Monday, 22 February 2010

Football Finances

It's been all over the press recently. Palace are in Administration, Southend and Cardiff are in trouble with HMRC and Portsmouth are in deep s**t.

My best guess is that the reason so many are in trouble is that the supply of credit has dried up which has tempted the Inland Revenue to chase for their money with a little more urgency.

Palace have been covered elsewhere, but today there has been mention of Portsmouth on the Charlton email list. There was a Portsmouth forum broadcast on BBC Radio 5 last week. I only caught the Podcast version, so I had edited highlights, but what struck me was just how many people seem to think this is everyone else's fault.

the 'audience' were more than happy to blame the succession of Chairmen (owners), the players, agents and even the football authorities. One chap in the audience (a Pompey fan) had carried out some work to the changing rooms that were required as part of Premier League rules and he thought that the Premier League should pay him out. From what he said he had agreed a deal for the club to be pay him over twelve months, and had only received one installment. He went on to say that he had received a mere £8,000. I know there is some assumption here, but if that was one twelfth of the total (one month's installment) that would suggest that last summer Portsmouth paid (or rather promised to pay) £96,000 for building works to extend the changing rooms at Fratton Park.

It is no wonder that the footballing world has run up the debts that it has. The chap suggested that he did the work at 'almost' cost as he loves the club so much, but he did remark that despite the debts the Club had, he thought he'd be ok as the new owner was a 'Billionaire'. I do have to wonder just why he (and others) thought that someone who had a billion pounds would be willing (never mind interested) in dropping a load of his money in Portsmouth Football Club. No disrespect, but they don't have the most amazing recent history, they don't have a large modern stadium that they fill twice a month and their books must have been available. It is obvious now, so should have been then, that their income just doesn't cover their running costs.

In fact, I would argue that with so many clubs willing to spend money they don't have it must be getting to the point where Premier League survival with football generated income is only affordable by a handful of clubs.

The Premier League has evolved. There was a time (late nineties and a bit beyond) when the established Premier League teams were just way too good for the promoted sides. This followed if you were relegated. The three that went down were favourites to come back up again. This has all changed now.

The three promoted sides have a decent chance of surviving as there is now a queue of clubs in the Premier League that have too many over paid under achieving players that they cannot get rid of. If you have a squad that costs £50m a year to service - I'm talking mainly of wages here, then unless you are a massive club you cannot afford to bring in any new players unless you sell some. Chances are the ones you want to get rid of won't leave as they are earning more than they are worth, and will not take a pay cut.

The newly promoted clubs have minuscule wage bills by comparison and suddenly have £30m more income than they have been used to. A couple of cute signings and the pure enthusiasm that you get from Championship players in the Premier League will actually take you a long way. Certainly it will do more for you than having half a dozen players that are already millionaires, with long contracts that they know are as good as they are ever going to get. I don't want to open up the foreign players debate, but is it often telling which of the players grew up in the back streets of an English inner city estate dreaming of playing for their local team.

The recent strangle hold on finances in the UK has probably meant that many players in the English Leagues (especially the Premier League) are now earning what, it is apparent, is way too much. Suggestions that there are several players at Portsmouth earning £80,000 a week may be wide of the mark, but it does make the point. A four year deal on £80,000 a week is a total outlay of £16,640,000. It doesn't sound so much when you call it £16.64m, but it does put things into perspective when you consider that Portsmouth have a capacity of 20,700.

Thus, if a club that has been allowed to build up running costs of the magnitude of those we see in the Premier League, it is no wonder that relegation beings the kind of disaster that we, Norwich, Leeds and Southampton have suffered. The rumours are that Hull are in substantial debt and Bolton and Wigan have established Premier League running costs. This is before you consider that West Ham have in excess of £100m of debt. I know Gold and Sullivan are fans, but if they go down they are probably going to be in some trouble themselves.

In fact, if you look at Reading and Hull you can see that it only takes a season or two in the top flight to find yourself unable to survive if you are relegated. Thus is ok if you stay up, but each year you are having to spend more than you earn to avoid the drop. After a couple of years, or if we have a recession, the only solution is to sell players, then the relegation comes, followed by at least one season running the club at a huge trading loss. If promotion is not secured at the first time of asking you are looking at carnage.

I don't know what the long term solution is, but I do suspect that until we find one we are going to see more and more clubs in trouble. I just cannot see why anyone would want to take on Portsmouth in it's current state. Sure, if they find a buyer that is willing to drop £200m on a club that is clearly destined for the Championship, with an aging and (let's face it) 20th Century stadium then good luck to them. If not I cannot see a way for the club to survive. The debts are horrendous, but the main problem is going to be that they have a playing staff wage bill that is just not sustainable on their current levels of income. Thus you would have to be willing to take on a club with above average Premier League running costs with Championship income and an aging squad of players that probably couldn't get you out of the Championship. It doesn't seem to matter which angle you look at, they look doomed.

I've talked about my distaste for administration and starting again in the past, but Portsmouth are almost certainly going down, a nine point penalty and even Curbs wouldn't be able to save them. So it's £200m for a club that are probably going down or c. £20m for a club that definitely will. I'm assuming something like 10p in the pound for some of the creditors, all football debts have to be paid, and HMRC will want a big slice to send out a message. You will probably also need several millions more to run the club until the expensive players contracts run out or you win promotion with an inadequate squad.

Suddenly being 4th in the third division with just three points to the team in second doesn't look all that bad. There was talk of us falling out of the Premier League at just the wrong time, the season the money went up from £20 to £30m. I know we have some financial problems, but on reflection, maybe we got out just in time.

Up the Addicks!


Marco. said...

Thanks for posting this.
I thoroughly enjoyed reading it.
Food for thought when we ponder how long the Premier league can sustain itself as a truly competitive entity.
Pretty soon, promotion will be dreaded rather than aspired to. Teams will be playing their youth teams in the final few games so they narrowly miss out.
The future is only bright for the Sky 'big 4' unfortunately.

Hungry Ted said...

Top quality post!

charlton north-downs said...

Great post KHA-Frightening and scary. We all had to take a 10% pay cut to enable our Company to survive which effectively is four years salary increases gone-take inflation in consideration then its more like 20% . But we are all grateful to have a job . Any footballers out there willing to do the same-I dont think so somehow.

Ketts said...

Brilliant, brilliant piece, KHA, well done.

Anonymous said...

Nice piece. I would however say that there will always be a johnny foreigner (with cash in his pocket) who looks upon the Premier League as a veritable gold mine albeit that it will take some time to achieve 'safe status'. A case in point is Birmingham City. No hopers before McLeish turned up.