Why You Should Watch Football, Not Invest In It
ByFor quite a number of years now, Arsenal football club in general and Arsene Wenger in particular have been derided by the footballing establishment for refusing to spend stupid money for short term gain. Since the advent of the English Premier League and the injection into the game of obscene amounts of money, football has actually lost the plot in this country. I think it’s fair to say that Premier league clubs in particular, have fallen foul of the basic expectation of common sense and have totally believed their own hype and press.
The Premier League is pretty much prostituted around the world as the biggest and most powerful club league competition on the planet, and with this hyperbole comes the expectation that money will then flow. There are only a handful of clubs that can regularly generate match day revenues that are significant enough to keep the clubs afloat, and the rest of the money is generated from commercial activity like merchandise sales and rights issues. TV revenue from rights sold around the world are a major part of this.
Even then, football has become a beast that feeds itself to the point of obscenity and there are now signs that something has to give. The funny thing is that a lot of football commentators and establishment figures have acted in a way that suggested football was immune from the laws of economics. I personally think part of the problem is to do with the fact that not many people in football actually understand finance and the way money works in football. There’s a misguided assumption that if you continue winning, it’ll always be alright on the night.
The landscape within football was further altered when Roman Abramovich rode into town and started the new era of ’sugar daddy’ ownership. It was the beginning of the madness that suggested that the newest fashion statement in town was to buy a football club. Forget billionaires buying islands in the Caribbean, or kitting themselves out with a custom made Boeing 747 jumbo jet. No no no – if you had money, you had to get into football.
The thing is this though, “buying success” was never going to be financially viable. Even Abramovich has realised the folly of his madness and has to flush over £350 million down the drain. Another £350 million has been converted into equity in the hope that one day, someone might buy those shares and he can recoup the £700 million plus he’s pumped into Chelsea. And they still run an operating loss every year.
The working assumption, particularly within the footballing establishment, is that a knight in shining armour is going to ride in from the mountains and save the clubs by buying out the current owners. The leagues are riddled from top to bottom with clubs hoping that a middle eastern, Russian or American billionaire will bail them out.
Despite all the glossing over and spin that has shrouded Manchester United’s finances over the last 4 years, the sheer magnitude of the financial nightmare that is facing them is out in the open. Just going through the 15 page risk section, which they’re legally obliged to provide in a prospectus, is nothing short of shocking.
Perhaps now we can inject a bit of reality and start talking about football finance in a sober manner. The era of ’cheque book’ management is over and the devil is in town to collect his dues from those who defied the laws of economics and thought football was immune from financial ruin.
Perhaps now we can acknowledge that talking about footballing finance requires some level of understanding of the bigger picture, and not just to put on a suit as a pundit and go on TV to say ”Manchester United and Liverpool are too big to go to the wall. Some rich person will come and buy them”.
Consider this, the UK government, UK PLC itself, with a Triple A credit rating is finding it hard to raise money by selling bonds because investors don’t think they’ll get their money back. What chance do Manchester United have? Besides, selling bonds to raise money for the club doesn’t get rid of the debts, it just shifts them from Column A to Colum D. They’re rearranging the deck chairs on the Titanic.
Liverpool is another case all together. I actually feel sorry for Rapha Benitez. Watching his press conference after they got kicked out of the 3rd round of the FA cup by Reading, you couldn’t help but feel sorry for him. Mark Lawrenson was the summarizer for BBC radio 5 yesterday, and after the match, you could hear the despair in his voice – if he didn’t have a microphone, he’d be crying. With Liverpool playing the way they are right now, it’s hard to see how they’ll keep up with the pace. Without making it to the Champion’s League, it’s hard to see how they’ll survive financially.
It’s times like these when you have to sit back and thank the Arsenal board and Arsene Wenger for their prudence and financial stewardship. For all the times they were derided for being poor and tight fisted, it’s now becoming clear that they were simply exercising their custodial duties to protect the future of the club. Many clubs are now aspiring to go the Arsenal way, both in the management model and the youth and squad development model.
Football and footballing finance is about to get ugly and there will be casualties. I think that if and when big clubs fall, it will have an adverse effect on the ability for the Premier League to command the revenues it does around the world, but I think that’s a good thing. The strong clubs will survive and come out better than before, and it’ll be good for football.
Meanwhile, Manchester United and Liverpool are case studies for investors as to why you should watch football and leave it at that.
Tue 13th September 2011; 19:45, Dortmund
A good article. Once time is up for some of the more foolish clubs, I can’t help but think it will drag down even the more frugal of clubs. As we know that many people in FIFA are waiting with baited breath for the fall of the EPL, once clubs go under it will tarnish the reputation of the whole league.
If a player has the option to join another league other that ours, I think it will be a safer option for them. Let’s be honest who is going to look deeply into it, and say oh hey Arsenal are ran well, as are Everton and Villa, we’ll sign for them. When there is always a sensible option. This said these problems are surely only a few years away from Real Madrid as they are far worse then Chelsea, ManU and ManC where does Pérez get his cash from???
