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27 June, 2018  ▪  Ivan Verbytskiy

A Pass to Corruption

Why Ukrainian sport did not become part of the legal economy

On Saturday, 26 May, the Olimpiyskiy National Sports Complex in Kyiv will host the final of the Champions League, the most prestigious club football tournament in Europe, for the first time in Ukrainian history. The Spanish Real Madrid and English Liverpool will face off. According to the popular Transfermarkt website, which specialises in analysing football transfer fees, the average player in the Merseysiders' starting line-up cost an average of €30 million and the average Galáctico about twice as much again. Real Madrid's Portuguese star Cristiano Ronaldo is now worth €120 million and Liverpool's Egyptian playmaker Mohammed Salah €80 million.

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These numbers are stratospheric, so it is only natural that the host should expect some profit from holding such a match. And it definitely does. It is expected that some 50-70 thousand fans will arrive in Kyiv for the final. According to forecasts from National Bank specialists, each tourist will spend an average of $100-150, which should bring in an approximate profit of $15-20 million.


Of course, this is not bad at all, but certain details need to be taken into account. In 2015, when Kyiv was entrusted with the right to host the 2017/18 Champions League final, the president of the National Football Federation Andriy Pavelko assured that not a single penny of public funds would be spent on preparations for the event. However, at the final stage, UAH 25 million ($960k) were allocated from the capital's treasury alone, and another UAH 103 million ($4 million) from the state budget, according to information from Minister of Youth and Sports Ihor Zhdanov, was spent on repairing the stadium, which had been closed to the public since its 2011 reconstruction.


However, even taking away these UAH 128 million, there will still be a net profit of $10-15 million. And that, of course, is without taking into account the money that foreign guests will spend on accommodation. In anticipation of their day in the sun, the owners of Kyiv hotels almost went completely crazy, setting jaw-dropping prices for the three nights (pre-match, match and post-match). The simplest room in a three-star hotel, which usually costs UAH 500 ($20), will set fans back at least UAH 50 thousand ($2000) during the final period. This greed shocked even wealthy Europeans. Apparently, representatives of the Ukrainian hotel business barely considered the fact that sports fans from Spain or Great Britain are not very different from their Ukrainian counterparts. Their pockets may be deeper, but they do not like having to splash out left and right either. Suffice it to mention the example of Euro 2012, when Swedish fans, whose team played all their matches in Kyiv, preferred to stay not in hotels, but in the campsites or the specially equipped tent city on Trukhaniv Island.


A Branch of the Economy


In other words, some people risk being left with nothing due to their excessive appetites. Maybe there is nothing strange about this, because our country does not have much experience in the sports business. Tourism is only part of the trouble. We are much worse at the marketing and promotional projects that support the sports industry around the world. Without public funds, functionaries that were mainly raised in the Soviet era are unable to make money, and often do not want to.


Theoretically, only football is capable of being a profitable sport in Ukraine. The rest, given the low disposable income of the population, poor promotion, the complexity of their rules and a not-too-educated target audience, are doomed to be subsidised or rely on one or two high-profile events per year. The Klitschko brothers only fought once on Ukrainian soil over the 20 years of their professional careers, but not because of a lack in patriotism. On the contrary, from a purely psychological point of view, it would have been much more comfortable for them to box at home. However, it is naive to expect that with an average ticket price of €50 they would be able to sell out the Olimpiyskiy Stadium. In Germany or the United States, crowds of thousands are guaranteed.


The brothers opened their own promotion company K2 to organise and hold their fights. They fought abroad themselves, while the fighters who were contracted to K2 boxed in Ukraine. Over five years before the revolution and one after it, dozens of boxing evenings were held in different cities, but the only profitable one among them was probably when Olympic champion Oleksandr Usyk fought at Arena Lviv. Most of the time, there were sad scenes. Even the only fight for a championship belt ever held in Ukraine, featuring one of the strongest boxers of this generation, Kazakhstan's Gennady Golovkin, who at that time was part of K2, took place in front of half-empty stands at the 3000-capacity Terminal arena in Kyiv.


In developed countries, sport has basically become one of the branches of the economy. Life seems to revolve around sporting events, which have an influence on almost all other fields. The English Premier League alone employs 100 thousand people in various capacities (from coaches and football players to stadium workers, drivers and cooks).


Contrary to Fair Play


The most popular football club in France, Paris Saint-Germain, is in fact owned by the state of Qatar through the company Sport Investments Qatar, established especially for this purpose. They invest insane amounts of money in PSG, even by the standards of modern football. Suffice it to say that the Parisians bought Brazilian striker Neymar from Barcelona for the unbelievable price of €222 million. Many experts believe that such unreasonable transfer fees essentially broke the market. The Qataris do not even try to conceal the fact that they want to achieve political preferences for their country through football by holding the 2022 World Cup and providing massive financial support to the 2018 tournament in Russia.


