In football we are running out of benefactors (and why Manchester can’t play in Europe) « Untold Arsenal: Arsenal News, supporting the club, the players and the manager
By Tony Attwood
That headline (or at least the first half of it) comes from the magnificent Football Management web site in an article that points out that the message of Portsmouth and other clubs has not sunk in anywhere in football. Everyone thinks – that was them, it won’t happen with us. Just as Liverpool fans believed that when the last load of American owners came along, having a history of leveraged buyouts (for example at Weetabix) they would not use the process at Liverpool, because the Manchester United scenario couldn’t happen at Liverpool. And anyway they said so.
As Football Management says, “Just how many Premier League clubs to teeter on the brink will it take before Chairmen get a grip on club finances, before they take Mr McCawber’s advice. Unless spending is reined in to the extent that the business model becomes sustainable, we live in danger ultimately of only having a weekly exhibition match between Mansouri City and Abramovich Globetrotters to tune in and watch.”
And that’s the point. If the big bully arranges matters so that he wins every game on the street, he can hardly expect to have anyone as opposition except the big bully from the next street, and he can’t expect to have much of an audience except for a load of sycophants who are paid to attend and say how good it is.
The benefactor system that the football world (including Arsenal in the Norris era) lived on, only works when there are lots of benefactors around. When being a benefactor meant doing what a lot of people could do (if they had a mind to) then the model could survive, but now, with benefaction limited to multi-billionaires, life’s not to simple.
We are running out of benefactors.
And I write this as we find (according to our pals at Companies House in Cardiff) that Sheikh Mansour bin Zayed al-Nahyan’s has just topped up the petty cash by another £80m in Manchester Arab* by purchasing 37,547,169 new shares in the club on 30 September, at £2.12 a smack. That makes it £573m and a bit since 2009.
The much discussed financial fair-play regs say that each club must not make an aggregate loss of more than €45m from 2011/12 to 2013/14, or it won’t be let into the European competitions.
This regulation, and comments from Garry Cook, the chief exec of the Arabs* saying “Clearly our intention is to comply. Our two-year plan was to take a budget and build a competency to compete at the highest level, not forgetting the need for succession planning in every position. We are pleased with how that worked, and will not be signing players to the same level of intensity in the next transfer windows. Financial fair play is on our conscience, we talk about it at every board meeting, and it’s part of our long-term plan.” This has led some commentators to say the club has found a way out.
But as we have said on this site time and again, the exact moment when the money is paid across for players doesn’t matter. Amortisation works for all clubs in the same way and the value of the player diminishes year on year so that by the end of the initial contract he is worth nothing. Buy him for £1 today with a four year deal and he is worth 75p in a year’s time and 50p the year after, no matter how well he plays or what the market is doing.
At the end of last season the amortisation charge was £71m – that is 57% of the turnover (and that is before that troublesome little matter of salary which was £133.3m last season.
The Guardian in an article recently said that “it is safe to say that their 2011-12 amortisation charge will be close to £90m”. Salaries could be £150m. If they get into the top four the bonuses will take this up to £170m.
So we end up with player fees and salaries of £250m a year on an income (including Champs League money, assuming reasonable success) of £150m a year. And that’s not including the diddley rent they pay Manchester council for the stadium, in what must be one of the most humiliating public give-aways of an asset of all time.
To overcome this ongoing deficit, what the club must do is turn the player losses into a player profit of about £30m a year. They can do this by selling players at a profit (as for example Arsenal did with Henry, Vieira, Overmars, Anelka, Adebayor, Toure and the rest), or by taking the £125m a year turnover of the club up to £290m a year (more than Man U in fact) within two years. That is a lot of shirt sales.
One idea posted on Untold in an earlier discussion was that it was simple – Etihad airlines (part owned by the owner of Man City) could simply increase its sponsorship money, or buy billions of shirts at ludicrous prices. But the financial arrangements are not quite so simplistic, and do include restrictions on what “related companies” such as firms largely owned or influenced by the club owner, can do. “Market rates” apply.
Interestingly, if Man Arab* really are interested in getting into Europe again (they play this year in the Dinky Winky Cup) then would never have had an interest in buying Rooney, because they are already unable to qualify for Europe. Would Rooney have gone there knowing that his transfer would have meant the end of even the slimmest of chances of his new club playing in Europe? Perhaps not.
But maybe it was all about the cows, as Sir F Word said. As it is, Manchester IOU now have Rooney’s extra salary to cope with (although of course no transfer fee, that already having amortised itself to death) as they in turn try and balance the books (which is tough when they have to pay out on all that debt interest).
In fact, Rooney staying means Man IOU have to find another £4.5m a year to cover the cost of keeping the old potato. David Gill, the man who famously opposed the Glazer’s and now loves being in bed with them, says the IOU have £150m in the bank, but then they have to keep at least £70m in the credit account – it was in the bond issue regulations.
So can the Manchester clubs actually get into Europe in the near future? Maybe they have another trick up their sleeve like building profitable conference centres as Swiss Rambler suggested. That would work, but first they have to build them (that cuts Man IOU out since they don’t have the land nor the cash to pay the builders) and they have to make money out of them (more difficult in the current climate, and besides they’ve only got a couple of years to do it, make the money, and cover the losses.)
As things stand I still can’t see how either club is going to get anywhere near the financial regs, and I really don’t think that simplistic “buy a million shirts” will get past the regulator. Give the regulator a few million pounds – that might do it, but we shall see.
Meanwhile, what is interesting is that the media are for the most part carrying on as if the financial regs don’t exist, with mega transfers being talked up here there and everywhere. The only places where sense is being talked is on sites such as Swiss Ramble and Football Management – and (every now and then, between the twaddle about incandescent light bulbs and the beach at Newcastle) here.
* The last time this site had an article that called Manchester City “Man Arab” we had a couple of people write in and say this was racist. I don’t believe this is true, and I challenged both writers to explain how their definition of racist to cover the word “Arab” worked. Neither replied. I will be publishing an article in the near future on the whole issue of racist name calling and the growing tendency of throwing out the claim “you’re racist” against blog writers on very limited evidence.
More on Man City from Football Management here
More nonsensical nonsense in a wholly nonsensical manner here