madrid.) The poor get poorer, some teams fail entirely, and those intent on self-improvement have an opportunity every year to rise above circumstances. To quote another great middle-brow American intellectual (John Cougar Mellencamp): "Ain't that America?"

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Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at . He is the author of Pop! Why Bubbles Are Great for the Economy.
Photograph of David Beckham by Luis Gene/Agence France-Presse.
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