June 9, 2018 / 4:23 PM / 4 months ago

UPDATE 1-Private matters: state funding weighs on Russian soccer

* Russia national team ranked 70th in the world by FIFA

* Most top-tier league sides backed by state-owned entities (Adds club folding over financial difficulties)

By Gabrielle Tétrault-Farber

MOSCOW, June 9 (Reuters) - When soccer World Cup hosts Russia open the tournament on June 14 they will be fielding the team ranked lowest at the finals, three places behind their first opponents Saudi Arabia.

There is no single explanation for what ails Russian soccer, but one of the origins of the woes of the national team may rest in a trait of Russia's economy: heavy state involvement.

With a couple of notable exceptions, private investors have snubbed Russian soccer so most top-tier clubs are bankrolled by regional authorities and state-owned companies, leaving teams vulnerable to budget cuts and shifting political priorities.

The uncertainty has seen many state backers shun investment in grassroots player development, instead bringing in expensive foreign stars in a race for results when times are good, and cutting back when budgets are tight.

"Everyone wants to be a sprinter. No one wants to invest in the long term," said Anatoly Vorobyov, the former general secretary of the Russian Football Union www.rfs.ru.

"Instead of investing in schools, in the grassroots, a huge portion of the state budget is spent on foreign players, on players' very large contracts," he told Reuters.

In the Soviet era, the national team reached the World Cup semi-finals in 1966, was crowned European champions in 1960 and came second three times afterwards. But the sport suffered when the Soviet Union collapsed as training camps fell into disuse at a time of sweeping social and economic transformation.

Since 1990, Russia has only played in three World Cup finals and won just two games. This time Russia qualified as host but is ranked by FIFA here at an all-time low of 70th, between Guinea and Macedonia.

LITTLE INCENTIVE

Leonid Fedun is one of the few private owners of a top-tier Russian soccer club. The billionaire deputy head of oil giant Lukoil bought Spartak Moscow in 2004 when it was in serious financial difficulty.

Fedun created a youth academy and built a 45,000-seat stadium that will be one of 12 World Cup venues. Russian Premier League runners-up five times since Fedun took over, Spartak finally became champions last year after a 16-year drought.

But he worries that Russian state involvement in soccer, and the economy in general, is becoming ever greater and that this is detrimental to the development of the sport.

"State money is there and there is no escaping it," he told Reuters. "Soccer cannot be outside this system. I don't like this. But at the moment there is no alternative."

"Most directors at the league have other interests," Fedun said. "They need to spend the budgets they are given by the state or sponsors, and not work on developing soccer."

Public sector activities accounted for 46 percent of Russia's gross domestic product in 2016, up from 39.6 percent a decade earlier, according to the Russian-based Centre for Strategic Research.

In its 2030 development strategy, the Russian Football Union calls for the gradual substitution of state funding in professional soccer with private investment.

But the strategy concedes there is little incentive to invest in the sport in Russia given meagre revenues from ticket sales, television broadcasting rights and merchandise.

"There are no conditions in place for significant growth in these revenues in the short term," the strategy said.

On Saturday, the owner of FC Tosno, the winners of this year's Russian Cup, announced that the club was folding because of financial difficulties.

Ticket sales and match-day revenue accounted for less than 5 percent of Russian Premier League clubs' revenue in 2016, while broadcasting rights brought in 4.1 percent, according to a PricewaterhouseCoopers www.pwc.com (PwC) study that cites data from the Union of European Football Associations (UEFA).

In contrast, broadcasting rights in Europe's top 10 leagues, excluding Russia, accounted for 38.7 percent of clubs' revenue on average, while match-day revenue and ticket sales made up 15.5 percent, the study said.

FILLING THE VOID

As the state has expanded its influence over key sectors of the economy in the last two decades, that has paved the way for state-run giants such as VTB bank, Rosneft and Gazprom to leave their mark on Russian sport.

"Television and advertisement account for only a few percent of revenue," said former soccer official Vorobyov. "This has to be compensated by big sponsorship contracts with companies like Gazprom, VTB and Russian Railways."

Sponsorship and other commercial revenue accounted for 60.6 percent of Russian Premier League clubs' revenue in 2016, according to PwC, almost double the European average.

But the investment can be unpredictable.

Zenit St Petersburg, bankrolled by Gazprom, signed Brazil's Hulk and Belgium's Axel Witsel for 80 million euros ($94 million) in 2012 but has since cut back on big transfers as global oil and gas prices slumped.

The club signed Italian manager Roberto Mancini last year - paying him 4.5 million euros a year, according to a source - but he left after Zenit finished fifth in the league, their worst performance in a decade.

Little private investment is not the only reason Russian soccer is struggling. Insiders cite a dearth of quality coaches and poor coordination among soccer authorities as contributing factors. Few Russian players have sought experience in more competitive leagues abroad because they are cocooned at home.

The 16-team Russian Premier League limits clubs to a maximum of six foreign players on the pitch at one time, a measure designed to give home-grown talent a chance.

But the move has artificially increased the value of Russian players, leading them to remain in a league where their wages can far exceed what they might make elsewhere.

Only two players in Russia's 2018 World Cup squad play outside the country. All members of Russia's 2014 World Cup team - which failed to win a match at the finals - were from Russian Premier League teams.

BUILD FROM THE BOTTOM

One up-and-coming team, FC Krasnodar, is very much focused on Russian players. But its billionaire founder Sergei Galitsky says he wants Krasnodar's squad to be composed mainly of graduates from the club's youth academy here

Founder of the supermarket chain Magnit, Galitsky's goal is not just to achieve success for Krasnodar but also to revive Russian soccer by changing the approach to the game and building from the bottom up.

Galitsky sold most of his stake in the retail chain this year to state bank VTB for $2.5 billion and said he would indulge his love of soccer at the youth level.

In its decade of existence, Krasnodar has yet to win the Russian league but has shown promise on the pitch, making it to the last 16 of the Europa League in 2017. The top scorer in the UEFA Youth League this season was its 19-year-old Ivan Ignatyev.

Some other clubs in smaller Russian cities have not been so fortunate. Several teams receiving state support have dropped out of the top division or, like Alania Vladikavkaz, simply folded when government priorities changed.

"There was no financing (from the regional government) for seven months," said former club president and coach Valery Gazzaev. "It was at that point impossible to maintain the club."

Gazzaev, now a lawmaker, is drafting legislation to give companies and private investors tax benefits for investing in professional sport in Russia.

Spartak's Fedun said there were at best 12 clubs in the Russian Premier League that could actually attract a large enough crowd for them to function.

"The rest of the teams are regional governors and the local elite showing off," he said. (Reporting by Gabrielle Tétrault-Farber; editing by David Clarke)

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