By Tony Attwood
An unpublished document within the EPL’s HQ (revealed by the BBC in a Radio 4 programme just over a week ago) agrees that the EPL has club debts of over £3bn, which is quite a lot, really.
One thing that is agreed by most independent analysts is that this is not sustainable – even allowing for the wealth of some owners, and the KGB style manipulation of company names, shares and debts by Chelsea last week.
So, what’s the way out of the situation, before it all implodes?
The Red Knights’ attempt to take over Manchester IOU seems a non-starter and the people inside the Grand Design seem more into in-fighting than problem solving (according to reports, not my inside knowledge), and the Glazer’s won’t talk about selling. But it is always a problem when you put a lot of mega-rich people, who are all used to getting their own way, together. They all expect to be in the chair.
They have put up the vision of the mass boycott of season tickets and banqueting suites, but Man IOU say that they expect sell out crowds next season as this – although they would say that wouldn’t they.
The fact is that the Glazers have spent £450m on bankers and money borrowing – which is more than total ticket revenue (£398m) for five years they have been in charge. The fact that we have almost stopped talking about it, shows how everyone expects football finance to be a pig sty.
The key to everything is how much Sir Alex F Word spends without selling each transfer window. The analysis seems to suggest there is no spare cash anywhere. If he can find some, he’s doing well. Certainly most of the £80m from C Ron Al Do didn’t go out of the club again. Though they did buy Javier Hernandez for about £7m.
Meanwhile, Sir F Word’s favourite corporation, the BBC is about to do another piece on football finance – and Man U. It was after an earlier one years ago that he stopped talking to the BBC because of the corporation’s “arrogance”.
And this comes at a time when the club has shown in its quarterly reports that it lost£66.5m loss in the first nine months of the financial fiscal year which would seem rather careless, if it were not so commonplace.
Among the money was a £9.3m profit on the disposal of players – so quite a bit less than the £80m the year before, but complete confirmation that if there is a selling club at the top end of the EPL it is Man IOU.
Player salaries went up by 7% at Man IOU but the big problem is the forthcoming interest hike on £225m of the PIK loans, which date back to 2005. These go up from a mere 14.25% to 16.25% (compared to 1.5% which you or I get if we put our money in a bank!
The famous February bonds, that every debated sold for around 98p and are now worth around 93p. The only good news for the club is they earned more from TV than before.
Man IOU, along with Liverpool, are (for me – and I don’t expect the rest of the world to share my view) total basket cases when it comes to finance, as are many other clubs in the league which cannot exist without receiving huge donations each year from their benefactors.
But, as we have been seeing in the last couple of weeks, there is word from Spain that the combined debt of the Spanish La Liga is actually above the £3bn that clubs in the EPL owe.
The research by the University of Barcelona professor José María Gay says only Real Mad, Barbar and Numancia made a profit – and all three are in debt.
Whereas players wages in the EPL are coming down a bit (I think from memory Arsenal’s latest ratio is 45% player wages), in Spain it is 85% which is (by coincidence) the same insanity level that British schools work on. At Sevilla, Atlético Madrid and Valencia the wages cost more than the total income of the club. Have fun Mr Merida.
TV in Spain is done on a club by club basis, so Barca and Real Mad get most of the money, and no one else gets much.
“Barça and Madrid will have to make an effort, sacrificing today [their position on TV money] so the league can flourish,” Professor Gay is quoted as saying. “One step back, several forward. If this does not happen, the league will be in its death throes…. Who can win the league? The answer is obvious: Barça or Madrid. Madrid or Barça. Nobody else. Maybe now is the right time to renegotiate the rules of the economic game between all the protagonists.
“Let’s not kid ourselves, Spanish football is in a very difficult situation, like our economy. You can’t spend more than you earn. This is the fundamental rule for economic survival.”
To show how things go in Spain, Real Mallorca just missed out on qualifying for the Champs League on the last day the season, and then went into administration with an 85m Euro debt and no one wanting to buy them.
Real Mallorca’s president Vicenç Grande put his property empire into insolvency in 2008 – no one seems to want the club.
So it goes. A new set up in Spain and England in four years time? More than likely I’d say.
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Temporary editor’s note: As Tony is going away for a few days, I have agreed to take over the operation of the site during his time away . If you have an article to submit for the next week please email walterbroeckx@hotmail.com.
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Indeed, Tony. It’s not just the health of the clubs, it’s the overall financial health of the leagues that’s in jeopardy. Sure, there’s still lots of deep pockets folks out there, but who’s going to want to invest in a football club when the first thing they have to do is haul it out of administration and then submit to the new UEFA rules that will restrict how much improvement the club can make (from initial spending)? Aside from ego, which granted is a BIG aside, buying a football club at this point probably isn’t the sweetest smelling rose in the investment world.
