Various Football Finance Articles

Meanwhile...

The Times

August 15, 2009

Football ignores the recession as Premier League season begins

Kevin Eason, Sports News Correspondent

Britain might be steeped in the gloom of recession but football’s grass remains green with the Barclays Premier League preparing to kick off a new season still laden with the cash that can buy multimillion-pound players and all their trappings.

It might be in £3 billion of debt and spending like a drunken banker hoping for a big bonus but football still pulls in the big money.

Richard Scudamore, the chief executive of the Premier League, said that revenues for what is billed as the biggest and richest league in the world would pass £1 billion for the first time this season.

In the North West, where factory closures come thick and fast and the dole queues are longer than any outside a Premier League ground, Liverpool Football Club secured the services of Fernando Torres in a deal said to be £110,000 a week to the striker — a vast fortune compared with the £479 average wage of those workers in the city still lucky enough to have a job.

A few miles away, Manchester City, backed by what is estimated to be the biggest fortune in football from its Arab owners, has spent £100 million on new players and is preparing to spend even more in the remaining weeks of the transfer period.

It is a world away from the realities of home repossessions and mass unemployment. Yet fans struggling to pay mortgages are still prepared to dig deep to support their clubs and watch footballers who live such lavish lifestyles that they can afford to crash £100,000 cars and build mansions on posh estates a long way from the people who support them.

The Football League, which represents the lower three tiers of English football, reported the biggest opening-day attendance last Saturday for 46 years as almost 450,000 people filed through the turnstiles at 36 grounds.

The Premier League is also expecting as enthusiastic a turnout today, even if clubs have had to adopt the sales and marketing techniques of more mundane businesses, embarking on a series of cut-price offers.

Many have frozen or reduced ticket prices to keep fans, even in the heady world of the corporate suites, where carpet replaces concrete stands and the prawn sandwiches are a bigger attraction than the football. Chelsea yesterday were advertising £700 hospitality packages, with lunch, drinks and the best seats in the ground, at £150 for some games.

Manchester United, the champions, are one of only three clubs to have raised prices but its season tickets have still sold out. A dozen clubs have increased season ticket sales while four — thought to be Aston Villa, Bolton Wanderers, Portsmouth and West Ham United — are understood to have seen sales fall.

Mark Roberts, senior consultant at the Deloitte Sports Business Group, said: “Demand is still there. The pound in the pocket might be stretched but it seems that fans cannot give up their fix of football. The clubs have been aware of what is going on and they have responded, and that has kept the numbers up. Football really is unique in the way it has kept above water during the recession.”

Even if gate receipts drop, the Premier League’s fortunes are underpinned by television. Domestic broadcasting rights have been locked up for three years from next year and are up 5 per cent at almost £1.8 billion.

It is not just popularity at home that has safeguarded the sport but the demand from abroad, where English football is the most watched in the world. Games today will be beamed into almost 600 million homes in 211 countries, more than for any other league, including the star-studded La Liga, in Spain, or the Italian Serie A.

Negotiations have started to sell overseas television rights and experts believe that the price for the next three years could far exceed the previous record of £625 million of deals.

www.timesonline.co.uk/tol/sport/football/article6797053.ece

Cardiff City and Swansea face a risky financial gamble
Aug 14 2009 by Aled Blake, Western Mail

WALES’ top two football clubs have been warned they risk “financial catastrophe” by spending their way to the promised land of top-flight football.

In an in-depth survey of football club finance, PKF accountants and business advisers argue that English league clubs have to face up to difficult choices as they look to remain going concerns.

The challenges thrown up by recessionary pressures mean that many clubs are having to dig into their overdraft facilities, with few expecting to make a profit this season, according to the report.

Keith Morgan, partner at PKF’s Cardiff office and a specialist in football and sport finance, warned both Cardiff City and Swansea face “tough times” as they look to build on recent successes.

