Debt fuels Turkish soccer but threatens country’s economic growth

Reel­ing from a mas­sive match-fix­ing scan­dal, Turk­ish soccer’s eco­nom­ic mod­el mir­rors that of the country’s econ­o­my: debt-dri­ven eco­nom­ics that in the case of Turkey is like­ly to spark a nose dive in eco­nom­ic growth but could increase the com­pet­i­tive­ness of the country’s beau­ti­ful game. 

At first glance, debt would seem to be Turk­ish soccer’s Achilles heel as it tries to recov­er from its worst match-fix­ing scan­dal that has led to the indict­ment of 93 sus­pects, includ­ing some of its most senior offi­cials, whose tri­al is expect­ed to open on Feb­ru­ary 14. 

The polit­i­cal fall­out of the scan­dal has already out­lined the bat­tle lines in Turkey’s rul­ing Jus­tice and Devel­op­ment Par­ty between Pres­i­dent Abdul­lah Gul and Prime Min­is­ter Recep Tayyip Erdo­gan in advance of elec­tions in 2014. Mr. Erdo­gan in a bid to cater to soc­cer boss­es and their cor­po­rate back­ers ear­li­er this month drove against Mr. Gul’s will a con­tro­ver­sial bill through par­lia­ment that sub­stan­tial­ly reduces penal­ties for match-fixing. 

The Turk­ish Foot­ball Fed­er­a­tion Fed­er­a­tion (TFF) has decid­ed in the wake of the new law to dis­cuss in late Jan­u­ary chang­ing an arti­cle in its dis­ci­pli­nary code that man­dates rel­e­ga­tion of any club found guilty of match-fix­ing. Eight Turk­ish teams, includ­ing Fener­bahce, Tra­b­zon­spor and Besik­tas, are under inves­ti­ga­tion and could be rel­e­gat­ed if the arti­cle remains in force. 

Mr. Erdo­gan is wide­ly believed to want to suc­ceed Mr. Gul as pres­i­dent when his third term as prime min­is­ter ends in 2014. Mr. Gul is said to be weigh­ing his options, which include return­ing to active pol­i­tics or accept­ing an inter­na­tion­al job, once he steps down from his large­ly cer­e­mo­ni­al post. Crit­ics charge that Mr. Erdo­gan is push­ing for con­sti­tu­tion­al reform in the next two years as a way to shift pow­er from the prime min­is­ter to the pres­i­dent in advance of his becom­ing Turkey’s head of state. 

Mr. Erdogan’s chances of suc­cess ride to a sig­nif­i­cant degree on Turkey’s con­tin­ued eco­nom­ic per­for­mance. Econ­o­mists pre­dict that eco­nom­ic growth in 2012 will drop from a stel­lar sev­en per cent to about three per cent as a result of its reliance on for­eign cap­i­tal and gov­ern­ment-backed stim­u­lus for growth, unortho­dox mon­e­tary pol­i­cy and widen­ing cur­rent account deficit. 

Turkey’s cur­rent account deficit has soared from 6 to 10 per cent of GDP while and infla­tion has risen to 10 per cent. Efforts by the cen­tral bank to address the fall­out of Turkey’s rapid growth through counter-intu­itive mea­sures involv­ing main­tain­ing low inter­est rates while rais­ing the reserve require­ments for banks has failed to pro­duce results. 

Econ­o­mists wor­ry that Turkey’s immi­nent eco­nom­ic prob­lems could result in a hard land­ing for its econ­o­my unless it moves quick­ly to stream­line its mon­e­tary pol­i­cy and starts focus­ing on reduc­ing its macro-eco­nom­ic imbal­ances and par­tic­u­lar­ly the cur­rent account deficit. Turkey got a taste of the risks it faces when this fall exter­nal fund­ing tight­ened because of the glob­al cri­sis and the country’s cur­ren­cy deval­ued more than had been predicted. 

Turk­ish soc­cer faces the same risks as the country’s econ­o­my because it oper­ates on the same prin­ci­ples, accord­ing to a sports research note issued by Renais­sance Capital. 

“Turkey’s declin­ing suc­cess in foot­ball can be mapped to eco­nom­ics,” the note says accord­ing to the Finan­cial Times. 

Like the econ­o­my Turk­ish soc­cer “import almost all their best play­ers from abroad, and export one or two good play­ers every year” incur­ring high lev­els of debt to attract stars, the note said. It said clubs like Fener­bahce, Besik­tas and Galatasaray oper­at­ed as com­mer­cial com­pa­nies that eschew com­pet­i­tive­ness for prof­it, it said. 

Renais­sance Cap­i­tal cau­tioned that buy­ing expen­sive but old has-beens such as for­mer Real Madrid stars Rober­to Car­los and Gut boosts mer­chan­dis­ing, but does not add real qual­i­ty to the team. The focus on sales rather than soc­cer per­for­mance pro­duces the ills many Turk­ish com­pa­nies face: com­pla­cen­cy and reduced competitiveness. 

The proof is in the pud­ding. Turkey’s top clubs have dom­i­nat­ed the country’s soc­cer for decades but failed recent­ly twice in a row to win the Turk­ish league or qual­i­fy for the UEFA Cham­pi­ons League. The poor per­for­mance of the three major Istan­bul clubs mir­rors a trend in Turk­ish eco­nom­ic devel­op­ment as growth shifts from the country’s eco­nom­ic cap­i­tal to the Ana­to­lian inland, accord­ing to Renais­sance Capital. 

Two of Turkey’s recent­ly most suc­cess­ful teams, Bur­sapor and Tra­b­zon­Spor, hail from the for­mer Ottoman cap­i­tal of Bur­sa and Tra­b­zon on the Black Sea. The finance house points out a fur­ther trend in line with the econ­o­my: Bur­sa and Tra­b­zon boast trade sur­plus­es while Istan­bul accounts for 60 per cent of Turkey’s trade deficit. 

The sim­i­lar­i­ties between the econ­o­my and soc­cer are not absolute. In some way, Turk­ish soc­cer is more in line with its Euro­pean coun­ter­parts than the econ­o­my is. Turk­ish soc­cer eco­nom­ics also mir­ror those of Euro­pean clubs that oper­ate on the basis of high debt lev­els to import rather than export tal­ent­ed players. 

It is a mod­el that in con­trast to the Turk­ish clubs has often trans­lat­ed into per­for­mance for their Euro­pean coun­ter­parts. One rea­son is that Turk­ish clubs have not seen the kind of influx of for­eign invest­ment, par­tic­u­lar­ly from the Gulf, from which teams like Man­ches­ter City and Paris St. Ger­main have ben­e­fit­ted. Nonethe­less, in con­trast to the Turk­ish econ­o­my and most Euro­pean clubs, Turk­ish soc­cer thanks to domes­tic demand is not fac­ing prob­lems in access­ing funds. 

The out­look for non-soc­cer Turk­ish com­pa­nies is far bleak­er. “With­out an increase in com­pet­i­tive­ness Turkey is trapped with man­ic depres­sive suc­cess,” Renais­sance Cap­i­tal said. 

For Turkey – whether in terms of its econ­o­my or its soc­cer – to main­tain or restore growth it will have to enhance com­pet­i­tive­ness and become a more impor­tant play­er in exports. 

About The Author:
James M. Dorsey is a senior fel­low at the S. Rajarat­nam School of Inter­na­tion­al Stud­ies at Nanyang Tech­no­log­i­cal Uni­ver­si­ty in Sin­ga­pore and the author of the blog, The Tur­bu­lent World of Mid­dle East Soc­cer.

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