Unless the leagues step in beyond what UEFA have recommended, both the EPL & LaLiga could see necessary contractions in size because individual clubs aren’t able to maintain their going concerns.
I applaud Uefa’s stance on the new financial regulations whereby clubs have to operate within in their turnovers so to speak, but what’s to stop the owners of Manchester Arab saying for instance, that they “bought” an executive box for £150 million a year to try and circumvent these new regulations?
Great piece Tony! This all but explains why Barcelona are trying, in any which way they can, to drive down the price for Cesc’s services as they blatantly do not have access to the funds to meet our transfer fee plus the wages that Cesc and his representatives (and family) would be pushing for.
The current state of the world economy, plus Spain’s recent credit-rating demotion, means that things are only going to get harder for ALL the clubs in La Liga too as many of the bigger clubs in the EPL are now starting to experience.
Arsene and the Board has been very patient and shrewd, and this is why the future is looking fantastic on all fronts! Any player that leaves Arsenal now is risking their financial, and footballing, future rather than furthering it and i think that Merida will see that sooner rather than later! If i was a pro and wanted to leave Arsenal to further my career and possibly win things in Europe, i’d probably go to the Bundesliga where they are already established with tight financial regulations. This is probably what Ribery was advised and why he decided to stay at Bayern Munich signing a new 5 year contract rather than heading to Real Mad!
The strange thing is, for a year at least Tony has been writing about the deteriorating financial condition of English clubs generally and ManU/Liverpool in particular, with increasing evidence to vindicate his writings, yet their as mass of deluded fans on the internet who are calling for the club to abandon its policies and embark on wild expensive transfers in the hope of success. As Mark Twain once said, common sense isn’t that common.
I think you are right DC about Ribery. The German league has already a strong and good financial reputation. you still could argue on some things but overall I think it is a very good system. Maybe the best around for the moment. And teams can be put back when they don’t live up to the rules.
I’d just like to put it out there that those commenters linking a declining economy putting a squeeze on clubs’ finances are mistaken if you look at the evidence. Yes, there is some decline in commercial revenues with executive box renewals declining , but matchday spending is very, very resilient. Look at how match attendances are almost unaffected by above-inflation price rises, the same applies to a fall in general consumer income.
The greatest threat to the Spanish League, as Tony mentions is the lack of competition at the top. This is only going to get worse as the financial demons are coming home to roost for the “second tier” clubs of Atletico, Valencia etc. A lack of competition, which’ll only get worse as these clubs have to retrench, will drive fans away and hurt the top sides in time.
La Liga really is just like the SPL with quality. But whilst the gap in Scotland is narrowing somewhat (mainly due to Rangers and Celtics demises as they can no longer attract any decent players, nor afford them), the gap between the big two in Spain will only get bigger. RM will be spending again this summer now that Moron-o is in charge we already know what Barca’s intentions are. Valencia are bust and will have to sell more players and even Sevilla are looking at free transfers and cheaper signings this summer. But Real and Barca will never back down now on the TV money issue (they now rely on it far too much) so increasing competition in that league is a distant dream for the other clubs. But Spain is producing a bucket load of talented footballers these days (much in the same way that Brazil is churning them out), so unlike in the EPL where English talent is at an absolute premium (for example we have one class left back at international level and half a one at right back, and yet I can think of 4 from France easily on the left who are all world class and 3 at right back from the same country who would get into English national team), maybe this will be Spains saving grace, as not all the good players can play for the two clubs only.
Also interesting to read David Gills quotes in the paper recently – what a prat that man is. Does he not realise that every man and his dog has been churning through Man IOU’s accounts this last year and all have said the same thing – that they are screwed. And to describe the green and gold protest as insignificant is either very naive or extremely arrogant. Then again maybe its a shrewd move on his part – and he’s not a prat after all (unlikely). Maybe he wants the Glazers out as much as everyone else but because of his position he cannot say anything. So maybe winding up all the fans as much as he can is a back handed way of getting them all geed up to push on with their protests even more.
Talking just a little off the point, maybe or may not be…but now some true picture of hard facts about football economy is coming out, people are starting to see some sense in Arsenal and Lord Wenger’s strategy for last few year…how that man has been handling the team affairs successfully (yes! I call these last 5 years a success) is really amazing, with top players going out of club, fixed loan paybacks of 25 millions each year, increasing salaries and inflated markets!!!
