Well in an attempt to stop the run of video game related posts I thought I'd post a little on football. Now I would never class myself as a real fan, full 90 minute games bore me unless spent at the pub with friends, I've only been to 3 games. I do however keep up with the news, watch match of the day every now and then and the only pc game I ever really play is whatever Football Manager incarnation is out that year. So with the latest 'crisis' I feel I have at least a little insight.
Finances in football have been getting increasingly ridiculous over the past 2 decades. Going back these 20 or so years you'd struggle to find players earning £20k a week, but thats the average wage for a premiership player these days. This seems to be the main reason, and of course the insane transfer fees but how did things get to this stage?
West Ham are apparently in danger because of the collapse of their chairmans icelandic bank, assuming no knock on effect this basically means there'll be no more investment and they'll have to be a self sustaining business - which is surely half the point of running a club in the first place. I mean since the takeover a little under 2 years ago now, reports say he's pumped in £30million. But what I don't understand is how this is a good thing just pumping money in, because regardless of how generous a person you are, this 'pumping money in' is very rarely as a gift, and more often than not as a loan so its yet more debt the club is saddled with.
As a Leeds fan - if i'm ever going to affliate myself with a team - I've seen what debts can do to a club. Chasing glory and heavily overspending on transfer fees and wages, borrowing money that relied on everything going right and falling short. At the time of their fall, the debts of Leeds Utd were somewhere in the region of £100-150million, which set off a firesale of the players and when you're desperate for money its impossible to get market value (see stock holders or property owners at the moment..). The FA however estimate that the 92 clubs that make up the football league owe around £3billion in debt, with the big 4 clubs making up a lot of that.
According to the latest end of year financial reports, Manchester United are £764million in debt which is tied into their takeover - i'm not entirely sure much if any of this money actually did much to help the club, despite their massive outlay on players its conceivable that this came out of their annual turnover as they are the richest club in the world. But their income is still only in the region of £250million a year, and at a conservative estimate of 10% annual interest on this debt (cheapest rate for me is in the region of double this) thats £77million a year just to 'service' this debt, that doesn't actually pay off any of the debt, thats just the amount needed to keep the debt at this level, which is ridiculous, thats the same amount as biggest spenders of the summer (yeah and it sure helped them) Tottenham spent on players.
Next up are Chelsea, who unsurprisingly rank up very high on the debt list and I'll be shocked if they're not top of the list come May 2009. According to their records, their debt level is at £736million, the majority of which is undoubtedly owed to their deep pockets owner Roman. Now most of this has actually gone on building the club at a heavily accelerated rate than should have been possible, overpaying for players in fees and wages. But what happens if their owner decides tomorrow he wants to pull out and wants his substantial outlay back (albeit over time) , the richest club in the world would take 3 years with their existing income and no other outlay to pay off their debt, but Chelsea really lag behind the facilities of Man U. They have a limited income as their ground only has a capacity in the region of 40000 , in other words just above half of Manchester United and 2/3rds of Arsenal. Gate receipts, prize money, television money and sponsorship are the only major revenue streams I can think of, so they're already way behind with the first one. When they were taken over they had debts in the region of £80million and were in danger of what is now known as 'doing a leeds' and as a club they're around the same size as leeds were before the disaster in terms of facilities. Sometimes I almost hope Roman gets bored and pulls out as the fall out would be both catastrophic and strangely amusing to watch.
The only other club featured within the article with a confirmed debt level provided by the clubs own financial reports was Arsenal with debts of £318million. They recently reported record levels of profit, in the region of £60million , meaning theres enough cash to both pay the interest and reduce the level of debt (again assuming 10% interest rates) and unlike the other 2 clubs this debt was mostly if not fully incurred moving stadium containing 20000 extra seats, potentially increasing their gate receipts by 50%. This level of debt is also less than the actual value of the club which is a debatable point with Man United and Chelsea.
Along with these clubs, Portsmouth were also featured in the paper on some kind of financial crisis. Portsmouth are a small club living big at the moment, they have ambitious plans and for the most part it seems to be working on the pitch. It is however coming at a price, and one rumoured to be too big for their owner. According to the report their annual income is in the region of £65million, while their wage bill (including all background staff etc) is £60million. This sort of spells out the entire problem with the premier league. Unless i'm wrong, in recent years guidelines were brought into the lower leagues capping wages at a set percentage of a clubs projected income , and I believe this is somewhere in the region of 60-70% which in my opinion is still an absurd amount. Whereas Portsmouth are spending over 90% of their income on wages, leaving only £5 million for transfer fees, admin costs, stadium upkeep, taxes, and all those other lovely club outgoings.
I can only go by what video games teach me, but given the global climate the long term plan seems smarter over time and success will come if the patience is there. One of my favourite games at the time was Premier Manager '98 and then '99. Now like most games I'd suck if I just stuck strictly to the football side, however how it differed - and I still don't understand why some games haven't tried this as well - was that you could really get involved in the financial side of things. As well as finding the money to work on the stadium to expand your capacity, you could decide where to build cafes/restaurants and other facilities within the ground, buy stock for them and set the prices along with selling the sponsorship spots pitchside. So even if I couldn't do things how I wanted to from the off, through a sound financial plan I was able get the business side healthy which quickly sped up me getting things pitchside successful. At the end of the day this can surely be the only way to run a succesful club, the age of the sugar daddy chairman may only just be getting into its full swing the Manchester City now joining the club, but its surely only a matter of time before the walls come crashing down.