Football Is Changing: Debt

Football is changing, more so now than any other time in the history of the game. As well as in the world wide economy, debt has bitten its teeth into the football world resulting in a staggering 50% of all European football clubs being run at a loss with the last year being the toughest in many football clubs history.

It would seem obvious that soaring transfer fees have contributed to the escalation in debt. High transfer fees are part of the game now, and nobody even bats an eye. Antonio Reyes cost Arsenal £17mil, Sean Wright-Phillips cost Chelsea £21mil, whilst Ryan Babel cost £11mil for Liverpool and David Bentley required £17mil from Tottenham and it would appear that none of these have been hailed a success, with 2 of them already sold for less of their original price tag and the other two merely ‘bench warmers’. Instead, it will cost a club a healthy £30million plus for a top player – even Hernan Crespo cost £35million for Lazio in the turn of the millennium. It’s a long time ago for the many fans that remember Alan Shearer’s transfer from Blackburn Rovers to Newcastle United for £15,000,000 in 1996 – a world transfer record breaker at the time. This seemed a big step forward in the game but high transfer fees are the norm these days. Over recent years, we have got used to teams like Real Madrid spending mega bucks on the likes of Figo (£37mil), Zidane (£46mil), Kaka (£56mil) and Ronaldo (£80mil). Just in the summer of 2009, Real Madrid splashed out a humongous £220mil. Meanwhile, owned by Sheikh Mansour bin Zayed Al Nahyan, Manchester City has paid £216mil on transfers demanding short term success. This seems suicidal considering the current recession the world is suffering from. It is no surprise then that team’s expenditure has increased and has resulted in big debts.

Alan Shearer cost Newcastle United £15,000,000

In addition, the drastic increase in salaries paid to the playing staff at clubs increase their expenditure. According to the accountants ‘Deloitte’, salaries continue to be a bigger drain on finances than transfer fees. In 2003, the total amount spent on transfers was £248m. In 2008 however it was £675m. The wages cost £548m and £787m respectively, so the gap is closing between transfer fees and wages. Although that may seem irrelevant, it shows the sheer amount that clubs (mainly top flight) pay for their players. Over recent years clubs days seem to have become more lenient towards wage expenditure. In 2003 for example, Derby sold Seth Johnson to Leeds for £7million. It wasn’t just the price tag which Leeds fans scowled at, the fact that he was paid £35,000 a week when he only gave 15 starts and one goal; it proved to be a costly mistake. In more recent times, even fringe players such as Ryan Babel (£40,000), David Bentley (£50,000) and even several Newcastle United players are still on £50,000, despite being in the Championship, demand huge payment each week. Over spending on wages can have more of an effect than people think, just ask Portsmouth. Everyone knows about their financial turmoil they are suffering from and are almost wishing their top players would sell like hot cakes to get them of the wage bill. However, due to high wages, they can’t. For example,  John Utaka is on a reported 70k per week and other clubs are unwilling to pay similar wages, consequently, Utaka is still at Fratton Park eating away at the wage bill and taking Pompey into further financial trouble.

The English Premier League itself boasts a gigantic amount of debt, £3.1 billion to be precise, affecting all 20 top flight clubs.  Certain clubs have been hit more than others such as Portsmouth FC who have been precariously close to administration on numerous occasions. With the Hampshire based side a reported £60million in the red there is a need to sell players to pay for staff wages. The players of Pompey have gone unpaid for the last couple of months and will only receive payment when the transfer of Kaboul to Tottenham Hotspur has been finalised. This situation has led to Pompey facing a winding-up petition from HM Revenue & Customs at the High Court. Meanwhile, the recent takeover of West Ham United by David Sullivan and David Gold has caused reports of the Hammers being £100million in debt; this has led to the new owners admitting that it “makes no commercial sense” to take over the relegation threatened club.  Arguably the biggest and most successful clubs in the world are feeling the strain also with recent reports suggesting that Manchester United are over £700million in debt. The debt is more significant to United as they could face exclusion from the Champions League – if they maintain such high debts – under new laws created by Uefa with Uefa’s general secretary, David Taylor, and its president, Michel Platini, warning that debt “is not to be in our competitions”. Such financial crisis in the Premier League has even resulted in the Prime Minister, Gordon Brown, issuing a warning to owners to cut costs and to consider supporters as debts are “too high”. It’s not all bad for Premiership clubs which have rich foreign owners however. Clubs such as Chelsea and Manchester City are spoilt by rich owners who have written off their respective clubs debt.  Roman Abramovic, owner of Chelsea FC, has recently paid off £340million worth of debt whilst Sheikh Mansour bin Zayed Al Nahyan has paid off £304million at Manchester City in one fell swoop, by turning loans he gave to the club into equity. It has also been revealed that Mansour has now invested £395m since buying the club in August 2008. Other top European clubs and their debts include: Real Madrid – £629m (although Real themselves say only £296m), Barcelona – £436m, Internazionale – £386m, AC Milan – £348m, Juventus – £147m, Roma – £136m and Bayern Munich – £96m. Having such rich chairmen is a luxury nowadays in order to fend off the threat of debt and progress at the same time.

