Football Business - October 2008
| Economic Tsunami and Football |
| Written by Wyn Grant |
| Wednesday, 05 November 2008 12:31 |
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It is important to understand what the Premiership model in terms of the availability of substantial funds to clubs is built on. The most important element is the television deal. An increasingly important element of this has been the international television rights. The attraction of Premiership football in East Asia, the most important market, has been its freedom from corruption as something to bet on in countries where gambling is deeply ingrained in the culture.
No one knows how long or deep the recession is going to be, but a reasonable assumption is that it will last at least 18 months and will be as bad as the 1990-92 recession, but not as bad as the slump of the 1930s. Some Sky subscriptions will be lost as a result. However, Sky is likely to face competition in the 2009 bidding round for television rights from Setanta, possibly in collaboration with BT Vision, and possibly from Walt Disney via its EPSN arm. Football programming remains the key to the success of the Sky model, along with blockbuster movies. Therefore I would to see a television deal which is not significantly worse than the last one, after taking inflation into account.
Corporate box revenues may fall and shirt sponsorship contracts will be less lucrative, with even Manchester United hard pressed to get a deal comparable with the one they had with AIG. There will be some fall off in merchandising income. Arsenal has found their Highbury property development less easy to raise cash from than they thought. Even Chelsea has said that any player acquisitions in the January transfer window will have to be balanced by sales, although that partly reflects a view that the January window does not offer good value. However, that may simply reduce the cost of transfers, leading to lower outlays for clubs. Clubs that rely to a considerable extent on gate revenue like Manchester United are likely to continue to be able to sell out, although the increases in season ticket prices in the Premiership are likely to taper off and there may be some good deals on ticket prices for individual matches.
There will be less cash around, but clubs that have good cash flows should be able to cope. Stadium projects are certainly threatened, especially that at Liverpool, while Chelsea have abandoned the search for a replacement for Stamford Bridge for the time being. Global figures about club debt, or even debt figures are for particular clubs are relatively meaningless, although they make good headlines. What one has to ask is: how is the debt structured, and can it be serviced? Take my own club, Charlton, as an example. The £20m debt figure keeps being quoted as if it was some huge albatross around the club’s debt. But approximately £14m of that figure takes the form of friendly loans from club directors who are also fans and own the club, while the other £6m is long-term mortgage debt at reasonable rates of interest.
As far as foreign ownership is concerned, there are less potential buyers in the market and this has posed a challenge for attempts to sell Newcastle United, at any rate at a profit for Mike Ashley. We are going to see less American owners and less interest from former Soviet bloc countries. However, the sovereign wealth funds, particularly in the Gulf States, still have plenty of money and are interested in buying clubs. Sooner or later, it is more than possible that Dubai Investment Corporation will acquire Liverpool from its cash strapped American owners. One reason the Dubai royal family pulled out of a deal at Charlton, which was at an advanced stage, was a possible conflict of interest which would deny them the more appetising prize at Liverpool. A South African consortium has also been active in looking at a number of clubs.
However, there is likely to be a less rapid growth of foreign ownership in the future and prices are likely to fall. Whatever may be said to the contrary in some cases, a buyer with plenty of cash could choose between the following Premiership clubs at the moment: Everton, Portsmouth, Spurs, West Ham.
Those in favour of greater regulation, notably Lord Triesman at the Football Association and the new culture, media and sport secretary Andy Burnham (a former chair of Supporters’ Direct) have seized the opportunity presented by the changed political climate to try and clip the wings of the Premiership. Andy Burnham laid out seven areas of concern, including transparency of club finances and debt, insolvency risks, the league's 'fit and proper person' rule for owners and the number of foreign players. 'Despite the levels of money in the game, football must be a sporting competition run like a business and not vice versa,' he said. He demanded a response from football's three English governing bodies - the Premier League, the Football Association and the Football League - in the new year. Though aimed across football's hierarchy, the thrust of his attack was clearly directed at the Premiership. His personal conviction is that the new wave of overseas owners and heavily-leveraged takeovers threaten to destroy the link between some clubs and their communities.
What the Premiership’s response will be remains to be seen, but they are politically well connected and astute at defending what they see as their interests. There are various ways in which the model could be tweaked, although the dominance of the big four relates at least as much to the revenue they derive from the Champions League as it does from the Premiership. Don’t be surprised to see a two tier Premiership back on the agenda but in a version that permits limited relegation to and from the Football League.
Finally, the clubs that are really at threat in these difficult economic times are lower league clubs but above all non-league clubs. They are often reliant on overdraft finance which can be called in, reduced or subjected to higher levels of interest. These clubs are often backed by the owners of small or medium-sized businesses who are likely to face real cash flow problems in a recession, even if their businesses do not fail altogether. There may be casualties at all levels of football from the recession, but many community clubs could be hit hard.
Wyn Grant writes a regular column for Albion Road on the business of football and is the publisher of footballeconomy.com. |
The past month has been the most turbulent since the 
