The true cost of success in football
Manchester City are the favourites to lift the Premier League trophy in May for the first time in their history, looking strong to turn their financial backing into further success after last year’s FA Cup triumph. The future may be looking rosy for the Citizens on the pitch but financial regulations will be enforced by UEFA in 2014-2015 that could scupper the fairytale story at the Etihad Stadium.
Last week City published their record-breaking losses of £194.9 million, fuelled by a massive annual wage bill of £174 million ending May 2011. Abu Dhabi owner Sheikh Mansour bin Zayed Al Nahyan and his behind the scenes team have three years to reduce their debt dramatically otherwise suffer horrific consequences that could end their reign of power in England before it has even begun. One-off signings that will not need to be replaced for years to come, such as David Silva, Mario Balotelli and Yaya Toure make up a large quantity of the debt however, unwanted players will fetch some much needed income with the likes of Carlos Tevez leaving to remove of chunk of financial loss.
According to UEFA’s Financial Fair Play regulations, a club can post losses of no more than £38.5 million in 2014 otherwise face exclusion from playing in European competition; which makes up a large percentage of income. City claim however, that this is a one-off annual debt and that this figure will be nothing like future results due to their rapid acceleration investment strategy.
The published figure does not however take into account the summer signings of Sergio Aguero, Samir Nasri and Gael Clichy along with their added wages and so it is tough to see how the figure will decline substantially. The reports also do not take into account their recent deal with Etihad that could produce up to £50million a year with naming and kit rights, along with the much needed Champions League media money that could bring in almost £30million.
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With work needing to be done on the sustainability of City to enable them to fulfil their ambitions, it begs the question, what is the true cost of success?
Unstable owners and reckless spending have been the downfall of many a club in English football over the past 10-15 years, with Premier League clubs creating a loss of half a billion pounds last year altogether, despite record income.
The Glazer family’s ownership of Manchester United has cost the club around £350m in interest, fees and loans to the family themselves since 2005, and they have never put money into the club. In 2010, United paid £42m interest on the £500m loans the Glazer family originally took out to buy the club in the first place, and just refinancing that debt, replacing the loans with a bond, cost United a staggering £65m.
You can begin to see why a large portion of United fans protested against the Glazer’s ownership a few years back as they could see the possibility of this financial slump occurring. However the past six months have been refreshing for all parties interested in United’s finances as they felt the benefits of their £40 million deal with training kit sponsors DHL and increased media revenue in winning the Premier League and reaching the Champions League final. The finalisation of the Old Trafford quadrants also enabled them to see a rise in matchday income that has grown 9.6% in 12 months.
It is unlikely that the Red Devils will see another rise in profit in the near future with hefty transfer dealings in the summer and the possibility of not winning any silverware this season with rivals Manchester City dominating the Premier League. But their debt is now not along the lines of City’s and it will be a lot easier for the Champions to reduce debt in order to please UEFA.
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Roman Abramovich is owed £726million by Chelsea, a debt that he claimed was written off, but it is now thought that the Russian may want that money back one day and with a £25million interest according to the Guardian. The club is debt free but the parent company is not. While the loan is interest free, it is repayable should Abramovich choose to give 18 month’s notice. The Russian billionaire can still opt to get his money back if he decides to sell his shares or when the club is proving profitable.
But many financial experts believe that Chelsea will not have money to spend the way they have done since 2003 for very much longer. Abramovich might sell the club, which could result in the debt being thrown onto Chelsea and this is something that they will not be able to deal with. Their loss of £78million should not affect the club as the parent company takes all of the financial hits and leaves the club on a stable footing for now. A move away from Stamford Bridge will pose benefits for the West London club, but a stalemate over shares of the ground seems to be holding the club back.
Abramovich has also been involved in an ongoing court case that may well affect his long term financial state if he does not come out on top.
After becoming one of the best sides in Europe at the end of the 1990’s, Leeds United chairman Peter Ridsdale took out large loans to fund big name signings in the assumption that they would qualify for the Champions League and repay the debts in match day and media income. However, David O’Leary’s side narrowly failed to finish in the top four and thus had to find a way of paying off the ludicrous debts. This was the first sign that the mighty Leeds United were falling from grace.
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Wholesale departures including players and management left the club on the brink of relegation and after failing to beat the drop; the training ground and historic home Elland Road were also sold to keep the club afloat. Failure to return to the top flight immediately meant that manager after manager came in on a shoe-string budget and failed to impress before they were eventually relegated again, this time to the third tier of English football.
The club entered administration in 2007 and were deducted 15 league points, and Ken Bates’ arrival was a sign that the club may have to start from square one. It has taken the club 11 years to look like they may be a Premier League club again, something that can’t happen again. Such a rapid decline shows that owners have so much power of a club and that loans and heavy debts will eventually come to light, and it may take longer than expected to be sorted which will heavily affect the club.
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Leeds United are a prime example that things can end up as bad as first feared and should be used as a worst case scenario to all current and future football club owners.
One club that can be used as an example of business that runs successfully is Arsenal. When the Gunners moved to the Emirates Stadium in 2006, it was thought that the club would be financially restricted because of the multi-million pound building costs. But, the sale of Highbury and development of accommodation has proved a huge success and any revenue raised from the homes will be re-invested in the club. The financial gain has been dramatic, with matchday sales now at a all-time high in north London. The club were bankrolled to Stan Kroenke and the shareholders claimed a combined £243million last year without putting hardly any money into the club itself.
The sale of players has been a-money-making hit also, with Cesc Fabregas making the club £30million in the summer, something that a club with very little debt can re-invest in players immediately. Reaching the UEFA FFP should be simple for the Gunners and they should be looked at as a club that have used shrewd business acumen and youth development to its advantage.
Arsenal prove it is possible to run a steady, profitable business in football, but many have showed that it is harder said than done. Sometimes financial backing can produce success, but it needs to be reigned in to comply with UEFA rules and prevent the club falling from grace and losing what pride it has.
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