Sport Business Article on European Football Finance
August 5th, 2010The following article, written by Square1 Consulting’s Sports Director Paul McGoohan, features in The Debate section of August’s edition of Sport Business International.
“What steps need to be taken to ensure the financial stability of Europe’s top flight football clubs and to reduce the revenue gap between the leading teams and the rest?”
A lot of work has been undertaken by UEFA with regards to financial stability and ‘fair play’ over the past 18 months. A combination of the global economy and a political gap for somebody to take a lead has allowed for Michel Platini and Co to deliver their new Club Licensing Regulations. In my opinion the outline shape of this document is the best compromise for the diverse football landscape faced across Europe.
For the long term benefit of the game as well as for investors entering the industry, there needs to be regulations as to the how the great amounts of money generated by football in Europe is spent. For too long the attitude of owners, executives, agents and players has been short-term. UEFA’s insistence on a ‘break-even’ criteria is the right way to go. I don’t believe that anybody in football wants to stop the notion of a team travelling up the divisions and achieving success, but the new regulations force the money men within the game to take a longer term view.
Cash flow remains a problem across Europe. Whether it’s Barcelona or a number of clubs in the Football League, football at club level does not have a great record of building up cash reserves to be drawn upon in times of financial difficulty. FIFA and UEFA generate large profits and so maybe the future focus could be on how football better redistributes revenues across its component parts.
As for the issue of revenue gaps between teams, again I do not see a problem with one club being much bigger than another. If a club is well run both on and off the field then it should not be penalised for its success. Similarly well run ‘smaller’ clubs will continue to survive. The key is for executives to play to their club’s strengths and if they wish to grow, do so over a longer term basis by investing in the two most important things at a club, namely its players and fans.
The People of South Africa Are Ready
June 8th, 2010The People Of South Africa Are Ready!
Square1 Consulting’s Sports Director, Paul McGoohan, reports from the World Cup in South Africa.
“We are ready” exclaimed my taxi driver with a sense of defiance and pride. The greatest show on earth is coming to South Africa and for one month the eyes of the world will be fixed on this wonderful country and its people.
The fim ‘Invictus’ may have given a Hollywood spin on how the Rugby World Cup in 1995 played a large part in bringing the people of the ‘Rainbow Country’ together, but it is true to say that sport has played a central role in South Africa’s regeneration over the past 20 years. Nelson Mandela, President Jacob Zuma and FIFA will hope the World Cup will deliver a boost to South Africa on many levels.
The pride in the voice of the driver is shared by nearly everybody I have come across since arriving in Johannesburg. The people of South Africa are ready to welcome the football world and prove all their doubters wrong. Getting the country ready for this tournament has not been a smooth process, and many in the media (especially in Northern Europe) have questioned if South Africa would be ready in time. It is – although it must be stated that parts of Johannesburg still resemble a building site.
Legacy remains the buzzword for international sports tournaments and it is clear to see that the FIFA roadshow will leave South Africa in a better place. While it will be the new stadia that will take most of the media attention, the new roads and rail links will leave a longer benefit to the people of South Africa.
The power of the FIFA World Cup to both inspire and be a driver of tangible positive change shows no sign of abating. Anybody who questions why a country should want to host the World Cup, only has to spend a small time listening to the people here in South Africa. The positive impact upon their psyche alone is worth all the hard work undertaken to both win and then put on the World Cup.
I am currently working with Football Federation Australia on their bid to host the tournament in either 2018 or 2022. The next few weeks in South Africa, will only go to reaffirm the desire of the bid team to be successful come the vote in December. Watch out for the Australian fans in Durban – no matter how their team do, the fans will throw the kind of party that will give an insight into how good a World Cup in Australia would be!
The tournament will hopefully be remembered first and foremost for some great football – will anybody get the better of Spain? It will certainly be remembered for its noise! The sound of Vuvuzela’s will resonate across the globe.
