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In football we are running out of benefactors (and why Manchester can’t play in Europe)

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

Or here

Sometimes it gets a bit clearer here

24 comments to In football we are running out of benefactors (and why Manchester can’t play in Europe)

  • avatar Micheal

    “*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.” by Tony Attwood

    This is, ladies and gentlemen, Sir Tony at his best… Sums up the honest and noble work the man is doing in cyberspace… Stern but fair… Passionate but respectful… Loyal but cultured… Any ignorant and dumb readers (especially AAAs), please be reasonable before you respond to anything…

  • avatar Jonny

    I prefer white rice to brown – does that make me a ricist too?

  • avatar Samuel

    What,s the problem with saying it like it is ,the owners/benefactors of Man.City are Arabs ,does Tony Attwood have a problem with this statement oe does he prefer censorship ?

  • Samuel, I think I have not expressed myself properly here (and anyway the reference was meant to be an aside not the dominant part of the article) or maybe you did not see the earlier pieces.

    I nicknamed Manchester City “Man Arab” as part of the rather childish name game this site plays with other clubs sometimes, like The KGB in Fulham, Notlob, Man IOU etc, WC Milan (that wasn’t one of mine, but I love it).

    Some readers objected when Walter also used Man Arab, and said that was racist.

    I challenged them to explain why they thought the phrase racist, and they did not reply, and I will write a monograph on the issue of racist name calling shortly.

    To assure you, I am against all forms of racism, but I do also think we should be wary of people who just call others “racists” without justification or explanation. And I can find no justification in thinking “Man Arab” is racist.

    Now, could we get back to my detailed and insightful review of what is going on in football finance? I had to forgo my lunch break to write that stuff, and I thought it was rather good.

  • avatar embryo

    brilliant article as always, excellent read.

    out of interest why do man IOU have to have so much cash at hand in the bank, and for how long does this regulation apply to them?
    thanks

  • avatar taeryn

    It’s political correctness gone mad, Tony!

  • avatar mike

    Tony – You say that United will struggle to abide by the new financial regulations, do you have any evidence of this? I understand United made an £83.6m loss although £101m of it was made up of ‘One Off’ payments that United will not have to pay again. They will also save between £25-30m in wages when VDS, Neville, Scholes, Giggs & Hargreaves retire. United have also set up a new deal with Telekom communications, which i do believe is a further £10m added to the revenue from next year onwards.

    You also mentioned the £163m cash reserves United have saved up, £70m has to stay in the bank but the other £93m does not. Also although Arsenal are in good financial health they are still £230m in debt and will remain in debt until 2031.

  • avatar mike

    Tony – If United turned over £286m but made a loss of £83m, does that mean altogether £369m went out of the club? I understand £40m went on the Bond interest, £131m on wages, £101m on ‘One Off’ payments to do with the bond setup, £9m in management/admin fees, £10m in transfers but my question is;

    Q: Where has the rest of it gone? Is this the money that is now in the cash reserves? How much to United pay on insurances & maintenance work?

    Thanks Tony!

  • avatar austrian gooner

    first of all i gotta say that this is maybe the most elaborate and funniest arsenal blog around. hats off to you tony!

    man arab racist?
    as a student of cultural and social anthropology i deal an awful lot with the topic of racism and football, as we can see e.g. in Italy quite drastically, is still a hotspot.
    But to say “man arab” is a racist term is unfounded because the term doesn’t imply the believe that arabs are culturally, physically or mentally inferior (which is basically the core of racism).
    So relax people, it’s just fun!

    Nuff said, go gunners!

  • Mike I am struggling a bit for time at the moment, and need to get out all the figures I have – but before publishing I did cross reference those figures with recent pieces in the Guardian, and they were getting the same answers.

    However I think the answer is the rest of the money went on running the club, bank fees and money that the owners are allowed to take out in loans and direct payments beyond the sums given in the bond issue.

