Football in the Digital Age – Chapter 2

2. Football finances: too much money?

Gerry Boon

It is important to note that the English game, when looked at from the European mainland and indeed the rest of the world, has in recent years achieved a number of major successes. This is particularly so in terms of the way it has modernised its business organisation, for which it is rightly admired. I am thinking of issues such as the safe and efficient management of stadiums, its league organisation, merchandising and business structure. I believe it is right that those of us with an interest in the industry should criticise it constructively. But this criticism should be balanced. The industry has a lot to be proud of, and is certainly not in crisis as some would have us believe.

The Current Financial State of the Game

First of all in this chapter I present a financial profile of the English game. It is important to note that football is no longer just a series of local markets. It is now a European and global marketplace for playing talent, for TV rights and for merchandising. English football has to operate within the reality of this framework. Technology, largely related to broadcasting, has made this possible over the last ten years. Off the pitch English football is considered very successful; the rest of Europe really does envy our financial performance.1 For example, looking at the Premier League, between the 1991–92 season and the 1997–98 season the compound annual turnover growth of the clubs in the Premier League was 23.2%. In other words, in six years the Premier League has grown to become 3.5 times larger than the old First Division. This is a fantastic performance by anyone’s standards.

In the 1997–98 season Premier League clubs spent over £190 million on players’ wages. They spent a further £171 million on transfers, of which 45% went on players from outside the UK. Operating profits in 1997–98 were over £100 million – a record. Seventeen of the 20 clubs are profitable on the basis of their day-to-day activities.

If you put the Premier League in a European perspective, it is bigger in financial terms than Italy’s Serie A by 20%, than Germany’s Bundesliga and Spain’s Primera Liga by approximately 25%, and France’s First Division by 175%. France is a country which did very well to win the World Cup, but in my view is excessively domestically focused in the way it looks at the management of its game. And that has put their clubs, as opposed to the national team, at a severe disadvantage when competing in Europe. Indeed, I believe there is a direct trade-off between prioritising domestic success and European competition success.

In 1997–98 the total revenue of the Premier League was £569 million, of which £203 million (36%) was match-day receipts, £152 million (26%) was TV receipts, and £214 million (38%) was from merchandising and other commercial income. What this illustrates is that, while TV money is an increasingly important part of the revenue pie, paying customers through the turnstiles remain essential to the financial success of the game. Attendances have continued to grow. This is despite the fact that match-day tickets in the Premier League (and the First Division before it) have risen by four times the rate of inflation over the last ten years whilst cinema tickets, for example, have only risen by the rate of inflation. This is a very important point. What the market is saying is that more people want to watch English football and they are prepared to pay more money to do so, both in the Premier League and the Football League. People like the product. That is a pretty powerful endorsement. But let’s put all this financial expansion in some sort of business context. Enterprise Oil has an annual turnover very similar to that of the Premier League’s £569 million. But it is ranked only number 124 in terms of market capitalisation on the stock exchange. So it is important to realise that Premier League football is only a medium-sized enterprise by comparison with the real giants of British industry, despite its considerable recent financial success.

Football’s Stakeholders: who are they?

If football clubs are to be successful, they need to build mutually beneficial relationships with a range of what I would term ‘stakeholders’. The three main groups of stakeholders are outlined in Figure 1 overleaf.

I am unhappy when the choices in football are presented as two opposites: a commercialised future where traditional fans have no place and financial imperatives rule; or a return to some form of idealised sporting model where financial issues are completely subservient to the sporting ethos of the game. We need to adopt a balanced approach. Clearly we need to retain the strengths that football’s deep roots of tradition give it in people’s affections. But we must also remember that football is a business, and we do not have the option of choosing between a ‘sporting’ model of the industry and a ‘business’ model. Business practices, and influences from other business sectors such as television, are having a huge influence on football. That is reality and therefore we have to deal with it. We must not lose tradition and the other good things that go with it. But the marketplace for football is global. Do you want to compete? That is the key question. Any industry has international, national and local ‘players’; football is no different. Good policies and good practices are good for business whatever industrial sector you are in.

By way of example, we have a saying at Deloitte & Touche: ‘no fans equals no value’. It is bad news for the business not to look after the fans; looking after fans and running an efficient and profitable business are not mutually exclusive. Both objectives can be put into operation simultaneously, and already are at the best clubs. For years we – as fans – complained about the lack of proper business practices in football clubs, how badly run they were, how poorly they treated the fans and so on, and now there are proper business structures we complain that they are too ‘business-like’ or ‘commercial’.

