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Football in crisis

If ever a period could be claimed to support the cliché that football is a funny old game, the past off–season is it.

Manchester United sold their most popular player after months of denials. Leeds United stared extinction in the face and discovered that a fire sale is no guarantee of maximum income. Chelsea seemed set on a similar path until a Russian billionaire sprinkled fairy dust around Stamford Bridge. Even solid, reliable Arsenal found that the path to a new stadium is littered with obstacles.

In the Nationwide several teams are in administration, West Ham sold off some of its family jewels to stay afloat. And even further down the food chain, St Albans City had to release four first team squad members when the Hammers cancelled a friendly.

The good times, it seems, are over. But hang on. On the eve of the new season the Premiership announced a series of deals – mostly with Sky – worth £1bn to show football in the UK. The Premiership oozed confidence that splitting the broadcast rights would soothe worries at EU action on competition grounds. By the end of the same afternoon, the EU Competition Commission had made it clear that it would look closely at the deal – and made it equally clear that it would worry more about getting the correct decision, than getting a quick one. Football, it seems, will have to face birds coming home to roost for some time yet. For the possible consequences look at Spain, where collective selling does not happen: some clubs cannot sell their media rights at all.

And the situation is worse than a year ago. According to attendees at Grant Thornton seminars on the beautiful game, football is in crisis. The crisis comes partly from outside – the EU sees collective selling of media rights as anti–competitive, and the EU rarely loses once its mind is set – but partly it comes from financial management, which at its kindest, could be described as optimistic.

Several football clubs – most famously Leeds – raised bonds on the back of future gate receipts. These depended on the current loyal fan base remaining – a very dangerous proposition in which the slightest hint of trouble can send banks into a panic. Despite a huge profit on the sale of Rio Ferdinand, it took a feeble performance by Arsenal to stave off an existence–threatening relegation.

West Ham – whose ground rebuilding loans are altogether more conventional – had to raise £17m to avoid running out of money, according to non–executive director Trevor Brooking, all as a direct result of relegation.

And in the Nationwide things are far from pretty. The collapse of ITV Digital exposed even more financial management by crossed–fingers, as clubs who had spent the ITV cash before it had been received, found themselves in dire straits. Who would have thought a player of the calibre of Southampton striker Kevin Phillips would take so long to find a club when relegated Sunderland had to sell him? But, Chelsea aside, few clubs have been free to spend.

And there could be worse to come. At the time of writing, half a dozen Nationwide clubs were in administration. In most businesses all creditors are equal, but in football, there is a brand of super–creditors, the football related creditors. White knights need only worry about these (as long as the bank is happy) so the likes of ground staff and turnstile operators can be ignored. But government has hinted that this will be looked into and that the star centre forward could soon find himself on an equal footing with the tea lady. All of this will stretch the loyalty of supporters who are coming to realise that the bottom line is the Bottom Line. And if they begin to drift away the spiral continues.

Football may still be in denial, but it is facing a huge shake up. The moral for business is simple enough: think carefully and clearly before spending money you have yet to receive.

For more information contact Grant Thornton: 0800 5877 195

© Ian Cundell, 2004