Football Finance – Can Clubs Survive?

Football finance expert Professor Simon Chadwick speaks about his fear of clubs going out of business during the summer, clubs operating in the wrong century and football’s likeness with food retail.

By James Fielden

Football is at an all time high. Not the amount of people watching the sport and not the amount of great players like Messrs Messi, Rooney and Ronaldo gracing the world’s pitches. Instead, it is the amount of debt that clubs are in.

The worldwide recession has impacted further upon clubs and now fans are starting to lose the clubs they have supported all their lives. Clubs in the Premier League alone are estimated to be in debt to the tune of £1.92billion which is actually down from a previous total of £3.1billion

To all fans who are not business experts, the big question is what has got so many football clubs into the mess that they are in?

Chadwick has a different view to many others: “There’s a tendency to say the clubs have spent too much money, they didn’t control their finances and what you see with Portsmouth, Chester and Southend is the consequence of that.

“I take a different view in that the problems we are seeing now date back to the origins of football. Football clubs as they stand today were not constituted to be 21st century businesses; they were set up to be hobby clubs.

“It was groups of people getting together to play in leagues against one another. It wasn’t supposed to be about selling TV rights, sponsorships and going global. It was about playing football and making sure you had opposition to play against.”

Football began as a game for the working class. Mass teams used to play from one end of a town to another; how times have changed. Chadwick thinks that clubs are such now that they can’t operate within a game structured two centuries ago.

He said: “The strength and popularity of football as an industry has grown and we now have broadcasters and sponsors. The organisation of the game hasn’t changed so what you now have is a 19th century industry operating in a 21st century environment.

“I don’t think the structure, organisation and the culture of clubs is such a nature that will allow it to function appropriately or efficiently in a 21st century environment.”

“There’s loads of scrutiny in the high value broadcasting and commercialisation of sport – it’s a global phenomenon. What happens in China has an impact on Stockport County. What we are going through now is a period of transition and clubs are going to have to learn to do things differently and unfortunately part of that learning process will mean that some clubs will go out of business.

“Walsall and Burton Albion are already learning that if you are going to be a 21st century business you need to operate accordingly. Controlling costs accordingly, not spending too much, looking for ways of seeking new revenues, their financial management is much better; it’s the culture change we are going to have to see.”

Decisions that put football clubs in trouble ultimately come from the management. Chadwick is of the impression that there are too many people trying to run football clubs for the wrong reasons or without the required expertise.

He added: “There are too many people involved in football because of the football culture. Monday to Friday these people are hard nosed business people. On a Saturday they run their club as a fan and they need to move away from that.

“They are not being run as commercial entities but as football clubs. They need to run a lot more efficiently in a managerial sense.

“I think there are some skilful, educated and clever football people out there. There are too many people in football who are drawn from a football background. In some ways it’s a good thing because they care and it’s a passion.

“I think as an industry it needs to more outward looking and bring people in who have worked in other industries. People at Coventry City and Bolton Wanderers have come from a different background and are doing things in a different way and that’s important for football.”

Football clubs are difficult to run as they are different from most businesses. Chadwick explains his theory about how the product you give people is not always predictable.

He said: “I think all businesses are difficult to run. In football there’s an intangible element that Amazon and HSBC don’t have, it’s about what happens on the field of play.

“There’s lots of brand loyalty in football, even if a team loses and product quality is poor people still follow you whereas if Microsoft’s product is poor people don’t buy it.

“Microsoft doesn’t need wins on a wet Wednesday night away at Scunthorpe whereas Walsall do. You can’t guarantee huge results, it boils down to have you won – yes or no – that’s crucial.”

Money started being pumped into the game in huge amounts in 1992 when the Premier League was formed. BSkyB paid £304million for the rights to matches and the deal has been increased every few years since then. Chadwick thinks that it is easy for people to say to criticise BSkyB’s part in the money problem football now faces.

He said: “It’s easy to point the finger at BSkyB but if you are not part of the solution you are part of the problem and the amount of money they’ve brought in is massive. When you juxtaposition that with the absence of a clear managerial culture in lots of clubs then what you will get is clubs spending huge amounts on transfer fees and wages.

“It’s a bit like saying to your granddad that has never had lots of money, here’s £100million; he wouldn’t make good decisions.

