May, 2010

In yesterday’s Guardian, an analysis of the state of football finance in the UK was presented; the electronic version of the Guardian-wallchart like information can be seen here. (If you want a printable .pdf copy drop me a note). My colleague Andrew, a fellow football enthusiast who also keeps half an eye on the dollars and (lack of) sense (sic and pun intended) of the beautiful game ran off some statistics and highlighted the wages / turnover ratio.

Not wanting to plagiarise, the good academic that I am, I’ve calculated the inverse here. The ratio, in a crude way, measures the ability of clubs to meet wage bills as a function of turnover: in English – do the clubs make enough in terms of revenue to cover their wage bills. There are some interesting revelations:

Figures as per link provided above

At the bottom of the table we can see that Burnley and Portsmouth did not generate enough revenue to cover their wage bills, which is alarming enough. However, while wages constitute a large part of any corporation’s costs, the firm must still have enough left over to see to other expenses. Accordingly, there is a ‘magic number’ that firms need to aim for in order to maintain solvency. As with all magic numbers, this is more a rule of thumb than a fixed figure. However, this varies between industry to industry; general business models suggest that businesses in the service industry should expect to use up 35%-40% of their turnover for wages – which means that turnover should be able to cover wages at least 2.5 times (calculated as the inverse of the percentage). Recent literature suggests that football clubs should ring alarm bells if wages constitute more than 60% of revenue, which means turnover needs cover wages at least 1.67 times.

Now, apply these statistics to the table above and the situation is quite dire. Only one club clears the 2.5 hurdle – no, it’s not Manchester United, it’s Arsenal. Even with the more lenient football specific statistics, we are looking at only five clubs clearing the hurdle; 15 clubs are in the red, with more than half of the Premiership’s wage bills eating up 70% of revenue.

This tells us that clubs cannot sustain wage payment via turnover alone; hence the need to take on debt to sustain solvency. Of course, this is not a particularly good business model given that the more debt one takes, the more it eats into expenses; the failure to service either (wages or debt) would be catastrophic to any business, let alone a football club with world class stars on its payroll.

Another interesting observation is the position of Manchester City, who, under new ownership with promised cash injections, are helping prop up the table just out of ‘relegation zone’. Their revenue per se is not bad and is comparable to clubs of its size, but their spiralling wage bill suggests that when the Sheikhs up and leave, cash in briefcase, a serious fire sale may just occur at Eastlands. Kudos, however, to Stoke City who finished a respectable mid-table 11th by living within their means – no mean feat by any standard.

Further analysis will follow – there is some data to be collected beforehand but yeah, I thought I’d whet your collective appetites. Or not.

*****

It looks like my next trip to Old Trafford to watch a game may be a long time coming as the Red Knights are looking to falter in their bid to take over the club. Their success has always predicated itself on driving the Glazers out, and the Glazers will not sell for as long as the club is financially attractive. In order to make them go, their finances have to be hit sufficiently hard and the Red Knights have asked fans not to renew their season tickets as a mark of protest. I should add that you shouldn’t really buy any merchandise, for that matter, or go to games at all – but with the following that United has, for every fan that gives up a seat at Old Trafford, there’d be a Liverpool supporting tourist raring to pay to get in.

There is also the issue of on-pitch success as well; as much as fans hate Glazer they love United more, and the thought of the team playing on the pitch sans fans is as unthinkable as Ryan Giggs signing for City (although City did get him first haha). So maybe it boils down to this: for all the talk about Love United Hate Glazer, if these two emotions were placed on two ends of a see-saw, which end would be heavier, because this will dictate the next course of action for the fans – to buy or not to buy that ticket.

Maybe what we need is a few seasons of abject failure. I quite miss our mediocrity of the 80′s. It may breed schadenfraude all around the country, but it would also shake off the Glazer shackles and latch the bandwagon of fairweather fans onto the carriage of another club. We could all do with shedding some weight.

Or maybe we just need to wait until the club crumbles under the weight of the debt, and the spectre of bankruptcy looms. The Glazers will leave, and Manchester United will rise from the ashes with the ownership model that is the pride of Barcelona and socialists alike.