The problem with money in football

Scottish side Hearts are the latest football club to enter administration, with a 15 point deduction already added to their 2013/2014 campaign. They join an ever growing list of teams from England and Scotland that are struggling to maintain their status as a professional entity, due to extremely poor financial situations. Whilst any business, and football is definitely in this bracket, can suffer from mismanagement or be affected by economic difficulties, there is an alarming trend over the past five to ten years of more clubs than ever before having to declare bankruptcy, despite the absurd amounts of money flowing around in multi-billion pound media rights deals and players at top clubs earning six figure salaries per week. How can this terrible situation be resolved or should we let the whole system crash in order to start again?

The rich keep getting richer whilst the poor keep getting poorer. At least, from the outside looking in, this is how it appears that football has gone ever since the introduction of the Premier League twenty years ago. Clubs such as Manchester United, Chelsea, Arsenal and Manchester City are international brands that can command huge amounts of money for television rights and receive millions in sponsorship and merchandising. Most of their players are on at least £50k per week and everything seems to be rosy at these apparently well-structured and financed clubs. Scratch a little bit beneath the surface however and the reality is quite different.

Manchester United were purchased in 2005 by Malcolm Glazer for a total of almost £800m. Almost all of this money was taken out in the form of loans secured against the club's assets though, prompting many fans to protest against the extremely high level of debt that the club was incurring due to interest payments that were owed on this borrowing. Figures produced for the 2011/2012 season by 'The Swiss Ramble', an independent website focusing on football finances, show just how serious the problem is when looking at the amount of debt that Premier League clubs owe.

The graph indicates that nearly all of the teams owe a substantial amount, although there are certain circumstances that have resulted in these figures being somewhat misrepresentative. Arsenal, for example, had to take out finance for the construction of the Emirates stadium and Chelsea appear to have no debt, when in fact they owe about £900m to Roman Abramovich, although it would be unlikely that he would ask for this to be repaid.

Another crucial indicator of how serious the problem is can be seen when looking at the reliance that the teams have on television money, which is the main catalyst behind wages rising at a never ending rate. Whilst the six largest clubs can raise income from merchandising, sponsorship and other avenues, the rest of the teams rely on 60% or more of their annual income coming from this stream. What would happen if the media companies decided to reduce or stop their investment? Would any of the clubs be able to cope with such a situation?  

Although it is obvious that the interest in the Premier League has never been higher, and we are about to see the largest ever media deal come into effect at the start of the new season, should any football club rely so heavily on one source? 

Sky and BT paid £3 billion for the rights to show games for the next three years, but the rest of the football league has to make do with the scraps that fall from the highest table. Clubs such as Portsmouth and Coventry, who once played at the top, are feeling the strain since dropping down the leagues, and even recently relegated teams such as Wolves cannot get by with parachute payments designed to ease the drastic reduction in income.

Is it acceptable that clubs are basing their expenditure on revenue streams that they have no control over? In other words, should player wages be taken from TV money or should they come from ticket sales and merchandising? At least a club can then accurately forecast its expected income throughout a season and not have to wait to see if they remain in the Premier League or whether Sky will once again spend heavily to show live matches.

If teams are left to go bankrupt then there would be uproar from the fans of those clubs, who understandably want to do everything in their power to see their club saved. However, by re-arranging debt, taking out loans at lower interest rates, and organising action groups to raise funds during desperate times, are these all just measures that are delaying the inevitable? Perhaps a complete rethink and shake up of how football clubs conduct their business activities needs to be introduced and it could be a very painful road before we see actual progress taking place. On the positive side of things, this might be the only way to see an effective and realistic model put into place and prevent any more clubs from entering administration in the future.

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