|Can the Premier League Cut Its Spending?|
|Written by Wyn Grant|
|Friday, 05 October 2012 09:48|
The Premier League has been holding discussions with its clubs about how excessive spending can be curbed. There is a general willingness to do something, given cumulative losses of £380m in 2010-11. The difficulty is that different clubs have conflicting interests, making it difficult to arrive at a consensus position. Any proposal requires the agreement of 14 out of 20 clubs to come into effect.
For example, clubs like Fulham and Wigan Athletic are not happy about the domestic adoption of a full financial fair play model as developed by Uefa. This would curb benefactor spending at smaller clubs and do nothing to offset the dominance of the likes of Chelsea and Manchester City.
One proposal under discussion is to extend from one year to five the period of future financial information clubs have to provide to the Premier League. This would require clubs having to guarantee they can meet the costs of players' contracts.
There is also a proposal for owners to sign guarantees covering any liabilities should they decide to give up their clubs. But in practice, despite forecasts to the contrary, a benefactor 'walking away' as a result of becoming bored with their plaything has not really been a problem.
Where there has been a difficulty it has been in terms of benefactors not having the money they claimed to have, or the money disappearing through changed circumstances. This has been more of a problem at lower levels, Truro City from Cornwall in England’s far south-west, a team that plays in the Blue Square South being the latest example, although Portsmouth is a higher level example in the minds of many. But guarantees would be worthless if the guarantor no longer had any money.
Sunderland wants a 'player cost protocol' whereby clubs agree to limit salary increases to no more than 10 per cent a year. This is a more realistic proposal than the idea put forward by West Ham co-owner David Gold that increases should be limited to the rate of inflation.
Of course, the Premier League has to be careful about damaging the product. If salaries are restricted too much, it will become more difficult to attract the world class players that give the Premier League its international appeal.
Reasonably enough, the Premier League is adopting a very cautious approach. It is started with what in effect were two 'brainstorming' sessions with clubs divided on a north-south basis with the southern clubs coming first. It is going to be a long process.
One club that has been prudent in its approach has been Arsenal, but has that worked for the club on the pitch? The club’s latest accounts confirm how much the club is reliant on the transfer market to make a profit. The club announced pre-tax profits of just over £36m for the last financial year, largely generated from the sales of Cesc Fabregas and Samir Nasri.
The players' sales raised about £54m in the summer of last year which offset an operating football loss before transfers for the year to May 2012. This loss reflects the impact of a high wage bill and relatively modest commercial income.
Arsenal have about £160m of cash reserves, boosted by season ticket income, to cover costs in the season, some £60m of which is available for Arsene Wenger to spend on players. He could have an extra £70m per season to spend in two years as a result of an improved Premier League television deal and the club's new commercial deals.
Arsenal's kit and sponsorship deals are worth about £12m combined but are dwarfed by the more than £45m per season Manchester United and Liverpool earn on corresponding deals. Arsenal will hope to secure much improved deals when the current ones expire in 2014.
Clearly money can be made by developing and selling on players. In the longer run, Arsenal hopes that the application of Uefa's financial fair play rules will reward their prudent approach.
English football is increasingly dominated by London and Manchester, although Liverpool clearly still plays a key role. At the time of writing, all the London clubs were in the top half of the Premier League apart from Queens Park Rangers (who were bottom), as were the two Manchester clubs and Everton.
A few weeks ago at www.footballeconomy.com we published a story about Aston Villa, the Birmingham club which is the largest in the West Midlands, which made some comparisons with West Bromwich Albion. A Villa fan took exception, pointing out that Villa still draw bigger crowds, even if they have declined.
From the point of view of the neutral, however, there is an interesting contrast between the increasingly cautious path taken by American owner Randy Lerner at Villa and the prudent building up at the Baggies a few miles away. West Bromwich Albion have consolidated themselves as a competitive top flight club, while arguably Villa are not realizing their potential - or matching up to their achievements in the past.
There is also a wider question about the state of Midlands football. Indeed, the Independent on Sunday newspaper took up the story with an article based on interviews with myself and my colleague Sue Bridgewater. Sue has taught many of the country’s leading managers as a result of running a course for the League Managers’ Association.
My hunch is that there is some relationship between local/regional economic performance and the state of local football clubs. This can be seen most starkly in the case of Coventry City, whose ground is about ten miles from where I live, even if it has been compounded by serious mismanagement there.
The rise of the Sky Blues coincided with the boom years in Coventry. At one time the city had one of the highest per capita incomes in the UK based on the success of the auto industry which has now largely disappeared.
The club decided to move away from their old ground as Highfield Road which was inadequate for a Premier League club as they then were and could not be readily improved. The Ricoh Stadium was meant to assist in the regeneration of north Coventry, but this has not happened, e.g. hotel developments have not taken place. It's a fine stadium, where I saw four soccer matches during the Olympics, but too big for the Championship, let alone League One (third tier) football which is where the club now plays.
I also think that a successful club can boost a city, the contrast between the two Manchester clubs and those in Birmingham being a case in point. The West Midlands region (albeit divided into areas with very distinct identities) needs a confidence boost . A strong local economy can help soccer to flourish and a successful team can give a city and a region useful free publicity and an international profile that helps to attract investment.
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.