The following is a guest post by My Two Dollars reader James Watson.
Football in the UK (or “soccer” as the residents of the US know it!) has always been a lucrative business, and no more so than since 1992 with the introduction of the Premier League and the partnership with Sky TV. Since then there have been unimaginable riches in football, and it looked like there would be no boundaries to the amount of money flying around the league.
Fast forward to 2010 however and things are not looking so prosperous. Many of the top clubs are saddled with lots of debt, and while currently they can sustain it, their debt management plans and business models are linked to what happens on the field. This means that any dip in certain club’s success could essentially bankrupt them, and as we know football is not a game one can predict.
We are now looking at the prospect of Portsmouth, a Premier League club, going under due to their mounting debts. They are unable to pay the wages of the players and they have to sell players to pay off their debts. It still may not be enough however as they are up in the High Court on 10th February, and if they have not sorted their debt problems by then there is a very good chance that they will be wound up and cease to exist. The club think they can stop this happening and it is likely that someone, somewhere will intervene to save them, but this would only be a temporary solution to the problem. It used to be that administration and bankruptcy was something that happened to the smaller lower league clubs, but once Premier League teams start to end up in this position you know that something is wrong. Their problems came when a rich foreign investor turned out not to be quite so rich, and this does not bode well for the many other clubs with similar rich and powerful investors ““ things go wrong in the business world and football clubs will then seem less important to these businessmen, and the clubs can be dropped like an old toy.
Even Manchester United, arguably the biggest team in the world, have an estimated Â£700 million worth of debt ““ something that certainly puts your credit card bill into perspective, right? Liverpool football club are in a similar position to Manchester United yet both of these clubs turn over many millions each year. However due to the poor policies and debt management of the owners, they are both just one bad season away from some potentially massive problems. Two years ago teams like United, Liverpool and Portsmouth were splashing out up to Â£30 million on signing single players, but have had to cut back now. Rumours around Manchester United’s financial concerns were furthered last year when they sold their star player, Cristiano Ronaldo, for Â£80 million, yet did not invest any of that fee back into the team!
The big teams like United and Liverpool qualify for the lucrative Champions League every season, and this is essentially what a large part of their business models rely on. If they don’t qualify they will lose a big chunk of their revenue, and probably be forced into selling players.
If this happens, we could be heading for a big change, one where money does not necessarily rule the way and where well run clubs with good managers may once again be able to reap the rewards without having to get a billionaire in to invest.
It goes to show, though…. poor debt management is rife at even the highest financial levels. Perhaps some of these club owners could benefit from classroom money management lessons!
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