With perfect timing, Gordon Gekko is back on the cinema screens this month in the Wall Street sequel. When Michael Douglas’ on-screen character uttered the words “Greed is good,” he could have just as easily been reciting the unofficial manta of the Premier League. Since its inception in 1992 – a breakaway that increased the money-making capabilities of England’s top clubs – the Premier League has pursued a zealous free market strategy that would have some conservative politicians nodding with approval.
Since ’92, the league has gone from strength to strength and, while some may query Sky’s perception of the English top flight as the best league in the world, it certainly ranks as the most popular and one of the most exciting in terms of spectacle. It’s also helped turn football into the sport we know today – a family-friendly experience that attracts some of the best players in the world, and almost as far as you can get from the lowest points of English football in the 80s.
But, like the banking sector drove matters to excess while times were good thanks to a lack of regulation, so the finances of the Premier League have been storing up problems as member clubs push even harder to compete at the top level. And now we’re seeing the results of this laid bare in the farcical financial situations at Liverpool and Portsmouth, not to mention the ticking financial time-bombs of several other top flight teams.
Before looking at individual examples, it’s worth taking time to look at the organisation as a whole. In the 2008/09 season the Premier League earned over €2 billion (although was less profitable than the Bundesliga, despite earning more cash). The rights from Sky alone come to £1.62 billion. Add to this the other commercial aspects of football – debt aside, Manchester United, for example, had a turnover of £286 million and an operating profit of £100 million last season – and the league itself seems pretty healthy financially.
The accounts seem to think so. Take these comments from Alan Switzer of Deloitte in a recent interview. Probed on the current state of the league, he said:
“There shouldn’t be another Premier League club going into administration, because of the record revenues in the Premier League, the new broadcasting deals, the overseas broadcasting deals, which have been concluded, have very significant increases, from £700 million to £1.2 billion, just to show the global appeal of the Premier League.
“So there is no reason, with proper management, good management, balance of cost and revenues, that any Premier League club should go into administration.”
Yet, despite this Portsmouth have crashed into administration, leaving behind a complex financial web that is still being sorted out, while Liverpool, due to an extreme case of obstruction and pettiness from former co-owner Tim Hicks, were hours away from being put into administration by the Royal Bank of Scotland. Had New England Sports Ventures not purchased the club, one of this country’s most iconic football teams would have fallen to the same fate as over half the teams in the Football League.
And, while each case is different, the Premier League must bear some responsibility for both of these cases and any future Premier League casualties that may arrive (and let there be no doubt that there will be more in the future).
They waved through leveraged buyouts by the Glazer family at Manchester United and Hicks and Gillett at Liverpool with no questions asked, least of all whether these businessmen had the financial wherewithal to provide sufficient funds or if the levels of debt loaded onto the club were healthy. That a highly profitable company like Manchester United should post a record £84m loss in spite of a very healthy operating profit is staggering.
Elsewhere, the Portsmouth saga had so many things wrong with it that good governance from the overarching body could have blocked. Of course, few questions were asked by the Premier League of Alexandre Gaydamak’s money, while it’s difficult to see how any of the subsequent owners at Fratton Park could be labelled fit or proper.
Going back further, that same fit and proper person’s test certainly wasn’t applied to former Thai Prime Minister Thaksin Shinawatra when he took over Manchester City, a man heavily criticised by Amnesty International for his human rights record in Thailand, and a man with a substantial amount of his assets frozen. Had Sheikh Mansour not purchased City when he did, it’s unclear how the finances would have panned out at Eastlands.
The financial misery inflicted by the Premier League doesn’t just stop at the top flight. Once a team is relegated from the Premier League, it may well not be the Premier League’s problem, but many of the financial issues are as a result of time in the top flight as teams pay inflated wages to keep up.
Hull City, for example, needed to refinance around £30m of debt this summer after wages soared, along with monies owed, after two years in the Premier League. The Tigers have managed to just about keep things together and avoid administration since their relegation, despite Deloitte questioning the club’s ability to operate as a going concern.
