Llevo 31 años subido al andamio de la industria financiera, los últimos 25 gestionando patrimonios. He vivido en Nueva York y en Londres, donde he tenido la gran suerte de conocer y trabajar con algunos de los mejores inversores de nuestro tiempo. A ellos y a mis socios les estaré siempre agradecido por la formación que he recibido.
An ambitious project that was three years in the planning was unveiled hastily a couple of weeks ago because of a leak reported by The New York Times. Some, but not all, of the biggest Clubs in European football were banding together in a new professional league that immediately became “The Super League”. For some of us, this was great news. For two reasons: first, the pandemic has diminished our enthusiasm for spectator sports, especially football, thus a more competitive and exciting league is most welcome; secondly, we are in full agreement with clubs such as Real Madrid who object to placing their “valuable assets” at risk in inconsequential matches with minor teams for small audiences. This problem is especially acute today, because as Real Madrid President Florentino Pérez confided in media interviews last week, the big clubs are in financial disarray.
As is the case with many other businesses, the clubs need to address the foregone revenues caused by lockdowns and mobility restrictions. Football also faces longer-term challenges, as apparently forty percent of 16 to 24 year-old males have little or no interest in the beautiful game. Many of these young people prefer e-sports as they empathise far more easily with the professional e-gamers than with the unassailable demi-Gods on the pitch. They believe to be more likely to become one of these console artists than to become professional athletes. On this issue, as is the case with many other issues, the younger generation is quite right in assessing the odds, but unfortunately, they miss the point entirely. Time will tell whether this is a good development.
The adoration of elite athletes is as old as Western civilization. Larger than life heroes such as Leonidas of Rhodes, Michael Jordan, Tiger Woods, Roger Federer and Rafael Nadal, Leo Messi and Cristiano Ronaldo, or Tom Brady are a source of inspiration to millions. The fact that they all are the “Michael Jordans” of their sports is the reason why we follow their careers. Their approach to their sports has the same aesthetic quality of excellence that we seek in the performing arts. Yet it would appear that, in our time, excellence has become a source of angst instead of a source of inspiration. As it turns out, the virtual world is a source of comfort for millions who have difficulties dealing with the harsh realities of the physical world.
The subsequent outcry at the announcement of this elitist and, worse yet nowadays, profit seeking business plan, came from small teams, many fans, and some politicians. Also from UEFA and FIFA officials, whose padded existence is directly threatened by any change to the status quo. These developments ratify our long held view that the future for the Old Continent is as bleak as its recent history. Luckily, the reality is that the top European football teams have a global fan base. They are one of a handful of successful Made in Europe global brands. The fast growing TV viewership and merchandising revenues in Asia and Africa are two of these clubs’ best assets. Eventually, the clubs will be able to monetize these eyeballs fully. However, for Boris Johnson or Emmanuel Macron it was a no brainer to take the side of the “working class” fans against the billionaire owners.
Who are these loyal fans anyways? Real Madrid season tickets are assignable; this is the case with most other clubs. We have held season tickets for two decades and early on discovered that many fans defray the cost of the season tickets by selling their seats to El Clásico and a few other marquee games. The vast majority also opt out of the Champion’s League package. Thus, the people seating around you undergo a total transformation from one game to the next. At the last El Clásico we were able to attend back in March 2020, our neighbours in the stands were from Abu Dhabi, Israel, Norway, Mexico, and Russia; not many home fans in sight.
Perhaps we should not be surprised that the organisation of the most popular professional sport in the continent takes on the same populist tack that dominates the continent’s politics. Rare is the issue that Boris Johnson and Emanuel Macron can agree on, but they were in accord on this topic instinctively. The “rights” of small teams and their fans to have their day in the sun facing their much better funded and successful opponents has become a constitutional right overnight. Private property rights be damned. These two leaders exemplify the wave of mediocrity that defines the politics of our age. They have both embraced populism full-heartedly, the former as a career defining moment, the latter when events required him to pivot away from his liberal reform plans. Both have become men of the people out of necessity and lack of stature. Like all other politicians, they enjoy the enormous influence that government has gained because of the pandemic. If this is an example of what is to come, brace yourselves for a bumpy ride.
In Spain, in particular, the bulk of the fanbase who are also season ticket holders is very concentrated among the largest five teams that are at the top of the league table year-in and year-out. Only a few teams can count on full stadiums for any home games. One may argue that the smaller teams offer to bring very little to the table, except for developing a few players that the larger teams may acquire. Even this point in their favour is stretching reality. They have become parasitical bystanders in a league they never contest. Many of the teams in the Premier League, and nearly all of the teams in La Liga or Serie A, survive thanks to their revenue share of TV rights. Since the 1972-73 season, Real Madrid (18), Barcelona (18), and Atletico de Madrid (4) have dominated La Liga. Only four other clubs have won the title totaling seven championships among them: Athletic Club de Bilbao (2), Real Sociedad de San Sebastián (2), Valencia CF (2), and Deportivo de La Coruña (1). This lack of competition, for there is no other word to describe the outcome, is beginning to detract from the fans’ enthusiasm. La Liga has become a two-way contest occasionally spoiled by a third team.
