Money matters

Six years on...

July 1, 2009
By Phil Holland
(Archive)

After six years with Soccernet I am moving on to pastures new. Given my impending departure and an unhealthy, nay, nerdy interest in the business of football now seems an opportune moment to assess the health of the UK game and see what, if anything, has changed in my time covering the game for ESPN.

GettyImagesRoman Abramovich: The man who changed it all.

By far the most telling development has been the emergence of foreign owners.

Although Mohamed al Fayed's takeover of Fulham came in 1997, the most significant foreign takeover in the English game came in 2003 when a mysterious Russian man with an awkward grin flew over Stamford Bridge in a helicopter and decided to dip into his billions.

Roman Abramovich's emergence completely altered elite-level English football just as it seemed to be realising that it was in danger of bankrupting itself after a decade of over-spending.

As football tried to come to terms with the lesson learned by Leeds United's dream chasing, along came Abramovich to redefine what it meant to be a wealthy owner and changed the way clubs thought about funding themselves.

From Chelsea's point of view Abramovich arrived in the nick of time. Under Ken Bates Chelsea had amassed debts close to £80m and were teetering on the brink. On arrival, Abramovich saved the club, wiped out the debt and began spending like only a billionaire can.

It would later emerge that Abramovich was not a crazed benefactor with more money than sense and nor did he have an unquenchable passion for football, or Chelsea. Like those who followed his lead, Abramovich's spending has been an investment which he hopes will eventually deliver a return; remember his era-defining spending on players has come in the form of loans, not cash. Abramovich has speculated to accumulate.

Since 2003, foreign takeovers have taken place at Aston Villa, Chelsea, Liverpool, Manchester United, Manchester City, Portsmouth, Sunderland and West Ham. Once you include Fulham and Arsenal (given that the Gunners' two largest shareholders are American and Uzbek) there are currently 10 Premier League clubs under foreign control.

But while Randy Lerner's takeover of Aston Villa was painless, Al Fayed's saw consolidation in the Premier League and Abramovich's has resulted in silverware, elsewhere foreign takeovers have been mired in controversy. Just ask Liverpool fans.

It's not rocket science to fathom out why so many foreign, and for that matter, domestic businessmen, are interested in taking over Premier League clubs.

Since Sky Television began broadcasting the Premier League's games live on its satellite platform back in 1992, the value of TV rights has skyrocketed and the clubs have been riding the Orient Express of gravy trains. Sky's first Premier League deal gave it a five-year, exclusive deal to show Premier League games live in the UK and was worth £191m; the most recent agreement, beginning in 2010, is non-exclusive but still worth an eye-watering £1.78bn.

In the period from 2004 to this summer, Sky alone has, over three deals, committed to spending in excess of £4.2bn on broadcasting the Premier League. And that's just live rights in the UK. Take into account the money raised by selling live, delayed and highlight rights for TV and multi-media platform deals across the world and that figure swells yet further.

Of course it's not just TV that generates money for the league and its clubs, thanks to media coverage in 202 countries across the planet the Premier League's global reach makes it hugely attractive to sponsors: the Premier League boasts a cumulative TV audience of over half a billion people, with average TV audiences for games in China alone in the region of 200m per live game.

But if it is possible to derive such wealth from the Premier League and billionaires are taking over clubs, why is there so much debt in the game? Why are we reading about financial concerns at the same time as reading how the game has been flooded with money from television and various other commercial revenue streams.

There are two broad reasons; firstly players (and their agents) absorb much of the money the clubs earn in wages, and secondly the spate of takeovers and attempts by others to keep up with the game's nouveau riche means that many clubs have gambled, taking out loans leveraged against fixed assets and potential future income to find the funds to attract top players in an attempt to stay competitive.

The Glazer brothers.
GettyImagesThe Glazer brothers: Apparently unconcerned by the club's huge debts.

In that respect, it could be argued that little has changed from the turn of the decade when clubs were guilty of spending beyond their means and that they have failed to heed the warning of what happened to Leeds, a club who gambled their future and lost badly.

The crucial difference between the debts that crippled Leeds compared to those at a club like, for example, Manchester United, is that Leeds were unable to service their liabilities.

The Glazer takeover at United saw the world's most profitable club become one of the most indebted, but while the concept was, and still is, abhorrent to most fans, in business terms it is still a model that works. The Glazers are able - or at least have so far been able - to service their debts.

As analysts point out, not all debt is necessarily bad provided it is sustainable.

For better or worse, terms like ''leverage'', ''fixed assets'' and ''debt financing'' have now become part of football's lexicon, the game has grown to such an extent that words previously used mainly by investment bankers are now a part of the sport.

Whether this is a good thing is open to debate. The worry is that no-one appears to have the authority to decide what is sustainable and what is unsustainable debt; which means that provided a prospective club owner passes the spurious "Fit and Proper Person Test", a club can, theoretically at least, be driven into the ground by defaulting on loan payments.

To an extent, English football is a victim of its own success. As untold riches began to flow into the game in the 1990s, so the Premier League grew and rewards and interest in it grew.

The same move toward globalisation that means you can drink an identical-tasting cup of coffee in almost any city in the world now means that Manchester United, Chelsea, Liverpool and Arsenal mean as much in countries around the world as they do to fans in England.

Mass media has changed football on and off the pitch. It has changed who watches, where, when and how they watch. That began more than six years ago, but has never been more pronounced than now.

Football's greatest challenge in the coming years is to reconcile the global appetite for the game while honouring and respecting its heritage.

The idea of the Premier League's 39th game idea polarised the sport and those who follow it; where some saw it is an opportunity for fans on the other side of the world to watch the teams they love, others regarded it as a cynical money-making opportunity. Perhaps those arguments are the two sides of the same coin.

Clinging to the past and rejecting any and all change isn't healthy. But neither is mortgaging the future of treasured, local community assets for commercial gain.

Football's future is more exciting than ever before, as are the rewards for the best players and clubs. The problem is that the risks are equally as great.