Also troubling Deloitte is the wages to revenue ratio. In 2008-09, this was 67% in the Premier League, something the company described as “concerning.” Of course, not every club is at this 67% figure. Wigan, for all chairman Dave Whelan’s talk of being sensible with finances, had a wage-to-turnover ratio of 91% last season, as did Blackburn, while Birmingham’s stood at 99%, Wolves’ at 92% and Burnley’s at a whopping 120%, outstripping even Manchester City’s mere 107%.
A club doesn’t even need to make the Premier League to feel its ripples – even chasing the dream is enough. Cardiff City have faced numerous winding up orders over the past year for failing to pay the taxman. The £3m raised from their Golden Ticket season ticket scheme, which fans were told was to be spent on new players, went towards paying off the Bluebirds debt instead.
Then there’s Plymouth Argyle. The Pilgrims dreamed of being the first Westcountry team to play in the Premier League and, under Ian Holloway, flirted with the playoffs. But today Plymouth sit outside the relegation zone in League One with mounting financial problems, which is unsurprising given that their wage bill last season is rumoured to have been higher than Blackpool’s in the Premier League this season.
Quite simply, the prospect of Premier League football for many Championship clubs can see them wildly overspend to compete for a place in England’s top flight, even though the likelihood is a season spent battling against relegation and increasing spending on wages to stay competitive, spelling out long-term damage.
Bradford City, who embarked on six weeks of madness when they signed Benito Carbone, amongst others, are the most obvious example of this. After spells in administration, the Bantams are now in League Two and show little sign of being able to escape.
It won’t get much better for the smaller provincial clubs with ambition unless they’re prepared to spend heavily to back this up. From the end of this season, teams relegated from the Premier League will receive parachute payments of £48m over four years, as opposed to £12m per club per season for two years.
Richard Scudamore, the Chief Executive of the Premier League, called this deal “a genuine attempt to help the Football League,” and claimed every one of the 72 clubs would benefit. The Football League, despite seeing member clubs receive a substantially higher level of cash, was more circumspect. Chairman Greg Clarke described it as “not a perfect deal”.
Essentially, while these payments cushion the blow for the relegated clubs, it makes it harder for smaller clubs promoted from League One to compete financially in the Championship. It’s why Blackpool’s promotion last season was welcomed beyond the obvious prestige of Premier League football. It’s why it’s harder for the likes on Scunthorpe and Doncaster to remain competitive, and why a club like Bournemouth, currently among the promotion contenders in League One, would struggle badly in the Championship.
The Premier League may argue that not all of this is their responsibility. True, to a point, insofar as directly it isn’t. But the laissez-faire approach to financial regulation coupled with the vast levels of money of offer in the top flight has led to wild overspending, debt from leveraged buyouts and a sense that you don’t just need a friendly millionaire to compete. One Liverpool fan interviewed on TV in the wake of John W Henry’s takeover summed it up. “We don’t want another Yank,” he said. “We need an Arab.”
When the much-maligned Lord Triesman saw this coming two years ago he was widely trashed in the press as an out-of-touch suit who understood neither football nor a balance sheet (despite being a visiting professor of economics at Cambridge), while Scudamore defended his members as “responsible.”
When asked about the Premier League’s attitude to finances earlier this year by Paul Hayward, Scudamore gave the following response.
“I’ve been here a long time, and if the epitaph is: 39th game, Tevez and Portsmouth going into administration, fine, so be it. I actually think we’re in a much better place than that and the last 12 years have been more progressive for football than that.”
Today, Scudamore’s epitaph is lucky not to include Liverpool in administration, while there’s no telling what the eventual legacy of the Glazers’ debt will be on Manchester United.
The Premier League – that global institution, the best league in the world, the league where superstars are made and megastars flock to – is now the league that has created an environment whereby one of its most loved, globally renowned brands in Liverpool was nearly allowed to collapse. As Ian King noted, while Anfield burned, the Premier League fiddled. The damage done to the league’s reputation may be as hard to quantify and Portsmouth’s balance sheet.
To re-emphasise Alan Switzer, there is no good reason why a Premier League club should be in financial trouble. The Premier League has failed not just its members but all 92 clubs from Chelsea down to Hereford United. The Premier League is broken, but nobody seems willing to fix it.