The Premier League on borrowed time
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The lurking dangers stored up in complacency during the Premier League's world-conquering boom have finally broken to the surface. Portsmouth, at the bottom, have had their share of TV money withheld as they stagger towards court to contest a winding-up order. At the top end of the table Manchester United, who still make more money than any other club, launched a plan to borrow £500m to part-refinance the £700m debt loaded on to them by their American owners.
The time is drawing to a close when the Premier League can convincingly maintain their laissez-faire approach to the national sport, in which the clubs, cherished by fans for generations, are simply commercial companies, available to buy and sell by anybody without a fraud conviction, from anywhere, with whatever plan.
When Lord Triesman, the FA's first independent chairman, tried in October 2008 to persuade the Premier and Football Leagues into stronger moves to protect against "pitfalls" among which he identified "debt mountains" and "cavalier ownership", he was relentlessly trashed by the Premier League.
"I don't think anybody who is rational can look around [in the economic downturn] and think they are immune," Triesman warned, estimating that English professional football was £3bn in the red. "The debt mountains are owned, and therefore the clubs are owned, by either financial institutions some of which are in terrible health, or very rich owners who are not bound to stay, or not very rich owners who are also not bound to stay … I think this poses very tangible dangers."
In response, Richard Scudamore, the Premier League's chief executive, who was paid a £1.537m salary package in the year to 31 July 2009, including a bonus of £745,566 for negotiating the TV rights, defended the "responsible" approach of his paymasters.
"Our clubs are all heavily regulated but they've also got directors and owners who will assess the level of risk of their overall debt," Scudamore said reassuringly. "This is at the top of clubs' agendas and I think they are managing it responsibly."
Events since include financial restrictions at debt-laden Liverpool, a £72m loss for 2007-08 declared by West Ham, who were repossessed by a broke Icelandic bank, overspending at Hull City and questions about whether several clubs are viable "going concerns" without investment from owners. These lend perspective to deciding which was the shrewder assessment, Triesman's or Scudamore's, of the state the game was in.
Scudamore has spent the past few months notching up lucrative new international television deals in countries where the appetite to watch the Premier League appears to be ever-expanding. With £1.7bn already in the bag for the 2010-13 domestic rights from Sky and the BBC, the Premier League expect to equal or even better the record £2.7bn deal for the 2007-10 on which the clubs are currently feasting.
That in itself signals the question being asked not just here but around the world, as Portsmouth's plight and United's dispiriting debts have garnered global attention. How has the world's richest league, with the most lucrative TV deal and some of the most expensive match tickets anywhere, whose clubs have become merchants of football and vigorous exploiters of their own "brands", generated such financial carnage? What mismanagement has been permitted, and why, to result in Portsmouth fans marching in protest yesterday and Manchester United supporters' groups gathering in Stretford to plan action against the club's owners, the Glazers?
All the clubs script their own soap opera, but as time lends patterns to the spate of takeovers in which mostly British owners sold out for multi-millions to mostly overseas buyers in the Noughties, certain categories are becoming clear. Portsmouth's financial state is the most alarming since the "live the dream" meltdown at Leeds in 2003, and the takeover by Ali al-Faraj, a Saudi businessman of modest wealth who has not yet been to Fratton Park, is one of the most bewildering. Yet the cause of the crash is fairly simple to explain.
Portsmouth won promotion to the Premier League in 2003 having been backed financially by the Serb-US businessman Milan Mandaric, and were then taken over in January 2006 by Sacha Gaydamak, an Israeli-Russian who was 29 years old at the time. The club have stayed in the top flight since, but have never expanded Fratton Park from its 20,000 capacity, the smallest in the division, and so have not been able to accommodate more fans, and earn more money from them. They also have no training ground of their own and until 2007 did not have a youth academy.
When Harry Redknapp was manager he assembled a side that brought the FA Cup back to a chiming Portsmouth in 2008 and featured at various times David James, Sol Campbell, Glen Johnson, Sylvain Distin, Niko Krancjar, Pedro Mendes, Sulley Muntari, Jermain Defoe, Peter Crouch and Lassana Diarra. He achieved this by massive overindulgence, to pay those players their millionaires' wages.
The club had gobbled up all the TV millions that Scudamore and his consultants had dutifully reaped for the clubs, and still managed to lose £17m in 2008, and £23.5m the year before. Was the FA chairman wrong to warn this could not go on? Was Scudamore right in October 2008 to say the debt was being managed responsibly?