Well said STA. U write amazin stuff. I really hope u get a lot more publicity, mayb its cos there’s alot more -ve fans on d net & they’l rather b somewhere else. Like everythin else in life a time wil come 4 death & rebirth. Arsenal & wenger hav seen that time approachin fast & hav reacted fast. Even if the EPL looses its shine 4 a while, it’l get it bac, u kno why? Cos england is d home of footbal & arsenal is d custodian of d great game, we wil b @ d forefront of d EPL’s rebirth.
What are -ve fans?
Hope your right about the rebirth mate.
ELS, -ve is an acronym for negative as +ve is for positive. I’m reliably told by the young cyber punk next to me that it’s sms speak.
As for a revival, I’m confident that Arsenal is indeed well place to rise from the ashes of any trauma that hits the premier league.
Our break even points are low and we far surpass them (I believe it’s 45,000 match day attendance and champions league at least once every 4 years for us to break even). We will still be able to pay the mortgage for the stadium and organically grow the squad, mostly from your academy and youth development ranks.
In the last period in football, it has been easier to ‘buy’ off the shelf solutions and pay astronomical wages instead of rolling up your sleeves and building a team from the ground up.
A good indicator of how crazy a clubs finances are is the payroll to revenue ratio. Most EPL clubs are way out there on the madness scale with teams like Chelsea’s wages being 81% of their organic revenues. Manchester City are also in coocoo land. Arsenal’s payroll is less than 50% of revenue.
ll those figures just prove how well ran we are. It’s reputation that would damage us, Arsenal will be thrown into the same boat reputation wise as all the failing prem clubs. Couple this with the fact that many clubs are adopting our style of transfer business, so you will have 10x as many scouts looking to sign the same South American Starlet. UEFA and FIFA are not keen on English football for one reason or another and I do think that they will help in the demise of our beautiful game.
Another good informative article. Keep it up. And well done to the Arsenal board and Arsene Wenger for keeping their eyes on the prize and for knowing what time it is.
Hi Darius. Wonderful article, you outdo yourself every time. I wish D&Gs would read this. It might give them alittle perspective of what their usual expectations of always spending and spending even when its uncalled for can lead to. Aren’t I glad we have Wenger as a manager.
Firstlady.
Some people are just born with a negative disposition. Until they get what they want its hard to see how any logic will change that disposition.
Thanks for the compliment though – and Arsenal is very lucky to have a tag team of Arsene Wenger and Ivan Gazidis at the helm.
Darius;
I love reading your work mate. This piece is another great one.
I’ve been waiting for a time like this when clubs are due for their own stupid/smart actions.
Liverpool is one sad story although I enjoy it a bit I have to say .
Darius, your quote – ”Manchester United and Liverpool are too big to go to the wall. Some rich person will come and buy them” – reminds me of the frog waiting for a kiss. In modern day world, it is an expectation that may never be. Ivan Gazidis is superlative, Arsene Wenger is exceptional.
Good work, Darius.
Diceman. I used to laugh at Liverpool as one of my best friends is a die hard Liverpool supporter. But it’s got to the stage where I actually feel sorry for them. Maybe I’ve never really dispised the club and as far back as the 70′s and 80′s, I appreciated their brand of football.
Now we find out that Torez is out of action for another 6 weeks, Gerrard for at least 2 weeks and Benayun for 4 weeks with a rib fracture.
What else does Benitez have to do wrong for things to go even more pear shaped. The man needs a break. Fine, he’s really messed up, but he needs a break. I’m just happy that when we played Liverpool, they fielded possibly their strongest squad and there can be no excuses that we didn’t beat them good and proper.
LRV, the expectation that billionaires are lining up waiting for the chance to buy Manure or Liverpool is even funnier than the predicament they find themselves in.
Arsenal are going to face difficulties of their own soon enough when they will be pulled back and forth in any power struggle that ensues between Kroenke and Usmanov. They haven’t bought shares because they are merely fans of Arsenal. Indeed Usmanov is rumoured to be a United supporter.
And who knows whom Lady Nina Bracewell Smith will sell her shares too – the highest bidder, no doubt.
With Danny Fiszman suffering from a serious illness it all gets a little wobbly here.
It would be no surprise if Cesc left for Barcelona tis summer – he will have been here 7 years by then – I never expected him to stay more than that. And if we don’t win anything we are liable to be cherry picked again as we have been recently.
Amusing though it is to watch what happens to other clubs one shouldn’t get too hubristic.
mrswoo: It seems to me that you are one of the people fervently waiting to see Arsenal go the way of Liverpool and ManU. Very surprising at best to read from so called Arsenal fans who will not be satisfied until Arsenal is derailed only for the chance to say, “I told you so.” Well, I do not share your “optimism”.