Financial Inadequacies and Inflated Egos – The Demise of FC Schalke 04

When the average football fan hears the name Schalke, they think of the hugely popular Bundesliga side that has often tested the steel of the mighty Bayern Munich and laid claim to the latter rounds of Europe’s elite cup competitions. But, in 2024, the future of the seven-time champions of German football remains uncertain as one of the world’s largest sports clubs fights to avoid relegation from 2. Bundesliga. 


Following a 1-0 defeat against promotion-chasing Holstein Kiel on Sunday, 11 February, FC Schalke 04 sit two points above an automatic relegation spot in Germany’s second tier, with the club’s existence in doubt should the unthinkable occur. This topic revolves around the unlikely granting of a 3. Liga licence and the harrowing consequences this includes. 


But, before attempting to understand the ramifications of back-to-back relegations, it is imperative to digest the scale of Die Königsblauen’s fall, from the side that enjoyed EUFA Cup success in 1997 to the one that lifted the famous DFB-Pokal in 2010-11 with a crushing 5-0 victory over MSV Duisburg in Berlin’s Olympiastadion. 


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To the naked eye, a second-placed finish behind perennial powerhouses Bayern in the 2017-18 campaign would convince many that today’s turmoil is merely a blip – a simple fall from grace. However, in reality, the decline of this once-great establishment has been steady, with the aforementioned an anomaly. At the top of this heartbreaking decay stood the highly controversial German billionaire Clemens Tönnies. 


Who is he, and why is his role significant in this story of perennial heartbreak? 


There are several reasons why football in Germany has gained immense popularity, with some of the largest average attendance in world football. An esteemed fan culture reverberates nationwide with the Bundesliga’s ’50+1′ ownership model. This rule has played a crucial role in shaping and preserving the unique football culture of Germany, distinguishing it from the rest of the world. 


The rule requires club members to hold a majority of voting rights, i.e., 50 per cent plus one more vote. In short, it implies that the club and its fans have the final say in defining decisions – rather than a third-party influence or investor. Clubs will hold Supervisory Boards, which inevitably require a Chairman of that particular board. Tönnies held this iconic role at Schalke for a staggering 19 years. 


Throughout his tenure, he governed this supervisory council – consisting of roles like sporting and technical directors. The root cause of the club’s predicament lies in the poor decision-making at the board-room level. A highly questionable array of managerial appointments and a catalogue of underwhelming acquisitions have proved catastrophic, contributing significantly to the club’s decline over the last decade. 


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The 67-year-old, who owns a 45% stake in Tönnies Holding, has been in the spotlight since 2012 – when he became the main character in a suspected tax evasion investigation. With each passing year, the former Die Knappen kingpin attracted negative attention, culminating in a statement about Africa in 2019 – widely criticised as racist – inevitably leading to widespread protest for his resignation, which he supplied on 30 June 2020.


Significant factors that solidified the great collapse of Die Königsblauen – 1. Contractual failings


Between 2010 and 2020, the club housed an array of household names – from the legendary Spanish striker Raúl to Klaas-Jan Huntelaar, Joel Matip and Leon Goretzka. 


With boardroom decisions widely lamented, the inept handling of contractual matters left a lasting scar. As a result of untimely negotiations, a whos-who list of stars departed Gelsenkirchen for free, with Matip heading to Liverpool, Sead Kolasinac moving to their Premier League rivals Arsenal, and Max Meyer heading to Crystal Palace. Additionally, a painful pill for the partisan support was the loss of Alexander Nübel and Leon Goretzka to Bayern. 


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While it is not uncommon for star players to move on, the loss of revenue from transfer fees easily scaled above the €100 Million mark. The financial impact of each following domino yielded an unmerciful blow to the internal structure, with the squad configuration inadvertently weakened with each passing departure.


Significant factors that solidified the great collapse of Die Königsblauen – 2. Transfer wheeling and dealing


The Arena AufSchalke, maintaining a colossal capacity of 62,271, opened its doors to Karel Geraerts side in 2001 and has maintained an average attendance of over 61,000 spectators despite this precarious scenario. Attempting to maintain support and challenge their domestic rivals, Schalke became accustomed to panicking in the transfer market, often splurging on players. 


Regrettably, many incomings failed to achieve expectations and inevitably incurred dramatic losses when attempting to recoup financial beatings. Breel Embolo signed in 2016 for €26.5 Million and was sold three years later at a loss of €15.5M, while Yevhen Konoplyanka arrived the same year for €12.5M, leaving alongside Embolo for a loss of €10.5M. Astonishingly, there was a loss of close to €100M in player sales in seven years up to 2022.  Factoring the mismanagement between player incomings and outgoings, Tönnies oversaw a record revenue loss of close to a quarter of a billion euro. 


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Significant factors that solidified the great collapse of Die Königsblauen – 3. Ignoring the importance of managerial structure


Following the managerial departure of Huub Stevens in December 2012, the club has welcomed 17 different managerial appointments to the present day, with an amalgamation of interim chiefs and familiar faces coming and going with every passing season. 


With Tönnies and his supervisory board desperate to atone for failed decisions, any form of long-term strategy was abandoned in favour of a desperate lunge for immediate success. This strategy inevitably proved foolhardy, with endless player purchases overlapping each passing managerial vision. 


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A disgruntled and constantly changing squad struggled with multiple tactical setups, coaching inadequacies and strategic failures, culminating in two Bundesliga relegations since the turn of 2020 and a battle for second-tier survival in 2024. 


Significant factors that solidified the great collapse of Die Königsblauen – 4. COVID-19 and the financial impact


The COVID-19 pandemic devastated businesses around the globe, with the financial impact of empty stadiums causing unheard damage to even the elite of European football. 


The pandemic took a startling toll on Schalke, and, much to the horror of their worldwide support, the club revealed the threat of bankruptcy in April 2020. Furthermore, the existing debt and the pandemic-related restrictions led to the club enforcing a player salary cap of €2.5 million annually. 


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The highly-publicised financial burden led to an inevitable decline on the field, culminating with a club record of 16 league games without a win between January and June 2020. 


Present day


As reported by Sky Germany in late January, the club’s very existence is now hanging in the balance. With their precarious league standing presenting an unthinkable outcome, the ramifications of relegation, coupled with the existing debt, means a licence for the third league would be all but impossible. 


Additionally, should the administration find an unlikely way to bypass this particular issue, the club could not endure the financial consequences that a further demotion would supply. Simply put, FC Schalke 04 would cease to exist in its current form. 


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For supporters, maintaining the ’50+1′ remains a hot topic. Understandably, tradition is valuable for the entire fanbase, but the realisation of the growing financial divide across Europe is evident. History is rich with sides suffering because of a failure to adapt to the expanding demands of the world’s game, and a cash injection from a wealthy outsider may offer a means to an end. 


On the field, Geraerts must install belief and galvanise a tormented squad of players. Front and centre, he has to establish a way of converting losses to victories and earning valuable points. This unfortunate story is a cautionary tale. It emphasises the crucial role of prudent financial management and shared strategic decision-making. The proud supporters of this 119-year-old club can only hope that it is not too late. 


By: Shaun Connolly / @shaunconnolly85

Featured Image: Sebastian El-Saqqa – firo sportphoto / Getty Images

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