As the Premier League prepares for its big kick-off, football is showing the first signs of suffering with the prospect of a recession looming.By Jeremy Wilson
On Wednesday, Mervyn King, the Governor of the Bank of England, issued householders with a grave warning that hard times were ahead and, after more than a decade of exceptional prosperity, the football industry is realising that it is not immune to the economic realities of the outside world.
A range of new research has shown that the credit crunch is having an impact from the boardrooms controlled by billionaire owners down to the loyal fans who provide the foundation for every club.
"Across the country we are getting the same message: the credit crunch is hitting football – and the effect is likely to be even greater next year," said Professor Tom Cannon of the University of Buckingham's Business School.
The most obvious immediate impact has been on the amount spent in the Premier League transfer market, which is poised to show its first yearly drop for more than five years. Indeed, with just over two weeks until the summer window closes, the clubs have so far spent £300 million on transfers compared with a record-breaking £530 million for the full period last year.
Portsmouth, for example, are largely funded by a wealthy foreign owner, but have admitted they cannot invest further in the squad this year. "I did say we intended to bring in three top players but that was before the credit crunch," said their chief executive Peter Storrie. "We cannot keep spending the amount we have spent since the summer of 2007 – in excess of £60 million on players. On top of that you have agents' fees while the wage bill has gone up substantially."
Mounting difficulty with borrowing money has also placed a potential obstacle in front of those clubs hoping to push through with building projects on new grounds and training facilities, while the flurry of major takeovers of clubs appears to have ground to a halt in recent months.
A newly published study by the PKF Football Industry Group, titled Under Pressure, surveyed a sample of club finance directors and underlines some of the adjustments that are being made. It shows that, as more Premier League clubs anticipate making a loss this season, there has been a dramatic rise – from 46 per cent in 2007 to 89 per cent this year – in the number of clubs intending to use more than 90 per cent of their overdraft.
The study also reveals that two thirds of Premier League clubs intend to reduce their first-team squads this year compared with only 15 per cent in 2007. Clubs have also admitted to increasing problems with sourcing finance amid growing pressure from the banks.
Spending on Premier League wages
2002-03: £761m
2003-04: £811m
2004-05: £785m
2005-06: £854m
2006-07: £969m
2007-08: Over £1bn
Attracting sponsorship has become a particular problem in the Championship, with threequarters of respondents in the study reporting a decline. "The optimism reported by clubs who expect their sponsorship to grow next season is likely to be short-lived," said Stuart Barnsdall, a PKF assurance and advisory partner. "The current arrangements are based on existing three or five-year sponsorship deals that have some years to run and, once they are complete, it is doubtful that new deals will be easy to secure.
"The pressurised climate is here for some time to come, so it is imperative for the long-term stability of the industry that clubs tackle their money concerns with a matter of urgency."
The ability of leading clubs to operate successfully in the present climate is, however, greatly helped by the guaranteed income from broadcast revenue, longer-term sponsorship deals and the sale of season tickets, which have remained encouraging despite unpopular price increases.
In the Premier League, there is an in-built yearly five per cent increase in revenue from the television deal, though many experts are predicting declines in merchandise sales and corporate hospitality. "While all clubs are starting to feel the bite of the credit crunch on their sales of tickets, merchandising and corporate hospitality, the Premier League financial directors are reporting a more widespread set of financial challenges and pressures than in previous years," said Charles Barnett, a partner at PKF. Even so, the total revenue Premier League clubs receive is expected to rise this season to almost £2 billion while the new TV deals from 2010, particularly the overseas rights, should continue to show a significant increase.
Supporters, though, warn that they cannot be taken for granted. "Fans are experiencing the current economic realities just like everyone else," said Malcolm Clarke, chairman of the Football Supporters' Federation. "I would expect that there would be a particular impact with fans travelling to away games and the sale of replica shirts. Football often thinks it is divorced from the realities of the world and the complacency in some areas has been quite staggering."
