The Perilous State of Football’s Finances
Michel Platini, president of UEFA, is very keen to bring about a socialist order in European football. Given his way, as expressed in one of his election mandates, there would be no “Champions” League, just a straight knock-out competition amongst those sides to have qualified for European competition domestically – a correctly titled European Cup. Whilst that is an unfeasible proposition, Platini has sniffed out a chance for change in the cold winds of recession. If clubs don’t get their finances in order, they could face disqualification from European competition.
That would mean no Real Madrid, no Inter Milan, no Manchester United … it would render the already inappropriately named ‘Champions’ League defunct. Whilst the debt that has been heaped onto hapless clubs like Manchester United and Liverpool is deplorable, I can’t see that European omission is the answer.
Put simply, UEFA needs the biggest clubs competing as they are the biggest draw – they are UEFA’s cash cow. It’s difficult to envisage title sponsors such as Amstel and Continental coughing up mega-millions for their deals in the knowledge that there would only be neutral interest in the Champions League. If it were to be a Porto vs AS Monaco final every year, fewer would tune in. People want to see Barcelona play Manchester United, they want to see Kaka, Ronaldo, Eto’o, with the greatest of respect to the other competitors.
Rather than solving the financial crisis that could engulf the beautiful game, banning teams would create a chasm between UEFA and the top clubs. Cue a break away league featuring the top 16 – 20 club sides in Europe. Where would the sponsorship Euros go in that scenario? The clubs would be free to operate away from the socialist do-gooders of UEFA and FIFA, hoarding the crème-de-la-crème of talent and refusing to release their handsomely paid stars for international fixtures.
Does that sound good? Hardly. Yet it is a difficult task to solve a growing problem. Portsmouth are in dire trouble, the threat of the club going under is a serious one. Liverpool, too, are in trouble. The owners have valued the club at £400m (based on the asking price of £100m for a 25 percent stake…) but who will cough that up? Arsenal are valued at £800m, but the club has a shiny new stadium which is raking in the profits, Liverpool are desperate for a new stadium, cost circa £400m, in order to compete and the playing staff is in desperate need of a revamp, cost circa £150m plus. So, in total, Liverpool needs some Middle Eastern Messiah to find £1bn down the back of the sofa and decide that Liverpool FC would make a great investment. So far the best efforts of Hicks and Gillett have been laughed off the oil fields of the Gulf.
It appears that not a single soul is interested in parting with £100m for a minority share in a dysfunctional setup. There are many different ways to lose that sum of money, the vast majority of which are more appealing than seeing it service interest payments on a whopping loan which was taken out against an altogether different financial backdrop. It’s not as if you’d enjoy the on field action, either.
Yet banning clubs such as Liverpool isn’t the way forward Mr Platini. The only hope Liverpool have of resuscitation is through European football. Deny them that and they will end up like Leeds United – the very model of financial mismanagement that everyone should have taken as a stark warning. Borrowing and subsequently spending money that you don’t have is not a good idea. The best preventative measure would be to prevent the spending.
By ensuring that clubs aren’t spending beyond their means, UEFA could safeguard the financial future of European football; that is the aim. A strict regulation of football club ownership would the best way of achieving this, ensuring that owners cannot simply take huge loans out against the club to safeguard their own back pockets. We don’t want a repeat of the recent financial crisis in football.
Manchester United and Liverpool are both carrying a false burden, a burden that they did not bring upon themselves. Their owners, in securing ownership, took out loans against the club – leveraged finance. Manchester United are carrying the £727m debt engineered by the Glazers, and Liverpool are carrying an estimated £240m debt leveraged by Hicks and Gillett.
The best method of preventing this style of ownership has undoubtedly been recession. The banks and investment groups love to find people willing to borrow at the exuberant interest rates incurred by the Glazers and the Hicks and Gilletts of this world. The Glazers are paying around 14.25 percent per annum on a £200m hedge fund debt, while the hedge funds can source funds through the repo market at three percent. It is the fans who finance the high interest rates through increased ticket prices. If one lesson has been learnt in the recent financial crisis, it is that this method of financing is flawed; witness the Glazers’ desperate attempts to refinance via a £500m bond scheme last week. Given the market and given the time, there are more attractive propositions available to investors who are looking to take a risk.
So, Mr Platini, it is unlikely that clubs in future will find themselves in this predicament. Recession has affected us all and had it been avoided we would be witnessing certain clubs easily meeting their loan repayments like Arsenal are. Coupled with this, there have always been the big boys and the school boys, always those who have spent more and assembled the finest teams on the planet. It has never been a level playing field, but it has always been a field upon which players can progress and spectators can dream. Rather than deny clubs and their supporters those romantic European nights because of the stupidity of a couple of owners that they didn’t ask for, tighten up your regulations as regards club financing. It’s not the remit of players, managers and fans to monitor or understand this, but, Mr Platini, it can be yours.
Miles Reucroft
