Not for the first time English football is in a crisis. Forget the lack of a full-time England manager, or even the failure to beat lowly Finland earlier this month – the most pressing crisis is at club level.
Just four months after signing the three most lucrative television deals in the history of English football, the beneficiaries – the Premier League clubs – are squabbling over how the total &£1.6bn (which has subsequently been reduced, after NTL pulled out of its &£328m pay-per-view agreement last week) should be divided up.
A group of the Premiership’s smaller teams – led by Coventry City chairman Brian Richardson – demanded a more equal distribution of the TV monies than was the case with previous deals. Richardson argued that extra &£1bn offered in the new deal should be shared equally between the 20 clubs – &£50m each over the next three years of the deal. At present, 50 per cent of the TV income is shared equally between the clubs with a further 25 per cent divided on the basis of TV appearances. The final 25 per cent is paid out as prize money.
The group argue that without a more equitable deal, the gap between the top six clubs in the league and the rest will become so wide that no club will be able to challenge the dominance of Manchester United, Arsenal, Chelsea, Liverpool, Leeds and Newcastle. At a meeting of the club chairmen last Thursday, the Coventry proposal failed to get the necessary two-thirds majority, so the wealth gap will continue to widen.
On the surface this looks like nothing more than greed. At one stage during the negotiations a veiled threat was made by some of the bigger clubs to form a breakaway – a wholly ridiculous and impractical idea. One of the chairmen who voted against the rebels admits that it was not the argument that he opposed but the way in which the argument was put. But the top clubs have good reason, even if they don’t have a God-given right to their place in football, to be looking for every penny available by squeezing their rivals.
With the exception of Manchester United, which despite falling profits remains a money-making machine, the finances of all the clubs are very much exposed to the vagaries of business.
In the past ten days two of the biggest clubs – Chelsea and Newcastle – have announced annual losses of &£3.5m and &£18.9m respectively. While the Newcastle losses are greater – and are related to the club’s transfer-fee deficit – the Chelsea result is more surprising as the London club pocketed &£16m last season for reaching the quarter finals of the UEFA Champions League. This season it did not qualify, which will knock a huge hole in its finances.
Newcastle saw ticket sales and merchandising fall off while Chelsea also saw a decline in replica kit sales. But both Newcastle and Chelsea are guilty of allowing players’ wages to race ahead of the clubs’ incomes.
In contrast, Leeds Sporting, parent company of Leeds United, showed a better performance when its results were published last Friday. Its pre-tax profits for the year to June 30 rose from &£711,000 to &£1.24m – just enough to cover the annual wages of two of its younger players.
But what all three sets of figures illustrate is that football is a small business working on relatively low revenues and small margins. Unfortunately this fact is often disguised by the emotion people attach to their clubs. What other sort of quoted company, with revenues of less than &£50m and no profit, could justify paying at least one of its staff &£1m a year?
England is by no means unique in having a football industry that makes little economic sense. In Spain, Real Madrid, which paid &£38m to make Luis Figo the most expensive player in the world in July, has debts of &£173m. In Italy, Lazio has spent almost &£100m on players in less than 18 months and nobody seems to know where the money has come from.
All the clubs now face an added threat to their business. Next Tuesday, representatives of football’s governing body FIFA and its European offshoot UEFA will deliver a report to the European Commission in Brussels. It offers a compromise solution to the EC’s threat to outlaw the transfer system, which it claims breaks European law on free movement of trade.
The EC move could in the short-term mean that a football club’s most expensive assets – their players, such as Figo or David Beckham – may walk away and join another club without any form of compensation payment.
The final decision will have a very big impact on the share prices of listed clubs – as much so as the TV contracts signed in the summer. These deals, which included ONdigital paying &£315m for live coverage of the Football League and Worthington Cup competitions, were heralded as the end of football’s financial ills. This was the payday that would allow the larger clubs to grow and compete in Europe while resolving the financial problems of the smallest non-Premiership clubs.
Instead it has led to internecine disputes over how to share the spoils. And it has also produced a belief that the inevitable outcome of the growing divide in income between the larger and smaller clubs – which is making other sports such as baseball less competitive – will see some football clubs go out of business and the sport severely damaged.
Tom O’Sullivan is sports page editor of the Financial Times