Page last updated at 09:35 GMT, Monday, 15 February 2010

Football's financial winners and losers

By Theo Leggett
Business reporter, BBC News

a during a Barclays Premier League match
Television money has increased the wealth of the Premier League

Football is a funny old game, or so the saying goes. But as a business, it is also more than a little eccentric.

It is an industry in which the key players generate enormous wealth, yet many continually walk a financial tightrope - and inevitably, some fall off.

Premier League club Portsmouth has just a few days to save itself from going into administration, or even worse, liquidation.

However, the English Premier League remains one of the richest sporting series in the world. Since its inception in 1992, it has generated ever greater riches for its members.

At the heart of the League's earning power is the sale of TV rights.

In the UK alone these are worth £1.8 billion over three years. Overseas TV deals, internet and mobile phone rights add another £1bn.

'Football survives'

But clubs have many other income streams as well, including sponsorship, ticket revenues and the sale of branded goods. The top teams can also expect to reap substantial rewards from participation in European competitions.

What is remarkable is how little those revenue streams have been affected by the economic downturn.

The TV deal, for example, was negotiated in January 2009 - at the height of the recession. Yet it is worth substantially more then the previous agreement.

Ronaldinho in AC Milan shirt
Sales of replica football shirts remain strong

Nor is there any sign that fans are cutting back on their spending. Season ticket sales have remained strong at most clubs, and demand for football merchandise seems as strong as ever.

At the Soccer Scene sports store on London's Carnaby Street, a replica football jersey can cost up to £65, but manager Trevor Hazel says there's no sign of customers cutting back.

"No, not at all", he says. "Fans still want the full set - the home shirt, away shirt and third shirt. I don't have to discount at all".

"Football survives the recession because - it's football," says Chris Brady, dean of BPP Business School.

Everyone wants to watch it, people will keep on paying, and all the revenue streams bizarrely are up. If there is a recession-proof industry, this is probably it".

'Gambling team'

Yet try telling that to Portsmouth Football Club.

Just two years ago, Portsmouth was riding high. It had won the FA Cup, after investing heavily in talented, but expensive players.

But now, it is paying the price. It is struggling to pay its bills and is facing up to the twin threats of relegation and possible administration, or even liquidation.

Portsmouth players celebrate winning the 2008 FA Cup
Portsmouth players in happier days, with the FA Cup in 2008

While their problems are among the most acute, financial troubles are not unknown in English football.

In the heady pursuit of success, or to stave off relegation, clubs frequently spend all they have and more on ruinously expensive transfer fees and player salaries.

"It's a bit like being at the gambling table. You think, one more bet and you might just make it", says Heather Rabbatts, a director of Millwall Football Club.

"It's the seductiveness of the game. You want to be at the top. That means you need the best talent, and talent costs money".

Debt issues

Even some of the Premier League's aristocrats face significant financial pressures.

Manchester United has debts of more than £700m - money borrowed by the Glazer family when they took control of the club five years ago.

Old Trafford
There has been a recent bond issue at Manchester United

A recent bond issue has made the debt more manageable, but the club still needs sustained success on the pitch in order to balance the books.

Yet each year it has to spend tens of millions on servicing its hefty interest bill - money which could otherwise be spent on reinforcing the team.

Liverpool has a similar problem. It owes more than £200m and is looking for new investors.

The club's owners insist the debt is manageable, but critics fear that unless new money can be brought in, it could be tempted to sell key players.

Community approach

For clubs which fall out of the Premier League, the financial stress can be even more severe.

They face a sharp reduction in their income, which means they have to make a tricky choice.

Should they retain their highly paid players in an effort to return to the top flight quickly, or sell them in an effort to cut their costs?

Coventry City players celebrate a goal
Coventry City is an ambitious club, but looking to remain with budget

Crystal Palace is one club which lost the gamble. It dropped out of the Premier League in 2005.

After several unsuccessful attempts to get back up, it went into administration in January with debts of £30m.

Three years ago, Coventry City narrowly avoided a similar fate. Now, it has rejected the big spending approach. Instead, it has gone back to its roots as a community club.

It is building a new fanbase among local schools and businesses, and recruiting cheap young players with plenty of potential.

"We're running the club well", says director Joe Elliott. "As far as we're concerned, going out and paying £5m-£10m for a new player just isn't on.

"The ambition is still there, but if we're going to do this, we'll do it in a way that isn't going to jeopardise the future of the club".

'Regulation'

Analysts say other clubs need to follow Coventry's example, as part of a far reaching overhaul of football finance.

"At the moment, we're on a downward spiral, and more clubs will potentially go to the wall very soon." says Professor Simon Chadwick, a sports business expert at Coventry University.

"We have to think of ways of protecting them, perhaps through regulation. But it has to be a consensual approach."

"And clubs need to think very carefully about their salary structures, bringing players through a well designed youth system, rather than simply buying them, for example".

It would be a brave man who would bet on football clubs learning from the mistakes of the past, and making a concerted effort to live within their means.

But there are some encouraging signs. During the last transfer window the Premier League teams spent just £30m - compared to £130m a year ago.

So perhaps the days of football's abundant riches flowing straight into the pockets of its superstar players really are coming to an end.

But in such a competitive sport, is that really likely?



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