Arsenal, ManU and Portsmouth: How Clubs Manage Costs

(MoneyWatch) 

It's not just good management on the pitch that counts in Premier League football. Millions in match-day returns and broadcasting rights are at stake and the level of speculation required to keep a top-flight club on its toes is as high as any other industry. Here are three examples of how clubs have been managed: with prudence, with high risk and with absolute abandon.

See Also:

The Premier League of Debt

UEFA Clamps Down on Fat-Cat Footballers

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Going great guns: Arsenal's Good Governance

Arsene Wenger, Arsenal Manager. Photo: Flickr

Among all the Premier League club accounts for 2008-09 — leaving aside the 14 clubs which made losses and the 15 which relied on owners’ subsidies — Arsenal stood proud, a model of financial governance. The north London club did have substantial debts, £265m, but they were taken on as an investment in the Emirates Stadium,to which the club moved in 2006.

In the shell of the old Highbury Stadium, an icon of art deco style when its stands were built in the 1930s, Arsenal built apartments designed fo New Lads-made-good. Initially, a London property slump resulted in slow sales, but Arsenal was under no pressure. The 60,000 seat Emirates stadium, comprising some of the most expensive tickets in the Premier League, was already paying dividends.

In 2008-09 Arsenal turned over £316m, by far the highest ever by an English club, boosted by apartment sales, which are now generating a profit. Much of its £265m debt, which has been substantially reduced, is at a low, five percent fixed rate of interest.

So financially Arsenal embodies metropolitan wealth. Yet all is still not well, pointing up another innate contradiction of the football business. The manager, Arsene Wenger, has become resistant to spending much of this surplus on signing new players, believing fervently that the young team he has nurtured for years will ultimately succeed with style.

Off the field, the books sing, yet on it, the players have failed in critical challenges, and the season ended with Cesc Fabregas, the club captain, reported to be wanting a move back home to Barcelona. Wenger is being forced to acknowledge that there’s a balance to be struck between the pure, idealised principles of sport and the mucky, financial market in traded football talent.

In the red: Manchester United's mounting debt

Wayne Rooney, striker for Man Utd. Photo Flickr

The contradictions at the heart of the Premier League, its relentless commercial growth allied to persistent concerns about its financial and moral health, have been played out most remarkably in the soaring stands of Old Trafford, home of Manchester United. The club is currently owned by the Florida-based Glazer family, who bought United with £559m of borrowed money in May 2005, then loaded responsibility for paying the debts onto the club itself.

United has enjoyed enormous success since, winning the Premier League in 2007, 2008 and 2009, and the European Champions League in 2008. Yet resentment at the debt-laden takeover has never been assuaged.

In January, the Glazers issued a prospectus to refinance £500m of the debt, and the document renewed United fans' outrage. It showed that despite a staggering £460m for which the club had become liable as a direct result of the takeover, United's total debts had increased to £716m, because the capital had not been touched and the high interest on payment-in-kind loans had "rolled up."

The idea for supporters to fashion their own subtle protest, by wearing the green and gold colours of Newton Heath, the original United club formed in 1878 by workers on the Lancashire and Yorkshire Railway, was suggested by one fan on a messageboard, under his posting name, chatmaster. It became a phenomenon.

The supporters were at once demonstrating against what they saw as the carpet-bagging of a great sporting institution by speculators from afar who'd not put in one cent of investment, and at the same time championing the original working class values of the club.

In March a consortium of investors, including succesful directors of legal and media firms, was reported to have formed to raise enough money to buy back the club. Dubbed the Red Knights , the group has so far shied away from making a formal offer, because they and the Glazers cannot agree a sensible price for Manchester United.

Whether or not the consortium eventually launches a bid for the club, its efforts add credibility to protests on the terraces, creating an uncommon solidarity between business bosses and fans.

The Glazers are adamant that they won’t sell the club, from which they see profits from the Premier League’s continually booming revenues. This epic clash over the soul of a football club rumbles on.

Run aground: Portsmouth scuppered by owner

After Portsmouth’s £122.8m financial meltdown, the Premier League sought to argue it was a one-off, not symptomatic of wider problems in top-flight football nor an international embarrassment. Richard Scudamore, the league’s chief executive and top deal-broker, argued that the club’s collapse was due to "rank bad management" — but it was management which had been tolerated, even celebrated, when Portsmouth returned from Wembley with the FA Cup in May 2008.

Five months later, in October 2008, the then FA chairman, Lord Triesman, publicly warned that English professional football’s debts, which he estimated at £3bn, carried "very tangible dangers" for clubs, and called for greater restraint, especially on players’ wages. But Scudamore claimed the Premier League’s debts were sustainable.

Portsmouth blew a hole in that assertion, but it is not an isolated case of bad stewardship. The club was, in fact, a textbook example of the way in which many clubs are run. It was living beyond its means, paying players too much, because it had an owner, a Russian Israeli, Sacha Gaydamak, who was to pouring money into the club soak up the losses.

In the year to May 31, 2007, Portsmouth’s overspending led to a loss of £23m. The following year, when Harry Redknapp’s team won the FA Cup, the club lost £17m, and the administrators estimated that in the year to May 31 2009, the club lost £13m.

Gaydamak himself declared shortly after the FA Cup victory that he could no longer afford to throw his millions into the club, because he himself had been holed by the recession. Fifteen of the Premier League's clubs, three-quarters, are supported financially by owners. Portsmouth is their cautionary tale: when Gaydamak pulled his money out, the club was launched on the fast track to the insolvency court.