“There has been a huge influx of TV money but then you can’t see it in isolation. Here, you have too explosive elements: a lack of efficiency and huge amounts of TV money which makes a hugely explosive combination.

“Then the Bosman ruling came along just after the inception of the Premier League. It didn’t need external intervention from the European Union saying people could move around for free. It confused the system.”

Players take criticism for the wages they earn but Chadwick argues that the labour market is completely different to some working sectors. It all comes down to elasticity of demand.

He said: “I think one thing about players is that they are employees and wherever they are that they will try to get best possible deal they can from their work.

“Players need to earn as much as possible because their career may not last long past their 30s. They (clubs) pay far more than they need to pay and they probably don’t use strong decision making techniques for signing players. Players and their agents take advantage of that.

“It’s a strange labour market because players are not like shelf stackers at Sainsbury’s; there are thousands of them so their wages aren’t as high as footballers.

In recent months Chester City, Farsley Celtic and King’s Lynn have gone out of business. With high profile clubs such as Portsmouth and Crystal Palace currently in administration you would assume that more clubs are likely to fold or at least enter administration during the summer – Chadwick agrees.

When asked how many clubs he predicted would fold during the summer, he said: “In terms of popular perception it could be any number. I think there will be a few clubs that go and it will pass in the glow of the World Cup.

“What it means and shows is that football is polarising and there are a very small number of powerful, rich clubs at one end and a big majority that have very little money and struggle at the other. Ultimately some will go out of business.

“There will be a process of equalisation. The shrewd, well managed teams will be in a better state in the medium to long term.”

Fans may moan about the state that their club is in but Professor Chadwick thinks that fans are not putting their money where their mouths are.

He said: “I don’t think fans can walk away scot free and say it was nothing to do with us. Fans buy the merchandise, tickets and Sky subscription. Fans often desert clubs when they don’t like what they see and they’re not prepared to put their money where their mouths are.

“They’re not prepared to be part of the football community. There were proposals for Liverpool to be a fan-owned club in the style of Barcelona; however no-one stepped forward with the money.

“If fans cared that much, they would find a way to step forward with the money. They don’t step up to the mark.”

Fans all over the country are trying to take their clubs back from owners (often foreign) who they do not want at the club, none more so than Manchester United’s army of green and gold scarf wearers. Despite buying these scarves to show their support against the Glazers, Chadwick feels that it is not enough to take the club back.

He said: “I think the green and gold is a fantastic campaign but if you want to stage a revolution you’ve got to get up out of your armchair and stage it like the French and Russians have in social history.

“Buying a scarf won’t get rid of the Glazers. You’ve literally got to take positive direct action. Stop buying tickets and merchandise and boycott the club. You need people to form a consortium.

“The problem is they bought a public limited company and the Glazers incurred a huge amount of debt that won’t disappear. Anyone taking over will take on that debt.”

Chadwick thinks we as people are not sure of our opinions of football. More importantly, domestic and international governments need to collate their ideas on how football should be run.

Chadwick added: “We are not sure what we think about football. UEFA has an agenda that it’s working to and the European Union has a different agenda. Then there are domestic governments and individual clubs and the cities they are in that have their own views.

“What we haven’t decided is the extent that football should be the same as other industries or sectors. Such payments, (i.e. transfers) under European Union law is in my view not allowable.

“If the English government was to subsidise one of its industries to make it more competitive then the European Union would rule against it. Subsidies are being paid to clubs to give them an advantage but no-one is doing anything about it.

“There needs to be a consensus generally about what should be in place for European football and currently I don’t think we have that.”

When looking at what consumers choose when purchasing football, Chadwick draws parallels with supermarkets.

He said: “Look at what’s happening in British food retailing; it used to be a small local shopkeeper who knew you personally. Now people are going to supermarkets because it’s cheaper.

“What you have now is a large part of the market served by a small number of retailers. People complain that it’s not how it was but they are the ones who buy their food from there.

“We complain about the cost of the Premier League and everything that comes with it like merchandise but the fact is we still watch them, buy TV subscriptions and match tickets.

“What we’ve got is a situation where people are dominating the market. When Lennart Johansson was president of UEFA there was constant talk of a breakaway and the G14 group were saying we are making money and people want to see us the most so therefore unless you concede to our demands we will breakaway.

“He was more conciliatory with the big clubs. The threats of breakaway leagues were from billionaire owners of elite clubs and I think it will come more to the fore over the next five years