Nevertheless, spending that goes beyond any reasonable limits and has nothing to do with business in its pure form forces people to look for new horizons. In the North American basketball, hockey and football leagues there are financial fair play rules, according to which clubs cannot spend more than they earn. When American experts propose the introduction of similar limits in European football or even Formula 1, categorical refusals or even ultimatums are heard in response. The owners of Ferrari threatened to leave the fastest race in the world in the event that all teams receive equal opportunities. Few people in European sport are interested in tough and fair competition with transparent finances like in the NBA or NHL.


There is not much to say about Ukraine. It is worth starting from the fact that it is difficult to do sports business in a country where sports marketing as a concept does not exist and where the vast majority of the population does not know the names of top athletes and cannot recognise Olympic champions on the level of Oleh Verniaiev or Olha Kharlan. Boxers Vasyl Lomachenko and Oleksandr Usyk, as well as tennis player Elina Svitolina, are of course more popular, but even their fame is such that in the near future the prospects of them competing Ukraine are scarce. Svitolina can indeed play as a member of the Federation Cup team, but they play a maximum of one or two matches a year.


A Toy for Oligarchs


Football, which before the Revolution of Dignity was more or less a toy for the richest people in the country, is all that remains. On the cusp of the 2000s and 2010s, it was almost bad form for a Ukrainian oligarch not to own a football club. Even Novynskyi and Firtash, who previously showed no special interest in football, bought clubs. So much was spent on players, wages and managers that the Dutch, Belgian and Portuguese leagues could no longer compete with Ukraine. With the exception of three or four clubs, the same went for even France, whose Ligue 1 is in the top 5 of European football.


At the same time, payments were most often made "off the books". There was an element of comedy when footballer Andriy Shevchenko decided to go into politics shortly after ending his playing career and filed a declaration stating that, according to accounting documents, he played at Dynamo Kyiv for 2000 hryvnias ($77) a month, while unofficial sources reported that the salary of the Ballon d'Or 2004 winner reached $187,500 a month after his return to Dynamo Kyiv from Chelsea. But that is Shevchenko. His titles, number of goals scored, club history and quality of his play say more in the end than anything else could. However, at the same time, clubs like Karpaty Lviv, FC Dnipro and Vorskla Poltava paid wages in excess of $5,000 a week to players who did not always make it into the match-day squad.


So is it any wonder that for a long time Ukrainian footballers did not transfer to European clubs at all and decent foreign players considered themselves lucky to move to a club in our league? Businessmen such as Yaroslavskyi, Dyminskyi and Kolomoiskyi paid the same amount as mid-table clubs in France or Belgium to players that were not always top performers. Everyone made money from this, starting with the players themselves, continuing with their agents and ending with their former clubs, who manipulated transfer fees depending on the size of kickbacks. This "cooperation" generally suited all parties, except perhaps the oligarchs themselves, who very often after such dealings found themselves disappointed not only from a financial, but also from a purely footballing point of view. After all, they spent a lot of money on players who were clearly not worth it.


The Example of Donetsk


Until 2014, almost no one thought about living within their means. Oddly enough, the first to balance expenditure and income in football was the very person who had the largest resources and spent the most on his club Shakhtar Donetsk. In the late 2000s, owner Rinat Akhmetov started to bring not only strong coaches and football players to the club, but also top executives from Europe. Shakhtar Donetsk was the first in our country to declare its intention to create a business model similar to that in which sports teams operate in the civilised world. The Donetsk club began to sell and calculate their profits from merchandise, match tickets, TV rights and eventually players.


Most importantly, Shakhtar Donetsk was the first to try to conduct its financial activity transparently. Starting from 2007, the Donetsk club has published annual reports on each season in print and online. They contain not only football results, information on social projects and significant events in the life of the team, but also financial information. Of course, it is impossible to be sure that all the figures are reliable and there is nothing off the books. Nevertheless, it is possible to get an idea on the state of the football business in Ukraine based on these ten reports.


It is appropriate to consider the 2012/13 season, when oligarchs loyal to Yanukovych had the most comfortable conditions for doing business, the peak year of Ukrainian club football. At that time, the country basically had four equally strong clubs able to fight for the championship, but Shakhtar Donetsk won thanks to the political situation. If we believe the aforementioned reports, since 2007 the financial performance of the Donetsk club has been improving year on year. This includes income from sponsorship and advertising, ticket sales and season tickets, merchandise and broadcast rights. Transfer fees and bonuses from UEFA depend on the season, as well as the strategy chosen by the team manager.


By the summer of 2013, Shakhtar's profit had increased to UAH 1.33 billion ($51 million), three times more than in the previous season. Of course, the lion's share of this money, UAH 908 million ($35 million), came from transfers – Fernandinho switched to Manchester City for €40 million and Willian went to Anzhi for €36 million. However, profits also grew in every other category, except for merchandise, which again brought in UAH 22 million ($843k).


