Prudence comes last in the league

In the Premier League, financial recklessness has become more the rule than the exception for many clubs. But change might not be far off, with the league and Uefa keen to put things on a more sustainable footing

IT SEEMS A different age. The English First Division breathed its last back in 1991-1992, with clubs sharing little more than £100 million (about €114 million) a year in revenues, prior to its mutation into the Sky TV-fuelled Premier League.

Since then, revenues have spiralled upwards by 16 per cent a year to nearly €2.3 billion. But income has not brought profits. In 1992, 15 of the 22 clubs in the league were in the black. Today, just 11 of 20 manage the same, with 15 needing subsidies.

So far, Manchester United has resorted to raising “junk bonds”, a half-share in West Ham has been sold by a nationalised Icelandic bank to two adult magazine magnates, while Portsmouth struggles to write players’ pay cheques.

Currently, the 20 clubs owe €3.5 billion in debt. Some owners, like Chelsea’s Roman Abramovich, have converted hundreds of millions of loans into equity to get borrowings off the balance sheet.

Manchester United’s executives, struggling to cope with the €804 million debt created by the takeover by the American Glazer family, are currently touring the globe trying to raise a €574 million loan, paying 9 per cent.

If they manage it, the new debt will be cheaper than some of the Glazers’ existing borrowings. Their company, Red Football Joint Venture, last year had to pay €78 million on loans costing 15 per cent.

The club’s holding company’s paltry profit figure of €6.8 million is explained by the one-off revenues from Cristiano Ronaldo’s sale for €91 million to Real Madrid, a deal that is unlikely to be matched quickly.

HOWEVER, IT ISnot all bad news. United's media rights income has grown by 37 per cent, while sponsorship revenues were up 48 per cent on the previous year, not including the €91 million shirt deal with Aon.

Curiously, Arsenal is the only Premier club to have taken on board debt for long-term investment: "good debt, compared with bad debt", PricewaterhouseCoopers' head of sport, Julie Clarke, told The Irish Times.

But hopes of making a killing by turning Highbury into luxury flats have hit trouble, threatening to leave the club with a €160 million debt, though debtors have no recourse to the club’s assets.

The Arsenal shareholders are divided about its future finances, with the second-biggest shareholder, Russian-based billionaire Alisher Usmanov, believing that it must raise €172 million.

Despite calls for pay restraint, a document from Usmanov’s bankers, Lazard, shows that salaries will rise 14 per cent to €204 million this year to compensate players “for tax changes and a number of step-ups in wages for individuals”.

However, manager, Arsene Wenger has played cautiously in the transfer market, spending €21 million on average annually for new players, compared with €42 million by United, Chelsea or Liverpool. The caution, though, has not yet brought trophies.

Unlike some clubs, Arsenal has already squeezed fans hard. Tickets for the Emirates are 40 per cent more expensive than for the other top four clubs, and season tickets are 24 per cent more expensive.

HAVING WOEFULLYfailed to prevent clubs behaving recklessly, the Premier League last September demanded 12-month financial forecasts from clubs, and guarantees that they have no debts to other clubs, or to the taxman.

None of this came in time for Portsmouth, who have already had a €8 million television rights cheque stopped because they owe transfer monies to other clubs and face increasing difficulties with HM Revenues and Customs.

Under Israeli-Russian, Sacha Gaydamak, who was just 29 when he bought in to the club, Portsmouth accurately illustrates the insane economics that has marked much of the league in recent years.

The club’s ground, Fratton Park, holds just 20,000, and can generate €573,000 on a good home-match day, yet Portsmouth in its search for glory built up a squad that cost it €60 million a year to put on the pitch.

Like so many others, Gaydamak found the tills ran dry when the credit crunch hit, and his main lender, Standard Bank, looked for €46 million back, leaving his successors having to do job-lot sales of players.

In London’s East End, the situation is little better. In 2006, Eggert Magnusson of Iceland, backed by the now-nationalised Landsbanki bank, took control of West Ham, only to fall in the crash, leaving the club with €126 million of debt.

Now the club is half-owned by porn magnates David Sullivan and David Gold, though even the tough-talking Sullivan admits that what he has done would not pass rational examination by many.

“We are not stupid people. We know what we have done makes no financial sense at all. But it is West Ham and that is all you can say,” he said, adding that season-ticket holders pay proportionally as much as he has.

Now, Sullivan, who can buy the remaining 50 per cent from Icelandic bank Straumur over the next four years, wants Asian businessman Tony Fernandes, who tried and failed to buy the club, to come on board.

Frankly, the Hammers’ fans do not care about where Sullivan and Gold’s money was made, but they worry, nevertheless: “It would be wrong to deny that at West Ham, if anything can go wrong then it probably will,” said a fanzine editor, Billy Blagg.

UEFA'S BOSS, Frenchman Michel Platini, who has long cast a disapproving eye towards the UK's excesses, now has the green light to force greater financial rigour on all European clubs by 2012. Large clubs will have to live within their means, and "cannot repeatedly spend" more than they earn, while "guidance" will be given about transfer prices and salaries – under the eye of former Belgian prime minister Jean-Luc Dehaene.

Platini said: “The idea is not to hurt clubs. The idea is to help them. The basic premise is that clubs should not spend more than they earn. This will be an adventure for European football and Uefa.” Not everyone agrees. In its prospectus to potential investors, Manchester United said Uefa’s move “could limit our ability to acquire or retain top players and, therefore, materially adversely affect performance”.

However, not everything is glum. The Premier League clubs should have an extra €1.1bn to share once international television rights are agreed, while an end to the recession would help gate receipts.

Deloitte’s Paul Rawnsley is one of those who does not share the air of doom: two-thirds of the league’s debt is held by the four big clubs, and they have €1.71 billion in assets.

“Debt is not necessarily a bad thing for clubs; as long as it is manageable, within a club’s finances, and is sustainable and repayable,” says Rawnsley, a director of Deloitte’s sport business group.

Equally, Julie Clark at PricewaterhouseCoopers is more confident, believing that all of the clubs are becoming “more savvy” about raising off-pitch revenues, and curbing past excesses.

"The general trend amongst clubs is to sell before you buy, and be much more prudent in managing players, though the Manchester City spending does go against that trend, I'll admit," she told The Irish Times.