Is this the end of FC Schalke 04 as we know it?

Just over five years ago, Schalke lit up the Bernebeu with an extraordinary shock 4-3 win over Real Madrid, in a tie that would ultimately see the Spanish giants progress 5-4 on aggregate. The game would be most remembered for a stunning equaliser from a Champions League debutant. 19-year-old Leroy Sané brought the game to 3-3 and announced his entrance into footballing stardom.

This was the third consecutive year in which the club reached the knockout stages of the Champions League. It had seemingly finally stabilised after the freak 2010/11 season seeing them end the term in 14th, their joint-worst league finish since their relegation in 1987/88.

The steadying of the ship would not continue, and Schalke would remain plagued with instability in the coming years, both competitively and otherwise. The following three years would see them fluctuate between finishes in tenth and second place. The second-place finish did come with a relatively low points tally, for perspective, third place Hoffenheim had 55 points. Schalke came crashing to a 14th place finish in 2018/19, with their lowest points total for 25 years, on 33.

After a strong performance in the Hinrunde of this year’s 2019/20 season, Schalke found themselves sitting comfortably in fifth place, three points off Bayern in second, and seven away from table-toppers, RB Leipzig. An admirable effort, and after a well-deserved Christmas break, the Rückrunde began with a promising 2-0 win against Borrusia Monchengladbach. A royal 5-0 thumping from Bayern Munich followed this, but hey, that happens.

Bayern can do that to anyone on their day, especially this current Bayern side under Hansi Flick. For Schalke, this result would unfortunately mark the beginning of something rather extraordinary.

What would follow was a collapse to send shivers down the spines of even the most accepting and disillusioned of Schalke fans. With no wins in their previous 12 games and the prospect of playing European football next season all but dead, it’s difficult to find any positives in what has been a catastrophic couple of months.

REUTERS/Thilo Schmuelgen

With Europe now little more than a pipe dream, Schalke are on course for yet another disappointing season and a second consecutive finish outside of the European places.

Financial Worry

Schalke as a club are no strangers to financial problems, but the last five to ten years were looking pretty healthy with all things considered. In 2014, Schalke reported an operating income of €50m, the seventh highest in world football. Alongside the impressive income stream, Schalke boasted zero debt. The club, at that time six years ago, was the fourteenth most valuable club in world football.

The following years would see them begin to regress both competitively and, as a direct result of this, financially too. It is a fact that clubs like Schalke will have to deal with losing their best talents to larger clubs. Nevertheless, it is quite shocking at the calibre of players Schalke let go for nominal fees. Schalke players that were integral to the success of the team received meagre amounts in transfer fees.

Now, it wasn’t all bad, the sales of Thilo Kehrer, Leroy Sanè and Julian Draxler would fetch a combined €132m for the club. Not terrible business considering the inevitability of big European clubs cherry-picking the stars in blue at some point.

However, players like Breel Embolo, Benedict Höwedes, Naldo, Johannes Geis, Leon Goretzka, Max Meyer, Franco Di Santo, Eric Choupo-Moting, Sead Kolasinac, Klaas Jan Huntelaar, Joel Matip and current goalkeeper Alex Nübel, would all be sold or released for peanuts. Schalke would command a combined €17.5m for all twelve. The way Leon Goretzka has impressed in Bayern’s midfield, you would struggle to buy one of his legs for €17.5m, let alone the whole package.

Nübel and Goretzka moved to Bayern on free transfers. Matip to Liverpool, and Kolasinac to Arsenal, for nothing. Huntelaar to Ajax, and Meyer to Crystal Palace, also without any payment heading to Schalke. Choupo-Moting, now a PSG player, was another who moved on a free transfer to Stoke City.

ZICOBALL

Dreadful business by any metric. If this wasn’t bad enough, €180m has been invested in new transfers since the summer of 2016. That €180m gloats minimal talent or any long term value to show for it.

After laughable mismanagement in the transfer market and regular payments for the Veltnis Arena, the last of which paid in March 2019, this strong financial position eroded as Schalke ended the 2019 fiscal year with upwards of €200m of debt.

These kind of numbers are not entirely out of the ordinary for football clubs competing at the top of the professional game, but for clubs like Schalke, with such a unique business model, it doesn’t appear good at all. If there was one thing Schalke could always rely on, it was their fans and associate members who have stuck by them through thick and thin.

Television money, gate receipts, merchandising, and sponsorships, always proved lucrative with such a large and ferociously loyal fan base. There was no evidence that income was ever going to dry up, so why not invest heavily into the team to stay competitive.

Early 2020 and that all changed. The outbreak of the coronavirus in China would bring life, as we knew it, to a standstill. In February the virus had already made its way to Europe, and less than a month later, all major sporting events were cancelled. Football was gone.

France and the Netherlands lead the way in declaring their seasons finished. Other countries waited, cautiously optimistic that they might be able to salvage something from the season yet. German clubs found themselves thrust into the limelight, nakedly exposed for the total reliance of their clubs on TV money and sponsorships.

The world was informed that the Bundesliga restarted so soon due to Germany’s competent handling of the virus. The guarantee from the DFL that Bundesliga could resume play in a manner that was ethically and morally sound was the peddled narrative alongside Germany’s efficient handling of COVID-19. In reality, as it will be in all European leagues, the reason was purely financial. Bundesliga’s resumption came around so quickly in Germany exclusively because the existence of many German football clubs depended on it.

