Chill winds of recession waft across football pitch

Aug 13 2008 by Graeme King, The Journal

While many sections of the UK economy are struggling, or at least slowing down, the rather unreal world of Premier League football is still prospering. But Graeme King hears there are a few areas of concern

EVER since the Premier League was formed, the amount of money pouring into the top clubs has risen year on year.

Despite forecasts that the good times must come to an end, or at least the rate of increase must slow, television money from Sky and more recently Setanta has kept flowing.

And while investment from British millionaires has slowed a little, it has been more than replaced by cash from US and Russian billionaires.

Just this week, the 20 teams who will make up the Barclays Premier League for 2008/09 will have received the first £16m payment of television money into their bank accounts.

While this will have been a drop in the ocean for the established clubs such as perennial top four finishers Arsenal, Chelsea, Liverpool and Manchester United, it will have been extremely welcome at the league’s three newcomers Stoke City, West Bromwich Albion and Hull City.

The interesting thing to many fans is that the chance of a big investment deal happening at any of the big clubs is getting more remote.

With the credit markets increasingly tight, the massive borrowing seen by the likes of the Glazers at Manchester United, or Tom Hicks and George Gillett at Liverpool, is unlikely to be repeated any time soon.

Professor Tom Cannon, an expert in football finance at Buckingham Business School, said: “There is absolutely no doubt the recession will affect the game.

“The credit crunch is affecting those clubs who are heavily in debt. Liverpool is looking increasingly unlikely to build their new stadium as Tom Hicks won’t be able to raise the money to build it. The club already has the most debt in relation to its market cap.

“Those clubs carrying a lot of debt will find it extremely difficult to fund new developments.

“The clubs together are carrying massive debt – about £2.5bn accumulated indebtedness between them.”

“The chances of a takeover at Arsenal are diminishing, as interest from potential new investors shrinks.

“Liverpool has problems with Tom Hicks’s level of indebtedness. There is a lot of talk about potential new buyers at Newcastle United and I think Mike Ashley would be willing to sell unless he could find new investors without selling.”

Prof Cannon said the one exception to the decline in investment was, unsurprisingly, Chelsea where despite operating at a massive loss, owner Roman’s Abramovich’s fortune seems to keep growing.

Prof Cannon said the recent increases in oil prices means Abramovich could have afforded to buy Manchester United outright, just through the increase in his fortune since last Christmas.

However, bankers Barclays is clearly not too concerned about the state of Premier League finances generally.

The bank’s Steve Walton, former chief executive of Newcastle United, said: “Business as usual is the best way to describe it. We bank half the Premier League clubs and we are still supporting them to the same sort of level as previously.

“However, for people looking to put huge money in, those looking to acquire football clubs, that will be more difficult than it has been.”

There is expected to be some slowdown in income generation and the crucial matter of season ticket sales will be a strong indicator of how fans are feeling.

Mr Walton said: “I think it might be variable across the country. I will be very interested to see what the season ticket renewal announcements are like across the Premier League. People are a little bit more cautious in terms of the economic climate.”

Prof Cannon added: “Season ticket sales may be slow. One or two years ago, when a man was confident in his job, he would buy season tickets for himself, his wife and their two kids – but now he’s just buying one for him.

“It’s the multiple buying of season tickets that is being hit, not so much the single ones.”

In the lower leagues early indications show attendances may be falling with Hartlepool and Darlington having less that 4,000 at last week’s opener and it will be worth noting the crowds at this weekend’s games including Carlisle’s home clash with Crewe and Middlesbrough’s home clash with Tottenham.

Prof Cannon said the wider trend in football finance was likely to be that the top clubs would be all right as the economy slows, since bluechip sponsors will keep spending.

He said: “What tends to happen at a time like this is money follows quality. The people who put money into sponsorship of the likes of Man United and Chelsea will continue to put money in.

“At the other end of things, you can reasonably expect that in the lower reaches of professional football, sponsorship from local tradesmen in fairly small quantities will be sustained.

“But the Sunderlands, the Wigan Athletics, the Birmingham Citys, the West Hams are not getting the big rich global companies sponsoring them. Those are the ones that will have to cut back.

“People are sticking with the big and rich, so they are all right, but if you are a medium-size company looking to make cutbacks, below the top four in the Premiership and the lower divisions, that’s where the economic impact will bite.”

Though Premier League clubs may see a decline in certain income, the cash cow that is their television rights deal seems to keep on delivering for them.

The league is currently entering the second year of a three-year deal with Sky Sports and Irish broadcaster Setanta, which costs Sky £1.3bn for 92 games per season – and first pick of the most attractive matches – and Setanta £392m for 46 games.

Football continues to be massive business for both the current incumbents, and their business models would not add up without the game, so even bigger cheques can be expected to be signed for the deal starting in the 2010/11 season.

That deal is expected to be negotiated over the coming season, and we will discover exactly how much it’s worth next summer. Steve Walton says: “I suspect the Premier League is already turning its attentions to the new deal. They will be working on it now. Each club will have just seen £16m arrive in their bank account, which is the basic award from the television deal. So they are all in a strong cash position now, but it does not take long for them to spend it.

“The important thing to remember with the television deal is why do people have Sky TV? It used to be for football and movies, but now it’s not really the movies any more, so the football is vital to the broadcasters.

“The last couple of times, people said the amount of TV money would not increase still further, but most commentators think there is still more money to come out of television – particularly because of interest in the US.

“There is more money to be made out of rights there, and we are still scratching the surface with emerging markets like China and India. No club has really cracked making money out of their huge fan base abroad.”

Prof Cannon said: “I guess the Premier League will be starting to renegotiate the TV deal now. The Premier League deal will be as good as, if not better than, the last one. All the evidence is that without Premier League football, Sky’s subscription business would disappear.

“If it was not for Premier League football, people would be making an economy by not renewing their Sky subscription.”

The prospects for another record Premier League TV deal look good, with Sky recently striking a massive deal with the much less lucrative Scottish Football Association.

The new four-year deal covers 2010-14 and is more than double the size of the existing arrangement and covers rights to broadcast live Scotland home internationals and the Scottish Cup.