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Football Action Plan
Lord Sugar's Five Point Action Plan for English Football
Andy Greeves
Despite the size and global success of the Premier League and that fact the league generates a staggering £2bn a year, only six of its clubs currently make an operating profit.
That was one of the jaw-dropping stats featured in a recent BBC programme called Lord Sugar Tackles Football in which the former Tottenham Hotspur Chairman Lord Alan Sugar spoke at length about the plight of the Premier League from a financial point of view. The collective debt of the league's clubs currently stands at £3.5bn, which is around four times the figure for the next most indebted football league in Europe - Spain's La Liga.
While the Premier League's income is greater than any other league in the world its level of borrowing is disproportionate with the rest of continent. Such is the Premiership club's level of borrowing is so vast that the collective borrowing figure of 18 of its clubs is greater than that of the 714 clubs from the rest of Europe's top leagues put together.
Quite simply, most of the Premier League's clubs owe far more than they actually earn in a year, some owe more than they are likely to net in a decade. Yet with 'silly season' - aka the summer transfer window - now upon us and the Premiership clubs already spending vast sums of money, it seems the warning bells are not being sounded around the league's stadiums.
Last summer over £350m was spent collectively between the 20 Premier League clubs, which was actually 22% down on the spend of 2009 and the lowest since 2006. However outgoings (especially wages as will be touched upon shortly) and debts continue to rise, so this cannot be view as a sign that the Premier League clubs are being more frugal with its money by any means.
Last year, Portsmouth Football Club became the first Premier League club to go into administration and 'leverage' takeovers of clubs such as Liverpool and Manchester United (where huge debts are essentially loaded on to club's heads) have shot the league's overall debt figure up to the £3.5bn mark we find today.
Lord Sugar claimed on his programme that it's time the Premier League clubs woke-up to a "dose of reality" and it would seem UEFA would agree. They will introduce Financial Fair Play from 2012-13 where clubs will only be permitted to compete in European competition if they have maximum loses no greater than £39.5m. That figure will drop to £26.3m between 2014-2017, with owners not permitted to bail clubs out of debt using their own personal wealth. The aim is for clubs to run sustainable businesses and to get away from irresponsible spending and borrowing. Under the scheme, Manchester United, Chelsea, Liverpool and Manchester City would all be ineligible to play in Europe currently. Food for thought for those whose levels of debt or spending has spiralled out of control.
Lord Sugar has his own ideas for what is needed to football in England sustainable from a business point of view and outlined a five point plan to address the problems he sees in the game currently, which include:
Controlling the Players Wages
While debt is an obvious indication of the Premier League's financial health (or lack of), one of the most revealing factors of all is to compare club turnover with its annual wage bill.
Figures for 2009-10 revealed that the division's clubs spend an average of 67% of their annual revenue on wages. So in simple terms, every £100 that goes into the club, £67 goes into the pockets of the players. There are some staggering turnover to wages ratios when you glace through the figures. 82% of Chelsea's turnover goes on player wages, as it does at Sunderland. Blackburn, Aston Villa and Wigan's turnover-wage ratios are all in excess of 83% while Manchester City top the list with 107% of their turnover going on player wages .
While generous chairman at Chelsea and Manchester City mean their sky high turnover-wage figures aren't a cause of any current concern, clubs without the luxury wealthy owners are in very precarious position indeed. When Portsmouth went into administration in 2010 their wages to turnover ratio was an unsustainable 108.8%. Twelve of the league's twenty teams currently pay more than 70% of their turnover on player wages - a percentage which UEFA believe poses real problems for the financial health of the game.
Given that wages are by far and away the division's largest expense, it is hardly a surprise that Lord Sugar believes a reduction of the wages clubs in the Premiership's biggest financial goal. Wigan chairman Dave Whelan, who has invested over £100m of his own personal fortune to keep the Lancashire club afloat, believes they should be a cap on wages.
There are arguments for and against wage caps. A wage cap would be hard to police and could complicate football financing, with clubs potentially circumventing the rules with bonuses, offshore payments and deferred lump-sums to stay ahead of the competition. Critics could also point to the fact that footballers have short careers and only earn what other top sportsmen currently do. The popular argument being that in a supply and demand market, players should be free to demand as much as clubs are prepared to pay for them.
Wage capping would hopefully bring about a far more sustainable market (if implemented across the whole of Europe/the world especially) and in turn more parity between clubs is they worked with the same limits. Wage capping would allow clubs to plan their finances more effectively and, if they were linked in some way to club turnover, would go a long way to elevating the current, unsustainable average of 67% of a Premier League club's income being spent on wages.
Former Tottenham and Switzerland defender Ramon Vega believes that a wage cap could be a way forward for the game, but negates any blame from the players who take the majority cut of the Premier League's revenue currently.
"I have to take a players view on this and ultimately say, if a club is prepared to pay a player X amount, they shouldn't feel bad about taking what they offered. Football is an entertainment industry loved by millions of people around the world and why shouldn't players earn the kinds of money those in other entertainment industries earn? Football is a volatile profession. Yes, the rewards can be high, but equally one industry and your career could be over and few individuals are at the top of the sport for more than ten years.