 Roman Abramovic has paid off Chelsea's debts

As you may expect, lower league teams have also been heavily affected by the recession with debts of many clubs spiralling out of control. This isn’t helped by the lack of income compared to premiership clubs, especially in gate receipts. With many lower league clubs struggling to balance the books, it is no surprise that many clubs have gone bust (Kings Lynn), gone into administration (Crystal Palace) or simply unable to afford good players and sit bottom of the league (Darlington). There have been many signs of struggle in the lower leagues and non-league as  Blue Square South club Lewes only just survived a winding up order when their debt to the taxman was paid 24 hours before the order was due to be heard in court. The 125-year old club is fortunate to be located in a relatively wealthy area and supporters rallied round to find the £48,000 required. King’s Lynn did go under over an unpaid tax bill of around £70,000, but are set to return next season as Lynn FC. Blue Square North side Northwich Victoria may be demoted again after failing to pay creditors the money they owed. Elsewhere in the Conference, the woes of Chester City continue as they face a winding up order over the £26,000 they owe the taxman and they have still not paid their players’ wages since November. Also in the conference, Luton Town seem to have at last overcome their financial crisis as they sit in and around the play offs in the Blue Square Premier. In the last three years, the club have suffered a total deduction of 50 points whilst suffering 3 successful relegations. Financial problems really can cause heartbreak for fans, as I’m sure Luton fans will testify. In the same year Luton were deducted 30 points in League 2, Bournemouth FC and Rotherham FC were also deducted 15 points each due to late payments. Bournemouth still suffers from a transfer embargo which has lasted almost a year. In League 1, Stockport County were saved from extinction by Sale rugby boss Brian Kennedy who agreed to pay off almost all the £3.8million that the club owed.  Most recently, it has been reported that Norwich City may sell their Carrow Road ground to deal with their mounting debt. Meanwhile, in the Championship, Crystal Palace are the latest club to enter administration. The South London side have not always been able to pay their players on time in recent months and face a winding up order. They have had to sell players in order to pay the current staff as Victor Moses departs for Wigan Athletic. Watford FC are another club to escape administration by the skin of their teeth after paying back money that had been owed to former chairman Jimmy Russo.

Eagles chairman Simon Jordan was forced to put Crystal Palace into administration

In order to balance the books a club may look to sell their best assets. For instance, West Bromwich Albion bought Diomansy Kamara for £1.5 million and sold him for £6 million, whilst Jason Koumas cost them £2.5 million and was sold for £5.5 million and Jonathan Greening was bought for £1.5 million and got a return of £4 million. Although this seems a good strategy of making money and adding a better looking cash flow, perhaps this has led WBA to becoming known as a “yo-yo team”?

Dedicated football fans love their football club with many fans purchasing season tickets at the same time as many attend away games. However, despite the current credit crunch, prices of season tickets and match day tickets continue to rise which has seen “30 per cent of regular match goers now going to fewer games”, according to a recent study from Virgin Money. The report continues to say that “one in every five football fans has borrowed an average of £682 as a direct result of supporting their team” which shows that it is not just the clubs and the owners that suffer from this debt, but it is the most important factor in the club, the fans, which suffer the most.

Clubs expenditure has been increasing over the last few years and this hasn’t been helped by the decline in income, mainly through a decrease in gate receipts as supporters feel the pinch of the credit crunch. With the exception of a few, most Premiership and top European clubs can cope with the debts – and it is a shame that it has taken a political body (UEFA) to limit the amount of debt a club has – but it is the lower league clubs which feel the real bite of the recession with many clubs simply unable to cope with the recent lack of investment and increasing debts.

3 Responses to “Football Is Changing: Debt”

  1. John Verrall Says:

    A really good first post George, cleary a lot of research went into it.

    That is the good thing about our club, Peterborough, the fact that Darragh will not put this club into administration as so many chairman do nowadays to cope with the success fans demand, with rising ticket prices. We may have had a poor season but I would much sooner be in our position than in a crisis like at Crystal Palace or Stockport.

  2. Oscar Tollast Says:

    In my view, speaking as a Portsmouth fan, Portsmouth will be the first Premier League club to go bust.

    However, there’s more to the financial situation at the club than what is being reported in the national press.

    Our club is owned by and being ran by convicted crooks. Our owner doesn’t exist and is more or less a frontman for the Gaydamak family, who are trying to recouperate the money they’ve lost from owning Portsmouth.

    If Portsmouth do go – it will only be the start of a chain reaction. And in my view, that would be no bad thing.

    The Premier League needs to change – it needs to spend less time being concerned about its image and look and take more care in regulating the club’s finances.

  3. George Welch Says:

    Its a sad situation at Portsmouth and i feel sorry for the fans as i feel you will end up either bust or down a division in the Championship. At the end of the day though, i suppose that will be ok as long as your football club is still around.

    I agree with what you say about the Premier League’s image aswell. You could argue that the rise of La Liga (mainly Real Madrid spending power) has put pressure on premier league clubs to spend more to retain the image they have achieved as i feel the Spanish league is improving all the time.

    Good luck to you at Portsmouth.

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