A Trust Issue

By on May 27, 2008 in English League Football, Non-League | 4 comments

There was revealing stuff in The Independent this morning – a list of all twenty of next year’s Premier League clubs, along with what their current estimated debts are and how much they’re expecting to be able to spend on new players for next season. Surprise, surprise, Chelsea, Arsenal, Manchester United and Liverpool top the bill in both the size of their debt and the amount of money they’re likely to spend. The combined debts of the top four are a jaw-dropping £1.862bn. The supposed beacons of success within modern English football are almost two billion pounds in debt. Set against this, the debts of the remainder of the clubs in the Premier League are relatively minor (though one can see just how important Fulham’s win at Portsmouth on the last day of the season was – at £149m in debt, relegation would have almost certainly been the last that the Premier League would have seen of them, and a Leeds or Sheffield Wednesdayesque implosion could well have been on the cards), but the clubs will at least receive a greater income from television revenues next season as the new contracts kick in and, if all else fails, there are always the fans to bleed a little more money out of. Season tickets are rising at an average rate of 7.2% this summer (over twice the current rate of inflation), though this may yet backfire on them, coming in the middle of a year when the cost of mortgages is expecting to rise sharply and the cost of food has already made the front pages of the newspapers. Can football really buck the wider trend and continue to grow in the face of what might turn out to be the roughest economic environment in a generation?

We have done the argument on here before over how football supporters should define success (the very existence of their clubs rather than the winning of trophies), so I’m not going to go over that old ground again. I would, however, return to the subject of football’s economic model and question whether the most established way of running football clubs can ever be regarded as sustainable. We always knew that Chelsea were a billionaire’s plaything, but what has only recently become apparent is the extent to which they are – everything that they own is now mortgaged to Roman Abramovich. Massive, massive loans made to chase a dragon that one is starting to suspect that they might never catch up with. Manchester United may be backed in theory by the Glazer family, but that would be an over-simplistic analysis of the financial situation at Old Trafford. United are, in practice, owned by the myriad of banks and hedge funds that loaned the Glazers (or, rather, loaned Manchester United itself) the money for the buy-out in the first place. Manchester United are mortgaged up to their necks – the interest payment alone on their debt last year was £42m. Liverpool have joined the race, too. A club with a serviceable debt that was in the region of £50m last year are now £350m down, and what have Liverpool’s supporters got for this money? Well, nothing of any real substance. The promise of a new stadium that will have to be paid for through bigger and grander loans, something approaching civil war at board level and Fernando Torres. You don’t even have to think that this sort of financial behaviour to think that it is at best high risk and at worst reckless.

“The other way”, however, seems to be working reasonably well. Clubs run by supporters trusts won four promotion places this season, at Stockport County, Exeter City, AFC Wimbledon and FC United of Manchester. All four of these clubs face challenges going forward. At Stockport, the race is still on to raise £1m as the deposit to start the process of buying their Edgeley Park stadium back. Exeter City have to, having taken five years to get back into the Football League, hold onto their place there. AFC Wimbledon will be trying to balance the budgeting of improving their squad in order to challenge for a place in the Conference whilst continuing to make payments on the loan taken out to buy their ground in the first place and paying for much-needed improvements to it. FC United of Manchester have arguably the biggest challenge of all – their groundshare at Bury’s Gigg Lane doesn’t appear to be working (they make very little money from match day revenues when they should be, in theory at least, one of the better off sides at their level). Can they find another home and maintain a ground development fund that would allow them to build a stadium of their own? They’ve managed two successive promotions, but are now up into the Unibond League Premier Division, where the competition will undoubtedly be greater.

The challenges facing clubs like these may look like a different universe to the worlds of the likes of Manchester United, but all four of them are doing what they can to plug that gap. Would you seriously bet against all four of them being in the Football League in ten years’ time? Stranger things have happened. As long as they are open and transparent in their dealings, don’t act in an irresponsible manner with regard to their finances, and keep their revenue streams intact by working within their communities to ensure that they are at the heart of them, giving people an affordable alternative to the hyperbole of the Premier League, there is nothing to suggest that they can’t continue to develop. Maybe other clubs will start to take note – after all, four promotions when there are only fifteen trust-owned clubs in Britain is too many to just be a coincidence. In a season that has often made me want to bang my head against the wall, the sight of four well-managed clubs, run by supporters for supporters and trying to do things the right way both on and off the pitch is a real success for the English game in general.

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    4 Comments

  1. Ian, I know you might shudder at the thought about American sports and the thought of “franchises”, but I think the economic model in American sports can serve as a model for English soccer.

    1. Revenue sharing across the league
    2. A salary cap which helps reduces cost and ensures more competition in the league.
    3. Restrictions on ownership and a limit on how much debt an owner can put on a club

    Personally, I think the successes of AFC Wimbledon and FC United of Manchester will spur more supporter-run clubs in the future and I think is a very viable economic model.

    another joe

    May 28, 2008

  2. The biggest issue with the NFL is the ease with which franchise owners are able to re-locate teams to different cities, and it is this alone that would make me object to having a similar franchise-system in England.

    However, I agree wholeheartedly that the revenue sharing and salary cap aspects of the NFL should be looked at for football in England in order to provide a competitive playing field. Having the same four clubs competing season-in season-out for the Premier League title is not just morally wrong – it’s just plain boring.

    Simon

    May 29, 2008

  3. Almost 2 billion pounds of debt is not a sustainable business model. At some point, you have to pay off the debt or you won’t be able to get more loans. In these economic times, I find it unbelievable that clubs are still trying to mortgage the future to pay the present. That bubble will burst, as it already has for some clubs.

    What clubs outside the big four can’t do on the field, they will accomplish through the self-destruction of one or more of the big four: competitive balance.

    The real question is: what lessons have been learned from Leeds or Wimbledon?

    AtlantaPompey

    May 30, 2008

  4. The other thing to think about when it comes to American sport is that there are no penalties for crapness. It is essentially a closed shop. Even in the MLS (which is improving, it must be said), there is no relegation. I can’t say I really blame them for that; if you’ve paid $100 million for a team then you wouldn’t want to risk getting relegated. With football in the US, this creates a two-tier system in which the USL (which is supposed to be the inferior league) is sometimes better than the ‘good’ league. So that is also an imperfect model. US sports are in essence designed to increase competition; each team gets the same amount of money, and then they have the ‘draft’, in which the bad teams get first pick of the new talent.

    The revenue sharing would not work in any case because the big teams make a lot of their money from other sources, such as selling shirts etc. Revenue sharing would presumably only apply to TV deals, and even that would only work if they were prepared to negotiate collectively (which they have done up to now). I agree that clubs should conduct themselves better when it comes to debt, but I think it will take a big club (top echelon of Prem) to really screw things up before anyone takes notice, and even then the rest will just say “well, that’s not going to happen to us”. I like the idea of Trusts, but a trust is never going to be able to provide the financial backing required for a team to challenge for anything (probably not even to get promotion to the Prem). I guess it comes to what supporters want from their clubs; a well-run community club, or one that has a chance of being successful….it’s going to almost impossible to ach
    ieve both.

    ChrisB

    July 10, 2008

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