Cardiff City this week announced it had been in talks to establish a “strategic marketing alliance” with Football Focus Asia.

The club is investigating ways of securing cash from the Far East as it looks to reduce its massive debt – which stands at £24m – accumulated under the reign of former owner Sam Hammam and which has since been added to with the development of its new stadium.

Mr Morgan explained: “These are difficult times for football – that is why Cardiff City is looking outside the UK for new finance; the UK is not full of people looking to invest in football clubs.

“Local companies are not spending as much money in terms of sponsorship and advertising, which is affecting clubs’ finances.”

Cardiff City is one of a handful of clubs to start the season without a shirt sponsor, with the slump in spending on shirt sponsorship even affecting the Premier League.

Mr Morgan said: “It’s a battle out there; times are very difficult in football. While there is still the opportunity for everything to be all right if you reach the promised land, there is massive risk associated with putting the resources into doing that.”

The PKF report, Staying On The Ball – How Clubs Are Responding To The Credit Crunch, shows that while the Premier League has been relatively immune to the recession, clubs in the Championship are having to downsize squads and curb spending on salaries and transfer fees.

The recent announcement by Cardiff City highlights that clubs outside the Premiership are struggling to raise finance and have to restructure existing debt.

Philip Long, head of corporate recovery at PKF, said: “Arguably, it is clubs in the Championship that have the biggest gamble. Do they spend to try to reach the Premier League – the Holy Grail – or spend to avoid relegation?

“Either way, the price of failure could be catastrophic. Clubs must plan for all eventualities and unsuccessful speculation using bank debt could be a one-way ticket to insolvency.”

In the survey, merchandising and corporate hospitality show the largest falls in the last year – for both, 38% of clubs reported reductions of greater than 5%. For the year ahead, clubs in the Championship are concerned about match and season ticket revenue.

Both Cardiff and Swansea now play at modern all-seater stadiums, having moved out of Ninian Park and the Vetch Field respectively, as they look to generate more income from the corporate market.

Swansea’s Liberty Stadium has a capacity of around 20,500, while the Cardiff City Stadium can hold 26,800 people.

Mr Morgan said: “If you look at the two South Wales clubs, Swansea are in a debt-free position but they are probably at the highest level they are going to achieve on a sustained basis.

“It would be very difficult for a club with that sort of ground capacity to be long established in the Premier League.

“Cardiff City has more potential but it has this big level of debt behind it. If the shareholders want someone to buy their shares off them and put enough money in to clear the debt, it could take £45m as well as money to fund losses.

“Doing that, you would have a debt-free club and income from the stadium. But there is a high degree of risk in doing so and that is the problem the club faces in attracting an investor.

“If you were an investor, you’d have to look at the competition and wonder if you would be better off investing in a club like Reading or Leicester?

“Cardiff has the advantage of the stadium which gives it potential, but not yet actual income stream.”

The study found that the league under the most financial pressure is the Championship, with more than three-quarters of its respondents intending to use more than 90% of their facility this year – up from 44% last year.

Mr Long added: “Given the cataclysmic financial and economic events over the last 12 months, it is not surprising that the results of our survey reflect the predominant themes affecting the UK economy. More clubs are finding it harder to raise funding, more are digging deep into their overdraft facilities to keep going, and fewer expect to make a profit this season.

“Finance directors are clamping down on the size of the squads and trying to curb both player salaries and transfer fees – although the recent English Premier League signings suggest that the big clubs are still immune from some of the financial pressures on the smaller leagues.”

www.walesonline.co.uk/footballnation/swansea-city-fc/2009/08/14/cardiff-city-and-swansea-face-a-risky-financial-gamble-91466-24438790/

The old system recognised that failure was 91 clubs, winning was 1.

The new system of 'investment' doesn't do this. It looks at the league differently. Anyone can win it. But somehow, in some mysterious alchemical transformation, this becomes 'everyone will win it'.

Under the old system, the winners earned more money because they were better. Under the present one, the losers spend more money because they're worse. They're backing their own incompetence.

