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Most of the Premier League are now insolvent or just one step from disaster

Equifax does reports on the financial health of EPL clubs – you may have seen they did a new one this month. What they do is take a look at the accounts, what the auditor says about dodgy dealings and dubious debts, contemplate their ability to repay debts, look at working capital, and also sees how many court orders they have outstanding.

The oddity is that the highest score was given to Manchester IOU – I can only take it that the authors think there is no chance of the club defaulting on any of its debts because it is too big to fail. This approach (if it is correct) is based on the old adage that if you owe your bank £100 you have a problem. If you owe your bank half a billion pounds your bank has a problem.

There are, I believe, many people of vastly superior in knowledge to myself on such matters, and I am hoping that someone can clarify the Manchester position and explain the rating.

Arsenal come in second place, marginally behind Manchester IOU but still in the very top bracket – the only two clubs that are.

After that there is a huge jump down to the next bunch which are classified as having “good” status. This group includes Birmingham, Wolverhampton, Blackburn Rovers and (again surprisingly) Liverpool.

However I believe Liverpool’s situation gives us an insight into what is going on here. Liverpool have to repay the banks £60 million a year under the new agreement, and this must need to find all the cash can only hinder their normal approach. But the report is not concerned with the “normal approach” to football within the club. Instead it asks, “is the money safe?” and it thinks that this is so. They believe Liverpool’s bankers and others will get their money back. The club might end up in League One, but the money will be paid.

Then we have another big drop in rankings, until we get to the “above average” score. Only one club gets this – and it scrapes in on the bottom mark of “above average” – Tottenham.

Below them the average group includes just two clubs, Sunderland, and (another surprise) West Ham – but again I suspect this just means the reporters think WHU will ultimately repay their debts.

“Lower than average” gives us Manchester City and Fulham, while at the bottom “Low status” includes Fulham, Everton, Aston Villa, Chelsea, Bolton, Portsmouth, Wigan Athletic, Stoke City, Burnley, Hull City.

This last large group – that is clubs whose finances stink (to use the technical term) includes the clubs that are totally dependent upon one rich kid stuffing money into the team – something that the accountancy people don’t like – because the rich man might die (we wish them no harm of course), or be thrown in prison (we make no allegations at all), or lose all th money when an oil field blows up (we have no plans in this direction) or a revolution happens in Kurkkanmanismanistan (we have no political involvement), or they simply get bored with the fact that they will never play as well as Arsenal.

But there is another measure to add in. The clubs that are insolvent – ie clubs that on the face of their books can’t pay their bills. Here we have Fulham, Villa, Portsmouth, Chelsea, Everton, Bolton, Hull, Wigan, Stoke and Burnley. Again many of the clubs that are dependant on the good intentions of one rich owner – the owner has to stuff in more money and more money and more money to keep the going.

As far as I know, no other industry is in such a mess at the top.

But even though the Manchester IOU score of 100/100 is odd, it is interesting that Arsenal’s score is 98/100. West Ham got 37, the Tiny Totts got 50, and our dear friends in Hull got 1 (presumably on the basis that they have overstretched themselves and so will be in a total mess when they go down at the end of this season.)

Tottenham’s score is interesting, because with that sort of score I would guess that they will be required to pay above the norm interest rates for their fantasy ground development – Arsenal got their deals on terrific rates because they were seen to be rock solid. Because Tottenham are owned AND FUNDED by a man in a tax haven, there are questions – not because he has done anything amiss, but because accounts in tax havens are never open to as close a scrutiny as they are if the owners were in the UK.

Arsenal, Liverpool and Manchester IOU are not funded by their owners – they are funded totally by the activities of the club. The problem for Liverpool and Manchester is that these funding streams are hard pressed to pay the debts each year, and indeed Manchester have given up paying interest on their debts.

So, Arsenal right up their at the top – one might even say we have a game in hand.

If anyone can help clarify this chart, please do write in.

(c) Tony Attwood 2009

17 comments to Most of the Premier League are now insolvent or just one step from disaster

  • Shane Nash

    Hey mate. I am a reader from Australia and i just thought i would let you know that i think your articles are probably the best ones i read. Really high quality stuff. And i do a lot of reading on my beloved gunners. So keep up the good work

  • Marc

    Hi Tony, I saw this report the other week and wrote it off as being next to useless, too many clubs that are technically insolvent managed good scores. What I found most confusing were the ManU and Liverpool scores. I assumed the ManU score was down to the debt being in the name of a holding company not actually in ManU Pc’s name, the fact that ManU are paying the debts does not seem to have gained the attention of the report author. However the same is true for Liverpool unless Liverpool FC is garrenting the debt. So to be honest without more information it is impossible to figure out what is going on.

    What I have found interesting this summer is that Liverpool seem to have spent almost pound for pound the amount on transfer they have received. If this is the future for Liverpool I have 3 questions

    i) How long will Benitez last and do we measure it days or weeks?

    ii) Who will Liverpool have to sell next summer? As far as I’m concerned there are 2 players that are unsellable – Gerrard and Torres (the natives would riot if either of these were sold). Mascherano looks the obvious bet but after him who is there? Most of the other players are typical Benitez buys, either pretty average or subject to a transfer fee that would mean Liverpool having to take a loss on the deal, Robbie Keane springs to mind £8 million lost in 6 months.

    iii) What if Liverpool were to miss out on CL football even for a single season? Could they survive?

