Financial Fair Play, Salary Caps & The Polarisation Of Footballs Financial Model

By on Sep 7, 2012 in Finance, Latest | 14 comments

People, it is probably fair to say, are troubled by the current financial imbalance in the Premier League. That only three or four clubs can realistically end up as the champions of England is a situation that has vexed many over the last few years, and even the thin veneer of tightness that the end of last season brought us can mask the fact that both Manchester City and Manchester United finished nineteen points ahead of Arsenal in third place at the end of last season. Coupled with the amount of money that clubs spend on trying to keep up with the Joneses, there has been something in the air with regard to the financial structure of English football for a considerable amount of time.

As such, the news that the Premier League is considering a salary cap is very much a sign of the times. With a new television deal kicking in from the start of next season, some club owners are apparently starting to wonder how it can be that they are unable to make anything like a profit from the businesses with which they have chosen to get involved. For all the money that has sluiced into the league over the last ten years or so, only eight out of the twenty clubs involved managed to turn a profit in the last year for which financial figures are available and the risk of levels of debt becoming unmanageable in the event of a downturn in the popularity of the game remains a real one in the long term.

There are two aspects of the rumours of the proposal for a salary cap, however, which do not invite a great deal of confidence in the idea that competitive balance in the Premier League can be improved. Firstly, there is the timbre of the conversation that the owners of the clubs are having with themselves on the subject. When Peter Coates, the owner of Stoke City, says that “I hope this view is widely shared: we cannot have all the new money going in inflated wages and payments to agents”, it could be argued that he is not particularly arguing for a levelling of the Premier Leagues playing field, but is instead more interested in keeping the extra money from the new television deal for themselves as opposed to seeing it being spent on players and wages. This, to a point, is understandable, but the fact that the focus of the conversation being held seems to be focussed upon how owners can profit from clubs rather than competitive balance is a little troubling.

And this leads us to our second concern with regard to this matter. There seems little indication that clubs’ opinions on this subject are being led by anything other than their own narrow self-interest. Are Manchester United and Arsenal understood to be in favour of a salary cap? We can safely presume that they are, since if such a cap were to limit clubs to spending a set proportion of their wage budgets on wages, then those with a higher annual turnover would be likely be entrenched in positions of privilege in perpetuity. Are Manchester City likely to be opposed to a salary cap? Well, of course they are, because they would likely be forced to slash their wage budgets in the event of such a proposal becoming binding. Little in these opposing viewpoints seems to indicate a desire to work together in order to create a better, more competitive “product” for global consumption.

Where the battle lines on this subject are likely to be drawn on this subject will probably mirror where they stand on the matter of UEFAs Financial Fair Play (FFP) regulations. So much as the briefest glance at the subject sees a familiar circular argument taking place, with things all starting to look particularly tribalistic when supporters of Manchester City and Manchester United start to get involved. It is impossible to say with any degree of certainty what the overall outcome of FFP will be, but it is certainly reasonable to argue that the entrenchment of the “biggest” clubs at the top of the game is only likely to be accentuated if debt limits for all are rigidly enforced. The flip-side to this, however, would be to suggest that building up unhealthy levels of debts in the pursuit of trinkets can have calamitous effects and that if clubs can’t – and the vast majority of the evidence in front of us in recent years would seem to indicate that there’s at the very least an element of truth in this – be trusted to run themselves sensibly, then a degree of financial sensibility will have to be forced upon them.

But herein lays the rub. If there may be a degree of agreement that the money that football clubs raise should be distributed more equitably, how should this be done? If Manchester United (for example) have turned into a global financial juggernaut through their own hard work, why should they be forced to share any of the benefits of this with other clubs? The return of gate receipt sharing, for example, might be a start but it is difficult to see the biggest clubs agreeing to this, and their voices – for all the voting structures within the Premier League, the FA or UEFA – have a tendency to be heard more loudly than most. The Premier League already shares its television money in a considerably more equitable way than they have to, but this hasn’t been enough to prevent the gap between the haves and the have-nots reaching epic levels, so what could ever be agreed upon that everybody would be happy with? It’s difficult to imagine that there could be much.