The ManagersFees of £20.3 million for Robbie Keane, £17 million for David Bentley and £13 million for Andy Johnson do little to suggest that the general spending capacity of the managers has yet suffered enormously from the credit crunch.
However, even if major deals involving Robinho and Dimitar Berbatov are finally secured, the overall outlay is still likely to be less than last year. Paul Rawnsley, director of Deloitte’s sports business group, argues that the drop is “not alarming” when set against previous years. Yet this was supposed to be a bumper summer.
The likes of David Moyes, Alan Curbishley, Kevin Keegan and Arsene Wenger appear significantly restricted when set against the ambitions of their respective clubs, while Harry Redknapp has been told there will be no more money to spend this year.
Professor Tom Cannon, of the University of Buckingham’s Business School, said: “I don’t think that last year we would have seen the Gareth Barry deal collapse over what seems to be £1 million, or Manchester United taking so long over Berbatov. The anticipated spending boom hasn’t materialised. Deals are collapsing over what seem to be relatively trivial sums.’’
The PlayersWith Frank Lampard this week agreeing a five-year deal worth almost £34 million and Premier League wages continuing to soar, it is hard to instantly see how the players are suffering from the economic down-turn. Since the launch of the Premier League in 1992, total club wages have risen from £75 million to in excess of £1 billion – and they now represent 63 per cent of turnover.
However, the financial climate has prompted significant change in the structure of contracts. Lampard’s deal is unusual in that it will rise from £121,000-a-week until the third year before dropping back down as he nears the age of 35. It would also be surprising if there is not a significant performance-related element to the deal.
One of the most interesting findings of this week’s PKF annual survey was the admission by Premier League clubs that a growing element of the first team squad’s salary is now performance-related.
In 2006-07, less than a third of Premier League clubs had applied a performance related element to between 10 and 25 per cent of the first team squad’s salary. However, that figure has more than doubled over the past year to 78 per cent.
The FansDespite the spiralling cost of living, the loyalty of fans has remained admirably consistent.
Premier League attendances last season broke all records at an average of 36,144, while the Championship can even boast being the fourth most watched league in the world. On the opening day of their season, the majority of Football League clubs recorded larger attendances than last season’s averages, while the Premier League will be bullish about their ability to maintain support.
Arsenal, for example, have a waiting list of 40,000 for their capped number of 42,000 season tickets, while Sunderland, criticised for their increase in prices, are still nearing last year’s tally of 30,000.
Elsewhere, Bolton’s sales are slightly up after they dropped the price for children, while Fulham have added 30 per cent to their sales.
However, attendances at clubs such as Wigan, Blackburn Rovers and Middlesbrough will be closely monitored for signs of the credit crunch’s impact. There is also the possibility that all fans will become more selective over the matches they attend, as well as what they are willing to spend on merchandise, catering, match-day programmes and corporate packages.
The OwnersIn the City, it is common knowledge that a number of Premier League clubs would carefully listen to offers from potential new owners.
However, aside from the rumblings at Liverpool, there has been little recent sign of major change. Indeed, after high-profile takeovers at Manchester City, Newcastle, Liverpool, West Ham United, Manchester United, Portsmouth and Aston Villa since 2005, it has been an uncommonly quiet summer in the Premier League.
The global economic climate encourages caution among potential investors, while finding a bank to facilitate a leveraged buy-out has become more difficult. There is also the simple fact that there are a finite number of sufficiently rich people with an interest in Premier League football.
“The number of UK billionaires is a fairly small number, and many of those have indicated they do not want to get involved in football,” one City source said. “Quite simply, the financial requirement is for billionaires, not millionaires.”
The credit crunch also threatens to hit club owners seeking loans to fund major building projects. Tottenham, West Ham, Portsmouth, Liverpool and Everton are all trying either to extend their grounds or to relocate.
Money matters
Gross summer transfer spending by Premier League clubs
2003: £250m
2004: £260m
2005: £290m
2006: £330m
2007: £530m
2008 (to date): £300m
Source: Deloitte Annual Review of Football Finance
