Middle-east Arab News Opinion | Asharq Al-awsat

Big Money, Big Risk | ASHARQ AL-AWSAT English Archive 2005 -2017
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London, Asharq Al-Awsat-In the shadow of the global financial crisis the English Premier League’s relentless expansion continues. Multi-million pound transfers catch the eye including the 2011 record breaking £50 million for Fernando Torres and £30 million for Andy Carroll, making him the most expensive English player. On top of this, players’ wages continue to rise with Carlos Tevez earning £220,000 per week, despite not playing a game since falling out with the club in September of last year. In addition to the millions earned in television revenue and the packed stadiums, a key source of football financing is the era of super rich foreign owners. Yet the jury is out as to whether they are investing in economically sound institutions or simply buying high profile playthings.

The purchase of Chelsea football club by Roman Abramovich in 2003 fired the starting gun for oligarchs and magnates from across the globe to look with hungry eyes at the potential for owning British football clubs. However the abrupt descent this year of one of Scotland’s largest clubs, Glasgow Rangers, into administration has led to increasing speculation that the boom of football club economies may be heading for a dramatic bust. This feature examines the nature and sustainability of football club ownership models, chronicling the evolution of how money from Russia, America, the Far East and the Gulf has come to play a central role and questions how healthy a future these clubs are likely to have.

The incredible expansion of football is a symptom of the globalisation of both economics and culture. Recently a BBC Radio Programme, “A History of the World in 100 Objects”, debated whether a football shirt belonging to the Chelsea striker Didier Drogba could represent the object that encapsulates the modern age. Why? Because an Ivorian player wearing a shirt made in China, designed by a German company (Adidas), advertising a South Korean company (Samsung), for a man playing in Europe for an English club with a Russian owner demonstrates how interconnected football is. Yet a popular and globally connected football industry is no guarantee of economic success and there have been some early warnings of what happens when football club economics go sour. In 2001 Leeds United failed to qualify for the UEFA Champions League, worth an estimated £45 million to the winners. The club had taken out large loans against the prospect of the share of the TV rights and sponsorship revenues that come with Champions League qualification and any subsequent progress in the competition. The club then spiralled into deep decline being demoted two leagues and having to sell their top players and their training ground and stadium.

Chelsea’s economic model prior to the arrival of Abramovich showed up the difficulty of building a sustainable club that is able to compete at the highest level. Although the club had not won the league since 1973, it became a fashionable team made up of former European stars such as Ruud Guillit and Gianfranco Zola in the 1990s. The then-owner, Ken Bates, steadily raised the price of entrance fees and food and drink around the ground to take advantage of the increasing demand to see the club play. An ambitious project known as ‘Chelsea Village’ saw new stands built to increase the club’s capacity to 45,449 spectators and the development of a new hotel filled with bars and restaurants behind the south stand. A new mega-store was built selling products ranging from shirts to Chelsea gnomes and key rings, with a gym, museum and even a nightclub beneath the ground demonstrating the range of sources of income surrounding people visiting a game of football. New sponsors were attracted to the emerging club happy to put their name to the shirt, official drinks and the billboards surrounding the pitch. Yet the toll of competing in an inflating global transfer market made sound economics suffer in the face of fantasy fees.

This led to the take over of Chelsea by Roman Abramovich, a Russian billionaire oil and energy magnate who amassed a fortune following the collapse of the USSR. Immediately the club went on a transfer feeding frenzy signing millions of pounds worth of players and recruiting a new manager in the first two years of his ownership. Abramovich invested in a complete overhaul of the club’s brand, saw a new sponsor arrive, and built a new training ground with state of the art facilities. Sensible economics appeared to be out of the window as the owner worked his way through seven managers in eight years in charge. League Managers’ Association chief executive Richard Bevan told the Telegraph in March that “modern football needs wealthy owners, the reality is it always has had wealthy owners. The geography has just shifted from the top local businessman done good to the global philanthropist.’’ Abramovich has invested over £800 million into Chelsea since buying the club with the Club’s Chairman, Bruce Buck, stating that he is willing to spend another £500-£600 million on developing a larger stadium. In the match following the latest manager’s sacking, Chelsea fans sang out in support of Abramovich, very clear that their loyalty lies with their incredibly generous benefactor.

The same story of club owners being loved by the fans cannot be said of Manchester United. The richest and most popular club on the planet has avoided the sugar-daddy path of Chelsea and instead found themselves acquired in a leveraged buy-out by the Glazers who have subsequently run up some £500 million in debt against the club. This has led to a large protest movement from within the fans waving green and yellow scarves, a reference to the clubs traditional original colours, staging demonstrations and holding up placards that can leave little doubt of their unhappiness with their club being turned into an unit of economic leverage.

Manchester City are the most recent club to experience the influx of big money and are more of a rags to riches tale than any to date. In 2007 former Thai Prime Minister, Thaksin Shinawatra, acquired enough shares to take control of the club. However any hope for a Chelsea-like revival was halted when, a year later, scandal back in Thailand saw Shinawatra’s £800 million fortune frozen and Manchester City thrown into turmoil, a good example of the perils of foreign ownership . Against this bleak background arrived City’s saviour in the form of Sheikh Mansour bin Zayed Al Nahyan, owner of the Abu Dhabi United Group, who cleared the clubs £305 million worth of debt and went on a spending spree that paralleled with that of Roman Abramovich.

