just how broken is football's financial model?
DESCRIPTION
Dr. John Beech & Christian Muller of the DfL talk you through the issues. We've now seen well in excess of 50 insolvencies at football clubs since 1992 compared to no insolvencies in the Bundasliga during this period, leading to most expert commentators on football finance now agreeing that ‘light-touch' regulation is at an end. We heard from one of the most respected academics in his field, Dr John Beech of Coventry University, about what has failed and what he believes needs to change. and the DfL's Christian Muller on how they do it in Germany, For Christian Muller's presentation look on our main presentations section.TRANSCRIPT
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Supporters Direct 2010
Just how broken is (English) football’s financial model?
Dr John Beech
Head of Sport & TourismApplied Research Centre for Sustainable Regeneration
Coventry University
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The Myths
The underlying myth – the clubThe myth of the benefactorThe myth of investmentThe myth of the new stadiumWhat are the alternatives? Christian Mueller of the BundesligaSome issues of implementing
change
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The Myth of the Club
A breach of the Trade Descriptions Act?
‘an association of two or more people united by a common interest or goal’
‘an organisation run by and for its members’
Went with professionalisationReplaced by the limited company
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‘The Club’
Construct Company Crew
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Crew
Trigger’s broomConstantly changingTransfer to opposing clubs2010 Cup FinalDays of local identity long goneStill our heroes or zeroes
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Company
The owner(s)The board of directorsThe Chief Executive OfficerThe business elementFinance and accountsMaking a profit
or at least not making a loss
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(Social) Construct
The ‘till I die’ elementTattoosThe heritage, culture, mentality
and mythologyThe fans’ constructIt doesn’t physically existyet it’s the most permanent
dimension
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Confusion
Need to keep the three elements distinct when analysing
‘Save our Stanley’actually meant ‘Save our Board of
Directors’Exploitation of fans; ‘taxation
without representation’
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Can these three elements merge?
Do we want them to?
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How have they become separated?
Is this irreversible?
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The professionalised era
FANS LEAGUES OWNERS
CLUBS PLAYERS
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The commercialised era
SPORTS BROADCASTERS INVESTORS
FANS LEAGUES OWNERS
AGENTS
SPONSORS CLUBS PLAYERS
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The model depends on money in from fans and, when necessary, benefactors
To be ambitious requires serious financial input from the benefactor
The model is not sustainable if the money just flows through the club to players and agents, unless the benefactor is infinitely rich and does not lose interest
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The Myth of the Benefactor
Origins go back to professionalisation
Usually either churches or breweries
Very different, but share the outcome of local commitment
From the 1980s local benefactors largely replaced by external ones
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Jerry ShermanOne of football's most unexpected marriages will be consummated when Newport County, the unfashionable and down-at-heel third division club, is taken over by Jerry Sherman, the handsome American multi-millionaire. (The Times, 1 October 1986)By February 1987, the club is facing a winding up order over debts of £600,000.Sherman goes, and so does the clubSherman believed to be currently in prison in Seattle for defrauding an ice hockey club
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Spencer TrethewyThe 19 year-old property developer who would save Aldershot in 1990Club was wound upIn 1994 Trethewy was imprisoned for fraudNow manager (owner?) of Chertsey Town, using the name Spencer Day
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Jack Hayward
Wolves were insolvent in 1982 and again in 1986Hayward bought them in 1990 (then in Tier 3)Quit in 2003, having lost £40m(Club made the premier League in 2003, only to be demoted after one season)
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UEFA’s Financial Fair Play protocol
will end this model being possible,
even at Chelsea or Manchester City
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The Myth of InvestmentShares (equity) or loan?
Fans misinterpret loan as purchase of shares
If it’s a loan, the benefactor may want his money back if his circumstances change. But will the club be in a position to repay it?
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Roman Abramovich
Bought Chelsea from Ken Bates for £140m in 2003Has achieved great success on the pitchChelsea have been indebted to him for £700m in interest-free loansWrote of £346m in debt for equity swop (or did he?)
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The Booths
Ken Booth had a genuine love for Rotherham United and saved them in the eighties.In his eighties, he handed over to his sons, who did not share his love.He was owed £3m he had loaned, and took the stadium in lieu.
The sons pushed the rent so high that the club had to move out of Millmoor and go into exile at the Don Valley stadium in Sheffield
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John BachelorJohn Batchelor arrived at York City promising to:• buy the club and the ground• give the Supporters Trust 24% of the shares• have two supporters on the board
Far from being an investor, he later admitted that his policy was in fact to asset strip
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Other benefactors who failed to invest enough
Michael Knighton – Carlisle UnitedMark Guterman – Chester CityMark Goldberg – Crystal PalaceSimon Jordan – Crystal PalaceMike Connett – Northwich VictoriaAli Al Faraj – PortsmouthSulaiman al Fahim - PortsmouthAlex Hamilton - Wrexham
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The Myth of the New Stadium
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Ron Martin @ Southend United
Now in League 2Average gate 2009/10 – 10,329 (L1)
Capacity of Roots Hall: 12,306Fossetts Farm planned since 1998With a capacity of 22,000114-bedroom hotel, conference facilities,
retail parkRoots Hall sold and leased back in 1998
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Estimated cost now £80 millionNot a sod has been cutCosts already of £1.2 millionClub described in court facing HMRC
winding-up petition as a ‘serial offender’Last two times were for £0.6 million eachClub now seriously committed to
SainsburysFinancial beneficiaries of Fossetts Farm?The Martin family
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Darlington Arena
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George Reynolds @ DarlingtonOpened in 2003 with a capacity of 25,000.
Currently restricted to 10,000 on H&S grounds
Record gate – 11,600 at first ever gameAverage gate last season – 1,943George was going to take Darlington to the PL,
but, before he made it, he was given a three year sentence for tax evasion and declared bankrupt
Darlington in Administration in 2003 and 2009
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The ‘Cargo Cult’ Belief‘Build a new stadium and it will fill up’This will finance better players, and hence
lead to promotion, in some kind of virtuous spiral
The evidence suggests otherwiseIt tends to lead to unforeseen additional
construction costs, and unsustainable maintenance costs
Can lead to Administration and thence loss of ownership
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Other clubs with ‘new stadium’ issues
Bristol City and Bristol RoversCoventry CityGrays AthleticHereford UnitedKettering TownLeigh GenesisNuneaton BoroughPlymouth Argyle
Worcester City(and then there’s Liverpool and Everton!)
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To be financially healthy, a club would want to:
• maintain a steady position in the centre of the table of a league which is appropriate for their potential fan base, avoiding relegation, and to some extent, promotion;
• avoid the longer-term uncertainty of benefactor dependency;
• own its own stadium, one which has appropriate facilities for matchday hospitality and non-matchday activities which generate revenue streams;
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• develop a committed local fan base;• develop a long term relationship with a sponsor
which is itself financially stable;• have performance-related contracts with its
players;• maintain a squad which reflected its current
league position in terms of performance and wages;
• employ a manager who is successful on the pitch and appreciative of financial constraints.
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My verdict?
Broken!
Two options:a) Fix it
b) Change to a model that is better fit for purpose
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The Alternatives
Supporters Trust ownershipCommunity Interest CompaniesThe North American modelThe Spanish modelThe Bundesliga model
Please welcomeChristian Mueller of the Bundesliga
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Some change issuesStadium ownershipTransition
Mature market with crass inconsistencies
Enormous financial differences up and down the pyramid
Resistance (club v. League?)Scaling down wagesBroadcasting rights?