Arsenal News » Why is English football in such a total utter mess?

I ended my last piece by saying, “So, if the system works as it has for 100 years, is there any reason for thinking it is different today from what people saw in 1910?”

As I have written my answer to that question, it has grown and grown, and I can’t put it all in one piece – there is just too much.   So the theme continues, and there is more to come.  But don’t worry, as soon as there is something to say about Arsenal which is not being reprinted in every other web site, we’ll change direction.

But meanwhile on the financial side, here’s my point…

Clubs are running up huge debts, clubs are being hounded by the Revenue with winding up orders, clubs say they have millions behind them, and then suddenly there is nothing.  Clubs are owned by people who wont say who they are.  Clubs like Man U and Liverpool are in total denial that they even have a crisis (I refer to Mr Gill on Radio 5 on Sunday).  Clubs are owned by billionaires who fund everything – which is hardly the basis of stability.  Clubs are funded by owners who then charge rather tasty levels of interest on the “loans” – and the fans think that’s a great way to run a club.

Why is it all such a total mess?

1.  TV money is what made English football big. But it comes with problems.  TV audiences don’t stay the same forever and can collapse in a trice.  No one in the EPL seems to realise that.   Worse TV money leads to risks of such magnitude being taken they can spell disaster, amazingly for both the clubs and the TV companies.

We may have forgotten it already but two TV companies have failed because of football in the last 10 years – ITV Digital and Setanta.

If Sky suddenly found that the audience ratings were declining then they would probably see out the contract and then offer a fraction of what they offered before.  But the clubs would all be tied into long term deals with players (who make up so much of their outgoings) that they would have no escape.

Football is now dependent not on football but on a totally different industry – television.  Football doesn’t call the shots any more, TV does, and when the TV audience gets fed up, that’s it.

2.  In the old days clubs were financed by regular middle class people. Arsenal were funded until 1910 by a gentleman’s outfitter, and from then to the 1930s by a property developer.   This is the model that continued in most clubs until the 1950s and 1960s, and is still commonplace in the lower leagues.  It is Football 1.0.

But now at the top of the tree, benefactors are harder to find, not least because of upheaval in the market place and the fact that to play with the big boys you need not thousands, but billions of pounds.

This is a key point.  In 1910 Arsenal were funded by a man who ran a shop.  In 1919 with the move to Highbury, Highbury was built by a property developer at his own expense – but who then said to the managers that the transfer budget was strictly limited.

But now football is run by the billionaires, not the middle classes.  I don’t hold up the middle classes as the saviours of civilisation.  I only parade them at this moment because there’s a lot of them, and very few billionaires.

My point is the pool of investors is seriously limited, whereas before it was fairly widespread.

3.  The divisions within and between the divisions.

We all know about Top 4.  Stay in it for a number of years and you get an extra income, more players want to come and play for you, you get more TV money, your fame rises as a club, and so on.

Drop into mid table and the money declines dramatically.  Drop into the next division and you can’t afford the wages you were paying in the top league – but all your players are still under contract and no one really wants them because they have proved themselves to be overpaid failures (once more by definition).

As a result many clubs go into administration the year after getting relegated.

100 years ago – even 40 years ago the effect was far less.  What affected your income was the size of your ground and your ability to fill it.   Nothing else.  If you slipped into division 2, crowds would go down, if you were playing your local neighbours crowds would go up, it was all fairly simple.

A drop down the league could easily be rectified within the next couple of years without any problem, because there was fluidity in the league.

4.  Now football mobility is less

It is all very well the Tiny Totts saying each year that they will break into the top four this season, but the fact is that to do this you need someone else to slip back to let them in.   And with the top four clubs getting extra money, then such chances are rare.

There have been periods before when clubs have dominated the landscape – Arsenal in the 1930s, Liverpool in the 1980s, Man U in the EPL period are obvious examples.  But there has never been a period before where a handful of clubs virtually shut out everyone else.

Everyone is so scared of slipping that they will pay anything to stay in their current position.  But eventually, whether you look at Villa, Hull, Man U, Bolton or Liverpool, you hit the buffers, either because there is no more money in the pot or because you can’t pay back what you have had already.

5.  The local feeling

When Woolwich Arsenal went bust 100 years ago the local bank, the architect who designed their stand, and many other local creditors stated that they were not pushing for money.   They would sooner support the club than be seen  to be the people who would bring it down.

Now it is not like that – indeed it is hard to imagine any bank giving special support to a club.  When RBS renewed the debt contract with Liverpool it did so on the toughest of terms.  Likewise Revenue and Customs are getting tough, outraged by the insistence of the League that football debts be paid first.  According to the FT this week there’s around half a dozen clubs just at this moment facing winding up procedures from the Revenue.

If we expand the scene and look at the “threat of winding up orders” then in December 2008 half of the Conference clubs were in that grouping.

Worse, the size of the debts are getting bigger.  In the past people gave credit to football clubs because they liked being part of the scene.  Now it goes the other way.  “You represent a football club?  Cash up front mate.”

Conclusion thus far…

We are in a mess because football has been, for a little while, the sexy thing to be in.

Remember the dot com revolution, when bank managers said to each other, “quick, we are not lending enough to dot coms, we need to lend more or we’ll be out of the new order of things.”   TV revenue went through the roof because the dot coms were spending 80% of their turnover or more on advertising.

Does that have a ring to it?   Compare with 80% of revenue on salaries.

It was just as unsustainable.

But if you want other examples then there’s giving mortgages to people who can  never pay you back.    Or if you want to go right back in history the South Sea Bubble (look it up on Wiki if you don’t know).  Same stupidity.

South Sea, Dot com, Football… they are just fads, not thought through, the sexy exciting place to be… until sanity is resumed.

(c) Tony Attwood 2010.

The first part of this series on the finance of football appeared earlier – click on the link at the top.   More in the series soon.