“Club football is in crisis.” They are the words of the top man – Sepp Blatter, president of FIFA, world football’s governing body. FIFA itself is in rude health, having just reported a cash surplus of £52m. A check of the pulse of many clubs however reveals a different picture.
The 1990s heralded a new era for the sport. Here in Britain Rupert Murdoch’s BSkyB satellite network appeared with a gigantic bag of cash and the good times rolled. Football League Division One broke away from the lower divisions to form the Premier League and millions of pounds of extra revenue poured into the coffers of the top clubs. Transfer fees and players’ wages rocketed. Clubs were spending the TV money as quickly as it was coming in. Former Tottenham Hotspur chairman Alan Sugar called it “the prune juice effect”. Most of the cash was going straight through without touching the sides.
Player power increased after the Bosman ruling – a European legal case that established players’ freedom to move from one to club to another once their contracts were up, without the need for a transfer fee. But, of course, it couldn’t go on forever. Few businesses can spend up to 70-80pc of their turnover on staff wages without coming to grief. Alarms bells began to ring last year with the collapse of ITV Digital which had signed a £315m rights deal with the Football League. £178.5m was left owing on the contract leaving several lower division clubs staring into a financial abyss.
BSkyB’s last deal with the Premiership was worth £1.1bn over three years. Negotiations are due to start soon for the next contract and some observers believe the TV giant may try to strike a harder bargain. Add to that a legal move by the European Commission to end collective bargaining over TV rights, leaving clubs free to negotiate their own deals. Great for the big boys like Manchester United, Arsenal and Liverpool, but not so good for the smaller teams.
Even Manchester United, the richest club in the world, recently sounded a note of caution. In the past couple of years it has made record breaking plunges into the transfer market buying Juan Sebastian Veron and Rio Ferdinand for £28m and £30m respectively. But, after revealing half year profits of £20m, chief executive Peter Kenyon said such transfer deals for British clubs may be a thing of the past. He also put forward the view that the days of strong growth in the value of TV rights were over.
Liverpool, though not exactly facing a crisis, are desperate to qualify for next season’s UEFA Champions League. Failure to do so could cost the club in excess of £15m. Chief executive Rick Parry has pledged there will be no major player clearout if they don’t qualify but it would almost certainly rule out any summer splashes in the transfer market, and Parry has indicated that Liverpool would have to sell before they could buy.
Further down the Premiership things look grim. Leeds United has debts of £78.9m and recently posted half year pre-tax losses of £17.2m. The club is a frightening example of how quickly things can turn sour. Just two years ago they were in the semi-final of the Champions League but are now in a relegation dogfight. Dropping out of the top flight would be financially catastrophic.
Chelsea has huge debts and relegated Sunderland recently reported operating losses of £4.8m for the six months to the end of January. The fall from the top flight will mean an annual drop in income of at least £12m.
Everton has grand ambitions under young manager David Moyes but with a lucrative Far East tour now cancelled because of the SARS virus and plans for a new stadium at the Kings Dock in tatters, there may still be rocky times ahead. Everton had an operating loss of £11m last season. With only £8m in the bank at the time it published its latest balance sheet the club will need to act to get its finances back on an even keel.
Sepp Blatter believes part of the problem is the legacy from football clubs becoming public companies. Manchester United, Leeds United, Newcastle United and Chelsea are all listed on the London Stock Exchange. He said: “The results of football clubs should be evaluated on the field of play and not to the Stock Exchange. The danger is that if there is a decrease in the value of shares, what will be the reaction of the club?
“Football should remain a game and produce a positive spirit and you will see in the future that clubs will think twice about going public.” Along with the rest of the stock market the value of soccer club shares has plummeted. Manchester United are worth only a third of the £1bn they were in 2000.
Clubs down in the Nationwide League are faring even worse. ITV Digital’s demise has caused shockwaves. Leicester City, Coventry and Watford are among those struggling. To add to their woes league chiefs are planning to deduct points from, or even relegate, clubs who go into administration.
James Dow, a corporate finance advisor to the football industry, told the Daily Post he believes the gulf between the rich elite of European soccer and the smaller clubs is growing ever wider.
