Financial Pressures of the Premiership

Posted: January 7, 2010 by mcdonaldtaf in Finance
Tags: , , , , ,

I posed the question of whether football was about to ‘shoot itself in the foot’ on my old blog recently. Just a few days on and the weight of evidence indicating yes seems to be increasing.

This morning the ongoing saga at Portsmouth continues. They are now showing the clear signs of a business which is teetering perilously close to the edge of annihilation. When any business has to delay the payment of wages for a third time there is quite clearly something horribly wrong. Without a ‘white knight’ Portsmouth have the options of selling players and further risking any chance of remaining in the premiership, or, becoming bankrupt and destroying any chance of staying in the premiership. Tough choices which could see them spiral down the leagues for seasons to come.

I also read an interesting article by Robert Peston yesterday when he brought into question the actual financial might of the Premiership champions. Suggesting that the requirement of success is an absolute necessity for leveraged clubs, even the most successful. It’s an easy calculation that success drives revenues and thus the ability to keep up with interest payments. The difference between MUFC’s income (£256m) and the remaining profits after interest payments of £18m being 7%. So a 7% margin of error should MUFC struggle to remain competitive. Considering we are talking about the most successful premiership club to date I think that Peston hits the nail on the head when he suggests “The finances of the Premier League are probably as perilously poised as the finances of the British government.”

I remain convinced that we are in the midst of a major market correction in football. Clubs, unless owned by billionaires, are cutting their cloth and tightening their belts in equal measure. The idea that all the top clubs can enjoy success to drive growth is an impossible reality, especially given that more clubs are striving to push into the ‘top 4’ and spending to do so. While some fans bemoan the money Harry Redknapp has had for transfers compared to Rafa recently, do they ever wonder what happens if  Harry can’t deliver success and drive their revenues? It’s a risky game to be playing at the moment.

So where does this leave Liverpool FC? Well, we are a leveraged club and as a consequence we have hefty interest payments to keep up with. Not as high as United or Arsenal’s but hefty nonetheless. After a poor start to the season (and without the 7% margin of error available to United) there is a delicate balancing act in not increasing indebtedness, and risking financial peril, while trying to win something and ensuring we at least compete in the Champions League next season. The Champions League being critical to revenue generation. On the pitch success (as suggested by Paul Tomkins) has a clear correlation with player acquisitions and wages – but we can’t increase our indebtedness, so player acquisitions are off the table. I do not envy the juggling act that Purslow, Ayres and Benitez are currently undertaking.

It’s not all bad news though. Rafa, as per my old post, has repeatedly proven that he can make up some of the difference from our lack of financial power. This will be absolutely vital for the rest of the season. He must repeat the miracle of Istanbul pretty much every game for the rest of the season, although my heart won’t take conceding a hat full in each game first.

From the financial perspective our revenues aren’t as healthy as United’s, or any of the other ‘top 4’ for that matter. However when comparing like for like – I believe it is only United and Liverpool from the Premiership with a truly global football presence. So when you consider our might against United’s alone while we are woefully behind in terms of revenues we have also not, to date, unleashed half of the potential United have. This being mainly due to the mis-management of the past. Potentially there are untapped reserves for Liverpool which United are already running dry. Our new sponsorship deal being the first of many large steps forward.

While no one would want it to happen, when considering the debts together with the possibility of one of the top clubs collapsing, again Liverpool are probably the best ‘protected’. Our debts are not as high as other clubs, especially those secured against the club itself (reportedly c.£105m). It is therefore possible to surmise that a white knight would rescue Liverpool pretty quickly. In fact if our total debts continue to fall I think there will be a queue, unlike at Portsmouth. Like I say you wouldn’t want it to happen but surely there is a certain peace of mind in knowing we wouldn’t just disappear altogether or spiral down the leagues like some?

Additional Note: I have called on numerous occasions for the club’s owners to show some financial commitment and place additional investment into the club from their own pockets. I noted Spirit of Shankly’s ‘challenge’ to the owners to back Rafa this month in the transfer market. Some of you will know that I don’t agree with all of Spirit of Shankly’s view points, but on this I am 100% with them. The only way to increase our chances of success while not increasing the indebtedness is for our owners to find the money themselves… quickly! Maybe that commitment would also put our minds at rest that our own finances aren’t as perilously poised as the British government’s as well.

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