In August the Guardian newspaper revealed that Sheikh Mansour bin Zayed Al Nahyan had injected more than half a billion pounds in cash into Manchester City, the club he bought in 2008 and that since his arrival the club's net expenditure on new players had been around £300m. Manchester United's talismanic manager Sir Alex Ferguson has called such spending "kamikaze". But he'd probably be doing the same if his club's owners weren't shackled by a huge £500m debt. After all, Fergie's club splashed out £30.75m on Dimitar Berbatov in 2008 - and is currently paying him around £6m a year in wages.
English football's corporate cheerleaders see this orgy of expenditure as evidence that the English Premier League (EPL) is one of the sports industry's dominant global brands. But with the cost of buying a top club now ranging from around £100m to £800m, there's a growing lobby that sees recent financial crises at Portsmouth, West Ham and Newcastle as evidence of a sector that is out of control. Today, the EPL's collective debt is so vast that you have to ask whether English clubs are capable of balancing their books — or if the sport needs saving from itself.
But let's start by applauding the sector's achievement. After all, English club football has done a spectacular job generating revenues. The most authoritative analysis is Deloitte's Annual Review of Football Finance, which shows that the 20-strong Premier League raised £1.98bn from TV, sponsorship, matchday and other commercial revenues during 2008/09.
A lot of observers thought that this might be the EPL's upper limit. But new commercial contracts for the period 2010-11 to 2012-13 will help push the annual take well over £2bn. Of this, a large chunk comes via centrally negotiated PayTV rights deals with BSkyB and ESPN, worth around £600m a season for the new term.
Available in 500 million homes across 211 countries, the league also brings in £470m a year from overseas broadcasters in the form of collectively negotiated rights deals, with the money divided equally between the clubs. Just as impressive is the £100m a year that brands such as Standard Chartered, Aon, Emirates, Samsung and Etihad pay straight to individual clubs for sponsorship and naming rights deals, while another £27m a year comes in from Barclays for EPL title rights.
And let's not forget those hardy souls who turn up every week to cheer their team. Between them, EPL fans feed a colossal £665m into club coffers in matchday revenue — money that goes straight to the clubs without passing through the central EPL commercial operation. Further rights-based income is derived directly by clubs that compete in UEFA competitions such as the Champions League and Europa League.
All of this money has helped drag English football from the doldrums — funding new stadia and providing great TV. If England hosts the 2018 World Cup, then the EPL can take a bow (though we should also point out that the influx of foreign players into the EPL, attracted by the high wages on offer, is probably one reason we have such a mediocre national team).
Jonathan Hill, a seasoned sports rights executive who was FA commercial director before joining Swiss sports marketing group Kentaro, has nothing but admiration for the EPL's expansion: "It's the biggest story in global sport," he says. "None of us thought they could keep growing their rights revenues — but they've done a fantastic job."
Looking beyond the EPL, the Football League's 72 members don't earn anything like as much as their EPL counterparts. But even they have a good story. Currently, the FL generates £566m a year, according to Deloitte. Of that, £375m comes courtesy of the Championship — which claims to be the fourth most watched soccer league in the world.
So far, so good. But English football's fairy tale starts to resemble a bad trip the moment you plug transfer fees, player wages and the cost of acquiring clubs into the equation. This financial schizophrenia starts right at the top, where the owners of the world's best-known football club, Manchester United, are saddled with a massive, barely serviceable debt. No better is the rest of the EPL, with 14 out of 20 clubs making a loss in 2008-09.
Slide your finger down the league tables and the story doesn't improve. The collapse of Portsmouth FC is seen by many as a failure of EPL governance. But just as troubling has been the dire situation at clubs such as Preston North End, Sheffield Wednesday and Crystal Palace. Lord Mawhinney, former president of the Football League, recently told the BBC that more clubs will go under unless responsible financial management is introduced. "Clubs spend more than they are getting in, and that is a bad business recipe," he commented.
Even Deloitte is worried, arguing that English football's "unprecedented" £100m operating losses need urgent remedial action. With EPL clubs carrying a combined debt of £3.3bn, Deloitte Sports Business group partner Dan Jones says, "The latest BSkyB rights deal was an opportunity for clubs to get their wage bills under control. We are disappointed that it was missed."
Everyone connected with the game understands why clubs spend more than they earn, says Greg Clarke, who recently took over as chairman of the Football League. "For every club, there is a temptation to spend more cash because of the correlation between money and league position. But with billionaires calling the shots at the top end of the Premier League, one false step can be disastrous — as Leeds United and Newcastle United discovered."
Clarke, who experienced the pain of administration while chairman of Leicester City, says: "People start out intending to run clubs according to best business practice but soon discover it's not easy. As the pressure mounts from fans, managers and the press, they often invest beyond their means. It's no coincidence» »that half of the Football League clubs have changed owner in the last five years."
All of which begs the question - can football's financial arms race ever be ended? If so, how? And if it isn't, does it really matter? Simon Chadwick, a football analyst at Coventry University, says the first barrier to a financial solution is creating a governance model fit for purpose. "English football is trying to run a 21st-century business with a 19th-century institution," he says. "The problems facing the EPL don't exist in US sports leagues, where checks and balances ensure a level playing field. The same is true of Germany's Bundesliga, which is structured in a way that stops its clubs from losing controls of core costs."
At the same time, argues Chadwick, too few clubs have a realistic view of their growth potential: "The industry hasn't employed many executives with commercial expertise. So you get clubs that are the equivalent of the local corner shop thinking they can be the next Tesco."