Football’s business continues to develop apace – some welcome that and work to channel that dynamic force into business efficiency which creates profitable activity and generates cash for investment in players, stadiums, training facilities and complementary activities to the core football club. Others bemoan the passing of a more egalitarian age when ‘market forces’ was an irrelevant concept. Whatever their point of view, what is undeniable is that the Pandora’s box of business structure and market competition has been opened in the football industry and cannot now be closed. Clubs and governing bodies need to choose between embracing that dynamism with attitudes and structures designed for the modern business age; or they can react to events, resist the forces (rather than ride them) and end up being swept along in a reluctant and introspective mode. Whatever the strategy, the high profile of the game and its principal players (clubs, chairmen and directors, players, governing bodies – even government), now mean that there is an ever-present need for accountability, responsibility and transparency in dealings.

Media ownership of clubs: a red herring?

A major point of debate on the regulation of football between what might be termed the ‘traditionalists’ and the ‘modernisers’ has been around the issue of whether media companies should be allowed to take over football clubs and whether this will lead to further polarity in performance. I feel that there is a danger of the game becoming bogged down in this debate as it misses two key points. First, it is not who owns a club which is important, as fans always feel they own their club emotionally anyway regardless of who owns the shares. The critical issue is how clubs are managed as a business, and the extent to which they satisfactorily address the concerns of their various stakeholders. Secondly, polarisation of ‘football power’ has always existed. We at Deloittes believe that properly structured commercial development enhances competitive balance. Dramatic intervention by government or regulatory bodies is not what is required here.

What really is important is that clubs organise themselves on a professional basis, recruit and retain competent and imaginative managers with the skills and experience to manage a growing business in a dynamic marketplace. A lot of people get very irate about the stockmarket flotation of clubs and complain that this has distanced them from their supporters. I do not accept that this has in fact happened; clubs have always been private limited companies owned by private investors. Fundamentally, I think the focus on how football club ownership has changed as more and more clubs have floated on the stock exchange reflects a nostalgia by many who enjoyed far greater influence over the game in its, it has to be said, inefficiently managed, traditional, established, order. This group have much less influence in the market-orientated, media-floodlit football industry of today, and I am afraid many of them have not adapted to these changes in the game, to the extent that they are blinded to its genuine successes.

Players’ wage demands: who decides?

The players’ wages, and in particular the way in which they have dramatically increased in recent years, have become a major talking point within the game. Between 1996–97 and 1997–98 alone the total players’ wage bill in the Premiership rose by around 40%. Since the Premiership’s inception in 1992–93, compound annual growth in players’ wages has been 26%. The concern is that the spiralling wages will effectively bankrupt many clubs, and that they need to be curbed.

The views of Gordon Taylor, chief executive of the Professional Footballers Association, are reported elsewhere in this volume (Chapter 4). As far as I am concerned, the key question that should be asked is: who should be responsible for deciding players’ wages? Who should be accountable? The player, the agent, the PFA, the manager, the coach, the sponsors, the league? I actually do not think any of these should be. They all have the right to do their best for their client or their interest but the people who are actually responsible are the chairman and the board of directors. All our clubs have been limited companies for roughly a hundred years and the limited company structure places responsibility for employee wages firmly with the chairman and the board.

We very often hear football club chairmen and directors bemoaning their lot. What they don’t say (but in effect mean) is: ‘Please help us to help ourselves. We need to be protected from our own weaknesses.’ I think, though this may sound a little cynical, that this attitude represents a failure to accept responsibility and is a negation of duty. Clubs must acknowledge and take responsibility for managing their own players’ wage bills.

A number of centrally organised remedies have been proposed to deal with wage inflation. Some sort of centrally administered salary cap is one, but I think this is extremely unlikely to happen. To be successful it would have to be organised on at least a European basis so there would be problems in co-ordinating such an initiative, particularly where clubs have such a strong incentive to secure competitive advantage by bypassing such a stricture. It would also be open to challenge in the employment courts in the same way as the Bosman case.

Another option is to have more redistribution of income within the leagues to help shore up the finances of lower-division clubs in particular. A variation of this scheme operates in English cricket. However, again, I think this kind of intervention is extremely unlikely to happen given the current structure of the football industry in England. And as I have also stated in the latest Deloitte & Touche Annual Review of Football Finance,2 there is a strongly held point of view that those who do not control costs with firmness should not be entitled to look to others for handouts.

It is clear that some action must be taken by clubs, particularly in the lower divisions, if they are to survive. The Premier League clubs may be able to sustain higher wages, albeit increasing at a lower rate, provided they can improve the quality and size of their revenue streams from other sources and be more disciplined in their negotiating with top players. But in the lower divisions some tough decisions will need to made – either individually at club level or prompted by initiatives at divisional, or Football League, level. An excellent precedent is set by rugby league’s ‘Super League’. The intention is to pay players’ performance-related pay out of merit awards (for final position) rather than the game’s guaranteed payments for appearance money as at present. Football, perhaps starting from Division Three and working upwards, would do well to follow suit. There are, though, prerequisites – unanimity from the clubs, a clear rule and strict enforcement.

