Why are football teams increasingly facing the prospect of going into administration?
With Leeds and now Portsmouth owing millions of pounds to their debtors, why is it that this large clubs are doing so badly?
Is it because of expensive players and the need for modern stadiums?
Is football becoming a business, not a sport?
What are your views?
May 28th, 2010 at 4:49 pm
clubs have overspent for years setting on players on wages they cannot afford swapping managers every few months having to pay compensation to the out going manager and giving thre incoming manager funds they cannot afford so on and so on football clubs in general are very poorly managed and rely heavily on sponsorship which in the current financial market as started to dry up , these are some of the main reasons
May 28th, 2010 at 5:23 pm
They just need to put the players on minimum wage .
May 28th, 2010 at 5:26 pm
hi there.
Football has been a business for years, but few have noticed – that is why predatory businessmen from abroad have been able to muscle in and cause havoc (liverpool, man utd, et al).
The basic model is that of theatre – it should be built on what you get from fans through the turnstile.
then add on the tv revenues BUT – to get success, you want good players and with agents involved, they negotiate contracts that leave clubs wide open and have NO downside.
So the overpaid “stars” that got Leeds relegated had no clause to reduce their pay – so the club had non-Premier league tv money, lower gate receipts, no Europe – but the players were on the same wage and on 4 or 5 year contracts to make it harder for them to abandon the club.
The model is unsustainable long-term, those clubs that do live within their means (the likes of Everton, Burnley, Stoke City) will find it impossible to challenge for the title and so never attract the European cash, sponsorships etc on a regular basis.
The modern stadium thing was a drain, but it is the players demands that are killing the game as it was.
Cheers, Steve.
May 28th, 2010 at 5:27 pm
Well there are different way’s a club are run and I would like to quote an interesting article which I came across recently
Alternative a: Football 1.0
This is the old regime – in which a single person (who might be quite well off but is not in the realms of the billionaire class) puts money into the club and doesn’t really expect to get it back. Henry Norris did this to Arsenal, and set the club up as one of the greats, allowing it to become self-sufficient.
It is an approach that is used by lower league clubs, but for EPL clubs now seems to have gone beyond its sell-by date.
The upside is that you are seen as a saint in your neck of the woods until results go bad and then you are seen as the person who is dragging the club down into the mire and the locals call for your head.
The downside is that you don’t get your money back in most cases, and since the person putting the money in has limited funds, it is not sustainable.
Alternative b: Football 2.0
This is the current approach of Aston Villa, Bolton Wanderers, and I rather suspect Everton (although I don’t have the inside story on that club). I imagine there are many others following this route.
Here the single owner carries on in the old 1.0 tradition, but puts in more and more money. However (and this is what makes the whole approach so attractive to the clever owner) in return for the investment the owner becomes the preferred creditor of the club, and makes sure he gets a good interest on the loan.
This is a very good business proposition, for several reasons.
First, it is easy to manipulate this position so that your supporters see you as a saint, selflessly putting a fortune into the club to make it big time.
Second, by securing your loan against assets you can be sure that if the club goes bust on you, you get to own the ground etc, and you can then sell it off to another person, or you can use it to build houses on. You can, if you wish, even sell it to a supermarket.
The upside is that the club can keep going and look like it is striving upwards – in short it is an easy way to con the supporters who keep paying your the money.
The downside is that in the end the club might not be able to afford the interest on all the loans you have made. It is important to pull out before the “lending event horizon” is hit – when the loans to the club exceed the value of the club.
Alternative c: Football 2.5
This is the Manchester U and Liverpool approach and is generally hated by the supporters of those clubs (although because it can bring footballing success for a while the anger against the system is not all-encompassing).
The system is simple: you buy the club and then use the club’s own money to pay yourself back for the buy-out. Additionally you take a huge fee for “directors’ fees” and “management fees” and you can give mega loans to your children or lovers, by putting them all on the board too.
The upside is that if you are lucky you can sell the club at a profit to another Football 2.5 con man, or you can sell on to a Football 2.6 buyer.
The downside is that there is a debt event horizon and once that is reached like the black hole after which it is named, you can’t escape. In Manchester’s case the horizon is the date when the new bonds mature because they must be paid back on that date. If the market is poor or belief in the ability of the club to pay its way out of debt disappears no one buys the bonds and the club collapses and goes into administration or receivership.
The upside of that is that the people who caused the chaos walk away with a profit, and as I mentioned, during the financial decline it is possible to have success.
Alternative d: Football 2.6
Here the owner of the club is of the nature of Abramovich, with wealth beyond understanding, that can be poured into the club.
The upside is that with that sort of money you can buy your way to any trophy you fancy – unless John Terry can’t kick a penalty or you choose Mark Hughes as your manager.
The downside is that the owner might not be all he is cracked up to be (see Portsmouth’s endless activity this season) or might get bored, or might get arrested (Man City might remember this with a previous owner), or he might get shot (I don’t wish that on anyone), or there might be some nasty court cases lurking around (Mr Abramovich has one or two). If the owner goes, as one day he must, then all hell breaks loose.
Chelsea have tried hard to get out of this but have failed – each time they set a new deadline for breaking even, there is no movement towards it, and it is just possible that UEFA will get its act together and stop indebted clubs from playing the Champs League.
But even if a club bribes its way through UEFA everything still depends on one man’s finances.
May 28th, 2010 at 6:12 pm
paying big wages for usless assets
May 28th, 2010 at 6:20 pm
Well, to start with the players are GROSSLY overpaid … including my lads at Stamford Bridge.
– the clubs pay for improvements to or new grounds which most can barely fill.
– they rely heavily on sponsorship which is not always forthcoming.
– a bad league or cup run will have an affect on the crowds (see above)
Hopefully, both Cardiff and Portsmouth (my local club) will fare well in Companies court today and will not get a winding up order. Portsmouth have some of the most passionate fans in the country … all home bred unlike some northern teams I can mention (normally teams which play in red!!!) Leeds and Southampton survived and are now both doing fairly well.
This is not a new thing, however … I remember back in the 1970s going to Stamford Bridge and there were people rattling buckets and tins to try to get them back on track. We were a gnat’s away from going into administration in the early 2000’s until Mr A came on board – and no, we have not bought our trophies … we have invested in good (and sometimes not so good) players who have got us the Premiership, FA Cup etc. We just need the Champions League now – God willing.
Play Up Pompey … I couldn’t bear the look on my friends faces if Pompey went under …
May 28th, 2010 at 7:01 pm
Yes yes
You are right
Not only football
Here in india cricket also became like business
May 28th, 2010 at 7:38 pm
Football has been a business since the mid 90’s. It’s escalated to almos unrecognisable levels in the 2000’s.
Clubs are havig to spend beyond their means in order to compete with the top clubs who get obscene amounts of revenue from the Champions League whilst the best the other clubs can hope for is a paltry £50,000 for FA Cup and £200,000 per Europa League matches.
As a result clubs are taking risks in order to gain success, which in turn increases the clubs popularity and standing in Europe in the hope they won’t have to pay over the odds to attract decent players. Portsmouth did win the FA Cup 2 years ago and even then it’s not been enough to stave off these sorts of money troubles.
I honestly believe that without wealthy, consistant investment in other teams the ‘Premier League’ will be reduced to just 4 teams.
May 28th, 2010 at 8:33 pm
The clubs try to attract decent players with big wage deals.The more they do this the more money they have to borrow and eventually the club is unable to keep up with it.
Look at 2 other big clubs who have HUGE debts because of this.Trying to “buy” success has it’s downfalls