But there is another side to the story of foreign ownership. While the fans of Chelsea and both Manchester clubs have enjoyed stability and success since entering into new ownership this is not always the case. Indeed over the last fifteen years for every big winner in the new hyper-commercialised Premier League there has been a loser. A range of clubs hovering below the top strata of teams in the Premier League have experienced the near existential pain of over-leveraging their assets in an attempt to buy their way into the elite. When success doesn’t follow, the teams invariably go into decline and bankruptcy. Teams such as Crystal Palace, Cardiff City, Southampton and most famously Portsmouth, have all suffered this fate. All have subsequently been saved but all came perilously close to going out of business for good, leaving thousands of fans and whole communities without a football team.

The case of Portsmouth is especially interesting as it is an example of foreign owners under-estimating the financial difficulties of a club and over-estimating its potential revenue streams. Successive foreign owners took on Portsmouth’s burgening debt under the assumption that they could buy success which would result in bigger crowds and hence more income and a more valuable asset to perhaps sell on. For a while the equation worked, taking over in 2006 when businessman Alexandre Gaydamak injected massive funds into the club resulting in the acquisition of several big name players. Portsmouth went on to win the FA Cup in 2008 and were riding high in the Premier League. But the club’s finances were ultimately unmanageable, and a relative increase in income could not compensate. Only a year later the club entered a period of instability it has still not escaped from with several prospective foreign owners having come and gone leaving the club with a complex ownership structure and unmanageable debt.

Today Portsmouth is the quintessential example of modern football going wrong.

But while the plight of these clubs is deeply worrying for British football, there is a case north of the border in the Scottish Premier League, which caused even greater shockwaves around the footballing world this season. On 14 February Glasgow Rangers FC, the most successful domestic football club in the world and a massive cultural, political and sporting institution in its own right went into administration. The club has several outstanding debt cases, which could make the club liable for repayments of up to £55 million, a near crippling figure even for a club the size of Rangers. Again, the story is a familiar one, a period of success financed by increasing levels of debt culminating in collapse. What is unique about the Rangers example is the comparative size of the football club. While several other British clubs have entered administration no club of the size of Rangers have ever done so. The Glasgow club consistently gets attendances of over 50,000 at home games, income from sponsorship and TV rights is high and the club retains several high-value assets including its stadium and training ground and several top-level international players. Yet none of this prevented the 140 year old club from effectively announcing bankruptcy. This should be a salutary lesson for clubs including Manchester United who continue to amass significant debt. While the servicing it is more than manageable for the club at the moment this may not always be the case.

According to media reports the club’s administrators Duff and Phelps have received statements of interest from foreign investors in the Middle East and the Americas. If these rumours were to materialize it would not be the first time a club in distress was rescued by the vast wealth of a new foreign owner willing to take on huge debts in exchange for the chance, not only to make a club profitable again, but also to be involved with what is still arguably the most famous and exciting football league in the world. While Manchester City are perhaps the most famous example, several other clubs in considerable peril have been financially boosted by foreign owners, the list includes the Birmingham based Aston Villa FC which is now owned by American banking and investment tycoon Randy Lerner , London based Queens Park Rangers FC owned by Malaysian airline entrepreneur Tony Fernandes, and Sunderland FC controlled by US private equity millionaire Ellis Short.

As to who ultimately gains most out of these financial marriages, it is not yet clear. Even with the case of Manchester City there is a lingering if largely unspoken fear among some supporters that the Abu Dhabi United Group will at some point withdraw their backing for the club. Like many other foreign owners, the United Group claims to be restructuring the club into a commercially viable entity in its own right, which in the future will be able to survive without the backing of his vast wealth. It remains unclear when the club is expected to turn a profit. This year it registered record losses of £194.9 million. But this level of club loss is more than compensated for by the equity pumped into the club by its owners – a situation paralleled at clubs like Chelsea. Yet this model may not last much longer. New UEFA financial fair play rules which come into effect next season will oblige clubs not to spend more than they bring in in revenue. If enforced this could have huge implications for wealthy owners who are willing to subsidies clubs with money earned outside of the football club itself.

But while difficult times may be ahead, there is little sign that British football clubs are becoming less attractive to foreign buyers who are either genuinely interested in owning a prestigious British football club or those who still see it as a potentially profitable transaction. Speaking to the authors of this article British football writer Duleep Allirajah says that “football ownership in Britain today is not for British businessmen who’ve done well and can afford to back their local club. It is a game becoming increasingly dominated by the hyper-rich elite who can afford to invest multi-millions into a club… whether that individual is from Birmingham or Brunei is irrelevant.’ He goes on to say that for British fans, foreign ownership by a billionaire investor is now seen as the only way a club can hope to rival the big teams and compete for silverware.

As for the foreign owners themselves, Allirajah offers a word of caution “I hear a lot about new owners wanted to ‘build a global brand’ for their newly acquired team. But the evidence suggests that’s actually very hard to do. Abramovich has been trying to do it with Chelsea but even when you are winning titles, if you do not have a history it is hard to break into lucrative Asian and Middle Eastern markets where clubs like Manchester United and Liverpool still dominate.” He goes on to add that the majority of clubs still makes their money from “TV deals and gate receipts” rather than from merchandising. For any prospective foreign owner Allirajah argues they should think carefully about seeing club acquisition as a profitable enterprise.

So as potential buyers weigh up the viability of investing in Glasgow Rangers the jury remains out on the value of buying into the greatest football league in the world. But for many football fans across Britain the chance of being saved by a foreign billionaire and catapulted to the top of the Premier League remains a risk worth taking.

James Denselow writes for The Guardian, The Huffington Post and the New Statesman and appears regularly in the international broadcast media.

Additional Reporting by Sam Hardy of the independent think tank the “New Diplomacy Platform”