Rather than hasty legislation in either direction, it feels as if what is needed from all sides of the debate over the financial future of top class football in both England and continental Europe is a change in mind-set. While the Premier League continues to flourish in the way that it has done, there will be little will for this to happen, but should its fortunes take any sort of down-turn, then there is a chance that such a change of perception might just come about. We sometimes look to the NFL in the United States of America or the Bundesliga in Germany for hints as to how this might happen, but realigning professional football away from being  about laissez-faire neo-capitalism is likely to be a significant challenge for whoever is charged with the job of convincing people that the long-term benefits could make any upheaval required to make it work worthwhile. Perhaps, though, the financial models of the clubs of the Premier League, La Liga, Serie A, the Bundesliga and all of the rest of them, are now so polarised that bringing them together may prove to be impossible. While self-interest continues to rule – and it certainly has done for the last three decades, whilst we could argue that it has for as long as there has been professional football – it is difficult to be optimistic that any proposed reforms of footballs finances will give us the game that many supporters actually seem to want.

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    14 Comments

  1. If Manchester United can make a lot of money then really you just have to accept that and given the money they have why shouldn’t their players look to secure a large proportion of it for themselves? To say a player there is limited to a certain wage but the owner can make what he wants seems wrong.
    The problem financially is that there are clubs that are paying players more than they can afford and that needs to be stopped. Clubs must be sustainable.
    Clearly this raises the issue of competition but I’m not sure that you can address that by penalising players who are generating big money for top clubs. Clubs without those incomes are just going to have to accept that they have to over perform on their budgets or not win a trophy.
    It isn’t great but that is where the game is, at least until the ridiculous amounts of money floating around football at the moment find something else to interest them.

    Steve

    September 7, 2012

  2. I certainly think that you have to accept – and, as a body, “we” always have accepted it, I think – that there are some clubs that are bigger, more successful and popular than others. The question is where the line is drawn on trying to rein in the gap as it gets bigger and bigger. It’s not an easy question to answer.

    Ian

    September 7, 2012

  3. Surely the best way is to enforce regulations of revenue versus expenditure ratios. If the rule is based upon debt levels, clubs such as Manchester City who spend mountains of cash but receive it all from a sugar daddy are unlikely to be affected because they aren’t actually in much debt. But if their wage expenditure is limited to being a given percentage of their revenue they will only be able to spend big if they have a consistent fan base who buy merchandise and season tickets.

    I also believe in standard clauses in players contracts. These should be drafted such that in the event that TV money does dry up or diminish, or the club is relegated the club’s wage commitment automatically moves in the same direction. This will hopefully help to avert further Pompey-esque situations in which former owners have committed them to massive wage expenditure regardless of player performance. It would also help to ease the impact of the ongoing farce whereby multi-millionaire players are treated as priority creditors over the Inland Revenue (i.e. you and I), St Johns Ambulance, small catering businesses etc.

    Neal Cannell

    September 7, 2012

  4. Unsurprisingly clubs with massive revenues are going to suggest spending must be linked to revenues, so that they can continue to outspend anybody else. And even more unsurprisingly, fans of those clubs are going to suggest that this has to be the only fair way to proceed.

    SW

    September 7, 2012

  5. If the cash from the new TV deal doesnt end up in the pockets of a few megastar footballers the Chairmen will be happy, because it will end up in the pockets of a few faceless Chairmen instead. Self interest is at the heart of the game. Always has been, always will be.

    Johnno

    September 7, 2012

  6. “clubs such as Manchester City who spend mountains of cash but receive it all from a sugar daddy are unlikely to be affected because they aren’t actually in much debt. ”

    And the problem with this is…?

