Football Business - May 2009

Are football fans’ expectations getting totally unrealistic?   Arsenal finished 4th in the Premiership, but have been booed off the field more than once this season.  Arsene Wenger faced tough questioning at a shareholders’ meeting and for a time there was speculation that he might pack his bags and leave.

Gordon Strachan left Celtic having won three championships out of four and having got the club into the last sixteen of the Champions League twice.  Yet some fans were clearly unhappy with him.   There may be reasons that are very specific to Celtic for that discontent.  Nevertheless, one fan interviewed outside the stadium said that the club would not get anywhere until the board put more money in.

As the old joke, the way to make a small fortune is to start with a large one and invest in a football club.   The expectation that because someone is on the board of a football club they should endlessly dig into their pockets to meet the aspirations of fans is clearly unrealistic.   Celtic are simply not as big a club as Manchester United or Chelsea and it is unlikely that they ever will be because of the limited revenues from their domestic competition.

Of course, one way to get round that would be to bring them (and Rangers) into the Premiership.  The boosters of a revived two tier Premiership scheme have advocated just that.   However, there is little support for the two tier Premiership scheme.   Bringing the top two Scottish clubs into the Premiership might also raise questions about Scotland’s cherished status as a separate international team.

One club that has exceeded its expectations is Burnley, one of the twelve founding clubs of the Football League.   The north-west was one of the founding crucibles of English football, but many of the clubs have fallen by the wayside over the years such as nearby Darwen (now in trouble as a non-league club) while Accrington Stanley has just gone into administration.

A couple of years ago I went to Turf Moor to see Burnley play Hull and it certainly had an authentic football atmosphere.   Now the club has made it to the Premiership, once again demonstrating that the manager does make a different, in this case Owen Coyle (whom Celtic seemed to be chasing for a while to replace Strachan).   When I visited the club, the chairman, writing in the programme, said that one year in the Premiership would make the club for ten years.   He has probably got his wish sooner than he anticipated, although the club will probably to need to spend about £20m if they are going to have any hope of surviving for more than one season.

The population of Burnley is no more than 80,000, making it by far the smallest town represented in the Premiership.   These figures do not take account of the fact that a considerable proportion of the population is made up of an ethnic minority of Kashmiri extraction, very few of whom were in evidence at Turf Moor.   Burnley is not a prosperous town.   It is an old mill town, has been over reliant on manufacturing employment and has developed relatively little new economic activity.   It has some of the worst scenes of urban devastation I have seen outside the United States.

The club has been clever in its transfer dealings, even selling players at a profit and then buying them back later at a knock down price.  The example of Burnley proves that it is possible for a club to achieve success on the pitch against the economic odds through good management.

Two Premiership clubs that have had good news are two of the least fashionable, Sunderland and Portsmouth.   Sunderland is a classic yo-yo club who faced another relegation battle this year.  But now they have been bought by a Texan billionaire who now lives in the UK.   Ellis Short has pledged to put in enough funds to help them achieve a top ten finish next year.

Dr Sulaiman al-Fahim is the UAE's Sir Alan Sugar, starring in an Arab version of The Apprentice television show. He has struck a provisional deal to buy Portsmouth for an undisclosed sum from its Franco-Russian owner, Alexandre Gaydamak who acquired Pompey for £30m from Milan Mandaric, now owner of Leicester, in 2006. Mr Fahim also brokered the purchase of Manchester City for Abu Dhabi's royal family, but is no longer involved with the club, clearing the way for his involvement with Portsmouth.

The sale price remains unknown. However, Deloitte have estimated that Premier League clubs have typically been sold at an enterprise value of 1.5 to two times annual revenue. On this multiple range, Portsmouth, with a turnover of £70.5m for the year to 2008, would be worth between £105.7m and £141m. But the credit crunch has depressed valuations of Premiership teams and Portsmouth's debts, of £57m last May, would also weigh on its equity value.

Mr Al-Fahim was reported to have inquired about buying Chelsea from Roman Abramovich in January as part of a consortium to have bid more than £700m. He should be able to wipe out Portsmouth's debts and proceed with redeveloping Fratton Park now that the plan for a new ground has been mothballed.

The Matthew Le Tissier backed Pinnacle consortium have entered an exclusivity period with the aim of completing a buy out of Southampton within three weeks. The group has paid the £500,000 non-refundable deposit that will allow the staff and players at the club to be paid their wages for May. They now have the opportunity to complete full due diligence before deciding whether to proceed with their proposed offer for the club, which has been given the seal of approval by the major creditors. They have beaten three other groups to the exclusivity period - a duo of Irish businessmen, a consortium led by businessmen Stuart Green and Marc Jackson and another group believed to be from Zurich.

Sadly, a long list of non-league clubs has taken a hit in the recession.  Fisher Athletic has folded, although supporters are trying to start an AFC Fisher.   The future of Merthyr Tydfil remains uncertain, although there was talk of a merger with Bridgend, forty miles away.   Chester City were relegated from the Football League and went into administration, while Northwich Victoria are once again in trouble.   One direct victim of the recession has been Nissan Sunderland.   The car company thought it could not justify funding a football club when it was laying off workers.

In general, however, football has stood up well to the recession.  The wealthy buyers of clubs are still there and the television contracts are bringing in the money, even if Setanta are in trouble.   Season ticket sales may dip, but the appeal of the game remains.

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.