  • waltergooner

    The FA should make an point deduction system: for any miljon loss made on the footballing division 1 point deduction at the end of the season.
    It wouldn’t be long before everyone is sensible again

  • pig

    the clubs that have magic porridge pots dont give a fig about this report, and that could well be the right attitude.

    it seems that, if anything, it is doung man u and pool a favour by showing them in such a good light.

    of course they had to put us at the top otherwise it would have been obvious that it was a sham.

    perhaps if someone did a report that included the issues raised by marc it would shed a diferent light on the situation.

  • ronan

    Sterling work again, Tony.

    I think walterooner’s suggestion of a points deduction for losses has some serious merit; a bit like the points deduction for going into administration. To be workable, however, it would need to be implemented throughout Europe. Otherwise Premier League clubs would be at a disadvantage to the likes of Real, who routinely rack up massive debts that are then periodically disappeared by the friends of Franco.

  • shotta-gunna

    Tony – The notion of too big to fail is still alive and kicking despite the recent global financial meltdown. It is no coincidence that the really big-boys have inordinate lobbying power and political clout sufficient to get big government bail-outs when they go belly-up. Apparently this is the same logic used by Equifax in rating your football clubs. However a failed model is a failed model and will not last the test of time. Most football fans are ignorant of this fact but recent events may reasonate. In June 2007 two of Bear Stearns’ hedge funds were in trouble by their inability to cover billions in losses and this simple event sparked the global financial meltdown which led to the total demise of venerable Wall Street firms like Lehman and Bears itself. Similarly it may take just a single club’s failure to mee their payments to trigger a rush for the exits by the Banks leading to a similar demise of the insolvent and bankrupt clubs. Time will tell!

  • walter

    The problem is that only a worldwide application of financial ruling for all the clubs can stop this situation.
    Off course it is not wrong in itself for a club to have debts. Sometimes you cannot avoid it, like The Arsenal, when you build a stadium. This is a debt made to give yourself higher income and so it gives you profit in the end. Besides that every financial year Arsenal has made en profit on the football side of the club so that the club is, apart from the Emirates mortgage, a healthy club.
    Maybe Uefa should set a rule in which every club playing in a european competition should have made a profit in the year before or should not be allowed if otherwise.
    But do one of you really think that Uefa will shoot itself in the foot ? No, so the unresponsable people can carry on at the cost of the teams who trie it the other way.

  • Syke gooner

    Love ur articles tony. Speakin of the financial status of clubs.i think time will bring down such clubs as MANure. Leave then be.lets focus on how arsenal will be d best in d world in time 2come.its jus inevitable.

  • dan

    Tony, cheers mate, don’t take this the wrong way, but we’ve got our own financial issues apparently and when leagues start handing out trophies for the best balance sheet I’ll give a toss then. We have a fair bit of debt too by the way and just to clarify, accounts and financiers are never wrong, oh dear me no. Tony, try deciphering why we have so much cash and never use it(do our player transfers go straight into someone’s pocket?), and if we are by comparison under-leveraged does that make us more of a takeover target? I think it’s fair to say accountants structure financial statements to be indecipherable so as not to impart any real understanding of what’s going on. Heaven forbid the real owners of the club, the support, find out what’s really happening.

  • Marc

    shotta-gunna is right in some area’s of his comment of earlier. Personally I can’t see the UK government bailing out Liverpool or ManU, a) they can’t afford to b) it would lose them more votes than it gained.

    After Liverpool’s result tonight we might just be about to see the answer to question 3 that I posed earlier. As shotta said it could only take one club to cause the banks to decide football is a bad risk and decide to stop lending.

  • Ian Trevett

    And so they head north. “Come on lads, there’s nothing down here for us.” They came to write Wenger’s obituary, spread discord among the Arsenal faithful and map out the decline of a big club. But then those bloody kids came out scoring all those bleedin’ goals.
    But when you are a football ‘expert’, cynical hack or an ex-football without his own original thoughts, there is always a new crisis. “Taxi for Liverpool – and find me as many disgruntled Scousers as you can.”

  • 26may1989

    First things first: I’m delighted to have stumbled across your blog, it seems to be just what I was looking for, an intelligent, unhysterical Arsenal fans’ blog. I look forward to being a regular visitor.

    As for finances, the Equifax data makes interesting reading. It confirms that Arsenal, whatever criticisms one may make about the board’s communication skills, the preoccupation with internecine fighting, the slowness in replacing Dein etc, is incredibly well run from a financial point of view and that much of the rest of the division is living in financial cloud cuckoo land. With ticket price freezes, falling merchandise and ticket sales, nose-diving corporate hospitality and sponsorship, even with resiliant TV income streams, the next two or three years could be mighty tough for some clubs.