In other words, Chadwick wants to see greater self-awareness and better self-regulation by clubs. But how do you govern a hydra-like beast such as the EPL? It would take the wisdom of Solomon, the juggling skills of Lionel Messi and the tyranny of Vlad the Impaler to manage the disparate interests of, say, Sheikh Mansour (Manchester City), Malcolm Glazer (Manchester United), Roman Abramovich (Chelsea), Tom Hicks and George Gillett (Liverpool), Mike Ashley (Newcastle) and David Gold (West Ham).
Clarke agrees that self-regulation is tougher the higher you go — because the upside associated with risk is so much greater. "In League 2, we introduced club salary caps. But when you get to the Championship, it's not possible to constrain clubs trying to gain promotion to the EPL."
Specific Football League initiatives include closer co-operation with the tax authorities, so that clubs behind with payments are flagged up quickly. However, Football League heavy-handedness can rankle with clubs. Take Craig Bellamy's messianic move to Championship side Cardiff City from Manchester City. It's fantastic news for the ambitious Welsh side — but the deal has caused some consternation. After all, how does a club that was on the brink of administration last year find £90,000 a week in wages? (The answer is that Cardiff is splitting Bellamy's pay with Man City.)
This is the kind of scenario that Clarke wants to monitor, but by discussing it in public he outraged the club. In a statement that showed how financial and emotional interests intertwine, Cardiff said: "We are extremely disappointed that (Clarke) chose to discuss this in public. We are confident this deal adds up in a business and sports context. We are proud to have reached a sensible deal that allowed us to bring Craig home to help us pursue our ambition of challenging to join the EPL."
Against this backdrop, the most interesting development in terms of controlling costs is the decision by European soccer's governing body UEFA to introduce financial fair play rules. Distilled into a single line, UEFA says that clubs will — from 2012-13 — have to demonstrate that their expenditure is in line with revenue expectations — or they will be barred from UEFA competitions. In other words, Manchester City would not be able to spend £125m on transfers unless it could explain its model.
The fair play rules are the brainchild of UEFA president Michel Platini, who believes controlling debt is key to "the survival of our sport". At first sight, it seems hard to fault Platini's cold turkey regime for EPL spendaholics. But critics have two complaints. The first comes via Chelsea FC chairman Bruce Buck. Shrewdly, Buck doesn't argue that Chelsea should be allowed to spend Abramovich's money however it wants. Instead, he says the rules will prevent others emulating Chelsea. "If owners cannot put money into
their clubs, it is going to be difficult for the EPL's bottom club to work its way up to the top, or a Championship club to move into the EPL," he says.
Given the existing imbalance, that logic seems a bit dubious. But the second criticism of Platini's position is worth noting — since it argues that UEFA is imposing an unnecessarily narrow definition of return on investment on clubs. Why shouldn't tycoons throw their cash at the EPL if they want to? What's the problem with them seeking an emotional buzz - or using the EPL's global exposure to achieve some less tangible brand-building goal?
This is the line taken by EPL chief executive Richard Scudamore. In an interview with the Guardian last May, he said it was "an accolade that you're that valuable you can attract that much borrowing." Like Buck, he dislikes UEFA's emphasis on break-even — and would prefer rules based on sustainability. "If you can prove beyond reasonable doubt that what you're doing is sustainable, it should be allowed," he argues. "If Mr Fayed wants to take profit from his business and invest it, I don't hear commentators say what Fulham does is wrong."
For the sake of fans, one hopes that Scudamore is not exhibiting the same hubris that nearly brought down the global banking system. Viewed objectively, there are two possible flaws in his sustainability test. The first is that it only judges owners in year zero. Echoing Clarke's comments, most club owners have the right intentions when they come in. But what happens if their main business goes bust or their priorities change?
The second is that the sustainability test only makes any sense as long as EPL revenues are rising (such as borrowing money against the future value of your house). What if there is a retrenchment that causes billionaires to back off?
English football is at a crossroads. If UEFA sticks to its guns over break-even, it is reckoned that three-quarters of Premier League clubs will need to reduce spend on wages to comply with the new rules. Some argue that this will fatally damage the EPL's prospects — since it will be a less attractive employer for global talent. But Kentaro's Hill is not convinced. "My instinct is that the EPL is too good to be affected by the break-even rules," he says. "The product that the EPL and Sky have created is superb." And there are possible benefits — such as the prospect of more youth academies. Platini's legacy might even be a decent England team.
Let's suppose instead, though, that Scudamore persuades UEFA that an ownership sustainability test is the right approach. What
are the implications? The real danger is further polarisation in the English game. Right now, Deloitte's Jones says you can point to well-run clubs at various levels of the game. "I think Tottenham and West Bromwich Albion have both shown it is possible to run sensible businesses and perform well on the pitch in the current environment," he says.
But could this continue without UEFA's break-even rules? One of the ugliest stats supplied by Deloitte concerns trends in operating profit in the EPL. Since 2004-05, profits at the big four clubs have doubled to £166m. For the rest of the division, profits have gone from £53m to an operating loss of £117m (excluding newly-promoted clubs). In practice, these figures imply that the only business model for EPL clubs outside the Champions League is to keep selling to richer owners (a kind of art collector model). No wonder Everton chairman Bill Kenwright's priority is to get a billionaire for his club.
Let's assume, as a final thought, that Scudamore is a visionary — and the EPL stays one step ahead of its debt. At a certain point, international revenues will outstrip domestic revenues and effectively turn the EPL into an international league based on English soil, with the fixtures list doctored to reflect that fact (new kick off times, overseas fixtures, reduced league size, winter breaks to accommodate tours, a beefier Champions League). The question we all need to ask then is whether we want our league to resemble the Harlem Globetrotters. Then again, maybe the English Premier League isn't our league any more.
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