Undoubtedly, taking the World Cup to South Africa has been a risk. FIFA and the people of South Africa deserve a tournament fitting of the occasion. This would be just reward for FIFA’s leap of faith and for the hard work of the last 6 years to get the tournament ready. We don’t know yet who will be crowned World Champions, but we can safely say that the long term winners of the FIFA World Cup 2010™ will be the Republic of South Africa.
Rescuing Liverpool
May 4th, 2010Liverpool has potentially reached its most important historic point. The Club has now gone 20 years without winning the English League title. It has never won the Premier League. It was drummed out earlier than expected from this year’s Champions League and now, as one of the world’s biggest clubs, faces the ignominy and reality of failing to qualify for next season’s premier European competition. This is the barely believable backdrop to a club with a footballing history to die for and what Liverpool legend Alan Hansen describes as the best fans in the world.
Why has it come to this? What is to be done?
We live in a litigious world, so it is difficult to call a spade a shovel. But, to my mind, the people running the club over the last two decades must bear the bulk of the responsibility and the brunt of the criticism. On a recent visit to Anfield to watch my team, West Ham, play like a pub team with a Force 10 hangover, one had only to look at the stadium to see the years of dreadful neglect at first hand. Unbelievably, there are still pillars holding up one roof!
Whether it comes down to incompetence or thoughtless arrogance at Liverpool, we have seen the club left behind by the other great clubs like Arsenal, Manchester United, Manchester City, Chelsea and Spurs. They have rebuilt their stadia to high standards and, largely speaking, to capacities that accommodate their substantial fan bases. Yet all Liverpool fans have heard is talk and a string of broken promises. The other clubs have built their revenue streams or attracted owners that have given them the wherewithal to compete effectively at the top of the modern game. It seems to me that the Liverpool fans are being treated to a ‘product’ that is rooted in the 1970s.
Sadly, in very recent times, Liverpool has also been owned by people who have said much and delivered little of the stated vision. Replacing them is a very urgent imperative.
Liverpool claimed in a recent statement that it has “…overseen a significant improvement in the financial performance of the club since 2007.” Well, that’s difficult to assess. The management has not published accounts for Kop Football (Holdings) Limited – the main trading company – since the filing for the year to 31 July 2008 and, in that year, the business showed net losses of over £42m and net interest payments on debt of £35m not covered at all (let alone adequately) by operating profit – pre-player amortisation and trading – of £25m. Debt remains stubbornly near a reported £240m, so what profits are produced do not leave much, if anything, for the manager to work with, even if we believe rumours of a £35m profit for the year that will end this 31 July. In short, Liverpool’s financial structure can’t work in my opinion and, since the sale of the club in 2007, it was never going to.
If the manager cannot operate competitively in the transfer market, he has no chance of competing regularly in the Top Four. We have now seen the first concrete sign of this with the failure to even stay in the Top Four. Manchester United, a club manfully trying to cope with a similarly onerous financial structure will also, I believe, start to experience similar problems, although their state of decline is nowhere near as advanced as Liverpool’s.
What about the role of RBS in all this? One of Liverpool’s principal lenders nearly brought the entire banking system down. Previously run by a man of monumental arrogance, this bank nearly had us all wiped out and in penury. The immediate collapse of our economy was only arrested in the nick of time just under two years ago. The bankers at RBS who are responsible for the debt exposure to Liverpool can’t be blamed for that. But they can be held to account for propping up a club regime that has signally failed to deliver new investment so far. They should think very carefully before renewing a facility to a corporate customer when other comparably struggling businesses find it almost impossible to raise working capital from banks at anything other than punitive rates of interest. RBS should be part of the solution, not part of the problem. Charging another fee – this time rumoured to be around £10m – won’t help the club for the sake of a six month extension to its banking facilities.
It seems axiomatic to me that Liverpool needs new, responsible owners and new top flight, football-experienced executive management.
It will not be beyond the wit of man, the new well regarded Chairman included, to find such a new owner. But first of all, Liverpool needs to stop spinning silly numbers. Rumours abound of a price being asked from £500m up to an incredible £800m, the lower of which is, in my view, way over the top for a club in its current condition and by any sensible comparison with Arsenal or Manchester United. Financially at least, Liverpool must have a new stadium if it is to have any hope of restoring past glories. But the finance for that, and any subsequent financial benefit to owners, must accrue to those who put up the money. In any case, this will not be a conventional acquisition of a football asset – it is more likely now to be a rescue.
