The Richest Game in the World
The Richest Game in the World: if you follow English football at all, you will of course have been soaked in the hyperbole of the Championship’s playoff final this weekend, won by Hull City.
Yet it might not quite be the bonanza it seems, as David Conn cogently points out in the Guardian today.
Promotion still provides significant money to sign and pay the wages of new players, but newly promoted clubs struggle to afford established stars, and Championship clubs ask inflated prices for their better players. In the Premier League finishing places tend to accord exactly with the size of a club’s wage bill – Manchester United and Chelsea pay the most, the promoted clubs have the least to spend. Last season Sunderland spent £40m on mostly British and Irish players, only just survived, and the manager, Roy Keane, complained too many were not good enough. The other two promoted clubs, Derby and Birmingham, went straight back down.
Conn points out that the bonanza only exists because the Premier League does not share revenue with the divisions below as was done pre-1992; that leads to the growing inequality in English football, and a perhaps damaging scramble to get on the gravy train.
The danger seems to be that clubs may be predicating their existence in a boom-and-bust situation.
As twohundredpercent pointed out today, the level of debt in the Premier League in spite of the enormous increases in income over the past few years is alarming: the Big Four owe a collective £1.862bn, whilst the likes of Fulham face severe problems if they’re relegated with their £149m debt.
Football’s boom years have not been uncoincidentally linked with a period of remarkable, sustained economic growth in England over the past decade, a consumption-led extravaganza funded by cheap credit and a property boom that is all now coming crashing down around Gordon Brown’s stony features.
The fear of a sustained economic downturn in Britain, and the consequences this would have for a high-priced consumption activity such as football (where season tickets are now an expensive luxury), is presumably partly driving the Premier League’s overseas expansion moves, such as the much-maligned Game 39 proposition.
Yet ticket prices continue to rise domestically, and remain a cornerstone of clubs’ finances. Season ticket prices. look set to rise at over double the rate of inflation this summer, hitting fans already stretched by rising fuel and food prices hard. What happens if demand falls for tickets, but clubs already have millions invested in the ever-increasing salaries for future years?
Beyond the glitz of the all-English Champions League final and the Richest Game in the World (or Race for 2009 Relegation), the sustainability of English football’s boom remains in question over the long-term.
Image credit: ArcticCorsair on Flickr
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Tom Dunmore is the founder and editor of Pitch Invasion. Follow him @pitchinvasion on Twitter.
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Please explain how things were conducted prior to 1992. I’m not sure I understand this…
Kevin, if you follow the link to Conn’s article, it’s very well explained. But the gist is that television revenue was split far more evenly across the then four divisions of the Football League: the top flight kept 50%, the second division 25%, and the bottom two shared the remaining 25%. When the Premier League broke away from the Football League in 1992, this arrangement was ended.
You’re right about season tickets being an expensive luxury for many supporters. However I would argue that that is exactly what many of the Premiership clubs want.
Sure, they may pay lip service to the principle of affordability, but surely in this day of aggressive marketing and merchandising, the last category of supporter that a club would want is one with little disposable income.
The bitter consequences of this policy are now beginning to manifest themselves, one of them being a distinct lack of atmosphere at some grounds because the fans who would have made a lot of noise with their mates have now been separated from them within the ground. Or priced out of the stadium all together.
Good point about the credit crunch. How many season tickets that are bought are funded by credit? I’d guess the vast majority of them.
I think though the name of the game at the end of the day is television rights, and these are driven more and more by international demand instead of domestic ticket sales, even discounting some of the hyperbole spread by Scudamore and company about ‘The Best League in the World.” The health of the domestic economy in Britain has a much more marked effect on the lower tiers, and this is ultimately bad for the domestic game in terms of player development and maintaing a competitive incentive for promotion.
