How football went to the dogs

Another World Cup has ended in failure for England.

At least the fans’ expectations were more realistic than usual this time around. The bookies’ odds were 28 to 1 before the tournament started. Normally England are priced to reach the semi-finals. So maybe the penny has dropped after decades of disappointment. Fans who like a bet have finally replaced blind faith with sober analysis of the facts!

At least we can forgive the fans for dreaming. Sport should be about romance and anticipation – at least from the spectator’s viewpoint. But in football club boardrooms it ought to be a different matter. Especially with the vast sums of money in the game nowadays.

When I started watching football, shortly after England had actually won the World Cup, clubs were owned by local businessmen. It was an ego trip. They usually left their business acumen in the office and ran their clubs like an expensive hobby. Directors used to fund the smaller clubs out of their own pocket; and the big teams spent all they had on transfer fees.

The advent of satellite TV and the setting up of the Premier League in 1992 was supposed to change all that. Suddenly there was a lot more money in the game and professional management was needed to look after it. Several clubs decided to go public and list on the stock market. Spurs were the trailblazers floating in 1983, shortly before the really big money came into the sport. Several followed, most notably Manchester United.

For the investors, successful football clubs were expected to be cash machines. They were media brands, rather than sports teams. The discipline of a market listing and institutional investors was going to introduce a hard-headed commercial approach to running a club. At least that was the theory. In practice it hasn’t worked out like that.

The Portsmouth curse

The money in the English game has continued to grow at a phenomenal rate. The latest deal means that Cardiff earned £63m in TV revenue last season. This was despite finishing bottom and was £3m more than Manchester United got for winning the title the previous year!  But very little of this booty seems to stick with the owners. It has a habit of passing straight into the bank accounts of the players and their agents. In fact the bigger the stakes, the easier it is for clubs to get into financial difficulties.

The temptation is always there to invest that bit extra to secure a Champions League spot, or, even more crucially, to avoid relegation. The most extreme example of financial mismanagement is Portsmouth who finished 14th in the Premier League in 2009. Five years on, after going into administration twice and being relegated three times, they’ve just finished halfway down League 2. It’s a minor miracle that they’ve survived.

Even clubs that suffer a near-death experience don’t seem to learn. Rangers, one of the big two Glasgow clubs, were banished to the bottom division in Scotland for breaching financial rules. A flotation was part of their survival package after coming out of administration; but the shares have been a disastrous investment. Rangers’ new board recently said that the opportunity to rebuild the club had been lost, due to a series of “ill-defined, short-term focused decisions”. Welcome to the world of football club investment!

There’s only really been one club that has rewarded investors by balancing playing success with sound financial management. That’s Manchester United; who have even made a private equity-style ownership structure work. For any other teams, my clear recommendation for investors is to steer clear.

As a final thought; does the business model of a football club remind you of anything?  That’s right. Banking. Look at the checklist –

  • both are run for the benefit of employees rather than shareholders
  • both pay outrageously high salaries
  • both expect to be bailed out when it all goes wrong

And neither offers an attractive investment proposition as a result.

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  • Longtermyieldman

    I agree there are parallels between football clubs and banks. But there’s at least one difference favouring investors in the former: if a player commits a disciplinary offence, it’s he who pays the fine, not his club.

    On a day when yet another allegation has arisen of misconduct by a financial institution – on this occasion, Barclays Capital is accused of luring investors into ‘dark pools’ where the odds are stacked against them – I am wondering how much longer shareholders will accept the principle that it is they, not the faceless propellorheads, who will be expected to pick up the tab.

  • Nick Morse-Carter

    Portsmouth was an example of how not to run a business/football club. With ownership being passed from one disreputable owner to another. (one of whom didn’t exist) Once again a weak regulator failed the public. They are now providing an alternative means of running a football club, with ownership by a fan backed trust working for the benefit of the club and fans. Watch this space. Could peer to peer lending be a banking equivalent??

  • Diggers

    Really excellent article and totally agree with the point made. However, being devil’s advocate, shareholders have mightily profited at times from an enterprising member of staff using initiative. I still think he/she should be punished as in example given though.