    Either Financial Fair Play (Euro + Premier League) is put in place to stop Portsmouth/ Rangers/ Leeds-type situations, so it should be linked to debt levels (like Utd could ever agree to that..) or it’s acutally there to preserve the biggest clubs’ stranglehold on the bulk of the money, and their dominance continues in perpetuity.
    At what point are we going to allow any organisation anywhere tell me how to spend my money???

    dsn

    September 7, 2012

  7. Strange that we never heard any of these issues when the cartel of the Sky4 which had existed for over 10 years was in existence

    United when they only had the financial might of Chelsea to contend with they seemed happy with the status quo but now that City have arrived they are upset

    The United owners are ruining their club and they havent got the wherewithal to compete Clearly it is in their interest to have a revenue v expenditure ratio as they are they have been the biggest club in the UK since the premiership years and a whole generation have been brought up with United success

    But why should any club be denied the ability to reach the top in football. Surely a better ratio to measure is debt v income. Provided an owner is not saddling a club with unsustainable debt then even if that owner walked away the club would not go into freefall

    It would not stop rich owners putting their own cash into the business and ensure the future stability of the clubs and allow for competition

    Dave

    September 7, 2012

  8. There’s no easy answer. As a Cambridge fan my club isn’t over burdened with either massive revenues or cash spouting sugar daddies. But as a common sense approach to football at all levels it makes sense to reward those with proper sustainable business plans rather than encourage a sh1t or bust approach of borrowing good money to throw after bad, or finding a faceless billionaire who doesn’t give a toss about football to blow away the competition with a stack of free notes.

    It’s happening at all levels of the game – the last two promotees from the conference have been propelled by sugar daddies (Crawley and Fleetwood – multi million pound budgets with tiny attendances), and clubs such as Chester with good history and heritage have folded due to throwing money they didn’t have at chasing the dream of a league football return.

    If only a sensible long term view of investing in local home grown talent could be taken that doesn’t involve smaller clubs having to relinquish promising young players for nothing then the game would be in a much more sustainabke place at all levels, and would help clubs to feel closer to their communites that they represent in name.

    Neal Cannell

    September 7, 2012

  9. Football shouldn’t be a game of “who’s owner is the richest?”, which since Abramovich then the Sheikh, is what it’s become.

    No club should be able to operate with losses of £197m. It’s unsustainable and it’s not fair competition.

    Matt

    September 7, 2012

  10. How much debt do city have ?? OOOOOOOOOO
    hOW MUCH DEBT DO mufc HAVE? 500 MILLION

    So whats the problem clubs with DEBT should have a penelty clubs who INVEST should be OK

    failing that players can have outside contacts so say city sign a player & his pay is paid via Abu Dharbi and city the club run at a proft that would be Ok

    blueknight

    September 7, 2012

  11. As all comments reflect their clubs best financial position, so will mine.

    As debt seems to be the eventual killer of clubs, shouldn’t that be restricted to a multiple of turnover, thereby allowing owners of clubs such as MCFC & Chelsea freedom to do what they want with the money they are given as opposed to the borrowing undertaken by clubs such as MUFC, Real Madrid & Barca who owe fortunes & have to service the interest payments allowing money to leak out of the game

    Daddy

    September 7, 2012

  12. No club should be able to operate with losses of £197m. It’s unsustainable and it’s not fair competition.

    It’s only unsustainable if it’s debt, not if it’s investment from an owner that can afford it.

    Boris

    September 7, 2012

  13. I agree that there is a rediculous amount of money in the premier league and that clubs should be trying to work within their means, however, FFP is a false economy that allows clubs with huge debts to continue to rule the league as long as ther “operating costs” are within their revenue streams. It doesnt take into account the debt. United are the perfect example, huge revenues that cover the wages etc so therefore they wont be affected by FFP even though they have a redculous amount of debt. And before you all cry “bitter City fan”, i dont agree with our stupid wage structure and yes, i think any business that spends more than it earns is taking a risk, but lets have a level playing field, FFP should be about clubs making profit, not covering up debt!