    These credit ratings are important as indicators of the financial health of the clubs in question, but they also reflect the future cost of borrowing. A club with a good credit rating is given more latitude on payment terms and the cost of borrowing; one with a bad credit rating is more likely to be forced to pay up front, borrow less and at higher interest rates and on stricter conditions, especially from banks that already have vast bad debts on their books. Since so many clubs have been living on the never-never for the last few years, they can expect to be facing acute pressure.

    Given their owners’ largesse, Chelsea and Man City will not be collapsing any time soon (more’s the pity from a moral and sporting perspective). And, even with their Glazer-imposed debt, United (being the country’s only genuine super-club) are very safe. But some of our other rivals look to be in real trouble. Villa and Everton are in poor shape, but it’s Liverpool’s position that is the most interesting.

    Like United, they have the burden of the owners’ debt to deal with, but they don’t have United’s strength to deal with it. And it should be remembered that Liverpool’s grand plan was to do an Emirates and move into a new stadium (the club’s auditors having indicated last year that Anfield is almost at the end of its useful economic existence). But realistically, given the shape they’re in, how could Liverpool hope to get the sort of additional debt they would need to fund the move?

    Spurs, with cheque-book Harry at the helm, also have serious reason to worry. Just ask Pompey and Southampton fans for their views on the Harry effect.

    I think we are starting to see the effects on the pitch of this economic chaos. Liverpool had little choice but to sell Alonso, and having overspent on a replacement for Arbeola, can’t afford to add the options up front or the depth through the squad they obviously need. Everton have to cash in on Lescott. And even United, with their unproductive debt burden to carry, have to be very careful and can’t spend the Ronaldo money with impunity.

    The sooner UEFA force these financial lunatics to put their house in order, and actually live within their means, rather than cheat their way to having quality players, the better.

  • Ken

    I doubt the report presents an accurate picture of the true financial status of the clubs. From a financial point of view, I would have thought that Man City is a safer club compared to Liverpool. Man City is backed by owners who have the ability and the willingness to inject capital into the club. Liverpool is owned by people who lack the sane financial means, who are dependent on bank credit for their ownership and who obviously are looking to cash out. It’s thus risky to lend money to Liverpool because when you do so, your hope of being paid back is dependent on Liverpool’s ability to find another lender who would lend them the money to pay you back, since they do not have the ability to generate a consistent stream of positive cash flows. The same can be said of Man IOU. From a footballing point of view, I think Man City is pretty screwed up. Despite all the hype and all that they have spent, they only managed to score just 3 goals in 2 games. From a financial point of view, however, I think they are in a very strong position compared to most other clubs. Our beloved Arsenal is self-sustaining and does not need strong external backing. However, Man City does have owners with very deep pockets that should make them very strong purely from a financial point of view.

  • Cape Gooner

    I wouldn’t like to do the books for a football club. When a club pays money for a player you debit the bank account (or creditors) and credit “value of player’s contracts”.

    However, you should be revaluing this periodically based on the likely sales value of the player. Also how do calculate goodwill. When you win something, the goodwill needs to be increased as the “value” of the club has gone up.

    Seems to me that there is a lot of subjective stuff here. The above makes the balance sheet a problem, but there are also problems with the P & L. As we know, a player’s selling price is affected by how long his contract has to run. A player bought for 10 who signs a 4 year contract will have a selling value of zero in four years time. That loss, shown through revaluations, must be accounted for periodically and shown in the P & L. All other things being equal, we must show “an expense” of 2.5 per annum. However, things are seldom equal. The player may improve or regress. He may become perceived as injury prone. All subjective. And you cannot implement regulation based on subjective measures.

    The long and short of it is that Arsenal is being run in a financially responsible way, while Man U and Liverpool are not. They could both collapse under a huge burden of debt. The same could happen to Chelsea and Man City if their benefactors change their spending habits.

    For a number of years Arsenal have made one “major” purchase per year; Hleb, Rosicky, Eduardo, Arshavin and Vermaelen. They have all grown on me, so I have no problem with buying. But I feel altogether different about the players who have come up through the ranks. I know the positions of Senderos and Traore are tenuous, but I would much rather that they stay than go. And it makes no difference to the books – their combined worth of about 12 million will be reflected in one asset or another.

  • LRV

    One thing baffles me. The Arsenal official site is saying that Man U have a 93% rating to Arsenal’s 98% from the same Equifax ratings. Tony states that Man U has 100%. I think that I saw the rating on a site myself which puts Man U on top. Why this discrepancy?

    In any case, reality will soon catch up with the ratings. Man U is in no shape to be rated near the top.

  • Otariq

    Tony,

    Wonderful posting today and a great blog. I really hope the noise makers on the other Blogs or may I say the kids still living with their parents and what Arsenal to spend their way to a championship could read your blogs. Thank GOD for Arsene Wenger.

  • todd

    Great blog.
    For those wondering how manu and pool are rated well, Don’t underestimate the importance of revenue streams and cash flow. Those clubs have huge merchandise and revenue streams that are established and stable. Compare these revenue streams to annual expense and you get a better idea of operating income. To me this also explains why some of the smaller clubs like spurs, wolves, and birmingham are rated relatively well. They have fairly stable and established clubs with solid revenue streams.