“There is a crisis in club football but it is mainly outside the Premier League and has been caused directly by the collapse of ITV Digital,” he said. “There are clubs in the Premier League which have over extended themselves. Chelsea is an example – it has huge debts. But it also has one of the most valuable pieces of real estate in Europe so it may not be too badly off in the long run.
“If the European Commission does rule that clubs have to negotiate their own TV deals then that will simply bring a European super league closer to reality because the disparity between the elite clubs and the rest would become too great. “I don’t necessarily think the number of clubs in the lower leagues would reduce but I think it would be next to impossible for a club to rise up from the lower divisions up to the higher ones.”
Mr Dow doesn’t think clubs will curb their spendthrift ways as long as the money from things like TV deals keeps rolling in. The Nationwide League is to start player salary capping from next season but there is no such plan at the moment for the Premier League.
He added: “The problem comes when clubs start spending money they haven’t got. A classic example of that was the ITV Digital crash. I can see transfer fees levelling off or coming down but I think players’ wages, at least at the top clubs, will continue to rise. “I don’t buy this idea of clubs becoming more sensible with their money – I think they will always spend it as quick as it comes in.”
A great deal to TV rights
English football’s top clubs and bosses at BSkyB are set to get round the table to negotiate the next TV rights deal.
Sky’s current three-year agreement with the Premier League, which expires at the end of next season, is worth £1.1bn and allows it to screen 66 games a season, with a further 40 being offered to viewers on a pay-per-view basis. This time round Rupert Murdoch’s satellite broadcaster is in a much stronger position and many analysts believe the value of the contract could drop by at least 10pc.
ITV Digital is no more and the cable companies and the BBC don’t have the financial clout to compete, which leaves Sky with a clear run. One possible complication comes in the shape of the European Commission which is considering outlawing collective rights agreements – forcing clubs to negotiate their own TV deals.
BSkyB’s former head of programmes David Elstein told the Daily Post that with such a clear path it was very likely the broadcaster would be able to negotiate a more favourable deal.
He said: “The issue for the Premier League is whether it might benefit them to set up their own pay channel. Either way it would not make that much difference to Sky because it would still be the main platform for the channel. “Sky might not lower the price but they might demand more general access to the sport.”
Some observers believe Sky needs top flight football as much as football needs it, to keep its 7m plus subscribers happy. But Mr Elstein dismisses that view saying that the Sky network would still be the main platform for live soccer, whoever controlled the rights.
He added: “Profits from the rights themselves are marginal. Football would almost certainly still be shown via satellite so Sky would still benefit.
“I don’t think the European Commission would force clubs to negotiate their own rights – why would they – it would simply devastate football.”
How the money is divided up
Premier League
* Every Premier League club receives a starting bonus of £9.4m per season
* Club’s receive merit payments, according to their final league position, in units of £503,000. League winners get 20 times that amount which is just over £10m.
Second place gets 19 times the amount, third 18 times, and so on.
* Each time a club appears in a live Sky TV game they receive £597,000 and for a feature highlights match on ITV’s Premiership they get £59,000 each. Each club gets £150,000 for a TV pay-per-view appearance.
Football League
* Division One winners receive £50,000, 2nd place – £25,000. Division Two winners – £25,000, 2nd place – £10,000. Division Three winners – £25,000, 2nd place – £10,000, 3rd place – £5,000.
* Play offs: four semi-finalist share 50pc of gate receipt money. 50pc goes into general pool for whole league. Same deal for finalists.
* Four year TV Deal with Sky signed in July 2002: Division One teams get £697,000 per season, Division Two teams – £340,000, Division Three – £239,000.
* Division One home teams receive £60,000 for a live TV game, away teams – £10,000. Divisions Two and Three, £30,000 home, £10,000 away.
UEFA Champions League
* Each of the 32 clubs receives a starting bonus of £1.1m in addition to £220,000 per match plus £220,000 for a win and £110,000 for a draw.
* Clubs will earn a minimum of £2.5m for taking part in the first group stage and up to a maximum of £15m for the whole competition, not counting TV revenue.
* Allocation of TV money, total pool £166m, is dependent upon the value of the TV market of each country and the number of matches played by each club.
* Clubs can earn a maximum of around £18m from TV revenue meaning maximum possible earnings for one club is around £33m.
Source: www.icliverpool.icnetwork.co.uk
