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·A long read but a 'must read' for anyone interested in the real state of football today.
Britain's beautiful game faces some ugly off the pitch financial meltdowns this summer, as clubs of all shapes and sizes struggle to rein in the excesses of debt financing and spiralling player wage bills - toxic trends that raise fundamental questions about the sustainability of the business of football.
Player salaries and levels of indebtedness make the bonus culture and risk-taking of the investment banking industry look conservative by comparison. As a result, the companies behind some of the best-loved names in the game have been left perilously exposed.
About £7 in every £10 of turnover is paid out to players in the Premier League and Championship, according to figures from accountancy firm Deloitte. Danny Davis, head of insolvency at law firm Mishcon de Reya, says: "There is no other business that I know of that borrows, as a percentage of operating profits, as much as football."
In the midst of one of the deepest recessions in living memory, many clubs locked in annual end-of-season relegation battles are fighting not just to stay up but to stay alive financially. So stretched are their finances that the inevitable drop in revenues that accompanies demotion - even after it is offset by a "parachute payment" - could be enough to push them to the wall.
Bankruptcy experts suggest that clubs in the Championship and, in particular, the lower leagues, are the most vulnerable because, in the absence of the substantial media rights income enjoyed by top-flight teams, they are heavily reliant on gate receipts, which are expected to dip sharply next season.
This has been the story at Southampton, where the parent holding company last week called in administrators as a securitisation deal - that is, a loan secured against future ticket sales - appeared to be turning sour. The move comes less than six weeks after League Two's Darlington called in insolvency experts for the second time in six months. Both have spent substantial sums on new stadiums in recent years.
Lawrence Schechter, a director at boutique finance house Schechter & Co, says: "Southampton used to be run very well, by former investment bankers who managed the club like a business. But the fans got upset that they weren't spending ridiculous amounts of money on star players.
"Now the fans should point the finger at themselves and say: is this what you wanted? They forced the guys out in 2005, those who were doing a good job, but the fans wanted Southampton to be like Chelsea or Man United. The fans bit the hand that fed them."
A string of other clubs, including Chester, Port Vale and Stockport County, have been forced to issue statements amid rumours of looming bankruptcy. Charlton Athletic's chairman, Richard Murray, has played down fevered speculation about the financial health of his club, which is bottom of the Championship, after its bankers withdrew overdraft facilities. The club relies on directors for 70% of its £21m borrowings.
However, even among the most successful top-flight teams the financial question marks are growing. Wigan Athletic owner David Whelan has suggested that at least one Premiership club will topple. Davis, of Mishcon de Reya, suggests that the situation is likely to be most acute for relegation contenders Portsmouth, Middlesbrough, Blackburn and Bolton.
"If you look at Middlesbrough, for example, you can't imagine Steve Gibson being too enamoured by the prospect of relegation. And I imagine that for Portsmouth, too, it would be a horrendous experience." Others facing relegation, particularly newcomers to the Premiership, may be better financially prepared for the financial shock of demotion.
Meanwhile, those fortunate enough to remain in the Premiership can rest assured that they will - for another season at least - receive a generous slice of media rights earnings from viewers at home and abroad. With the league's global audience, however, comes pressure to attract the best players in the world, whatever the cost. The likes of John Terry and Frank Lampard at Chelsea, and Cristiano Ronaldo at Manchester United, are reportedly earning more than £120,000 a week.
Philip Long, partner at PKF accountant and business advisor, says: "I think there will be quite a few insolvencies during the summer - in that period clubs have little income and the same expenditure on overheads, so you get the pressure on the cash flow." Falls in season ticket sales, sponsorship earnings and corporate box deals could transform the fortunes of clubs that are highly geared, both financially and operationally.
Even among some of the biggest Premiership clubs, having built huge amounts of debt during the years of the credit bubble, many find themselves straining to meet loan commitments and their lending banks are now less willing to give waivers or inject more capital after losing billions of pounds in the credit crunch.
"Football is in the same boat as every industry, if you are adequately capitalised, people will weather the storm, but if today is the day you have to raise debt or equity, it's tough to do it," says Lawrence Schechter.
The parent company of Manchester United, which hasn't delivered last year's accounts yet, lost £58m in 2007 as it bears the debt borrowed by US investor Malcolm Glazer to buy the club. Though its future earnings arguably look as if they are the most secure of any football club in the world, United was bought in 2005 in a deal valuing the business at £777m, or a record 4.7 times its revenues.
The latest published accounts also raise questions about the club's ability to pay an annual interest bill of £81m in 2007 - almost twice the profits of the club. The accounts of the parent company show debt of £682m, about 8.5 times the company's stated equity of £79m.
"If the Manchester United accounts show further debt, like they did last year, they will be in trouble," Long says.
Elsewhere among the Premiership's "big four", Liverpool is battling with RBS and Wachovia as some of its more than £300m of debt has to be refinanced by July. Part of the club's borrowings were to build a new stadium - a project now on hold.