"It's up to the clubs and the governing bodies to create a more suitable market, not the footballers themselves."
There is a major question mark over whether wage capping could work in football, indeed there are ethical issues imposing such restraints in a 'free market'. A pressing priority for clubs in the here and now though is to reduce their wage bill and start playing their players more in line with the revenue they generate.
Borrow to build, not to Buy
Lord Sugar highlighted the growing problem of owners who borrow to buy a club and put it in massive debt in the process. Examples cited were the Glazers' takeover of Manchester United and George Gillett and Tom Hicks' purchase of Liverpool in recent years - so-called 'leverage' buy-outs.
"These 'leverage' purchases (buying a business with borrowed money) have not only been common in football in the past but also in other industries," says Ramon Vega. "It was an easy means of acquiring businesses before the recession and deals of this nature were common. The lending liquidity was high and private equity firms especially were massively involved. Those days are long gone now though and I don't think there will be a deal like that going through in English football for a while. It's an unsustainable way of doing business."
Arsenal were cast as the shining example in Lord Sugar's programme as being a club that have borrowed money for the long term good. The Gunners went £260m in debt to build their new Emirates stadium, but with a capacity of 60,000 (20,000 more than at their old stadium Highbury) turnover has soared to over £200m per annum making it more possible to service the debt and invest in the club. The stadium has enabled Arsenal to make £100m extra revenue a year than was achievable at Highbury.
Tougher Penalties for Financial Failure
Lord Sugar's third point was probably the strongest and most controversial.
He believes clubs are given too much leeway when they go in to administration and as he put it, "teams that go bust on Tuesday can be playing again on Saturday." Sugar poured scorn on this culture and added that teams who are unable to exit administration after a certain period should be closed down, as is the case with other commercial businesses.
Football League Chairman Greg Clarke argued that football clubs mean more to their community than any commercial business could and the everything should be done to ensure football clubs continue to exist to serve the community. Ironically, many have slated the Football League for being too hard line in its punishment of clubs who enter administration, with vast point deductions often leading to the relegation of teams with financial difficulties and heightening their problems.
It should not be forgotten that football clubs in England and Wales have been shut down because of their finances including Bradford Park Avenue (1974), Gateshead (1977), Newport County (1988), Aldershot (1992), Maidstone United (1992) and Scarborough (2007).
End the Football Creditors Rule
Football clubs are treated differently to other businesses when they go in to administration because of the 'Football Creditors Rule'. When 'normal' businesses go bust, they are tasked with first repaying tax and small creditors. Football clubs however, players receive money before any other creditor. 'Lord Sugar Tackles Football' highlighted the plight of a refurbishment firm that had gone bankrupt as a result of Portsmouth FC's administration. Indeed, during this period former defender Sol Campbell was able to win a legal fight to gain £1.6m in unpaid 'image rights'.
While it's unfair to suggest footballers should pushed to the back of the queue as far as collecting revenue if a club goes into administration (ultimately they have bills and mortgages to pay too), surely a fairer system might be to look to pay all creditors a percentage of what they are owed.
Set-up a Football Trust Fund
Lord Sugar is concerned that too much of English football's money ends up in the hands of players and agents. He argued the case for a Football Trust Fund, so that more of the Premier League's wealth was invested on the game's infrastructure, such as stadia, training facilities and youth development. In Sugar's opinion, a percentage of the league's £2bn income should be put into this trust fund every year and be awarded to clubs wanting to develop the type of schemes mentioned above.
The Football Trust Fund would essentially give clubs less control over the broadcasting money the Premier League receives every year and divides amongst its clubs. Karen Brady, who stars alongside Lord Sugar on the BBC One business show The Apprentice and is Managing Director of West Ham United takes umbrage with her colleague on this, claiming football clubs "need every penny and more."
Points Missed
Lord Sugar's programme was undoubtedly Premier League-centric and covered very little of what is going on the Football League and beyond.
Since 1992, 53 Football League clubs have gone into administration and balance sheets are far more worrying outside of the Premier League, without the top flight's TV money to fall back on especially.
In 2009-10, Championship clubs such as Nottingham Forest, Ipswich Town, Preston North End, Queens Park Rangers, Bristol City and Blackpool had wage bills greater than their turnovers. And only two of these clubs have since managed promotion to the top flight. Clubs outside of the Premier League are the game's lifeblood and where many young English footballers make their breakthrough. The 72 Football League clubs share just £264m of TV revenue over three years (a figure that will be reduced by 26% to £195m for three years from 2013) while the 20 Premier League clubs share £1.782bn over the same period.
Perhaps a Football Trust Fund would be better shelved for fairer distribution of wealth throughout the Football League clubs instead?
The programme also failed to pick up on the astronomical fees being paid by clubs to buy players. Fees such as the £50m paid by Chelsea for Fernando Torres in January would be enough to buy a club a new stadium and secure its long-term future. A wage cap was mooted by Dave Whelan, so why not a cap on obscene transfer fees?
The Premier League's clubs have some big questions to answer financially, but one worries that the vast majority have their heads burrowed firmly in the sand.
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