    CitzenSid

    September 7, 2012

  14. Why are we all so scared of football clubs going bust?

    Ok, plenty of clubs go into administration and bankruptcy, but usually they are bought out by a wealthy person or group of wealthy persons (same as sugar daddies, just more polite way of naming them) for a pittance, and start from the bottom as a penalty for being crap at football and business.

    Who out there would say Rangers won’t be back on top of the Scottish pile in a couple of years time?

    Name me one decent size team in this country who have disappeared entirely, never to return, in the whole history of our football?

    All this hand-wringing about financial doping is a load of tosh – if Man City somehow manage to blow this fantastic opportunity and lose the owner and become bankrupt, someone else will step in, and the fans will keep on supporting them in droves – history has proved this once (without the bankruptcy bit – close ‘tho).

    Football will carry on, no one will get killed, nor will the sport, which is our national pastime bar none.

    All this Financial Fair play fuss is just a desperate ploy by the established European elite like United and Real to keep them at the top, nothing else.

    Teams like United and Real whored themselves over the globe, touting for new markets, and when real football enthusiasts like Sheikh Mansour took an interest, it was inevitable people like him would want a piece of the action – how did they not see that coming????

    These greedy planks at Old Trafford don’t give a monkey’s about a level playing field, they don’t want competition, they prefer the money first, then the Glory, and sod the national teams and sod the national leagues – when did the richest club in the world ever offer to hold a benefit match to raise funds for the little teams around them slipping into administration?

    Correct – never.

    What have Manu ever done for English football apart from not take part in the FA cup that season at the behest of the FA to promote some crappy world super club cup, which was so successful noone can now remember what it was for, and why it doesn’t exist now.

    Football has always been about the money, and the best supported clubs have generally always been successful, but United have taken the business side to an entirely different level, and now they’re squeeling like stuck pigs when a couple of teams now have more disposable income than them, despite twenty odd years of milking Sky TV money and Champions League revenue, and the huge disparity in fanbase and marketing revenues they’ve garnered over the decades.
    The gap between the Sky 4 and the rest was almost insurmountable, and that’s how United and Arsenal wanted it – how ironic that their desperate trawling for global recognition and wonga has opened up the Pandora’s box of Billionaire foreign owners who are genuine, long term football fans, and prepared to put their investments where their mouth is – anyone care to argue that Roman Abramovich isn’t a committed owner – he’s been there ten years now – longer than United’s current owner eh?

    Sheikh Mansour is ploughing billions into Man City and East Manchester, and has a ten year business plan, which I’m sure he’d love to keep on improving on – any serious football analyst will tell you he’s the real deal and in it for decades, not just until the cash cow dries up.

    In summation, at this stage of the development of English football, we cannot hope to compete with the big Spanish two, Bayern, PSG, the Milans and Juventus, without matching and usually bettering the wages and transfer fees, without further investment in infrastructure, players and marketing of the English game globally. To turn our backs on the inbound investment from the likes of Mansour and Abramovich would be suicidal. Where else would we find the billion pounds these two alone have invested over recent years in our double dip recession? Arsenal’s “sustainable business model” wouldn’t look so healthy without the sales of K Toure, Adebayour, Samir Nasri and Gael Clichy – something like £70 odd million less well off by my reckoning, same as Everton and Villa would be to a lesser degree.

    Until United and Arsenal back a motion to evenly distribute TV and league placing money throughout Europe, so that the team that wins the Champions League gets exactly the same cut as the team that finishes bottom of the (now) third division, then you know they don’t care about a level playing field for all – the rest is just greed and self interest, just as they’ve been doing for at least two decades since the inception of the Premier League.

    It's Grim Oop North

    September 7, 2012

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