Under the old system, the best teams feared they might start losing. Under the new system, the worst teams believe they'll start winning. The best teams were usually right, but the worst teams can't possibly be. Success is too rare.

The winning Clubs can play this system successfully. But the losers can't. Future WINNERS may earn enough to recoup their own investment - although to date the winners are losing more, faster, than anyone else - but the successes achieved by future winners will never be enough to recoup every OTHER Club's investment, still less be available to the losers to do so.

Of course, there's relative success, a Club doesn't need to win competitions to improve. But every Club is already relatively successful - any league Club is enormous in the leagues where AFC Wimbledon started their long climb (back), so there's little point to spend wildly just to achieve what you already have.

Modern football seems to envisage a vast pool of money just sitting there in the future waiting to be claimed. But to make sure it's there - if they believe there's anything there at all - they're spending as much of it as they can NOW, just in case, pumping it away as losses to spend on players who will never win anything for the most part.

United and their microscopically successful sidekicks, Chelsea, account for half the entire league's debt between them. That's how remunerative success is.

And how can they stay at the top if they don't spend even more - on the basis that they're only there because they've already spent so much. Witness the regular complaints by small Club supporters like Arsenal's that they can't compete financially boo hoo).

Can they rein in spending, when their rivals below them might emerge as the new top dogs, picking up the big prizes, leaving the former big boys with the fattest debts scrabbling around trying to borrow even MORE to get back than they did when they were up there.

Are there are signs of strain, now?

More than there were 5 years or 10 years ago? Though Clubs were struggly badly then. Perhaps they will just muddle through.

The pyramidal structure of football isn't necessarily encouraging. Very stable as long as the biggest supporting blocks of the pyramid consist of failure, as they must. The teams at the top can only have a tiny amount of that, but everyone else must have loads to keep them up there.

Under the old system, money flowed in according to size and success, and was spent once everyone knew how much it was, that is, when it had already arrived.

Now the money is spent years before any of it has arrived, as the losses and debts show.

The old system actually DID link money to success, but the modern game has reforged that link in a very strange way. It is difficult to see how a Club CAN know how much to spend to achieve success - £7 million, £70 million, or £700 million - and when to stop because it is getting it wrong - if it doesn't know how much success is worth. And it can only know that if it actually gets the success and the money FIRST.

Maybe the most sinister concern is that they have no idea when to stop because all their calculations are based on IMAGINED future profits, all of which will be, almost inevitably, wildly, if not ludicrously optimistic.

If they were realistic, there would be virtually no debt at all.

If you win the League and earn £66 million, you have that much to spend, minus costs. If you imagine you will win it 3 times, earning you £1.4 billion (and you don't, you are relegated and make successive losses for 15 years), your finances are not only mistaken, they are meaningless.

I wonder if that is why some supporters haven't renewed. Not just the cost, but the fact that the basis for calculating value based on that cost is, quite literally, meaningless.

This seems to be confirmed, to an extent, by the vague hopes supporters' have. 2 years ago, we were going to wipe the league out by doing a Chelsea, spending hundreds of millions. Then it was less, but still enough to crash the top division and straight into the top 4, title to follow in a year or two when the really big spending would start.

Then we were (baffled, actually, that they were buying rubbish, albeit very expensive for rubbish) speculating that they were downsizing to get the correct level of expenditure simply to win this league, within the Club's resources (hard to justify as their raison d'etre is that we don't need to depend on the Club, we have Flav and Bern and Mitty), and then we were a sort of slightly up-market Crewe, shrewd, tough and not wasting money on the likes of the Real Madrid new di Stefano - even though we were wasting money on them - and then everyone was stunned when the price of nearly being relegated the season before was to put the price of failure through the roof.

So, yes, maybe it is meaningless now. Maybe they are doing what property developers do. Shrug their shoulders, grab the site, sit on it, and see what turns up.