Report: Finances in Football - Part One
Thursday, 04 June 09, 06:17 PM · Comments(13)
By Michael Sinnerton
As Liverpool owners Tom Hicks and George Gillett suffer a £42.6 million loss and Premier League clubs announce a debt of £3.1bn, Students of the Game takes a look at the effect of the recession in football and whether it's causing an even bigger rift between the Premier League and the Football League. In part one I'll be focusing on the Premier League.
First things first, £3.1billion is a ridiculous amount to owe. These range from £1m (Hull), £2.3m (Stoke) and £8.9m (West Brom) to £701m (Chelsea) and £699 (Manchester United). One huge thing stands out from these figures, the three recently promoted clubs have virtually no debt whilst the top four have the four largest levels on debt. Success it seems comes at a cost.
This brings to mind the obvious question of just how unfair it is that clubs are able to go into that much debt and compete in the same league. Rugby League in this country, as well as numerous American sports, has a adopted salary cap system which allows for a much closer league. Admittedly in both cases their remain a number of teams who are stronger, have bigger budgets and are more likely to win (Leeds, St Helens in the case of the former, or Boston Red Sox and the New York Yankees in baseball). However there is much more scope for upsets and on the whole the leagues are more competitive but will it ever happen in football?
Probably not, the top clubs have so much power particularly given the possibility of a European Super League which I think is unlikely in the near future but could happen with frightening speed were top clubs to take exception with domestic changes. FIFA and UEFA are attempting to limit the amount of debt a club is about to build up but for now little seems likely to change, so back to the matter at hand.
With the recession hitting Liverpool (refinancing problems) and Arsenal (falling property prices) among others and the ‘average fan' spending less in terms of going to games as well as merchandising these large debts have been brought into clearer focus than ever. Admittedly a lot of the £3.1bn is owed to clubs' chairman in the form of interest free loans (all of Chelsea's debt is in this form from Roman Abramovich and £174 of £197m is owed to Al Fayed) but according to the Guardian's latest figures only 6 of 19 Premier League clubs made profit before tax (Liverpool unknown) with Everton making a mouth-watering 26k.
Clubs are becoming wise to the recession and are beginning to introduce cheaper ticketing policies. Burnley chairman Barry Kilby, for example, has handed out 7,000 free season tickets to fans who bought their tickets before August last year - those fans will struggle to complain if Burnley go down for spending too little though. But the real problem is not the fans, or lack thereof, it's the players. A 23% increase in television money could have led to greater financial stability but exactly the same percentage rise in player wages has seen a lot of it swallowed up immediately, with Chelsea's wage bill totalling £149m.
Looking at wages as a percentage of turnover show perhaps the scariest figures with even Hull's £6.9m wages being 77% of turnover, Newcastle's wage bill of £74.6m was 74% of turnover, much good it did them. With players now the be all and end all in football, given that so much money is tied up in them, it is no wonder that managers who make mistakes in the transfer market are given shorter and shorter shrift. The stakes are just too high.
Like this blog? Help spread the word: 
-
Amaster said:My favourite female gladiator is Lightning and my favourite male is Hunter. :) ...
tomcruise said:Its very good .. I like it
student loans consolidation
On Wenger's experiment: The good, the bad and the Verminator
-
studentsofthegame
GB
We really should be getting paid for this.
13 Comments · Add yours
Leke man!!!!
D
Do you think the recession could mean the top clubs are forced to tigten their belts which could lead to more competition? Good article!
Reply to ShiZzeR:
Does leke mean good in afrikaans? Hope so/that's all I can find?
Reply to ally72:
I guess there's some evidence that Arsenal have had to tighten their belts despite the move to the Emirates as Wenger has still not spent that big. Benitez tends to have to sell to support his spending too. I think the same was true at Chelsea but Ambramovich may loosen the purse strings again, whilst Ferguson seems to be able to spend more or less what he wants and Manchester City now have unlimited wealth.
Why do you reckon falling property prices are affecting Arsenal in particular? Surely they're affecting consumer spending and the demand for tickets in general more than anything?
Love your work boys but you need to understand corporate finance before writing an article on it. Agree Arsenal are in the poo, so are Liverpool but that is not just about debt levels
I don't want to speak for Mike but the reason Arsenal are most affected by falling property prices is that they are looking to sell the flats that were constructed on the site of the old Highbury ground. Allegedly, they planned to use the money generated from the sales to pay off a large amount of the debt incurred when building the Emirates Stadium. This would've left them in a much healthier fincancial position. As it stands now, they could be struggling. The problem is that most of the stuff that gets written on this subject is conjecture. Only time will tell.
Reply to The Bug:
No, of course it's not just about debt levels - but that's a fairly key feature. Could you explain a bit more what you mean about needing to understand corporate finance. Glad you enjoy the blog.
>>> Ally - Arsenal have used the land on the old stadium, Highbury, to build flats. Because of the property slump, Arsenal have more to lose than most.
Reply to Flaschner:
Sorry Dave, didn't see that. That's a much fuller explanation.
No problems. I'm envious of your proficiency with the 'quotation' feature. How do I put quotes in my posts?
You just click 'reply' to the particular comment you want to reply to and it quotes it for you.
Reply to studentsofthegame:
Genius.