Following the Revolution of Dignity, the beginning of the war and the club’s forced departure from Donetsk, the figures given still remain impressive if inflation is taken into account. By the way, the amounts paid by Shakhtar Donetsk into the state budget as taxes have started to appear in the latest annual reports. In 2016, this figure was UAH 426 million ($16 million). It is clear that this data was revealed in the context of Akhmetov's war of words with the Surkis brothers. Public accusations and requests for a similar report from Dynamo Kyiv have had no effect. The owners in Kyiv continue to believe that money likes silence. This is the case not only in the capital, as other clubs avoid making their accounts transparent and public too.


After all, with a change in management Dynamo Kyiv, still the most popular team in the country, could, and even should, be a more successful business than any other club. It is another thing that marketing projects have never been a priority for the Surkis brothers and people incapable of doing anything new or creative remain in positions of responsibility.


The Evil of Bookmakers


The rest of the clubs are clearly unable to make money in the present circumstances. For example, active work is underway to popularise the brand of Karpaty Lviv. It is commendable that the club is selling every part of its kit to advertisers – the Lvivians are learning to make money on their own. However, the chaotic, even strange transfer policy, constant scandals around the non-payment of wages to ex-players, poor results and bad reputation of the owner Dyminskyi lead to the stands usually being empty when the strongest team in Galicia is playing.


While the indifference of fans in Lviv is fully justified, it is difficult to understand why match attendance for the provincial Oleksandriya is so low. Especially seeing as the team from a small district centre in the Kropyvnytskyi Region reached the semi-final of the Ukrainian Cup, earning the right to play in European competitions.


The less said about clubs such as Olimpik Donetsk, which did not even have any supporters in its hometown, the better. Although the players did not really care about their low popularity for a long time – they had other sources of income. For two seasons, the Donetskites played a regular part in betting scandals. In the football community, Olympics even got the informal nickname "Total goals over". This is because the team often let its rivals score three to five times per game. Some of the goals conceded looked just a little bit too ridiculous. Especially when the youth team was involved, as the older players were already able to more or less conceal their "mistakes".

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In the end, following a high-profile investigation, Olimpik cleaned their ranks, so now suspicious matches do not occur as often, and if they do, then not as obviously as before. Some other culprits calmed down too. Enerhiya Nova Kakhovka in the Second League, for instance, which just two years ago preferred to end its matches with hockey-esque score lines such as 9-3. On the other hand, FC Ternopil, financed from the city budget, was completely closed down by mayor Serhiy Nadal following match-fixing scandals. This was no surprise, as a team that was established to improve the city's image started to tarnish it.


Political PR at UEFA's Expense


With the exception of less than a dozen top-notch, world-class athletes, Ukrainian sport continues to live in debt and is dependent on the mood or current success of individual oligarchs. Perhaps this is the only way in wartime. However, the trouble is that federations of most sports do not look for options to make money themselves, but wait for handouts from the state or individual investors.


The Football Federation of Ukraine (FFU), on the other hand, has recently started to make money. But how? Funded by the UEFA HatTrick social programme, the newly formed company FFU Production has built a plant for the production of artificial grass near Kyiv. Somewhere around the same time, head of the parliamentary budget committee and FFU president Andriy Pavelko managed to allocate UAH 270 million ($10 million) from the state budget to the construction of stadiums with an artificial surface. Almost simultaneously on December 26-28, agreements were signed for the construction of 327 pitches in different parts of Ukraine. The cost of the works and materials is identical everywhere – UAH 1.439 million ($55k). The orders are made exclusively through the company FFU Production.


This means that Mr. Pavelko has allocated funds to purchase materials from a company with which he has a direct relationship as head of the FFU. What's more, the customer (the state) had no other choice. Although it could have saved money, because the cost of artificial grass from Belgian and Turkish companies that are already on the Ukrainian market is almost twice as low.


One year before the presidential election, Pavelko has already called the "artificial pitches in every corner of Ukraine" one of the achievements of the current administration. A nice little PR campaign financed by UEFA and the state budget. Is it appropriate to hurry and overspend while the war is continuing and many other events, including sporting ones, are underfunded? On the other hand, practice shows that no serious sporting projects come to fruition in Ukraine without political expediency. In the late 1990s, Pustovoitenko and Surkis promoted themselves using football lessons at secondary schools. During Yanukovych's term, rapprochement with Russia occurred, among other things, through the development of hockey. Now we have the artificial pitches. All of these projects were global and all were allocated state funds, but the previous two brought no results. Despite everything, will we see any benefit now from the most successful sporting business initiative of recent years?

Translated by Jonathan Reilly

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