A review of
the Deloitte (my old stomping ground) report on the finances of the football
industry provides some interesting thought provokers.
The
underlying data is based primarily on the 2012/13 season.
Leeds’ predicament
The Championship play-off decider at Wembley
has been labelled the most financially critical game in soccer globally. The desire to get into the Premiership has
resulted in so many of the Championship clubs mismanaging their finances to
such an extent that the combined debt of all Championship clubs exceeds their
revenue by a factor of two. The
combined revenue of Championship clubs stood at £435million with debts of over
£1 billion.
The step into the Premiership brings among
other things a far more lucrative media rights pay-out. In the year under review, TV payouts in the
Premiership varied according to the profile of the club, with a high at £61
million to Man United and a low of £40 million to QPR. Contrast this lower figure with average total
revenues per club in the Championship of £19 million and you can begin to see
the importance of staying in the top flight.
In pursuit of this goal, Championship clubs
have substantially ignored financial discipline and only in season 2013/14 did
they collectively agree to introduce some form of governance in the form of
their equivalent of the European Fair Play Rules.
Poor old AVB
Much has been spoken about the brevity with
which some clubs hire and fire managers.
Spurs are probably the prime example of a club which places limited
store in longer term thinking and who do everything with this weeks’ results in
mind. Anyone who works for an American
company will recognise this type of policy.
Football clubs are not football clubs any
more. They are financial institutions
that have a large part of their revenue streams influenced by football
results. In the days of Lowry’s matchstick men, the
football club was there to bring identity and pride to the local community; it
now exists to deliver dividends and capital appreciation to shareholders. Managers are no longer judged on attributes
like loyalty, ethics, integrity and commitment (in addition to results) – think
Shankly, Nicholson, Catterick – they are judged on results alone, because
results generate revenues.
Clubs with benign or soft ownership structures
have an easy “financial pitch” on which to play – meeting the expectations of
Roman Abramovic or Sheikh Mansour from Abu Dhabi is a lot easier than meeting
the expectations of the institutional investors who assess investments based on
rates of return. The principal recipients of “soft” financing
(also generally interest free) in the Premiership were Chelsea, Newcastle,
Aston Villa and QPR who benefitted from 90% of the soft financing which itself
totalled £1.6 billion.
Total debt for all Premiership clubs totalled
£2.5 billion, and only two clubs had net assets – Swansea City and Norwich
City, notably two provincial, “family” clubs who must be viewed as temporary or
inconsistent members of the Premiership.
Show me the money
The total revenue for all Premiership clubs was
£2.5 billion – an average of £126 million with six clubs above the average and
fourteen below it. Man United again
weigh in on top with revenues of £353 million with the lowest being Wigan at
£58 million.
Wages are the principal cost with the combined
wages to revenue ratio standing at 71%.
Strangely QPR had the highest ratio in the Premiership at 129%, partly
explainable by a low revenue base.
Contrast the 71% with the comparative figure in the Championship of 106%
and you see further evidence of how messed up the Championship is.
Five clubs made
pre-tax losses in excess of £50ml –the principal loss-making entities were Liverpool,
Chelsea and Man City (not necessarily in
that order). Total losses in the Premiership
amounted to £316ml.
Qualification
for the Champions League is lucrative but possibly not as much as may be
thought. The four clubs which
participated in 2012/13 received Champions League payouts which averaged out at
£29 million, although to get a true measure of value one must add to this the additional
revenues for home Champions League fixtures.
In the Indian
Restaurant in Accrington
Brusselsblue passing himself off as a potential
purchaser of Stanley wasn’t by any means inconceivable. Half of the Premiership
clubs had foreign owners at the end of 2012/13.
While each deal had different valuation bases
attaching thereto, bringing them all back to multiples of turnover allows us to
crudely determine what the club might cost.
In the Premiership, Chelsea were sold in 2003 for a multiple of 1.2; Man
United in 2005 for 4.7; Newcastle in 2007 for 2.4 and Man City in 2008 for
2.6. Again the branded franchise and
value of Man United comes through.
In the lower divisions (where there is going to
be no “goodwill” or “Premiership” factor) it is more likely that the multiple
will be lower, or alternatively for debt-ridden clubs that the purchase price
will be £1 plus an assumption of the club’s debt. However for the sake of conjecture let’s put
that aside and work off a multiple of 1.2.
Total revenues in English football amounted to
£3.2 billion - £2.5 billion in the Premiership; $435 million in the
Championship and £200 million for Divisions 1 & 2. Spreading tis £200 million across the 48
clubs in these divisions equally would give individual turnover of £4.1 million
but more accurately the allocation should be weighted towards the teams in
Division 1. Refining the Accrington
Stanley turnover along these lines would give turnover of say, £2 million and
hence a valuation of £2.4 million.
Using venture capital provided by Investec of 75%,
Brusselsblue needs only find £600,000 himself – a drop in the ocean to a
European bureaucrat who has been tucking away schillings at the expense of the
Irish taxpayers for years.
Any hey presto, a Belgian owner for Stanley and
a pension income stream for the Stillorgan corner-boy – funded out of replica
shirt sales to “the Irish guys”.
Internationally the
Germans have it right
The Germans have an uncanny habit of winning
the World and European Championships.
Based on technically superiority we might think. Yes, this is undoubtedly a contributory
factor but what it probably overlooked is that the Bundesliga is arguably one
of the best administered and financially sound leagues in Europe.
Its’ revenue surprisingly surpasses La Liga and
it is second only to the Premiership with turnover of €2 billion (Premiership
€2.9 billion). Along with the
Premiership it makes an operating profit - €264 million; Premiership €90 ml –
operating profit being defined as results before losses on player purchases
transfers. The latter item turns the
Premiership operating profit of €90 million into a total loss of €380 million.
Wage control is prudently managed in the
Bundesliga and with a wage to revenue ratio of 51%. Unlike the Premiership, broadcast revenue is
not the largest single source of revenue.
Another feature of most Bundesliga clubs is
that they are fan-owned via the” Verein” system which dictates that each must
apply the “50 plus 1” ownership structure i.e. no majority shareholder. If applied correctly, the fans retain
control. While this may limit
investment, it certainly ensures that the League effectively is run by persons
more interested in football than in financial return.
Interestingly the
prime example of where this system has been manipulated is Hoffenheim, who
assisted by an injection of more than €250 million from an ex-player, achieved
promotion from non-league to the senior leagues and then the Bundesliga in
2008, where they finished runner-up. This meteoric rise was accompanied by a
popularity in Germany similar to that afforded to Chelsea and Manchester City
in the UK, i.e. nil outside their own fan base.
Aside from this example, the Bundesliga appears to maintain as many of the facets of a football league as opposed to a
share price index, than any other league in Europe. Hard to prove or dis-prove but could this
explain in any way why the German national team continues to throve while
England, drawing from the Premiership (where reverse principles appear to
apply) have deteriorated rapidly in recent years. Interesting thought.