Football’s hierarchy of power: a bigger say for clubs?

If one were asked to list an established pecking order of where power lies within football, a conventional and traditional response would be to start with FIFA, the world governing body, work your way down to UEFA, the European governing body, proceed to the FA and then to the individual clubs. But I would pose the question: how entrenched and established is this order? Critically, Manchester United’s decision not to enter the FA Cup in 1999–2000, and the FA’s decision to allow them not to compete in order to permit them to participate in FIFA’s World Club championship in Brazil in January 2000, has thrown this question into some relief.

In my view the clubs have the real power in football. They just have not yet learned how to use it properly. The birth of the ‘super league’ concept, of which the FA Premier League was the first incarnation, was the initial manifestation of this power in a negotiating context. It represented an attempt by the bigger clubs to have a larger say in how the game was run, the future direction it would take, and the distribution of the financial rewards. Now the major Scottish clubs have followed suit and set up their own Scottish Premier League. The attempted setting up of a European super league outside the existing FIFA and UEFA structures in 1998 was the most aggressive manifestation of this trend. It forced UEFA to overhaul its competitions and establish a ‘new’ Champions League more in tune with the demands of the major European clubs.

Clubs have started to recognise their own power and have begun to use it. And power follows control of the commercial properties in the game: image rights, TV rights and so on. So it is all about a battle for control of those commercial properties. We can look at the music industry as an example: there, power has actually passed from the traditional seat of power – the recording companies – to the individual entertainers. I do not think that will happen with football, certainly not fully, because we are dealing with a team game here. But power will certainly continue to move from football’s current governing bodies, associations and leagues, to the clubs.

The battleground on which clubs will fight for influence with the industry’s current governing bodies is illustrated in Figure 2 below. Clubs have a critical source of power in that they provide the players to all competitions, at whatever level. Currently clubs’ power can be measured as increasing the further they are removed from the international competitions (north to south on the right-hand axis in Figure 2). But even at the level of national country team competitions clubs have some potential leverage because of their control over the supply of players.

The power of the game’s administrative bodies is currently strongest the further you move away from the domestic leagues (west to east on the horizontal axis). Correspondingly, the power of the clubs is obviously high where they organise their own league, such as the Premier League, which is managed by the 20 clubs concerned. Essentially, there is a battle for power going on between football’s governing bodies and the clubs. If you drew a line from top right to bottom left across Figure 2 dividing football into two spheres of dominant influence, with the governing bodies on the left and the clubs on the right, each side is trying to push that line in the opposite direction to expand their sphere of influence. And obviously that struggle is the source of many well-publicised tensions.

I do not have the answers to all of the questions raised by this struggle for power. But I do have some views on them. Critically, I believe this struggle is all about who controls the game and its many competitions. The player and squad numbers will provide the upper limits on capacity for both the total number of games it is possible to play and competitions it is possible to compete in seriously. The decision by Manchester United to withdraw from the FA Cup to participate in the World Club championship is not a one-off problem, despite what people say, but simply the manifestation of what will be a growing problem as the possibilities expand for more lucrative and attractive international competitions. This raises key questions: where do the clubs want to draw the line in terms of deciding which competitions to compete in? Would they prefer that their governing bodies make those decisions for them? Or should they make these decisions themselves? And if the clubs are being forced to make those choices, they have to be given the real authority to actually make the choices and not be the ping-pong ball in the middle as has been Manchester United’s experience over their decision to withdraw from the FA Cup. Giving them this authority, or them seizing it, has major implications for how the game is currently organised.

Essentially the problem is a scheduling issue. Why do we not have one overall authority to schedule all games and competitions? Why can football not organise itself so that all these power groups do not conflict the way they do now? I am not giving a view personally either way, but I do think the furore over Manchester United’s decision to withdraw from the FA Cup raises a critical question for fans of English clubs. Domestic audiences need to decide whether they support the global ambitions of England’s largest clubs or whether they want to put domestic issues first. Does choosing the latter demonstrate a lack of ambition? We do need to preserve the best aspects of the game’s long traditions, but the football marketplace is changing and we in England cannot suddenly slow down the market.

In conclusion, the number of games and the size of divisions are actually a function of scheduling and agreed priorities. Conventional business organisations would find that difficult but they would sit down and sort it out using business processes. Football needs to address this issue in the same pragmatic and businesslike way. We have a unique challenge here. Regrettably, football’s stakeholders do not have an exemplary record when it comes to resolving such issues – but (as you would expect from an Oldham Athletic fan) there’s always hope!