Football as business?
Those people who complain that football has become too much about business and not about the game itself, have a funny idea about what constitutes business. What kind of business would voluntarily rush headlong into massive debt and continue down that same path during a time of economic hardship and recession?
The combined Premier League clubs’ debt is currently hovering around the £3.1bn mark according to Deloitte’s annual review of football finance. Of this top-flight debt two-thirds of it is owed by the ‘Big Four’. Chelsea owe Roman Abramovich £701m. Manchester United owe banks and hedge funds £649m and other creditors about £50m more. Arsenal owe £416m, spent largely on the Emirates Stadium and on property development at Highbury.
Interestingly, Liverpool, who have been pronounced to be deep in financial crisis this week, ‘only’ owe about £350m. The problem for Liverpool in contrast to the other three clubs is that they do not have the resources to adequately cover their interest payments. Both Manchester United and Arsenal have far bigger stadiums and can generate significantly larger match day revenues, whilst Chelsea’s Roman Abramovich is unlikely to behave in the same manner as a bank when confronted with such a scale of debt.
Kop Football Ltd, the company created by George Gillet Jnr and Tom Hicks when they bought the club, posted losses of £42.6m for the year to July 2008, mainly down to interest payments of £36.5m on loans taken out by the Americans to buy Liverpool. However reports in today’s papers suggest that Liverpool will be able to compete in teh transfer market with Manchester United, if not Chelsea and Manchester City.
Debts mean prizes!
The sad thing for football in general and English football in particular is that these four indebted clubs are the only ones capable of challenging for the major prizes. The situation is not markedly different in the other major European leagues. Real Madrid, with the financially insane Florentino Perez at the helm once more, are in the process of completing the signing of Kaka from AC Milan for £56m and will follow that up by attempting to pay even more for long-time target Cristiano Ronaldo from Manchester United, as well as offering over £15m for Wigan’s Antomio Valencia and possibly following up their declared interets in Liverpool’s Xabi Alonso.
Gang of three
Competing with Real Madrid for the biggest names in world football this summer will be Chelsea, under new manager Carlo Ancelotti and Manchester City, backed by their oil-rich Sheik Mansour. One of Britain’s leading sports business professors, Dr Simon Chadwick, from the Coventry University Business School, believes it is these three clubs that could prove to be the catalyst for a summer of spend, spend, spend.
“Potentially, I can see individual records being broken and the total spent by Premier League clubs being broken too,” But I don’t think it will be spent very widely. It will be highly skewed by two or three clubs and you are looking in particular at Man City and Chelsea. What is even more important, though, is what happens at Real Madrid. That will have a cascading effect on the rest of football - especially in Spain and in England, the two big leagues in Europe.”
A league of their own
Football agent Barry Silkman expects City to carry on spending money like it is no object throughout the summer.
“When you talk about Manchester City, a club with a massive amount of money, for them it’s of no consequence how much they spend. It’s irrelevant if the money they spend is ‘worth it’ too, because they will just pay whatever it takes to get the player they want. Other English clubs are going to really struggle to buy from the continent this summer because the pound is so poor against the Euro, but that won’t affect City in the slightest. They have a bottomless pit and they can go and get who they want without posturing. They need to as well because right now they are five or six world-class players short of competing near the top end of the table.”
Silkman expects the poor value of the pound to have a positive impact on the volume of transfers completed between English clubs this summer.
“This will be the biggest internal transfer window ever, no doubt about it,” he added. “There will be a lot more deals and much bigger ones than we’ve seen for a while too. The pound is struggling so much that clubs are finding it hard to even pay a player’s salary from abroad and so the established players from Europe we’ve seen coming over in the last few years might dry up.”
No record spending overall
However, it is not though that the massive spending that these three clubs are likely to embark upon will ‘trickle down’ throughout the rest of football. Dan Jones, the editor of Deloitte’s Annual Review of Football Finance, believes the record spent by English clubs in a summer transfer window - £530m in 2008 - is not going to be broken, he argues;
“I’d be surprised if it was broken. We’re expecting it to be busy, but possibly not record-breaking. Part of the reason for that is because there has been such a lot of activity in the last couple of windows - though you have to be careful of the Man City, Chelsea and Real Madrid factor. They could kickstart something like Roman Abramovich did when he first arrived at Chelsea six years ago, we have seen it happen before. I stand to be corrected by the end of August, but I don’t think there will be more spent than last year. Probably not far off the same, but not more than.”
The trap
The problem is that as these super rich clubs spend a fortune on the best players their rivals are forced to try and compete and this is where the financial over-extension occurs - ultimately a football club exists to win trophies and supporters, particularly of the top clubs demand this, so owners and directors are forced to some extent to try and compete financially. This model has worked so far for Manchester United who are more than capable of dropping £30m on individual players, but, despite their success, there are worries over how long such a model is sustainable in the current economic climate. United have a ‘get-out’ in Cristiano Ronaldo whose transfer would raise a tremendous amount of money, but at the cost of weakening the Old Trafford giants whilst strengthening one of their European rivals.
Finally…
What happens this summer will be dependent on the whims of a few hideously rich men whose involvement in football is questionable and who are leading clubs, and the game itself, on a road to financial ruin.
By Rob
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