The new owners will need to be people of high calibre. They will need to have access to very large sums of money to build the new stadium, revitalise the management and allow for a well thought through strengthening of the playing squad. They will need to have a vision and a clear understanding of what this great football club stands for. They will need to embrace and listen to the fans. Liverpool fans have a deep understanding of football and they have an unquenchable thirst for success based on a game played to its finest traditions. They are a real 12th man. The new owner will also ‘inherit’ a truly global fan base, so will have an immense platform to build on.
Right now, Liverpool is at risk of losing its manager and some of its best players, demoralised by a recent Europa Cup semi-final defeat and a poor season. While no-one is irreplaceable, such an exodus will leave a new owner with an even more difficult task. Therefore, the new Chairman of Liverpool needs to act with some swiftness. Once decline becomes precipitous, even money may not prevent the decline spiralling into permanency.
Keeping the Shareholders Happy
April 30th, 2010The Premier League’s Parachute and Solidarity payment proposals aim to appease their members.
The Championship is set to become ‘Premier League 1.5’.
For any form of competitive balance to remain then the Football League will have to focus on cost controls in the Championship.
When the Premier League Chairmen meet for their monthly gatherings, they are simply titled ‘shareholder meetings’. When trying to rationalise some of the decisions taken by the League, it is important to understand its structure and ultimately in whose interests it is working for.
A lot of attention is focused on Chief Executive Richard Scudamore, but in reality he and the rest of the Premier League Board are servants of their ‘Shareholders’. Each member club owns a single share in the money making machine that is the Barclays Premier League. The clubs control the League, not the other way round.
The recent news on the lengthening of parachute payments to relegated clubs and the solidarity offer to the Football League is yet another example of the Premier League keeping their shareholders happy. Credit to the hierarchy of the Premier League for the mouth watering increase in the value of the international broadcast rights. The issue of what to do with the extra £1bn+ coming into their coffers has clearly caused some interesting debate at recent shareholder meetings. In the face of well documented internal pressure from clubs like Bolton, the League has responded with measures that further boost their shareholders short term revenues, but also their ability to plan for the longer term.
Clubs like Bolton and others who populate the bottom half of the Premier League can now budget more effectively for the next 5 years. Such certainty in income will clearly help future conversations with banks and other lenders, while helping to keep creditors (including HMRC) at the door. So, for shareholders the financial future at least looks a lot healthier.
If ratified then the new parachute payments will in effect turn the Championship into the Premier League 1.5. It is conceivable that as we start the 2013/14 season that half of the Championship will be receiving direct parachute payments from the Premier League (3 newly relegated teams a season over a four year period). This would ultimately create a split league and remove a large part of the unpredictability that makes the Championship such a compelling division. The Premier League, in the spirit of ‘solidarity’ with their brothers across the corridor at 30 Gloucester Place, has proposed that each non parachute club shall receive an annual payment of £2.2m. League One and Two Clubs may not like how this money is being divided up, but the reality of championship club finances dictates the Football League will ultimately accept an offer similar to this one.
This will still leave potentially half of the Premier League 1.5 (sorry – The Championship) with a £6m income advantage over their competitors. The challenge for the Football League will be how this new income is managed and the protection of the competition. The Football Industry does not have a great record of financial prudence, and so the time is ripe for the Championship to agree on effective wage caps. The Football League, and its new Chairman Greg Clarke should seek to prioritise these discussions at their summer AGM in Malta.
Yet the very same shareholders who have recently graced the top division may disagree. While on the face of it, you may think that all clubs will welcome a plan to keep their costs down, executives at club’s who have recently been relegated, come under intense pressure from the manager and fans to keep investing in the team and help push for promotion. Wage controls would impair a clubs ability to do this, and so while ultimately good for both the club and competition, any meaningful plans may well be discarded as executives seek to get out of Premier League 1.5 and back into the real thing.