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Discussion Starter · #1 ·
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.

Discussion Starter · #2 ·

For years, clubs around Europe saw new stadiums as the main profit driver, with numerous new owners pursuing ill-fated real estate ambitions. Even financially conservative Arsenal looks as if it has been caught out over its property dealings. The club is renegotiating a £135m loan from Highbury Square Development, the company set to develop flats in its old Highbury stadium. The loan, which matures in April 2010, will have to be extended as sales have been disappointing, according to one source familiar with the situation. Arsenal is believed to be expecting a fall in the planned £50m to £60m profit from the development.

Overseas, meanwhile, other top clubs are rushing to rein in costs. Financially-sound Barcelona may postpone, or cancel, its Norman Foster-designed facelift of the Camp Nou.
Valencia, one of the oldest and most prestigious clubs in Spain, started building a new stadium without selling the old one. The global credit crunch struck in the middle of the process and the new building has stalled, while the club remains collapsed under almost €500m of debt. Valencia hasn't paid its stars, such as David Villa, since February. Bancaja, a local savings bank, has already appointed a director to start selling some land at knock-down prices to recover money as soon as possible.

Clubs owned by wealthy individuals who bought them as trophy assets may survive, depending on the wealth of the main holder - such as Mike Ashley in Newcastle or Roman Abramovich at Chelsea. Other clubs that don't have such support, such as Everton, may suffer.

"If you look at the accounts, some clubs, without their wealthy owners, would have trouble supporting themselves," Schechter says.
And even if a club has an owner's support, the credit crunch may have reduced some of their holdings, forcing them to start selling some assets.
Owners looking for an exit won't have it easy. About 10 Premiership clubs are believed to be up for sale, but bankers can't find buyers - not even in the richer countries of the Middle East and Asia.

Mike Ashley's proposed sale of Newcastle never materialised, while Liverpool's co-owners Tom Hicks and George Gillett have failed to find someone who will buy one of them out. At West Ham, meanwhile, the club's parent holding company is effectively bust, and last month agreed to settle a legal claim against it by Sheffield United for a reported £26.5m. It faces intense pressure to find a buyer before next season.

Banks have also cut their football deal groups as the crisis has forced them to focus on their traditional markets. Société Général got rid its sports banker in New York, while General Electric, which established a team in London to help finance club expansion, also dismantled the group.

Some clubs, however, may survive purely for public relations reasons - few financial institutions would like to see their name associated with dumping a local team, or sending it to administration, bankers say.
Still, the recession will change football and impose tighter limits on its finances. "It's a big reality check," Long says. Others believe the game will move towards its origins.
"Football has become a lot more about the money and a lot less about the sport, so the events that will happen will help the league realise this has to be about the sport and not about the money," says Schechter.

Time for a new formation?

So with football in crisis, should its owners be dreaming up new financial tactics? Here are some ideas for a new football model:

Salary caps: Limits on players' salaries could reduce gearing at football clubs, which now spend on average more than half of their income on paying stars. John Terry and Frank Lampard, of Chelsea, are the Premier League's top-paid footballers with a weekly salary of £140,000, more than Manchester United's Ronaldo, who receives £125,000 a week, according to the UK Football Finder website.

Financial controls: German clubs submit their accounts to the Bundesliga every season. Introducing a similar requirement would let the league ensure that debt levels don't spiral out of control.

No relegation policy: This applies in the United States but would be unpopular in Europe, where relegation or promotion is a key part of the competition.

Lower ticket prices: The credit crunch will make fans more choosey about which matches to attend. Some clubs charge almost £50 per game, making it expensive for a family to go together.
If a club with a 50,000-seat stadium reduced the number of season ticket allocations from 30,000 to 20,000, it could lower the price of match-day tickets and still make more money, says Larry Schechter, director of Schechter & Co, an investment banking boutique that has raised funds for football clubs throughout Europe.

Let members take control of the club: Spanish giants Barcelona and Real Madrid are owned by their members - more than 100,000 in the case of Barcelona. This prevents the club being bought and sold and gives stability to the institution.

"I do not believe football clubs are designed to be public companies in that the goal of the fan is for the club to have the best performance on the pitch while the goal of the shareholder is to make a profit - the two goals do not always go hand in hand," Schechter says.
Game's up for soccer clubs that took their eye off the ball | Business | The Observer

· Registered
1,436 Posts
Capping wages would seem like an obvious solution and stricter monitoring of each clubs books as it says is done in Germany. It's crazy to think even Championship clubs are spending so much on wages.

Problem with a wage cap, it would handicap smaller clubs with smaller gate receipts even further, if the amount they were allowed spend on wages was say 60% of their turnover (hypothetically speaking).

It's a problem here in our league too, and most teams are only semi-pro! Players start thinking they are owed more by their teams here and are constantly swapping sides for the best paid deal. It's like the NFL free agency, sold to the highest bidder.

Sure just last season a player for one of the professional teams here in Dublin was being paid E3000 per week! Approx 10% of their weekly gate receipt.

· I aim to Misbehave
6,405 Posts
Eyes bigger than their pockets...

hopefully it'll settle down to a leveler playing field between all clubs and countries.

But in all honesty I doubt it.

great read.

As for the ideas:

Salary caps: Good idea, but you have to include a cap on transfer fees also.

Financial controls: We have that here, and it doesn't work as it should.

No relegation policy: Teams in the US are franchises. In Europe it would be impossible.

Lower ticket prices: A must. This, added to normal hours for games, which you have there, but a lot of other countries lack, would add to bigger and more regular attendance.

Let members take control of the club: True, it gives stability to the club, but this also means that your income is more limited too. Real Madrid and Barcelona are like Portuguese clubs, in that regard, but note that they're not just football clubs. They have a multitude of other sports, basketball, handball, roller hockey, etc. More sports means more expenses, it could also mean more revenue, but that's not always the case.
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