I would like to see whether in the long term, recently relegated clubs are financially better off having spent a few seasons in the Premier League. Look at the clubs which have drifted in and out of the top: Sunderland, Birmingham, West Brom. The regularity with which they manage to get back out of the Championshp would indicate some measure of competitive stability, which could have come with a short-term piece of the Premiership TV pie. But I’d have to see the numbers…
The sad fact is that top flight ticket prices still aren’t too expensive. No matter how high they put them they still find tens of thousands of suckers every week to fork out for them.
I am the only one who thinks that the English media hype about the “richest game in the world” and “x billion people watching” endlessly promoted by Scudamore and his “corporate partners” is actually partly to blame for the escalation of transfer prices?
It helps fuel fevered thoughts about “living the dream” on the part of the promoted clubs, while helping convince selling clubs that the Sky is the limit when it comes to asking prices.
Ultimately sports capitalism is always built on a lot of bullshit and It’s of course the case that Premier transfer fees are wildly inflated, but networks are still paying good money in television bidding rights so they must be expecting some sort of return on their investment. In other words, a good number of people are indeed paying good money to watch Premiership football.
The Premier League is like a wildly unpredictable commodities market where players like Darren Bent can earn nearly as much as Ronaldinho and Kaka. But the transfer fees are inflated because the returns for a club that can break into and maintain a place in the Top Four are on the whole very good; for all of the debt involved, these are massively weatlhy companies capable of generating huge amount of revenue not through ticket sales but through merchandising and television rights.
This is why having a predictable ‘Top Four’ is in the PL’s best interests: build brand loyalty and have Setanta charge a monthly satellite fee for the privilege of watching Arsenal/ManU/Liverpool/Chelsea…they don’t need to pay attention to the other sixteen clubs in the league because there’s no economic incentive to do so. Government regulation anyone?
There’s a reasonable amount of truth in that, but it is also the case that it is very hard to see how either Man Utd or Liverpool can service their existing level of debt using their current income streams. One has to project significant increases in revenues in order to make the numbers work. And let’s not even talk about Chelsea, because they would never have a hope of actually paying Roman back out of operating revenue.
The entire equation (originally pushed by the G14 and Deloitte) of turnover/revenue with “wealth” is one of the fundamental elements of the foundation of bullshit.
Too true ursus. The problem is as you point out that the ‘turnover/revenue’ standard that is not unique to wealthy football clubs…I heartily recommend Jonathan Rowe’s “Our Phony Economy” in the most recent Harper’s for more on this.
Manchester United are operating well within their means, match day revenue and TV money is as good as guaranteed for the next few years at least. The whole thing the club not having any debt when the new owners took over is just tosh – it owed an incredible amount of money to its shareholders – money the club will soon get again when the glazers decide to inevitably cash in.
The Premier League has shown periods when the transfer market has had to catch up with the amount of money the clubs have available – it’s usually clubs like Manchester United that push the new “acceptable” transfer figures – paying £3.5M for Roy Keane, £6M for Andy Cole – almost £30M for Rio Ferdinand. We’re in a period at the moment where the super rich clubs have a lot of ready cash available when it’s not available the transfer market will tighten up again.
Sp3ktor, Man Utd are only “operating well within their means” because the interest payments on the more than 100 million pounds in debt owed to hedge funds doesn’t need to be paid back for another three years (yet is accruing at well above market rates every day). The Glazers either need to refinance or cash out before that happens, and refinancing is literally impossible in the current credit markets.
£100 million – half of which could be paid off tomorrow from the sale of one player. Given the margins within which these clubs operate it really isn’t that much.
@sp3ktor, @ursus, As the new anti-ManU chant in north London goes: “Down with the dollar, you’re going down with the dollar…” But while I think it’s a bit rich to suggest that ManU are living “within their means”, the Glazers do have enough savvy to escape financial apocalypse.
