FIFA and the Politics of Corruption

Joseph "Sepp" Blatter, has been re-elected as the President of FIFA.

Meanwhile, dozens upon dozens of the worlds media outlets are covering the United States Department of Justice's (DOJ) case and its early morning raid and arrest (with the help of Swiss authorities) of over a dozen FIFA officials and FIFA marketing partner representatives. Extradition to the United States to face criminal charges is pending and the DOJ claims that this is simply the first step in its investigation.

The DOJ case is based in large part on the Racketeer Influenced and Corrupt Organizations Act, commonly referred to as RICO. RICO is a federal law that provides for extended criminal penalties and a civil cause of action for activities of an ongoing criminal organization. It was originally conceived as a tool to combat the mafia, a notoriously difficult group to prosecute given the complexity and obscure nature of their activities. RICO has evolved over the years to become a tool to combat criminal enterprises generally.

In a recent pronouncement post-election, Blatter stated that he believes that the arrests are a retaliation for respectively, the U.K. losing its bid to stage the 2018 World Cup (Russia won), and the United States' losing bid to stage the 2022 World Cup (Qatar was awarded the privilege).

There have long been rumors circulating that corruption was behind the award of both bids. And without question, given the magnitude of what the FIFA World Cup has become, billions of dollars are at stake.

But Blatter's unstated assumption here is that the U.K. and the United States are working together along with the Swiss, to undermine FIFA, or at least undermine his control and global hegemony amongst the rank and file of FIFA's members. He and others may be missing the point.

And there is another assumption as well. That is, that corruption in football is important enough for governments to take action. But then the question becomes: Why the United States?

Granted, banks and bank accounts in the United States were used to commit the alleged crimes, and for RICO that is sufficient. But the same is true of banks and bank accounts in Europe, Latin America and elsewhere. Statutory and common law equivalent case law in those countries would certainly allow for a similarly situated case.

The better argument is that given manpower and enforcement capabilities, financial support for investigation and the ability to analyze sophisticated criminal schemes, there is no country better prepared than the United States. In a sense, it is laudable that the DOJ has taken up the cross.

Interestingly, in the world of football, the United States is the equivalent of a developing nation.

The United States can point to no meaningful accomplishments at the football club level, much less on the global stage of the World Cup or world club competitions (this observation must carry a qualification and is not meant to diminish the accomplishments of the U.S. women, particularly given their history at both the Olympics and World Cup -- the arguments here are focused on the billions of dollars at stake in the men's game -- even so, the club competition argument applies to both men and women).

If we assume that the DOJ is self-motivated, that is, acting on its own (with the help of the FBI and foreign authorities), to root out corruption in the beautiful game, then we have to ask who benefits from cleaning FIFA up?

The assumption is that football fans globally will benefit. But the calculus is not that simple.

At least for the time being, Blatter's re-election means that a majority of FIFA's members are insisting on the status quo. But with a spotlight on FIFA's practices, the status quo will surely have to change, and with Blatter in the driver's seat that change is bound to be careful and measured.

In the context of the Blatter vote, the rich and powerful football nations, particularly in Europe, have been pitted against their poorer brethren. For a majority of FIFA's members, Joseph Blatter is football's Robin Hood.

But there is another potentially interesting context, namely, what a "clean" FIFA could mean for football in the United States and Brazil.

Europe at the Center of the Football World

Europe is world football's financial epicenter and vortex. According to Deloitte, the top 20 football clubs in the world in terms of value are all European based. The top five European football leagues, which are also the top five leagues in the world (the U.K., Germany, Spain, Italy and France) generate the equivalent of $12 billion a year in revenue (by way of comparison the NFL generated $10 billion for the 2014-15 season).

Real Madrid, a club owned by the fans (91,000 members), generated over USD 700MM+ in revenue in 2013-14, more than any other sports franchise globally, and they are also the most valuable club in any sport with a value of $3.4 billion according to Forbes.

But European dominance in football requires a degree of subservience and cooperation from the rest of the world.

For one month every four years, during the World Cup, Brazil is center stage. For the other three years and eleven months, the country that produces the most talent for global export remains at the periphery of football, being relegated to talent feeder status for Europe and the rest of the world (Argentina may dispute this leadership role in exporting talent, but it cannot dispute its secondary status as a feeder nation to Europe and the rest of the world).

The United States, which continues to maintain the honor of having staged the most financially successful and the best attended World Cup in 1994, is still struggling to achieve not only global status and recognition, but recognition at home.

Here are the facts:

  • There are four independent professional football leagues (MLS, NWSL, NASL and USL Pro) across three divisions (I, II and III) in the U.S./Canada, comprising 64 teams
  • There is no concept of relegation from Division I to II, etc.
  • Real Madrid, which again is fan owned and controlled (91,00 members), generated more revenue ($700 million-plus) than all four of the U.S./Canada leagues and their clubs combined
  • The Dutch first division (Holland's population: Nearly 17 million) generated more revenue ($500 million-plus) than MLS (USD 450 million-plus) (U.S./Canada population: 352 million)
  • MLS, the flagship first division league in the U.S./Canada, had losses of $100 million-plus in 2014
  • MLS has restrictions on both its business model and branding strategy, thereby limiting what an investor-owner in the league can do to generate revenue
  • Both the U.K. and German second divisions generate more revenue and have larger average stadium size and better attendance than MLS
  • MLS, when compared against the global benchmarks of the first division English Premier League (EPL) and Bundesliga in terms of stadia size and attendance, TV, commercial, talent and competitions revenue, etc., is a second division league at best
  • The EPL's new TV contract is $7.9 billion over three years, MLS's new TV contract is reportedly $90 million/year
  • Given MLS's new collective bargaining agreement (CBA), its new 8-year TV contract and average stadium size for the current 20 MLS teams of approximately 21,000, means that MLS's revenue upside is capped for nearly the next decade

In This Context What Do Brazil and the United States Represent?

Potentially, a shift in the balance of power of global football.

But here is what will have to happen.

First, the tentacles of global corruption in football extend and fully embrace Brazil. Brazilian authorities will have to cooperate with the DOJ to deconstruct the decades of entrenched institutional and individual corruption in Brazilian football.

That will set the stage for a true professionalization of the sport in that country, and in neighboring Argentina.

Second, the United States, and particularly U.S. Soccer, FIFA's representative in our country, must be willing to entertain different approaches to value creation at the professional level, than those currently being promulgated by the existing four independent professional leagues scattered across three divisions, including the possibility of certifying a new Division I league.

If the United States and Brazil can work together as the two anchors in the Americas, with the support of Mexico, Argentina, Colombia and the other members of CONCACAF and COMENBOL, they can create a new balance of power for world football.

The DOJ's investigation is a step in this direction.