Heavy Debt to Heavy Metal

Bundesliga champions in 1995, 1996, 2002 and 2011. European champions in 1997 as well as runners-up in 2013. From the outside looking in, you might even have said that it has always been a well-run club, sustainable in their efforts towards challenging for the biggest honours in the sport. Yet - sandwiched in the middle of these years of success - Borussia Dortmund were on the brink of bankruptcy.

Fast forward to present day, the German side reached the quarter-finals of the Champions League - and, in a feat held in higher regard by football romantics - the club rejected the opportunity to join the European Super League. As a result, much has been said in the British press of the ‘50+1’ ownership structure that makes up the German leagues, but it hasn’t always been so positive. In the following article, I will delve into the recent history of Borussia Dortmund, uncovering what went wrong in the early 2000s - and how, with an exceptional business model, the club was able to turn its fortunes around.

Ja, Dortmund, Ja – The golden years

The story of the 90’s begun with a man named Ottmar Hitzfeld (pictured below): the mathematician and sports teacher who was named manager of Borussia Dortmund in 1991. Under his tutelage, the club’s first achievement came by way of reaching the final of the 1993 UEFA Cup – which, despite losing to Juventus, pocketed the club a mouth-watering DM25 million*.

To put that into context, that sum would have equated to around 10 million in pounds back in 1993 – at a time when the world record transfer fee was just over £13 million. Flush with cash, the net-spend in the transfer market over the following 3 seasons (from 1993/94 to 1995/96) was around £17.1m, constituting an increase of £13.5m compared to the previous 3 years.

Whilst spending more doesn’t necessarily guarantee success, fortunately for Dortmund - it worked. Die Schwarzgelben (‘The Black and Yellows’) won their first German league title in 30 years, with their 1995 crown closely followed by another in 1996. Hitzfeld also led the club to their first ever Champions League title in 1997, winning the final three goals to one against a star-studded Juventus side containing Zinedine Zidane, Didier Deschamps and Alessandro Del Piero.

Borussia Dortmund celebrate their Champions League victory in 1997

Despite losing Hitzfeld to Bayern Munich the following season (a common path made by the club’s biggest stars), Dortmund did not seem to fall away. Former captain now turned manager Matthias Sammer led the club to another Bundesliga title in 2002 – and even helped them reach the UEFA cup final of the same season (a tie which they eventually lost to Dutch side Feyenoord).

*(DM – Deutsche Marks, the currency used in Germany until it was replaced entirely by Euros in 2002)

The Troubled Years

Financially however, the club were not being managed quite so well. Having had a taste of success with their first Champions League win, the directors of Borussia Dortmund weren’t keen to let it slip.

Tomas Rosicky (pictured right), Evanilson and Marcio Amoroso were just a few of the high-profile signings made by the club – accumulating a net spend of £89.7m from 1999 to 2004. During that same time, Manchester United (the club which sat at the top of the Deloitte Money League for revenue earnt across all 5 of these years) had a net spend of £84.8m. In order to offset this deficit, Dortmund had opted to become the first (and only) German club to be listed on the country’s stock exchange, however this proved unable to generate the funds to match the sides spending.

Such was the financial peril faced by Dortmund that in 2002, in order to generate more funds, the club made the decision to sell their stadium - the Westfalenstadion - to real estate trust Molsiris Vermietungsgesellschaft. For reference, clubs that have sold their stadiums in recent years in England include Sheffield Wednesday, Derby County and Aston Villa – football clubs all well versed in operating in the red, rather than the black.

The club was also aided by their biggest rival, Bayern Munich, in 2004. Of course, a €2m interest-free loan did not entirely solve the problem, but the action alone was extremely commendable by Bayern. When you think of the measly amounts of money that could have saved Bury or Macclesfield from administration in 2020, you have to wonder if any club in England could act as honourably.

(Borussia Dortmund vs Bayern Munich, otherwise known as ‘Der Klassiker’, was clearly not for the faint-hearted)

With the big money signings came big money salaries. Players who had brought the club success over the years were demanding to be paid as handsomely as their recently transferred teammates, leading to the club’s money management spiralling out of control. As illustrated in Figure 1 (see below) the clubs wage/revenue ratio reached 54% in the 2003/04 season, increasing by a further 2% the following year.

