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Uli Chats About the Financial Crisis at Schalke

bankruptcy signboard Uli Chats About the Financial Crisis at Schalke

I was approached by a reader who wanted contact information for Uli Hesse-Litchtenberger. I have to apologize to that reader. I don’t feel comfortable either giving out such information or even asking the favor of the talent that has been kind enough to talk to me. I can only suggest that if you wish to contact them, you should try to access them via their papers. I have been very fortunate to be granted access to some really great writers and don’t want to do anything to upset the apple cart.

That being said, I was happy to pass the question along to Uli. He agreed that I could post the conversation to the blog, but he didn’t want it to be a piece, as he felt he would need to do more research. I hope you will find that as funny and awe-inspiring as I did when you read just how much Uli wrote on the subject, off the cuff. He really is amazing.

The subject is Schalke 04 and the financial crisis that they face.


Dear Uli,
I got a question from a reader who is worried about the future of Schalke. It’s an interesting question, as I don’t think a club can go bankrupt. But maybe I am wrong. If you have a moment could you read the poster’s original e-mail and explain if it is possible for a club to go bankrupt.

During research for an article last year, I though that there seemed to be safeguards against such an event. I do know a club can be sent to a lower league for bad finances like 1860 were in the 80′s, but bankruptcy seems unlikely.

Thanks in advance.


Sir – I just finished reading your interview with Herr Hesse-Lichtenberger, and it dawned on me that he may be able to answer a question for me. I’m trying to gather some insight on bankruptcy procedures for football clubs in Germany. I am an english speaker living in Germany with basic knowledge of the language, but I’ve been unable to find anything out about the processes and procedures that may surround Schalke 04 in the future.


Hi Chrstopher,

Well, that’s easy to answer … and yet very hard.

First, of course a club can go bankrupt. SC Jülich 1910, for instance, a club that won the German amateur championship three years running (1969-1971), went bankrupt in 1997.

Or let’s take clubs you’ll be familiar with. The legendary Bundesliga whipping boys SC Tasmania 1900 went bankrupt in 1973. And VfB Leipzig even went bankrupt twice! (The club survived the first insolvency, in 1999, because the creditors accepted the debt restructuring. The second insolvency, in 2004, killed VfB, because this time the creditors decided to dissolve the club.)

The problem – and this is what makes your question so hard to answer – is what happens when and if a club goes bankrupt. After all, the vast majority of our clubs are still public clubs, not privately owned businesses, which makes liability (in the legal sense of accountability) an issue. And even those clubs that seem to be businesses are, well, unusual businesses.

When we say Bayern Munich, for instance, what we actually mean is Bayern Munich Ltd, the professional football division. It is a business that is privately owned. But it is owned by Bayern Munich, the public parent club.

But to keep this as simple as possible under the circumstances, the answer should probably read something like this:

Yes, clubs can go bankrupt and it does happen from time to time, though there are sports where this happens more often than it does in football (ice hockey, for instance). But your reader mustn’t fret. Because what usually happens when clubs go bankrupt is this: they will be formed anew under a slightly different name. Which is why there is a club called SC Jülich 1910/97 (for: founded 1910, re-founded 1997) and another one called SV Tasmania Gropiusstadt 73.

So clubs are usually like Rocky. They always come back.

Cheers,
Uli


Dear Uli,

Thank you so much for your answer. As usual, your lack of details is glaring icon wink Uli Chats About the Financial Crisis at Schalke

As a followup, what are the chances that Schalke could go bankrupt or could then be relegated. I know they are low on cash, but I would have never thought it could be this bad. I know with Dortmund, they spent Champions League money and they dropped out before the group phase, which pushed them into a critical phase. Is this a similar situation, where having a bad season last year and not making the UCL really crushed the bottom line? Schalke seemed to spend all their money under Fred Rotten, because I’ve spent more on football than Magath has this season. So was it just last year or an accumulative affect, because I know they have a decent sponsorship with Gazprom.


Hi Christopher,

First, yesterday’s mail. Well, feel free to publish it, as long as you make clear that it’s an e-mail reply to a question. (If it was a proper article, I’d have to do a lot more research because the topic is pretty complicated.)

And that – being complicated, I mean – also holds true for the situation at Schalke. Since the club, in contrast to Dortmund, has not issued shares and is not listed on the stock market, it is not required to open its books to the public. So even those journalists who currently cover the affair and claim to be in the know can really only make guesses.

