A pass to cor­rup­tion

Why Ukrainian sport did not be­come part of the le­gal econ­omy

The Ukrainian Week - - CONTENTS - Ivan Ver­byt­skiy

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.

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, 25 mil­lion hryv­nias ($960k) were al­lo­cated from the cap­i­tal's trea­sury alone, and an­other 103 mil­lion ($4mil­lion) 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 Vernyayev 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 UAH 2,000 ($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 ShakhtarDonetsk. 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 ($51mil­lion), three times more than in the pre­vi­ous sea­son. Of course, the lion's share of this money, UAH 908 mil­lion ($35mil­lion), 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 Donet­skinto the state bud­get as taxes have started to ap­pear in the lat­est an­nual re­ports. In 2016, this fig­ure was UAH 426 mil­lion ($16mil­lion). 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 Dy­namoKyiv 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 Dy­namoKyiv, 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".

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-es­quescore 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, world­class 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?

Head of the par­lia­men­tary bud­get com­mit­tee and FFU pres­i­dent An­driy Pavelko man­aged to al­lo­cate UAH 270 mil­lion from the state bud­get to the con­struc­tion of sta­di­ums with an ar­ti­fi­cial sur­face

An un­pre­ten­tious au­di­ence. Kyiv real­tors mis­take Euro­pean fans for Arab sheikhs. In fact, most fans pre­fer camp­ing

I have not deprived my­self, have I? Multi-mil­lion-dol­lar con­tracts for the con­struc­tion of sta­di­ums with an ar­ti­fi­cial sur­face pass through a com­pany close to FFU pres­i­dent An­driy Pavelko (third from the left)

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