I don’t know much how success should be counted on Arsenal’s front in past few years; I don’t know whatever happening is wrong or not; but I know, and I have been following this for my entire life, that once you trust some person and understand his character; you have to stick with the belief in the personality no matter what…
If you see something strange, unfitting to the character of the person you believe, you should believe that whatever the guy is doing must have some reason behind it.. Now that so called failure of Arsene and Arsenal board comes in context here…I believe that Arsene is not so stupid that he can’t see the obvious things that most of the (deluded!) pundits and plastic gooners see(!)..I firmly, believed and will continue to believe, that whatever he does has some reason and deep thinking behind it..
Theists, if something don’t go as per their wish, don’t start shouting that god is finished or god has gone mad and don’t sack him from their lives only to put faith in something else!!!
As always an informative interesting read Tony. One thing I am a little confused by though. During the week Gill came out and as well as the comments mentioned by AaronGSi also claimed that ManU had reduced debt by £20 odd million during the first 3 months of the year. This seems to be completely at odds with what is in the accounts and I’m pretty sure that Director’s of listed companies are not allowed to make false public statements on the finances of their companies.
Nicely put, Tony.
Have to agree that many clubs (in more than just the EPL and Spanish Liga) are becoming more and more closer to tits-up situations.
I haven’t really studied all leagues with regards to whether they all have teams that finish at or near the top, but would opine that we are heading nearer to a European League containing successful (both football and money wise) clubs fed by and relegating to national league clubs.
Neither have I studied the viability of such a scheme.
And maybe it won’t happen during my lifetime anyway, but…
Good (?) at least in footballing terms, to see that Spain’s credit rating has been cut. Maybe the Spanish banks will start calling in the loans.
@Marc,
David Gill’s comments about Man Utd reducing their debt by around £20m (from £543m to £521m) are true, but not the whole truth. These figures only refer to the accounts for the football club (MU Finance plc), but exclude the debt in United’s holding company (Red Football Joint Venture), which is probably up to around £220m now. The holding company’s debt is from the notorious PIKs (payment in kind loans) with their eye-watering interest rate of 14.25%, which rises to 16.25% in August, as United broke one of their financial covenants.
David Gill maintains that this debt is nothing to do with the club, but is the responsibility of the Glazer family. Strictly speaking, that is correct, but most commentators include the PIKs when taking about Man Utd’s debt (£700m+). It is noteworthy that one of the advantages of the recent bond issue for the Glazers is that they can now use the club’s cash to pay off the PIKs, which was not permitted under the previous bank covenants. Given the state of the Glazers’ finances elsewhere, you don’t have to be a complete cynic to believe that they will use funds from the club to reduce the PIKs.
Also, while it is true that Man Utd’s debt in the football club has gone down compared to a year ago (£543m in March 2009 to £521m this March), it has actually increased £12m in the last three months. At 31 December 2009, gross debt had come down to £508m, as the old bank agreement enforced repayments.
That’s another advantage of the bond for the Glazers, that the bond does not have to be repaid until 2017. Of course, there is a price to pay:
– the interest rate on the bonds (around 9%) is higher than the previous bank loan
– the club had to pay a once-off fee of £40.7m to replace the bank loan with the bonds (for unwinding interest rate swaps)
– half of the bonds are in USD, leading to an exchange risk that resulted in a £19m unrealised FX loss in Q1.
In short, Man Utd’s debt situation is still horrible – and is getting worse.
The Swiss Rambler – Thanks. I assumed all was not above board but it’s nice to have informed confirmation. On another point the interest on the bonds issue – Is that 9% over the life of the bond or per annum? Again I assume that it’s per annum or it would work out to be a pretty cheap loan. The amazing thing is once the bond period is up ManU will have another arrangement fee to pay.
@Marc,
Your assumption is correct – it’s just over 9% interest per annum. To put that into context, the annual interest on the bonds will be around £45m, compared to the £39m the club was paying on the previous bank loans.
I wrote about this back in February, if you want more details:
http://swissramble.blogspot.com/2010/02/greed-is-good.html
I wonder if the economic situation and the way leagues are getting dominated by just a few clubs will lead towards the european super league being setup.
What appears to be happening at Manure is the buying of time.Such is the appalling state of the finances around them (except at AFC) and such are the strictures of the new UEFA regulations that the principle on which the current system is built, mutually assured destruction, is about to come true. It will be a case of who is left standing wins the war.
Arsenal have acted, for a long time, as thought they knew that Armageddon was coming and have consistently acted accordingly. When refering to club finances, Ivan Gazidis’ own words to an AST meeting – ‘if it can’t go on, it won’t go on’ are about to come true.
It will also become much more true in the future that, when you sell in the market, be careful who you sell to. Buying clubs unable to pay the bill will create many more Robbie-Keane-to- Liverpool type ‘toxic debts’ that will screw up many a balance sheet. Selling to Arsenal may, from now on in, be just about the safest way of monetising your player asset and clearing down your debt. Which means that for Arsenal at laest it will be a buyers market.