The excessive spending was being absorbed by borrowing from banks and from Gaydamak himself, who was putting in his own money, as loans. After the economic crisis hit, Standard Bank called in a £30m loan: they did not want it rolled over, with the interest serviced, they wanted their money paid back. Gaydamak, the backer, is said by his advisers to have experienced financial problems of his own and to have tired of the bottomless demands of owning a Premier League club. So he stopped pouring money in and suddenly Portsmouth's debts were no longer sustainable. For three months running, their wage bill, despite the mass sale of all the star names except James, was not paid on time. Her Majesty's Revenue and Customs have slapped in a winding-up petition for unpaid PAYE on the players' mammoth wages, Faraj cannot secure bank lending, and the fans marched in protest against this reality yesterday despite their game against Birmingham being postponed, which is rather harsher than the dream they lived.
Most other Premier League clubs are in this same category: despite the huge wealth they have generated, and football's remarkable resilience in the recession, the majority overspend on wages, and rely on money paid in by their owners to keep them solvent. Some of the owners are still English, even hometown men-made-good, such as Dave Whelan at Wigan, and Peter Coates, whose bet365 Group has invested in Stoke City's robust recent rise.
Wigan's accounts for 2008 noted Whelan celebrating the club's "momentous" Premier League survival, at a cost of losing £11.2m, and accumulating net debts of £48.2m. The auditors wrote: "These conditions indicate the existence of a material uncertainty which may cast significant doubt about the company's ability to continue as a going concern."
Without Whelan's financial contribution, and the support of the banks, Wigan would be bust. That same warning has been reproduced in other clubs' most recent financial reports, including Hull City's and, most sobering, Liverpool's. The overspending trickles down into the Football League, where Championship clubs are desperate to reach the Premier League, yet have to survive on far less TV money: £3m on average per club compared with £40m. When Lord Mawhinney, the League's chairman, announced in November that he would be resigning this spring, he noted that 70% of clubs had changed owners in his seven years, said overspending was the league's worst blight and called again for a salary cap.
Liverpool and their bitterest rivals, Manchester United, make unlikely partners in a debt-laden category of their own, giving unsuspecting football fans a crash course in a common financial practice: the leveraged buyout. The Glazer family at United, and Tom Hicks and George Gillett at Liverpool, did indeed borrow huge money to buy the clubs in the first place, then loaded the debts, and the responsibility to pay the interest, on to the clubs. At United, ticket prices have almost doubled since the Glazers' takeover and the fans' money can be said to have been used directly to service the £325m of interest for which the takeover has since made the club liable.
United's prospectus, launched this week to borrow £500m, finally confirmed that Sir Alex Ferguson does not, as he has claimed, have the money from the £81m sale of Cristiano Ronaldo to spend. If they manage to raise their £500m, at a mooted 9% annual interest, United will take £70m in cash and pay off part of the Glazers' hedge-fund debt, which is running at 14.25% interest.
Of the top clubs, only Arsenal are regularly making a profit without significant outside investment from an owner. But that happy financial position, and the promise of Arsène Wenger's blooming side are compromised by the takeover threat from two battling investors, the American Stan Kroenke and the Uzbek‑Russian Alisher Usmanov.
At the root of all this is that English football's boom has not been managed with a sense of prudence and care for the future. Unlike clubs in Germany, 51% owned by their supporters, or the famous member-owned Barcelona and Real Madrid, English clubs are companies, up for sale. Ownership of them is a lottery, best illustrated in Manchester. If you get lucky, like City, so improbably bought by Sheikh Mansour bin Zayed al-Nahyan of Abu Dhabi, as recession-proof as anyone, you have almost £400m invested in the club, all of it converted to shares, not loans. If you are an unlucky red devil, you get the Glazers' leverage.
Roman Abramovich, at Chelsea, has also invested hugely, £700m, converted into shares too, but even City and Chelsea face the looming halt being called by Uefa and their "fair play initiative". The European governing body, putting detail into the gut instinct of Michel Platini, their president, that all the debt and sugar daddy investment is not sustainable or good for the game, have dictated that from 2012-13 no club who run consistently at a loss, or rely on benefactor investment, will be allowed to compete in the Champions or Europa Leagues.
It is an admirably solid move by Uefa, only now dawning on the Premier League clubs who, with their debts and sugar daddies, have dominated the Champions League's latter rounds in recent years.
While the Premier League's free-market ownership lottery has allowed clubs to beam in the glow of popularity, Platini, who learned his football in smoke-filled post-match hubbubs in his father's bar in Joeuf, a mining town in north-east France, has called a halt. We cannot, argues Uefa's football man, carry on like this.