    As for the money in the bank, my understanding is that because of the very high level of borrowing the club, which is far in excess of anything that a bank would allow, the banks have refused Man U overdraft facilities – or at least extended overdraft facilities.

    As we know overdrafts are the cheapest money you can get in a business, and we might expect a business with a turnover of £250m to have an overdraft facility of £250,000 for cash flow. Sometimes there would be £200k in the bank, sometimes minus £200k.

    But without this facility, the club must always keep money in the bank.

    That’s one explanation. The other is that the snapshot of the final accounts was taken on a day when there was a lot of money in the account – perhaps a day after another instalment of the Ronaldo income had just been paid in. Indeed with most companies if you see how much they have in the bank four days before pay day at the end of the month, it usually looks rather good. One week later it looks shocking.

    Last point, when Barca failed to pay their players in June this year the football banking world shook with horror. It meant that Barca had run out of all sources of money, and no one would lend them a single cent. Everyone said, “if this happens to the club that just one everything, then what is going to happen everywhere else.”

    People are calling in all the debts in football apart from those with clear time periods (which are not extended).

  • avatar Ole Gunner

    Why do the benefactors have to own the club? When the multibillionaire Duke of Somewhere dies and leaves £700M to the British Museum, he doesn’t get to own the place.

    Why can’d Mansour just write a cheque of £250M to Man City and let them get on with it?

  • avatar mike

    Tony – Thanks for getting back to me, i appreciate your time, can you answer two more questions and i am in no rush for the answers. I think United will comfortably meet the new financial regulations although i concede spending will be restricted for many years. But then again United’s net spend has been very low over the past few years anyway much like Arsenal’s.

    Q: Do you believe United will be able to meet the new regulations? Even if that means scraping it by one or two million?

    Q: Do you see United spending big this summer to replace VDS, Scholes & possibly Giggs knowing that money will be scarce for many years to come?

    Again, i am in no rush for your answers and i appreciate your time.

    Thanks

  • avatar arsene-al

    Tony i’ve been reading your articles for a while and im pretty sure your not racist, which is why i don’t take offense to a comment like ‘Man Arab’. but what could make it racist is that you singled out the one arab person behind the scenes, even though hes funding man city with millions of pounds, and some may think you pointed him out as something out of the norm, almost like labeling. for example if instead of a sheikh it was a scottish man, would you have named them Man Scott. and the fact is theres so much negativity around arabs lately that almost anything can be seen as racist, im arab myself and its kind of funny how little the majority really know about the middle east. anyway tony i wouldnt accuse you of being racist because im sure your not that kind of person, keep the good articles coming!

  • avatar Steve Palmer

    I must admit, i get a bit confused at all this racial garbadge on how somebody is being described, when i was at school i was told you dont call a black man black you call him coloured i was allso told not to call them niggers call them Negro, now i an older my black friends tell me their not coloured their black, and on the tele i see and hear black people calling themselves niggers.
    personaly i think its better to call them by name and all this political correct rubbish goes out the window

  • avatar walter

    And sorry to go off topic but another nice victory tonight at Newcastle.
    And Theo back to where he was when he was injured, Bendtner scoring a great goal. And even some luck in the first half with the most amazing own goal you will see for a while.
    Ooh to be a Gooner!

  • avatar Terence McGovern

    Those that hurl accusation of racism at every flimsy chance are like their peers that shout abuse at Bentner from the stand or call for wenger to be replaced.
    Not very advanced on the evolutionary scale and at their core fanatics, that is to say that they can’t change their maind and they wont change the subject.
    Awesome victory tonight. $ goals and a clean sheet.If Fabianski hadn’t been performing, the headline tomorrow would be “Poles Apart!” As it stands, those who do not monitor the younger levels of the club will finally understand what all the fuss is about our prodigously talented young keeper.

    Great to see theo hasn’t lost his shooting boots and that Nik is also in top form.

