They have always been the most profiled names in the history of international sports – the English Premier League. Multi-million transfers, a long list of sponsors, a plethora of broadcasting rights and a huge fan following; and then came the mountain of debt on a deranged balance sheet! Can the clubs even survive? by Amir Moin
On February 12, 2010, Portsmouth got the worst end. The club, famously known as Pompey, became the first team in the history of EPL to seek protection from creditors after UK authorities tried to force its closure over unpaid taxes. The south-coast club went into administration, a form of bankruptcy, to avoid being closed down over tax back-payments of $18.1 million. The club has a total debt of $90 million. And the issue is not simply EPL isolated. The loss profile has now spread across the complete European continent. According to a report by Union of European Football Association (UEFA), in 2009, the reported income of the 732 European top division clubs in 2009 was $14.9 billion – the problem is, this covered just 95% of their total expenditure! Worse, the combined liabilities of these clubs stood at $23.54 billion. Jan K. Mons, Consultant, JKM Consultancy, Netherlands tells B&E. “According to a proposal by UEFA, some clubs will not play overseas any more. It now seems that from 2015, UEFA will exclude clubs which have not been able to breakeven for 3 years in a row after having been warned.”
So what’s the way out of this discomfiture? The answer for the issue lies in simply one factor within the cost markups – and those are the player wages. Analysts like Palmer tell B&E that payments to players are senseless, and worse when considered in the backdrop of the slowdown (“How do you explain ManCity paying $23.5 million pounds for a player like Jo, and then lending him out to Galatasaray? Do they not scout these players before signing them?” says Palmer). Jerry Garner, Founder and MD of US-based Digital Broadcasters Association says to B&E. “The players are getting paid way too much, especially when you look at their overall skill level. Many players in this era such as Ronaldo, Rooney, Beckham, and Messi stand out, but it’s due to the fact that everybody else is so poor. I believe a reasonable salary cap should be introduced in the EPL.”
In their mad rush to try to come out tops on the Premiership, the managers of various clubs have forgotten that their primary objective is actually towards their shareholders to whom the clubs owe their existence. Even celebrity managers like Alex Ferguson (of Man-U) have little grounding, if at all, in business management – one reason Manchester United has a CEO, David Gill. But the larger than life coaches have historically downplayed a CEO’s span of control. Experientially, the only two issues managers had to worry about were how to source players and how to coach players. The same managers misused shareholders’ money over decades splurging on excesses as money had been flowing in freely. Today, with their backs to wall, these managers are coming up too short to the ask when required to consider cost efficiency ratios, forcing shareholders to take up debt. In short, there are three routes from here – one, drill down the wages across the board and kick out non cost effective players; two, retrench managers who do not accept prioritisation of profits; three, if nothing works, apply for bankruptcy!
In UK, 3 pm is the standard kickoff time for all evening games. It is illegal to broadcast live on TV any 3 pm game on a Saturday (this ensures more stadium attendance). This peculiarity is known as the ‘3 pm blackout’! If losses and debt continue to mount the way they have been doing at EPL, the 3 pm blackout could just become a seven day affair quite easily sooner than later!
Amir Moin
On February 12, 2010, Portsmouth got the worst end. The club, famously known as Pompey, became the first team in the history of EPL to seek protection from creditors after UK authorities tried to force its closure over unpaid taxes. The south-coast club went into administration, a form of bankruptcy, to avoid being closed down over tax back-payments of $18.1 million. The club has a total debt of $90 million. And the issue is not simply EPL isolated. The loss profile has now spread across the complete European continent. According to a report by Union of European Football Association (UEFA), in 2009, the reported income of the 732 European top division clubs in 2009 was $14.9 billion – the problem is, this covered just 95% of their total expenditure! Worse, the combined liabilities of these clubs stood at $23.54 billion. Jan K. Mons, Consultant, JKM Consultancy, Netherlands tells B&E. “According to a proposal by UEFA, some clubs will not play overseas any more. It now seems that from 2015, UEFA will exclude clubs which have not been able to breakeven for 3 years in a row after having been warned.”
So what’s the way out of this discomfiture? The answer for the issue lies in simply one factor within the cost markups – and those are the player wages. Analysts like Palmer tell B&E that payments to players are senseless, and worse when considered in the backdrop of the slowdown (“How do you explain ManCity paying $23.5 million pounds for a player like Jo, and then lending him out to Galatasaray? Do they not scout these players before signing them?” says Palmer). Jerry Garner, Founder and MD of US-based Digital Broadcasters Association says to B&E. “The players are getting paid way too much, especially when you look at their overall skill level. Many players in this era such as Ronaldo, Rooney, Beckham, and Messi stand out, but it’s due to the fact that everybody else is so poor. I believe a reasonable salary cap should be introduced in the EPL.”
In their mad rush to try to come out tops on the Premiership, the managers of various clubs have forgotten that their primary objective is actually towards their shareholders to whom the clubs owe their existence. Even celebrity managers like Alex Ferguson (of Man-U) have little grounding, if at all, in business management – one reason Manchester United has a CEO, David Gill. But the larger than life coaches have historically downplayed a CEO’s span of control. Experientially, the only two issues managers had to worry about were how to source players and how to coach players. The same managers misused shareholders’ money over decades splurging on excesses as money had been flowing in freely. Today, with their backs to wall, these managers are coming up too short to the ask when required to consider cost efficiency ratios, forcing shareholders to take up debt. In short, there are three routes from here – one, drill down the wages across the board and kick out non cost effective players; two, retrench managers who do not accept prioritisation of profits; three, if nothing works, apply for bankruptcy!
In UK, 3 pm is the standard kickoff time for all evening games. It is illegal to broadcast live on TV any 3 pm game on a Saturday (this ensures more stadium attendance). This peculiarity is known as the ‘3 pm blackout’! If losses and debt continue to mount the way they have been doing at EPL, the 3 pm blackout could just become a seven day affair quite easily sooner than later!
Amir Moin
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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