Yet, the people in all their wisdom decided that a change in strategic direction for businesses that are trying to recover from the pandemic without resorting to government handouts is a sinister plot to eliminate their local team. Politicians framed the problem in terms of the struggle of working class fans against the evil billionaires who have bought their clubs. Obviously, politicians did not hesitate to lounge head first at another power grab. This is not surprising if we take into account the naïve contemporary belief that government will sort our problems in spite of all the historical evidence to the contrary. Across the West, demagoguery has won the battle for the people’s votes.
Corruption and oligopolies, the usual companions to big government, are also on the rise. Just this week the Spanish Treasury published a first estimate of the losses suffered by the government’s loan guarantee program. This program seems to have been abused by the banks. Rather than using these guarantees for new loans to good credits, as was intended by law, they have used this program as a repository of loans to zombie companies. Are they to blame when the government is providing direct assistance to other zombie companies? At the very least, these banks, which were already recently bailed out with guarantees from the Treasury during the Eurozone crisis are once again avoiding trouble thanks to taxpayers’ money for now. Could management show some common sense and stop whining about paying dividends for a little while longer?
The world has faced five crises in the first two decades of the century. While globalization (and its discontents) and climate change had been simmering in the background for some time, 9/11 precipitated the US’s longest war and the Patriot Act, a nearly unanimous curtailment of civil rights such as the right to habeas corpus for non-citizens legal residents of the US. The Great Financial Crisis opened the door to demonizing all financial intermediaries and not just the officers and directors of the banks who were directly responsible for the excesses. More importantly, in a moment of panic, politicians paid lip service to the same clueless mandarins who had failed to anticipate the financial crisis and put on the fiscal brakes too early. The austerity policies had devastating consequences for those affected by spending and service cuts initially. Eventually, the general discontent opened the door to new populist political parties and a generation of demagogues. The jury is still out on the long-term consequences of these changes in the political landscape.
Most people believe that the pandemic caught Western governments off guard. Clearly, there were no stockpiles of testing equipment or protective medical equipment. The number of ICU beds and respirators was also a problem in some countries. We later discovered that the course of treatment was a much larger problem. What most people are not aware of, though, is that ethics panels the world over had sanctioned a public policy that would refuse care to those with a very low probability of survival. The surge in deaths in care homes in the State of New York, the UK, or Spain early on was the result of such policies and not an accident. It soon became apparent that contemporary social mores did not tolerate the administration of scarce resources at such a cost of human life.
Governments decided that lockdowns were the only solution to prevent a collapse of the public health system. In some European countries, lockdowns have been put in place several times over the past fourteen months. Interestingly, the Region of Madrid has been open for business since May 11, 2020. Hospitalizations rates for CoVid are running at a very steady rate of c. 2,000 per month and new cases are running at a very similar rate to the first wave. Yet, ICU bed utilization rates remain low even as most surgical procedures continue routinely. Conversely, other regions of Spain insist on curtailing activity with varying degrees of success in meeting case rate targets. It is all very confusing.
It is somewhat surprising that voters in the EU might still trust big governments after the Commission’s mishandling of vaccine procurement. This shortage of vaccines is the biggest problem today in Madrid as it is elsewhere in the EU. It is not the Brazilian, UK, or Indian variants of the virus alone that should worry the hysteria prone media, rather they should worry that while most adults have been vaccinated in the US or the UK, many eighty-year-olds in Spain still have to get a second jab. While the procurement and fair allocation of vaccines may be a textbook example of an activity best left in the hands of the public sector, the public sector of the EU alone in the developed world has failed miserably in the task. Which gives rise to the question how is more government involvement going to solve any other problems, including the financial problems of football’s top teams. In this case, a market solution was possible but it has been stymied for now because the untimely leakage of the news caught the participants unprepared to respond effectively.
The point that we want to make with this long diatribe is that the level of complacency we see all around us is beyond reason. Many people are worried about the complacency in financial markets that has led many people to entrust their savings to mysterious schemes such as Bitcoin. For starters, a small number of wallets own most Bitcoins, indeed we are very far from the widespread adoption rates that many people assume. But, more importantly, most punters do not give a second thought to a number of technical and existential issues such as Meme-pool, replace-by-fee, the use of SegWit or the steady rise of off-chain transactions, not to mention the rising popularity of alternatives such as Ethereum.
We are far more worried about complacency with what we believe are negative political developments stemming from the deification of government. The same politicians who were unprepared to deal with a health crisis are now seen as omnipotent against the fates by public opinion. The same EU Commission that bungled the euro sovereign and debt crisis and the procurement of vaccines is now deemed omniscient on the right investments to carry out with taxpayers’ money for a speedy recovery. The socialist policies that turned out to be a source of many problems in the post-WWII era are now omnipresent in Western politics. If you think that public opinion, the media, and politicians throwing a wrench at the recovery plan designed by football clubs is anecdotal, think again. The ill-timed announcement of massive lay-offs by several banks in Spain last week was also met with open resistance from public opinion, the media and politicians. Many voices insisted on salary caps for bankers once again. Nobody wanted to remember that the inconvenient fact cost cutting is the only rationale for the M&A boom in the industry promoted by the EU regulators and supervisors. It may soon become unacceptable for a company to lay-off any employees before shareholders have lost their equity in the business. Even though most of us have seen this sort of expropriations of private property rights before in our lifetimes, most will feign to be shocked when it becomes commonplace.