GETTY

In March, 13 of the 36 clubs in Germany’s top two divisions would reportedly be forced into insolvency if they didn’t receive the outstanding instalment of €330m in TV payments. Schalke was, by far, the most high profile club included in this list. Players would proceed to take a 15% salary cut with a further 15% deferred.

Other sports fractions associated with the club including the basketball team, for example, have been temporarily sidelined. Schalke employees have been furloughed like many others in the country. In addition to this, a leaked email written by Schalke executive in Marketing and Communications, Alexander Jobst, presented the club’s current financial situation as “Existence threatening”. Jobst requested that fans not seek any refunds for the clubs remaining home games to attempt to stabilise their finances. This particularly poorly received email provides an ominous glimpse into how deep this financial crisis is.

IS TRADITION WORTH SACRIFICING FOR SUCCESS?

The crisis also threw up the same old discussions about Germany’s 50+1 rule. Possibly the most universally beloved aspect of German football, of which Schalke are considered by many as the poster child. The 50+1 rule refers to a clause written into the regulations of the DFL, stating that any club wanting to compete in the Bundesliga must hold a majority of its voting rights.

Before 1998, all football clubs in Germany were owned exclusively by member associations and ran as nonprofit organisations. Private ownership was not allowed under any circumstances. This rule was to prevent private investors or corporations buying controlling stakes in football clubs. The reasoning was to ensure that those with a controlling stake couldn’t prioritise the needs and wishes of shareholders and investors, over match-going fans and member associations.

The 50+1 rule was introduced as a compromise to allow private investment into Bundesliga teams to keep up with the rapid modernisation and corporatisation of football outside of Germany.

The member associations of each football team, however, would always be required to hold a controlling stake at the club. Most Bundesliga football clubs have taken advantage of this process known as “Ausgliederung”, or outsourcing of their company divisions to capitalise on outside investment.

In contrast, Schalke have always been vehemently against this process and are incredibly proud of their traditional status as an untouched nonprofit. In German, this status is called “eV” (eingetragener Verein). The Chairman himself famously stated:

“As long as I am here, we will remain an eV.”

CLEMENS TÖNNIES

The official stance over the past few weeks on this issue has softened. At half-time against Augsburg less than two weeks ago, Jochen Schneider spoke to DAZN:

“Tradition must never be sacrificed” but admitted: “We have to remain nuanced: we have to consider the coronavirus in the short term but look at how we can remain competitive in the long term.”

Schneider, who replaced Christian Heidel in the role of Sporting Director at Schalke just one year ago, arrived from none other than RB Leipzig.

Could this have been a decision at board level to begin posturing towards a new executive direction for the club?

Is this the beginning of the end of FC Schalke 04 as we know it?

Is this the end of the fan-owned eV representing the traditional football purists in a glossy corporate world of modern football?

Was the global pandemic the straw that broke the camel’s back?

Was this the moment when it became clear to Schalke management they could not continue running the club in such an aggressive, and borderline irresponsible manner?

Stoking the flames to these rumours was the sudden announcement of the departure of Mr Schalke himself, chief financial officer, Peter Peters who had been with the club for over 27 years. Arriving in 1993, he has played a monumental role in the development of the football club and their pathway into the modern era.

“Peter Peters has played a decisive role in shaping our club over the past three decades. In doing so, he has supported courageous and far-sighted decisions for the good of the club. Without him, FC Schalke would not be the club it is today. For this, he deserves our thanks”. Chairman of the Supervisory Board, Clemens Tönnies, is quoted on the official press release.

FIRO

His departure has been met with mixed feelings from Schalke fans. Some blame him directly for the dire state of the club’s finances in recent years, a somewhat fair criticism. Some older fans are sad to see him go having grown up with him at the club, appreciating his contribution to the club’s success and independence. Others see his decision to move on from Schalke a profoundly concerning omen. A suggestion that we are only now truly beginning to understand quite how dangerous Schalke’s current financial position is.

With performances on the field mirroring performances off the field, the end of the season could not come any faster. Key players such as Jonjoe Kenny will return to their parent clubs at the end of the season, as Schalke cannot afford to make their stay in permanent. The current consensus is that manager David Wagner would be too expensive to sack, leaving the club feeling like a rudderless boat sailing helplessly towards a tsunami.

It’s very difficult to see how the club will be able to recover. The financial mess cannot be attributed solely to the coronavirus. The club also has to take responsibility for the lack of leadership and reckless management of the past five years. Clubs like SC Freiburg have shown that if managed correctly, an eV can operate securely and manoeuvre relatively unscathed through a climate like the current. Nevertheless, it is one thing to find success and work safely as a mid-table Bundesliga club, and quite another to operate with the ambition of challenging Europe’s elite.

I ask the question again, could this be the end of FC Schalke 04 as we know it? The end of the protagonist of the 50+1 rule and the untouched eV that regularly competes in Europe? Key structural changes within the club would suggest that it is and that in the coming years, Schalke will begin the “Ausgliederung” process.

Seemingly, Schalke look set to open themselves up for external investment at some stage. Whether this would improve the daily running of the club is another question. The process would be a painful period for everyone involved at Schalke, and one that will be heavily opposed by the vast majority. Yet, it seems like we are reaching the stage that you can no longer have your cake and eat it.

A choice will have to be made. Either spin off into a more corporate structure at the club and receive investment to keep up with Bayer’s Leverkusen, Volkswagen’s Wolfsburg, Red Bull’s Leipzig or SAP’s Hoffenheim, or change nothing. Continue to champion the traditional football fans voice and compete purely with the financial backing of club members and fans.

Truly an existential crisis in Gelsenkirchen.

Written by: Sam Scott – @sscot39