Britain's beautiful game faces some ugly off the pitch financial meltdowns this summer, as clubs of all shapes and sizes struggle to rein in the excesses of debt financing and spiralling player wage bills - toxic trends that raise fundamental questions about the sustainability of the business of football.
Player salaries and levels of indebtedness make the bonus culture and risk-taking of the investment banking industry look conservative by comparison. As a result, the companies behind some of the best-loved names in the game have been left perilously exposed.
About £7 in every £10 of turnover is paid out to players in the Premier League and Championship, according to figures from accountancy firm Deloitte. Danny Davis, head of insolvency at law firm Mishcon de Reya, says: "There is no other business that I know of that borrows, as a percentage of operating profits, as much as football."
In the midst of one of the deepest recessions in living memory, many clubs locked in annual end-of-season relegation battles are fighting not just to stay up but to stay alive financially. So stretched are their finances that the inevitable drop in revenues that accompanies demotion - even after it is offset by a "parachute payment" - could be enough to push them to the wall.
Bankruptcy experts suggest that clubs in the Championship and, in particular, the lower leagues, are the most vulnerable because, in the absence of the substantial media rights income enjoyed by top-flight teams, they are heavily reliant on gate receipts, which are expected to dip sharply next season.
This has been the story at Southampton, where the parent holding company last week called in administrators as a securitisation deal - that is, a loan secured against future ticket sales - appeared to be turning sour. The move comes less than six weeks after League Two's Darlington called in insolvency experts for the second time in six months. Both have spent substantial sums on new stadiums in recent years.
Lawrence Schechter, a director at boutique finance house Schechter & Co, says: "Southampton used to be run very well, by former investment bankers who managed the club like a business. But the fans got upset that they weren't spending ridiculous amounts of money on star players.
"Now the fans should point the finger at themselves and say: is this what you wanted? They forced the guys out in 2005, those who were doing a good job, but the fans wanted Southampton to be like Chelsea or Man United. The fans bit the hand that fed them."
A string of other clubs, including Chester, Port Vale and Stockport County, have been forced to issue statements amid rumours of looming bankruptcy. Charlton Athletic's chairman, Richard Murray, has played down fevered speculation about the financial health of his club, which is bottom of the Championship, after its bankers withdrew overdraft facilities. The club relies on directors for 70% of its £21m borrowings.
However, even among the most successful top-flight teams the financial question marks are growing. Wigan Athletic owner David Whelan has suggested that at least one Premiership club will topple. Davis, of Mishcon de Reya, suggests that the situation is likely to be most acute for relegation contenders Portsmouth, Middlesbrough, Blackburn and Bolton.
"If you look at Middlesbrough, for example, you can't imagine Steve Gibson being too enamoured by the prospect of relegation. And I imagine that for Portsmouth, too, it would be a horrendous experience." Others facing relegation, particularly newcomers to the Premiership, may be better financially prepared for the financial shock of demotion.
Meanwhile, those fortunate enough to remain in the Premiership can rest assured that they will - for another season at least - receive a generous slice of media rights earnings from viewers at home and abroad. With the league's global audience, however, comes pressure to attract the best players in the world, whatever the cost. The likes of John Terry and Frank Lampard at Chelsea, and Cristiano Ronaldo at Manchester United, are reportedly earning more than £120,000 a week.
Philip Long, partner at PKF accountant and business advisor, says: "I think there will be quite a few insolvencies during the summer - in that period clubs have little income and the same expenditure on overheads, so you get the pressure on the cash flow." Falls in season ticket sales, sponsorship earnings and corporate box deals could transform the fortunes of clubs that are highly geared, both financially and operationally.
Even among some of the biggest Premiership clubs, having built huge amounts of debt during the years of the credit bubble, many find themselves straining to meet loan commitments and their lending banks are now less willing to give waivers or inject more capital after losing billions of pounds in the credit crunch.
"Football is in the same boat as every industry, if you are adequately capitalised, people will weather the storm, but if today is the day you have to raise debt or equity, it's tough to do it," says Lawrence Schechter.
The parent company of Manchester United, which hasn't delivered last year's accounts yet, lost £58m in 2007 as it bears the debt borrowed by US investor Malcolm Glazer to buy the club. Though its future earnings arguably look as if they are the most secure of any football club in the world, United was bought in 2005 in a deal valuing the business at £777m, or a record 4.7 times its revenues.
The latest published accounts also raise questions about the club's ability to pay an annual interest bill of £81m in 2007 - almost twice the profits of the club. The accounts of the parent company show debt of £682m, about 8.5 times the company's stated equity of £79m.
"If the Manchester United accounts show further debt, like they did last year, they will be in trouble," Long says.
Elsewhere among the Premiership's "big four", Liverpool is battling with RBS and Wachovia as some of its more than £300m of debt has to be refinanced by July. Part of the club's borrowings were to build a new stadium - a project now on hold.
