Deep pockets and financial losses: How long can football maintain bad business?

Backbencher January 7, 2013 6
Deep pockets and financial losses: How long can football maintain bad business?

 

Tristan Kitchin,

On the 31st December Wigan Athletic reported a net profit of £4.3m for the year ending 31st May, their first profit in six years. What made this report interesting is that this is a football club recording a profit, somewhat of a rarity these days.

This is apparent when we look at the finances of Premier Leagues clubs for the 2010/11 season; of the twenty teams participating only five were profitable, to a combined sum totaling £94.7m. This equates to less than half the £197m Manchester City lost during the same period alone.

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The spending habits of larger European teams are regularly criticised; smaller clubs have little chance of winning domestic competitions when they are unable to match the spending power of the likes of Paris Saint-Germain, Chelsea, or Manchester City, who are funded by billionaires with seemingly too much cash to spend.

Chelsea, for instance, has amassed losses equal to £630.1m since Roman Abramovich bought out the club nine years ago. An insurmountable amount of money that would abramcripple most businesses, surviving such massive losses has only been made possible due to his support; under his tenure he has written off £710m worth of loans since his takeover in 2003. Although the club announced their first profit this previous season on the back of winning the Champions League, very few believe that the club will remain profitable considering the £66m spent on new signings during the summer transfer window.

There have been attempts by football’s governing bodies to make sure clubs in the top tiers of European football at least try and curb their spending habits.  UEFA, the body who runs the Champions League and Europa League, has been threatening sanctions on unprofitable clubs for some time.

Seeking to implement a system called Financial Fair Play (FFP), UEFA has been fighting a battle to make football clubs become self-sufficient and stop them from relying on financial benefactors to pump loans into the club. If implemented, teams will have to become profitable and will not be allowed to post losses year after year. Over next three seasons club owners will be allowed to underwrite losses of up to £36.3m, but by 2018 annual deficits have to be below £8.8m.

Teams who do not follow these guidelines will be unable to participate in UEFA’s European competitions, a major source of revenue for many clubs and a serious sanction should it be implemented. Chelsea posted profit this previous year in large part to the £48m they were awarded in broadcast revenue and prize money for last seasons final alone.

Although UEFA is on somewhat of a crusade to make football clubs profitable in order to make competition fairer for smaller teams. We are yet to see the fruits of their labour, because for the majority of clubs that these sanctions would apply to still have a mountain to climb before they become profitable – and they seem unlikely to do so before the FFP deadlines. This has resulted in numerous clubs seeking ways to work around the system.

For instance, in 2011 Manchester City penned a £40m a year sponsorship deal with Etihad Airways – the largest deal of its kind in sport. Etihad Airways is owned by the Abu Dhabi government however, and strongly associated with City’s owner, Sheikh Mansour, a member of the Abu Dhabi royal family, prompting questions as to whether this deal contravenes UEFA’s FFP.

Many European clubs have threatened to simply move away from UEFA and create their own European ‘Super League’. Both Sandro Rosell and Florentino Perez, the club presidents of Barcelona and Real Madrid, have openly disclosed their desire to create such a league, and they are not the only supporters of the idea. Arsene Wenger has voiced his belief that such a move is inevitable in the next decade.

Such a notion would hurt domestic football however, and is not a viable alternative to UEFA’s FFP, as it would merely exacerbate the underlying problem. Recently Premier League clubs have been meeting to implement their own version of FFP, one which will use cost cutting measures to make clubs more financially stable but will also be accepted by teams across the league. The aim is to have the new regulations drawn up by February, and will most likely allow for greater losses and more leeway than under UEFA’s FFP.

Although far from perfect, such a move is the first step in the right direction. Football clubs are businesses, but they are generally not run as such. We are, however, seeing clubs realising this fact and taking action themselves. Such a move is the best route to take, as opposed to rules forced upon by a governing body, which clubs dislike and seek to workaround. Under such a system we may see football clubs seeing regular profits in the Premier League, from which the teams and fans will reap the benefits. Most importantly, clubs are aware they cannot keep posting losses year after year and are attempting to resolve the problem.

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  • http://twitter.com/Backbencher/status/288357357682032641/ The Backbencher (@Backbencher)

    Deep pockets and financial losses: How long can football maintain bad business? http://t.co/Cilws2q1

  • Apoliticalscientist

    good article tristan. it’s true that football clubs are not run as businesses, we saw that with rangers recently. i – like you – wonder where the sport will be in a few years, but i do think that the current path is unsustainable, i mean, some players earn over 100k a week! That is just ridiculous

  • http://twitter.com/laveenladharam Laveen Ladharam

    True, and some clubs including mine don’t seem to be run like effective football clubs, let alone businesses. Abramovich has created a 500m trust fund for the club so that it continue running long after he’s gone. We still need to do more like treat our experienced players (Lampard et al.) with more respect like they do in clubs like Manchester United or Barcelona.

    Also, the FPP rules have actually been used. Malaga is the best example of this. Fair enough to UEFA, they’ve done a lot of good.

  • http://www.thebackbencher.co.uk Alex MacDonald

    @Laveen how do you mean treat older players with more respect?

  • http://twitter.com/laveenladharam Laveen Ladharam

    I mean use the wisdom that older players like Lampard, Cole and Terry have accumulated that can then be used to benefit the squad in the long run. Look at what Manchester United did with Giggs, Scholes, Neville. I’m not saying keep all your old lags, but those who have been good servants should be allowed to serve in different ways rather than not at all.

  • http://twitter.com/Lee_T_Jenkins/status/288693873155395584/ Lee Jenkins (@Lee_T_Jenkins)

    “@Backbencher: Deep pockets and financial losses: How long can football maintain bad business? http://t.co/cxvvMccX” @dandrew919

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