Sunday, March 28, 2010

Football Is Not Recession Proof, Now UEFA Know and 2012 Begins a New Era

The landscape of football is about to take a dramatic change if UEFA and Michel Platini are to get their way.

Since taking over as UEFA President in 2007, the Frenchman has always stated his desires for financial fair play across Europe.

It is believed that Platini is concerned about the dominance of English-based teams in the Champions League and that their control over Europe's premier competition is based on huge debt.

Knowing that change was coming down the road, Lord Triesman of the FA has tried to highlight the extravagant nature of English Premier League spending since 2006.

In 2008, the Leaders of Football, met at Stamford Bridge to discuss all things financial concerning the EPL.

During the meeting Triesman tried to point out that foreign ownership was one of the prime reasons for high spending, and that the EPL's tests for "fit and proper owners" were too lax.

"I don't think anybody who is rational can look around [in the economic downturn] and think they are immune," Triesman warned, estimating that English professional football was £3bn in the red.

"The debt mountains are owned, and therefore the clubs are owned, by either financial institutions some of which are in terrible health, or very rich owners who are not bound to stay, or not very rich owners who are also not bound to stay…I think this poses very tangible dangers."

While Peter Scudamore, Chief Executive of the EPL, argued that the EPL made more money than any other league and so it could deal with greater debt than any league.

This season, that boast has come home to roost as Portsmouth became the first Premiership team to go into administration.

With the Premiership at its lowest ebb, Platini commissioned every professional team in Europe to provide UEFA with their financial documents for last season. The reading was scary. It would seem that in the EPL, no one can see you spend...

Under the terms of UEFA's conditions, all 732 professional teams in Europe provided their financial papers.

Only two declined from the EPL, Portsmouth and West Ham, as a result neither side will receive a UEFA A Licence next season, but from 2012, it will become mandatory.

The European Club Footballing Landscape is a mammoth 80-page document detailing the level of debt throughout football in Europe.

The biggest statistic to jump out from UEFA's findings is that Europe's clubs are in debt to the tune of £5.5 billion.

The really frightening part though is that the 20 teams operating in the Premier League own £3.5 billion of that total, a whopping 56 percent of Europe's total debt is in England alone. And four teams own £2 billion of that...

The debt owned by the EPL is almost four times greater than La Liga's debt of £858 million, Serie A owe £442 million, while the Bundesliga owe £554 million.

One year ago Peter Scudamore argued that the EPL made more money through television revenue than any other league and UEFA have confirmed that that is the case.

Each EPL team makes £122 million a season from TV rights, but recent news that Sky's rates are being challenged could reduce that total dramatically. £1.7 billion is believed to be already negotiated for the league between 2010 and 2013.

Next week Ofcom will decide if BSkyB will have to reduce their subscription rates. The media watchdog in Britain are very aware the Sky have a monopoly on football on the island.

The UEFA document even singled out Manchester United and Liverpool as incredibly poor examples of clubs being forced into debt through leveraged buy outs.

Again, the Premierships answer was "The critical point is not the absolute size of any debt," a spokesman said, "but how sustainable it is."

However, the fantastically named Gianni Infantino, UEFA's General Secretary, hit back.

"The Portsmouth example shows something must be done to help the clubs be more sustainable," he said. "The English Premier League clubs have higher revenues, but it is worrying to see such huge debt.

"If it is borrowed to fuel spending on players, the problem comes when you cannot borrow any more money and can no longer pay the debts."

The most worrying aspect of the debt mountain in the EPL of £3.5 billion is that it is so close to the asset total of the league, £3.8 billion. In short, the league is close to meltdown.

Of the top four clubs, only Arsenal seem close to running their club well. However, the club are precariously tied to Arsenal Holdings who continue to struggle to sell their apartments on the Highbury site.

Add that to the political infighting at the club in the boardroom and that the EU may force Bank of Ireland to sell their £150 million stake in the club and even the Gunners are not in safe waters.

Manchester City and Chelsea hold the advantage over Liverpool and Manchester United in that their owners bankrolled the clubs before turning that massive debt of £700 million and £400 million into shares, thus rendering the two clubs with perfect balance sheets.

Other factors that UEFA discovered were:

83 percent of clubs do not own their stadiums. 88 percent of all TV money in Europe is generated in the top five leagues. 50 percent of domestic champions are either the highest paying clubs or have the biggest income in their respective league.

The top ten teams in each league have a 99 percent advantage over the next ten teams.

The top ten teams in Europe spent £1.8 billion on wages and transfers in just one season, double that of the next ten teams.

Spending and accruing great debt has created a huge gulf between clubs in Europe, and now Platini has decided to act.

The UEFA president talked about one challenge he pinpointed for 2009: financial fair play, at a recent UEFA meeting in Tel-Aviv.

"I told you that it was vital for football and the future of our clubs that they should respect clear rules on the management of their finances," he said.

"I told you, word for word, that in this area we will act because it is a question of ethics, a question of credibility and even a question of survival for our sport. I can tell you today that we have acted.

"We have acted because, since Copenhagen, all the families of football, without exception, have approved our concept and the principles of financial fair play. Principles that are supported and encouraged by the institutions of the European Union."

"A UEFA Club Financial Control Panel has been set up, involving some of the top European experts on these issues...It is now established that, from the 2012/13 season, clubs participating in European competitions will have to follow a simple but demanding rule: they will not be allowed to spend more than they earn.

"Today, thanks to this set of decisions on financial fair play, and especially in view of the reaction of all members of the football family to these measures, it is clear that football has matured."

What all this means is that from 2012, every club team in Europe will have to make ends meet from the money the club makes in their financial year, without loans from rich owners or otherwise.

Unless the money is for youth development or infrastructure, in which case there is no limit on spending.

UEFA will not try to get the likes of the EPL, La Liga, and Serie A to follow the examples of smaller federations like the FAI who scrutinize each clubs account at the end of every season. Hitting clubs with relegation or points reductions if financial irregularities are found.

Platini deserves huge credit for trying to put an end to debt in Europe. It has been threatening to get out of control for sometime now, and this latest move will force every team to cut their cloth accordingly, if UEFA enforce it from 2012.

The ECA (European Club Association) led by Karl Heinz Ruminigge is lobbying UEFA to scrutiize their accounts every five years instead of the proposed three years under the new Financial Fairplay Guideline.

At the moment UEFA want to study the accounts every three years and limit owner extra spending to £30 million over those three years. The ECA want a larger allowed spend over five years.

Clubs and players will always find a way around these restrictions, but in the long term the level of debt should be reduced and player wages will come down. Wages are at the centre of the debt spiral.

One of the great problems in English football, and it effects the entire British Isles, Ireland included, is that the entire system resembles a pyramid.

The EPL sits at the top with the highest earners, and that forces everyone else to try and catch up. Driving up wages across every other league as players get sold for bigger fees.

Today almost half of the 92 teams operating in England have gone into the red since 1992.

It is a statistic that is truly terrifying for the average football fan, and it would seem that Platini is just that, a football fan at heart.

Currently, only six EPL teams are operating at a profit...