    On a side not what a complete bollox that Joey barton is. when he came on I said to myself “I wonder who he will try to injure?”
    The answer as it turned out was everyone.
    No doubt Walter will be deductiong a point from the ref for not booking him for that assault on Craig Eastmond which then allowed him to clatter into Cesc and stay on the pitch.

    My use of the terms “bollox” and “clatter” would indicate that I am in point of fact a “paddy”……. Oh dear. now I’ve done it. I think Tony should suspend my commenting priviliges for several days for my racist self-abuse ;-)

  • avatar Mihir Saudagar

    I was really impressed with our third choice keeper!( cant spell or pronounce his name yet!). Great future ahead!

  • avatar walter

    Terrence,
    if I would write down what I think of that person J.B. I think that Tony would cancel my refs article. So I censored myself a bit and kept it down a bit. But you can be sure he plays a part in my ref review.

  • avatar Bgunnah

    Pls,tony answer and clarify the issue of arsenat owing 250mil and wil only settle same by 2031.

  • avatar Terence McGovern

    Outstanding! i look forward to reading it.

    I was watching via stream as i was working but I sensed outrage over our second goal from the commentator suggesting that some apparently “new” interpretation of the offside rule was very unfair to Newcastle.
    I suspect that had the show been on the other foot and the same situation occur during a newcastle goal there would have been nothing said. I missed the goal as I was on the phone but it seemed to me that the defender very cleverly tried to run into bentner to gain an ioffside decision once Walcott had left him in his wake.
    I never get how there is so much furore over the offside rule as it seems very straight-forward to me. It is a pity that most of the controversy is caused by intellectually limited pundits who find it difficult to grasp simple concepts when they go contrary to their own personal wishes.

  • avatar Common Sensei

    Ouch!!

    Tony I spent the time reading your article after a time away thinking, ‘I forgot – this guy knows how to write’ with a wry smile, which makes it all the more of a shame that when I reached the comments section, the first chunk were debating the racism thing!

    Having had to watch the game on my phone in somewhat bleak conditions in a skanky work basement I was buoyed by the successes of the lads on the field; although I felt a little tingle of guilt at Newcastle’s misfortune … By the 3rd goal I had forgotten it.

    But the racism issue always brings it back down to Earth. Football has turned into something more than just a game, and I don’t think I like it.

    I prefer it when it’s all goals, corners, tackles, cards, pizza getting thrown, daft haircuts, sarongs, dodgey handballs, over head kicks awesome RVP style free kicks and of course the infamous penalty shoot out.

    Football has become a sit-com just like the programmes our ‘wags’ at home say the football is interrupting.

    Fucking SkyB I blame them – pumping in money and sandwiching prime football genius between days and days of garbage telly. And now everybody is getting so damn up themselves about PC it is taking the absolute mick now.

    Anybody with two braincells free to rub together knows that just saying Arab in a sentence is not racist – So it is a mistake to mention it at all in the comments. I would also say, you shouldn’t have put it in the article because it is asking for trouble. … but then again the author should be able to trust his readership not to stir up obviously trouble and keep the talk strictly about football related issues.

    Or banter of course – but I think we are all sick of debating this issue. Football isn’t politics or religion, if it was then we would see three or four factions far outweighing the rest and making life difficult for all others…

    …. wait a second ;)

  • avatar Common Sensei

    P sorry that formatting sucks I am still on this damn phone!

  • avatar Cape Gooner

    Walter, in your refs review will you address the several times that Denilson was knocked off the ball. A foul was never awarded. If there was no foul, it does appear that either Denilson is a lightweight or that he had a bad game. If, however, the challenges were fouls, why did the ref consistently not award them?
    Please also address something that happened between Perch and Eastmond. They both went for the ball. Perch got there first and kicked the ball (as opposed to passed the ball). Eastmond stopped on a sixpence, and didn’t make contact with Perch. Perch’s follow through with his kicking leg collided with Eastmond, causing great pain. Was a foul committed, and if so by whom?

  • avatar walter

    Cape Gooner, those points are taken in my review. Just look at the first item I take on. It should appear later today.