Tough Times Ahead
| Tough Times Ahead |
| Written by Wyn Grant |
| Sunday, 31 January 2010 20:20 |
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The Premiership model remains strong with television revenue and considerable revenue from other sources including gate money. However, it must be emphasised that both the Sky money and fans in the ground are important elements in the equation. Clubs like Portsmouth that have one but not the other, and lack a reliable benefactor, are likely to find themselves in trouble. Manchester United has been the focus of considerable attention in the past month as the Glazers successfully launched their £500m bond issue against the background of protests from fans. A large banner held up by them outside Old Trafford ironically proclaimed, ‘Glazer: forever in your debt’. Some fans have taken to wearing the gold and green scarves of the predecessor club, Newton Heath, and these scarves are hot items on the streets of Manchester. Newton Heath was founded by railway workers. It became Manchester United when the club ran into debt. A brewer settled the debts in return for the no doubt lucrative right to sell beer in the ground. This is an early example of commercial sponsorship and reminds us that commerce and football have been inextricably linked from the early days of the game, albeit that the businesses in those days were local rather than foreign ones. But globalisation has been a fact of economic life for some time and it is difficult to see how a popular sport like football can be sheltered from it. The £500m raised by the Glazers through their bond sale attracted an interest rate of just under 9 per cent which is a lot more than most people get on their savings accounts these days. The bonds were bought by insurance companies and pension funds looking for a good and secure return. The bond issue should enable the Glazers to pay down the PIK notes which are currently believed to be held by appropriately named ‘vulture’ funds. The interest on these notes would increase to 16.25 per cent in the summer if a debt threshold was passed. No wonder, then, that the Glazers want to pay them off, particularly as they are secured against their own personal assets. They should be able to use cash on the United balance sheet to do this, but some of this came from the sale of Ronaldo. Sir Alex Ferguson has insisted that money is available for new players if he wants it, but many fans do not see it that way and some of them resent what they see as the manager lining up with the owners – although he is hardly likely to publicly fall out with them, particularly as they give him autonomy on the football side. Manchester United’s debts are clearly substantial, but the club is (alongside Real Madrid) the leading global brand in a sport that is a leading one in most parts of the world. Business runs on debt and what matters is whether you can service the debt and at a rate of interest that does not damage your core business in the long run – which, of course, is just the point that concerns fans. The prospectus accompanying the bond issue obliged the club to be franker than it usually is and it is interesting to note some of the key concerns mentioned about the future of the club:
Manchester United may have its problems, but they are nothing compared to those of Portsmouth. The south coast club has not gone into administration yet, but it remains a constant threat. The payment of wages has been delayed month after month and perhaps the ultimate humiliation was when the club website went down because of an unpaid bill just when fans were looking for ticket information about the classic cup clash against Southampton. Portsmouth has been through a succession of foreign owners with the first one wanting his money back. The strategy of the current owners apparently rests on securing bank loans, but that is not easy for a football club in the current climate, particularly one with a stadium with limited capacity. Portsmouth fans are fighting back through a new supporters’ trust. South London Championship outfit Crystal Palace are the latest club to go into administration. This is another club where there have been problems about paying players’ wages. They faced a winding up order in the High Court for not paying a £1.2m tax bill, but before this could take place another company (based in the Cayman Islands) which was owed £5m appears to have pulled the plug. The ten point penalty was not enough to put Palace in the relegation zone. Clubs usually come out of administration stronger because they are debt free, often at the expense of creditors that include the taxpayer, small businesses and the St. John Ambulance. The road back may be quite a tough one for Palace, however, as they have faced falling attendances and there are not many buyers around with plenty of cash – and they have quite a lot of choice of clubs they could buy. I sense an appetite out there to teach clubs a lesson by forcing one club out of business altogether, perhaps to re-form as a non-league phoenix club. I just hope it is not my club or yours. Wyn Grant is a regular contributor to Albion Road and also the publisher of footballeconomy.com, a website covering the business and economy of the game of football. |
The British economy barely crawled out of recession in the last quarter of 2009 after an eighteen month economic downturn and football was starting to feel the pressure as more clubs ran into trouble. However, it must be emphasised that the real threat is not to top clubs who have reliable benefactors or generate large amounts of income. It is clubs on the fringe of the Premiership and lower down the leagues who are in difficulty.