As far as I understand matters such as this one, Schalke’s problem is not that the club has such large debts. There was (and is, I guess) a good plan with regard to how to pay back the loans. It must have been a good plan, otherwise Schechter & Co. Ltd., the investment bank, and the creditors wouldn’t have agreed to it.

(I guess that part of the plan was qualifying for Europe on a regular basis, which means that you have to have a good squad, which is why Schalke then put most of their sponsorship money – from Adidas and Gazprom – into the squad. Which then underperformed. That’s also what got Dortmund into trouble all those years ago.)

The problem seems to be liquidity, meaning having enough money readily available to cover the running costs and such things. (You can be technically very rich and still run into liquidity problems, of course, if you need cash pronto.) The sponsorship deals are of no help, because that money is already spent or tied up somewhere.

But, again: these are all guesses and no one outside the club knows how severe the problems really are.

As regards the question about Schalke being relegated, that – sorry, but I said it’s a complicated topic – depends on a number of things. If the club was dissolved and then founded again, the senior football team would – under normal circumstances – have to start at the very bottom of the pyramid, in lowest amateur football. If the DFL (German Football League) decides that Schalke is so financially unstable that the club must have been less than honest in presenting its documents when it applied for a license for professional football (which clubs have to do every year, usually around March), the DFL could revoke Schalke’s license. Which would mean automatic relegation to non-professional football.

(Theoretically, that should be the fourth division, now that the 3. Liga has become a professional league, but since there are Bundesliga clubs’ reserve sides in the 3. Liga, Schalke would in all likelihood be relegated to this league.)

(In the summer of 1982, 1860 Munich – then a top club in the Second Bundesliga – were denied a license for professional football and the team was demoted to the Bayernliga, back then the third flight.)

The DFL could also deduct Schalke points for financial irregularities or for covering things up (in April 2008, the DFL sentenced second-division Koblenz to a deduction of eight points because the club had failed to present some crucial contracts when it applied for a professional license.).

So, the situation is far from clear and there are a lot of possible scenarios.

Cheers,
Uli

This entry was posted in FC Schalke 04, Leagues: Bundesliga. Bookmark the permalink.

6 Responses to Uli Chats About the Financial Crisis at Schalke

  1. Matthew says:

    Amazing “non-interview”. Refreshing to see someone giving insight into a situation such as this. Too often people take a politically-correct stance and don’t comment on other peoples business. They’re afraid of upsetting those around them. Or what the party being spoke of may say about them.
    It was a straight-forward question, and he gave a straight-forward answer. Thanks for bringing this wonderful bit of insight to us.

  2. MuuH says:

    No matter what becomes of Schalke this year or later, this episode shows once again how crucially important it is for the well being of the Bundesliga to get that 4th UCL spot Italy is holding atm.

  3. Luka says:

    If liquidity is the problem, then wouldn’t an average of 60,000 fans per game be the solution? If there is no significant debt, that means the only significant operating expense is wages. So it’s just a matter of weekly income from gate receipts v wages. Surely the wages at Schalke aren’t so great as to take the whole club down! But then again, I doubt it is this simple.

  4. Jan says:

    “Surely the wages at Schalke aren’t so great as to take the whole club down!”

    They are definitely too high from what I’ve read. Schalke failed to sell benchwarmers and wouldn’t sell star players for cheap and so the club is still running around with a wage bill that isn’t sustainable without Champions League or at least Europa League football. I presume Schalke will again try to offload some bench players in the winter and might also reconsider cashing in on stars.

  5. MuuH says:

    As far as I know there is significant debt, just that this debt is not the big problem.
    I can see the idea behind 60.000 fans every homegame and how one could think this should keep the club out of trouble. But the ones responsible at Schalke some time back thought it out this way: Why not get money based on the nice future income from all these fans, borrow on the ticket money income for years to come now, invest in the team and get the income vs. cost ratio covered by the CL money out of the good team that has been bought with the future money now and so on. Same with future payments of the sponsors. Already borrowed upon and spent =)

    So back to selling someone for big money I guess. Btw about the wages question, Schalke fired some 8 employees some days back to cut cost. Donno if it helps any though, one would think that some players get more money in a week…

  6. everyday153 says:

    Many thanks, DP! This is exactly the info I have been looking for!

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