- Are Arsenal really chasing all the players that the media suggest
- This is the moment when all we can do is pray (or keep fingers crossed)
By Tony Attwood
In football, we are now seeing issues arise concerning clubs’ financial stability. And these are quite often difficult to understand.. Indeed if you just take a look at Swiss Ramble’s analysis of Barcelona’s financial situation, unless you are adept at reading company financial details you could find yourself lost within a few paragraphs.
For while most of us recognise that if we have £100 but owe our landlord £200 we have a problem, company accounts don’t quite work like that. And worse, in company accounts a lot of information can be deemed confidential which means us ordinary mortals don’t ever get the full picture. (Although even if we did, we probably would not understand it).
All this was brought to mind as I read Swiss Ramble’s review of Manchester City’s accounts in which it is stated, ” it is clear that City’s £80m pre-tax profit is an excellent performance, more than twice as much as the highest profit made by anyone in the previous season.”
So I wondered how could the Premier League be questioning Manchester City’s accounting?
One way to look at this would be to compare Manchester City’s accounts with Barcelona’s who like Manchester City are current champions. The difference is that we have more information on what Barcelona have been doing to balance their books – and of course we must take into account this was Barcelona’s first title in four years.
But what links the two clubs is that both are under a lot of scrutiny concerning their finances. Manchester City are robustly answering all the 100+ complaints against their financial activity while the statements from Barcelona say that the board has “stabilised the club”. And although we can’t investigate what is happening in the long-running enquiry into Manchester C more is known about what Barcelona has done.
Barcelona was effectively rescued from financial ruin by a rise in marketing and advertising revenue which rose from €267m to €390m – an incredible achievement for a club in financial difficulty. And amazing at the time that TV revenue dropped significantly.. Overall its revenue rose to an all-time high – 24% above the previous record.
The question was then asked, “how has this happened?”
For Barcelona the answer comes from the fact that they re-defined the term “operating revenue” so that it included the sale of future TV rights. These and other “financial levers” made their accounts look good.
The Swiss Ramble website has taken a detailed look at all this and concluded that “Without the benefit of the financial levers, Barcelona would have posted a €377m pre-tax loss in 2022/23, instead of the reported €423m profit. Over the last two years, they would have made a €519m loss, as opposed to the €547m profit.”
In other words the accounts have moved by over 1 billion euros because of the way the accounts have been written.
To try and put this in layman’s terms, if you or I were to go out and buy a house for £500,000 we could say we were very rich. But if we had a mortgage on that house of £450,000 we could also be said to be hugely in debt. Against that we might argue that house prices are going up so we are ok. Except that in parts of the UK house prices are falling, and there is no guarantee that houses will rise in value.
But supposing then we say, actually we are doing far better than just having a house, because we are only using one bedroom and the house has four bedrooms so we could let those out and now we are really in profit.
But supposing I have tenants but they make lots of noise and the neighbours all complain, and the police come around and then suddenly the book value of my house collapses. In short, the value of my house depends on how I imagine the future.
Considering this we might consider Swiss Ramble’s final comment about Barcelona’s accounts, which reads, “Thanks to activating the levers, Barcelona’s reported €423m pre-tax profit is the highest in Spain by far, ahead of Real Madrid’s €20m in 2021/22. However, as we have seen, this is a highly misleading comparison.”
Now what we don’t know is whether the investigation into Manchester City’s accounts shows everything to be perfectly within the rules of the League or whether they will be seen as offering a result which is “highly misleading” because they include elements that are not normally accounted for in the way they have used, or at the value they have assigned.
That is why we wait, and we wait. We just don’t know although we might also ponder quite why it is all taking so long.
Tony
Before I comment, I just want to state the obvious, which is I am a complete ‘laymen’ when it comes to this. so all my observations and comments are from that perspective. I do not pretend to have an in depth knowledge of how high business finance works or how these clubs you mention are run, so as such I for one appreciate your analogies that at least go some way into explaining what is going on.
So, coming at this from that perspective this is my ‘laymen’s’ take on it all. IT STINKS
You say: “In football, we are now seeing issues arise concerning clubs’ financial stability”
Indeed we are, but why is that?
Well, again this is how I see it from my very laymen’s point of view.
Football clubs are trying to live beyond their means. It’s as simple as that.
By that, I mean they are spending money beyond, sometimes way beyond, the true level of generated income the club has, even the ‘big’ clubs, and that is all down to the arrival of the mega rich investors. This is in my view, what Chelsea did and after that what Man City did, as well as clubs on the Continent. This had the effect of inflating everything within football beyond it’s natural, sustainable level. Player prices. Player wages. Ticket prices. Everything.
To keep up with this ‘exaggerated’ wealth many clubs felt they had no choice other than to do the same and also spend beyond the true level of said clubs value/income/wealth, whatever you want to call it, but of course without the safety net of a mega investor. And that is where the financial instability has come from.
In an attempt o address this ‘financial instability’ that is where the need for a ‘cap’ on spending, or FFP has come from.
The way I see it, if unlimited ‘investment’ was allowed to continue unchecked football would simply go bankrupt. In effect it is like Quantitative easing in an economy. Yes, a massive injection of cash can be a stimulant, but if left unchecked it raises financial asset prices, (players for one) and in the end, rather than help actually contributes to inequality.
So in fact, rather than ‘levelling up’ the footballing landscape, and giving the ‘underdog’ a chance, which is the defence often put up by these financially bank rolled clubs, we have the complete opposite happening where the disparity between the rich, or more accurately the nouveau rich, clubs and the rest becomes even bigger.
The problem is ‘the rich’ in football, much like the rich in the real World, don’t like being told what they can and cant do with their money, and more than that they certainly don’t like being asked where they got it from.
Which is as far as I can see, exactly where we sit at this moment with football. It is a crossroads.
If we don’t have clarity on where Clubs are attaining their wealth, as well as a set of rules governing how they can spend it, football will go bankrupt, it’s as simple as that.
But as I say, the rich, especially the mega rich, really don’t like rules.
Thank you Nitram and these are very valid points. I’ll see if I can take this any further in another article. Thanks for the direction. Tony
Every time i hear the phrase “levelling up”, I have the urge to laugh in a wholly inappropriate manner. “Levelling up” is how a politician would describe the upward migration of money from the poorer classes to the already rich via a system of completely wasteful and unnecessary initiatives or projects. Don’t believe me? Look at HS2. Other examples are available.