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

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

Uli Chats About the Finan­cial Cri­sis at Schalke, 5.0 out of 5 based on 3 ratings