'Great recession' catches up with English Premier League
The English Premier League, one of the richest in world soccer, could see one of its teams go bankrupt.
News reports in England imply that Portsmouth Football Club of the English Premier League, perhaps the richest league in world soccer, is within days of bankruptcy. Like an LA condo in 2008, Portsmouth is now operating under its fourth owner this season! This suggests to me that some soccer-owner-wannabes were a bit slow to catch on to the fact that the incredible decades-long growth in the value of sports franchises was destined to stall in the “Great Recession.”
Of course, this is not the first instance of financial trouble for a team in England’s top flight. Leeds United, a club that’s been champion of England three times, imploded both financially and on the pitch in the past decade. Leeds entered the equivalent of American bankruptcy in 2007 and has fallen into the third tier of English soccer. West Ham United, along with other London clubs that have had a periodic taste of the top, such as Crystal Palace and Queens Park Rangers, have faced financial jeopardy in the past year.
As is the case with homeowners, banks, and auto manufacturers, voices have recently been raised in England to “save the clubs from themselves,” if you will. Or alternatively, and inconsistently, to save the clubs from the foreigners, especially the Americans. There has been no American involvement in Leeds or Portsmouth as far as I know, although prominent American investments in top clubs like Arsenal, Liverpool, and Manchester United have brought forth various levels of vitriol from different varieties of English activists. The irony in this activism is that American ownership in English football increases the likelihood that player wages – the key expense which brings ambitious “climbing” clubs to their knees – will be restrained through league agreement. David Conn’s piece in today’s Guardian makes this latter point, and discusses a UEFA initiative to restrain player wage expenses.
A move to bring in some sort of a salary cap would likely find key allies, again ironically, in unusual quarters of the British polity. For example, a restraint on wages tied to club revenue has been advocated by Arsenal’s manager, Arsene Wenger, who fields a team in North London typically bereft of English players. His apotheosis in that regard, the English Football Association, would welcome the effects of a salary cap because it would limit the imports of foreign players and increase the number of Englishmen on the pitch.
In the case of Portsmouth, I suspect that their supporters would welcome just about any owner with the cash to return them to the EPL as soon as possible (they are surely doomed to relegation this year, regardless of who owns the club). As for Manchester United, there is more than one option which appeals to different segments of their supporters. First, a debt-free, free-spending billionaire to come upon the scene, who is willing to buy out the Glazers and spend oodles of money to combat the like of the Russian-financed Chelsea and the recent upstart, the Arab-financed Manchester City. In short, the sugar daddy that English fans pine for, from Wolverhampton to Notts County. Now, it must be said that while such a sugar daddy (a la G. Steinbrenner) might appeal to Man Utd fans, his appearance would surely appall almost everybody else. But regardless, when one takes the view of the league as a whole, this is fancy. How many people are there in the world who are willing to spend a billion plus pounds on a soccer club, in the interest of pure sport? Ultimately, Manchester United is a commercial enterprise, a fate that its sporting success and worldwide appeal has brought upon it.
Less controversial would be an English takeover which reduced the club’s debt/equity ratio. But again, this issue is poppycock. Basic economics implies that ownership will improve the club when it makes sense, regardless of how much debt the club has on its books. Man Utd’s debt had little or nothing to do with the transfer of Ronaldo, who was destined for Real Madrid regardless of who owned the club. Moreover, Wayne Rooney is still on board, and the purchase of Berbatov for 30 million pounds looks if anything, to be extravagant. Now, some people in finance may be exploiting the current imbroglio to lower the asking price for Manchester United, but I doubt that the Glazers are intimidated by this tactic (in the U.S. the Glazers might consider a lawsuit).
Back to the issue of Portsmouth and bankruptcy. Bankruptcy will dock 9 10 points from Portsmouth and ensure their relegation beyond all doubt. Portsmouth could easily end up where Leeds United is, toiling about the bottom tiers of the Football League. But were they wrong to reach for the stars by buying the best players they thought they could afford? I’m willing to let the league table -- and their FA Cup trophy from 2008 -- pass judgment. As much as I want Arsenal to triumph over the new money of Chelsea and Manchester City, and as much as I’d like to see the likes of Portsmouth and Wolverhampton spared from the trap door of relegation, there is something ultimately appealing about the no-holds-barred competition of the English Premier League. Long may it reign.
(The Sports Economist)
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