The interesting thing about the English top-flight – as opposed to many teams in Italy and Spain – is that gates make up a huge part of revenue, regularly over 50%, which is yet another reason why ticket prices will continue to rise. Arsenal – for instance – depend on the swish Ashburton Grove for nearly 60% of their turnover. Barca/Madrid are the inverse. So I expect to be paying much more than the customary £33-£44 in the coming years. At least it’s almost worth it at the Grove… I went to Derby away this year where tickets were £40+.
Humble, to someone who earns revenue in dollars but lives in euros, that hurts.
Sp3ktor, David Conn puts the hedge fund debt at 152 million quid:
“United’s accounts showed the club’s total creditors at £764m. United does have “external debt” – £666m owed to financial institutions, including £152m to hedge funds – taken on by the Glazer family when they bought the club in 2005, then loaded on to United itself. While United’s loans incurred interest of £81m last year, the loan to Chelsea by Abramovich is interest-free. Abramovich has funded Chelsea’s extraordinary acquisition of stars and, although transfers showed a profit last year, he continued to allow Chelsea to be run at a substantial loss.”
And I would not be at all surprised to find that it can’t be repaid early without a significant pre-payment penalty; the funds will want to have locked in their return as much as is possible.
City valuations put it that Manchester United could be refloated for £900million, clearing all that debt and leaving a bit more than just beer money.
Even if the Glazers got jittery tomorrow and wanted to sell, £764 million would be just an opening bid. If DIC are willing to offer £500 million for Liverpool, how much would someone need to buy Man U?
You keep moving the goalposts.
First it was that they are living within their means,
Then it was that they could make a dent in the debt if they sold a star. (CRonaldo to Real Madrid would cover half of it, congratulations).
Now it is that they might be able to pay it off if they refloated the club.
And btw, even if the valuation is 900 million, you would never get that in proceeds. Even before one starts to think of commissions and fees, you have to realise that no one is going to float 100 percent of the shares.
There’s an issuer here. Sure, there are clubs in a lot worse shape, and sure there are much more highly geared businesses, but Man Utd’s financial condition is dramatically different than it was pre-Glazer.
Firstly, they are with in their means – the debt is less than the market value of the club. Secondly, they could make a dent into the debt with the sale of a player – if they needed to. Everything i’ve said is to point out that the club aren’t, for want of a better term, in negative equity. And they winning things, which always makes clubs a more attractive proposition.
Lastly I’d point out that neither I nor David Conn are international multi-billion pound finance experts, I’m a part-time football satirist and web developer, he’s a journalist. If we were we’d be in our respective houses rolling around on beds of supermodels. And i’m sure you would be too.
Fine, now that you’ve defined your terms, I can’t but agree. The debt is less than the market value of the club.
With Man Utd’s debt, it is a much different situation for them as opposed to Arsenal whose shares are diversified between multiple investors. The Glazers saddled the club with their own debt, and then have accrued a lot of debt in the transfer market. I read somewhere that Utd is close to 50 million pounds behind on transfer payment, I don’t remember where I read that or if the number is correct, but I remember being shocked by the number.
What all of that means, especially in light of the weakening dollar, is that Utd’s financial structure is going to have to change very quickly, the Glazers need to start making profit soon or the club could be in deep financial trouble. I know they have tried to change the way that tickets are bought, but that doesn’t seem to have too many people happy. Simply, they are going to have to sell their top players or else the owners will never make it out of the red.
Everyone has to remember that these investors are only looking to make a profit, especially American investors. They don’t care a bit about the football played, outside of it making money for them. They only care about their bottom line.
I dont think that the season tickets are expensive, it is just having the time to go to the games.
I dont know how much longer teams in the premiership are going to be able to substain this level of debt, maybe it is time for the FA to step in to make sure that we do not have a melt down and players leave the shores of English football because of this.
It is the same here in Spain at the moment, hence the reason Valencia are selling off their star players to balance the books, Villa after his hat trick will sort out a bit of Valencias poor financial position.
Premier League is great league in the world arena!
They will be bankrupt in one year.
Steven – http://unitedstatesvicepresident.com