(Figure 1: Borussia Dortmund's Wage/Revenue % from 2000 onwards)

Borussia Dortmund’s financial accounts also revealed that the club had a net loss for the year of €67.5m in 2003/04, followed by another loss of €78.7m in 2004/05 (see Figure 2 below).

(Figure 2: Borussia Dortmund's total profit/loss reported during the troubled years)

With the club in such a dire position, then-president Gerd Niebaum had no choice to resign towards the end of 2004 - leaving his successor, Reinhard Rauball, quite the challenge to solve.

Fortunately, having previously saved the club from bankruptcy in the 1980s, he was well versed in dealing with such matters.

Together with new-CEO Hans-Joachim Watzke (pictured right) and CFO Thomas Treß, the trio were left in charge of convincing the clubs’ shareholders, the German banks as well as the Deutsche Fußball Liga (DFL) that the club were able to continue as a going concern. And they proved to be right. Under their strict new regiment, players were forced to take a 20% pay cut as one of many rigid cost cuts that took place at the German club, with the budget going forward considerably slashed.

Aside from cost cutting, the club also eased its financial worry by securing a 15-year loan of €79.2m from US investment bank Morgan Stanley. This enabled the club to buy back the majority of its shares in the stadium from the hands of Molsiris for €57.5m – with the remaining balance being used to pay off €21.7m of their existing liabilities.

The club’s executives used an additional two techniques in order to improve their cash-flow position. First - having regained full ownership, the club sold the naming rights to the Westfalenstadion, with its new name finding its roots from the insurance company, Signal Iduna. The second method was by way of a share issue which, at €2 per share, generated a significant €29.25m sum for the club.

The good times return

And so, a clear financial plan was set out by Watzke:

“We would never again go into debt in the pursuit of sporting success, now we only spend what we have earned.”

The results were evident immediately. The wage/revenue ratio fell to just 33% by the 2006/07 season, and if you cast your eyes back to Figure 1 - the club maintained a healthy level from that point onwards.

The financial improvements were also evident in the annual reports, particularly their net profit/loss figure - as demonstrated in Figure 3 below, the club have maintained a steady profit since the 2005/06 season, reporting figures as high as €53 million in the 2012/13 season. It was only with the onset of the COVID-19 pandemic that the club reported their first major loss in the 2019/20 season for 15 years.

(Figure 3: The total profit/loss reported by Borussia Dortmund from 2000 to present day)

The club had clearly learnt that the high spending years of the early 2000s had not worked out, which triggered a complete shift in their transfer policy. By investing in youth early and providing them the necessary nurturing and training needed in order to develop, these players would inevitably become high-value assets with that the club could cash in on. This could then be reinvested into youth development – hence the cycle continued. It is no surprise that the two youngest debutants in the Bundesliga, Youssoufa Moukoko and Nuri Sahin, were both wearing the yellow and black jerseys of Borussia Dortmund.

The cycle was simple, but effective. Since the trio took charge over the club from March 2005, Dortmund have made a net profit of £62 million in the transfer market – a stark contrast to the figures reported in earlier years.

(Figure 4: The incredible impact that this change in approach had on the club's net transfer spend each season)

Players such as Ousmane Dembele and Christian Pulisic are clear examples of this. Brought in for a combined £13.5m, their departures from the club in 2017 and 2019 respectively brought in over £150m. Erling Haaland, Jadon Sancho and Jude Bellingham promise to be the next in line on this conveyor belt of talent.

(Pictured: Jude Bellingham (17), Giovanni Reyna (18) and Erling Haaland (20) are just three of the club’s current stars aged 21 or under).

Under the guise of the enigmatic Jurgen Klopp, the club returned to the state it was in during the golden years of the 1990s – winning two Bundesliga titles in 2011 and 2012 (the last two won by a club not named Bayern Munich) and reaching the Champions League final in 2013 (which they narrowly lost to their rivals from Bavaria).

A legacy blueprint was created within the club, and no matter who the manager is, what the formation is, or when the match is - this will not change in Dortmund. Loyal fans had, at one point, witnessed their beloved club reach the brink of bankruptcy - but thanks to this overhaul in approach, as mentioned in the club song from 1909 - “Borussia will remain”.