just how broken is football's financial model?

Supporters Direct 2010

Just how broken is (English) football’s financial model?

Dr John Beech

Head of Sport & TourismApplied Research Centre for Sustainable Regeneration

Coventry University

The Myths

The underlying myth – the clubThe myth of the benefactorThe myth of investmentThe myth of the new stadiumWhat are the alternatives? Christian Mueller of the BundesligaSome issues of implementing

change

The Myth of the Club

A breach of the Trade Descriptions Act?

‘an association of two or more people united by a common interest or goal’

‘an organisation run by and for its members’

Went with professionalisationReplaced by the limited company

‘The Club’

Construct Company Crew

Crew

Trigger’s broomConstantly changingTransfer to opposing clubs2010 Cup FinalDays of local identity long goneStill our heroes or zeroes

Company

The owner(s)The board of directorsThe Chief Executive OfficerThe business elementFinance and accountsMaking a profit

or at least not making a loss

(Social) Construct

The ‘till I die’ elementTattoosThe heritage, culture, mentality

and mythologyThe fans’ constructIt doesn’t physically existyet it’s the most permanent

dimension

Confusion

Need to keep the three elements distinct when analysing

‘Save our Stanley’actually meant ‘Save our Board of

Directors’Exploitation of fans; ‘taxation

without representation’

Can these three elements merge?

Do we want them to?

How have they become separated?

Is this irreversible?

The professionalised era

FANS LEAGUES OWNERS

CLUBS PLAYERS

The commercialised era

SPORTS BROADCASTERS INVESTORS

FANS LEAGUES OWNERS

AGENTS

SPONSORS CLUBS PLAYERS

The model depends on money in from fans and, when necessary, benefactors

To be ambitious requires serious financial input from the benefactor

The model is not sustainable if the money just flows through the club to players and agents, unless the benefactor is infinitely rich and does not lose interest

The Myth of the Benefactor

Origins go back to professionalisation

Usually either churches or breweries

Very different, but share the outcome of local commitment

From the 1980s local benefactors largely replaced by external ones

Jerry ShermanOne of football's most unexpected marriages will be consummated when Newport County, the unfashionable and down-at-heel third division club, is taken over by Jerry Sherman, the handsome American multi-millionaire. (The Times, 1 October 1986)By February 1987, the club is facing a winding up order over debts of £600,000.Sherman goes, and so does the clubSherman believed to be currently in prison in Seattle for defrauding an ice hockey club

Spencer TrethewyThe 19 year-old property developer who would save Aldershot in 1990Club was wound upIn 1994 Trethewy was imprisoned for fraudNow manager (owner?) of Chertsey Town, using the name Spencer Day

Jack Hayward

Wolves were insolvent in 1982 and again in 1986Hayward bought them in 1990 (then in Tier 3)Quit in 2003, having lost £40m(Club made the premier League in 2003, only to be demoted after one season)

UEFA’s Financial Fair Play protocol

will end this model being possible,

even at Chelsea or Manchester City

The Myth of InvestmentShares (equity) or loan?

Fans misinterpret loan as purchase of shares

If it’s a loan, the benefactor may want his money back if his circumstances change. But will the club be in a position to repay it?

Roman Abramovich

Bought Chelsea from Ken Bates for £140m in 2003Has achieved great success on the pitchChelsea have been indebted to him for £700m in interest-free loansWrote of £346m in debt for equity swop (or did he?)

The Booths

Ken Booth had a genuine love for Rotherham United and saved them in the eighties.In his eighties, he handed over to his sons, who did not share his love.He was owed £3m he had loaned, and took the stadium in lieu.

The sons pushed the rent so high that the club had to move out of Millmoor and go into exile at the Don Valley stadium in Sheffield

John BachelorJohn Batchelor arrived at York City promising to:• buy the club and the ground• give the Supporters Trust 24% of the shares• have two supporters on the board

Far from being an investor, he later admitted that his policy was in fact to asset strip

Other benefactors who failed to invest enough

Michael Knighton – Carlisle UnitedMark Guterman – Chester CityMark Goldberg – Crystal PalaceSimon Jordan – Crystal PalaceMike Connett – Northwich VictoriaAli Al Faraj – PortsmouthSulaiman al Fahim - PortsmouthAlex Hamilton - Wrexham

The Myth of the New Stadium

Ron Martin @ Southend United

Now in League 2Average gate 2009/10 – 10,329 (L1)

Capacity of Roots Hall: 12,306Fossetts Farm planned since 1998With a capacity of 22,000114-bedroom hotel, conference facilities,

retail parkRoots Hall sold and leased back in 1998

Estimated cost now £80 millionNot a sod has been cutCosts already of £1.2 millionClub described in court facing HMRC

winding-up petition as a ‘serial offender’Last two times were for £0.6 million eachClub now seriously committed to

SainsburysFinancial beneficiaries of Fossetts Farm?The Martin family

Darlington Arena

George Reynolds @ DarlingtonOpened in 2003 with a capacity of 25,000.

Currently restricted to 10,000 on H&S grounds

Record gate – 11,600 at first ever gameAverage gate last season – 1,943George was going to take Darlington to the PL,

but, before he made it, he was given a three year sentence for tax evasion and declared bankrupt

Darlington in Administration in 2003 and 2009

The ‘Cargo Cult’ Belief‘Build a new stadium and it will fill up’This will finance better players, and hence

lead to promotion, in some kind of virtuous spiral

The evidence suggests otherwiseIt tends to lead to unforeseen additional

construction costs, and unsustainable maintenance costs

Can lead to Administration and thence loss of ownership

Other clubs with ‘new stadium’ issues

Bristol City and Bristol RoversCoventry CityGrays AthleticHereford UnitedKettering TownLeigh GenesisNuneaton BoroughPlymouth Argyle

Worcester City(and then there’s Liverpool and Everton!)

To be financially healthy, a club would want to:

• maintain a steady position in the centre of the table of a league which is appropriate for their potential fan base, avoiding relegation, and to some extent, promotion;

• avoid the longer-term uncertainty of benefactor dependency;

• own its own stadium, one which has appropriate facilities for matchday hospitality and non-matchday activities which generate revenue streams;

• develop a committed local fan base;• develop a long term relationship with a sponsor

which is itself financially stable;• have performance-related contracts with its

players;• maintain a squad which reflected its current

league position in terms of performance and wages;

• employ a manager who is successful on the pitch and appreciative of financial constraints.

My verdict?

Broken!

Two options:a) Fix it

b) Change to a model that is better fit for purpose

The Alternatives

Supporters Trust ownershipCommunity Interest CompaniesThe North American modelThe Spanish modelThe Bundesliga model

Please welcomeChristian Mueller of the Bundesliga

Some change issuesStadium ownershipTransition

Mature market with crass inconsistencies

Enormous financial differences up and down the pyramid

Resistance (club v. League?)Scaling down wagesBroadcasting rights?

The Endfootballmanagement.wordpress.com

John@Beech.net