Archive for September, 2008

Whose Money are we losing?

Wednesday, September 3rd, 2008

We had a post on our club forum, asking whether or not our fans would appreciate it if the club was taken over, and if we could achieve promotion thanks to the input of one or more directors. The question was supposed to be hypothetical, but I wondered if it was really hypocritical. The fact is that few clubs in the lower division are even coming close to running on an even keel, and at my club (Cheltenham Town), we rely on a regular input from two of our directors to offset the losses we post on an annual basis. Furthermore, Cheltenham won promotion in 1997 (from the Southern League), 1999 (into the Football League), 2002 and 2006 (both times from what is now League-2 to League-1) with only one relegation in the period. This has not been achieved purely thanks to good managers and players, but also thanks to directors dipping into their pockets when the requirement was there.
It is to the club’s good fortune that all this investment has since been turned into equity, and the directors will not be getting a return on their investment unless the share price was to increase. They cannot even leave the club and demand their loans to be returned – their only rights being to whatever they can get by selling their shares.

Many other clubs survive on their director’s pots of money, but these are still booked as loans to the clubs. At the top end, this means that Chelsea FC owes over £500 million to Mr Abramovich. Abramovich may have put far more than this into the club, but the figures show that nothing will move at Chelsea, without the express consent of the chairman. Unlike the rest of the ‘big four’ Chelsea are still returning year on year losses as well.

Looking at the news over the last couple of days, Newcastle and Manchester City have been highlighted. Newcastle changed hands a short while back, with Mike Ashley having to spend over £130 million to buy the shares. It appears to be a high price to pay, as the publicly available records showed that in the previous two seasons, on income of around £80 million per annum, the losses had totalled over £40 million. Later newspaper reports said Ashley had to pay another £75 million to pay off debts (and provide a little money for the purchase of new players). I would expect this to be noted as a loan to the company in future accounts. With Ashley’s major business, Sports Direct showing reduced profits over the summer, and the shares dropping 10%, it is not surprising that the club has been a little slow into the transfer market this summer, and that Milner was sold over the head of Keegan. Keegan, whose position is still unclear at the club (if not exactly tenable), should have known that with the club having an Executive Director (Football), a Vice President (Player recruitment) and a Technical co-ordinator all somewhere above him on the player buying and selling programme, his job was more a head coach, than overall manager.

Manchester City has changed hands twice in little over a year. The first buyer was former Thai prime minister Thaksin Shinawatra valuing the club at £81.6 million. Not bad for a club that had an £11 million lost to post for the 2006-7 season, and much higher accumulated debts. The buyout was controversial from the start, Shinawarta had to rely on those assets he had outside Thailand, as Thai courts had frozen some £830 million he held within the country, pending corruption trials. Despite the fact that his supporters have won the general election that returned Thailand to democracy, the trial will go on, (even in Shinawarta does not turn up). The club spent over £30 million on transfers in Shinawatra’s years, and paid the less than negligible wage bill of Sven Goran Erikson (including the inevitable pay off to remove him when the club only reached the UEFA Cup thanks to England finishing top of the fare play table). Shinawatra’s investment suddenly looks like a good investment, as he manage to sell the club for around £200 million to Abu Dhabi United group last weekend. The new owners splashed out another £32 million within 24 days to sign Robinho from Real Madrid (and more significantly, from underneath Chelsea’s nose). They also tried to hijack Berbotov’s move to Manchester United from Spurs.

This move appears to me to appear to be a piece of one-upmanship in the rivalry between the two oil rich gulf emirates, Abu Dhabi and Dubai. Dubai, through its investment arm, Dubai International Capital has been trying to buy Liverpool FC, so with this bid floundering, Abu Dhabi have gone and got a club for themselves. (Apart from football, both cities compete with massive construction projects in their cities, their own international airlines and airports; Dubai also owned Tussards for two years, profiting by £200 million on the sale, and retaining 20%, and owns Travelodge – the biggest hotel chain in the UK; Abu Dhabi has been buying extensively in the London property market, taking advantage of current low prices).

Investment funds like Abu Dhabi United (part of the Abu Dhabi Investment Authority – ADIA) are state run operations, original set on a cause of low risk (but therefore low return) investments. Manchester City football club sits uneasily in such a portfolio, but ADIA has assets of US$ 875 billion – approximately US$ 1 million per citizen of the Emirate, so they can probably afford the hit.
While many buy outs of football clubs seem more to do with prestige than business, the highest profile of them all, the American buy out of Manchester United appears to be a hard headed business plan, which is so far paying off. Despite the two or three thousand disenchanted fans watching FC United, Old Trafford has not yet gone empty, and the company has been making the profits required to finance the debt leveraged for the original buy out. If the world wide fan clubs of Manchester United could group together to raise the finance, then there are few clubs that are better positioned to operate as a true, supporters run co-operative under Football trust ideals.

Most of those clubs that have tried a fans trust based ownership method have not been successful, as despite the good will that attends the start ups (normally from the ruins of a failing club), trusts are not a good method of pulling in finance to support a loss making enterprise, and even part ownership does not persuade fans to come week in, week out to watch a relegation bound club. The most successful (maybe the only successful) trust run clubs are those where the supporter base is still so far above their league rivals as to give them an income edge, (AFC Wimbledon still fits into this category – their crowds took an annual hit every season after formation until last season).

At lower levels, the arrival of a businessman with money has often resulted in a brief flare as a club climbs the pyramid, followed by the even more sudden decline when the money runs out. Non-League football is littered with the ruins of temporary success – Rushden and Diamonds, Canvey Island, and Hornchurch being some of the most obvious. Rushden were in fact one of the best of these, with Max Griggs’ club climbing to what is now League-1 before the cash ran out. Despite the owner trying his best to gift the club with everything they needed to be self sustaining, they had not built a level of support that matched the owners’ ambition, and dropped back to the Conference in quick time. They have survived better than the others, and have not been forced into administration, or re-named. There are far worse owners that can befall a club, than Mr Griggs at Rushden. If you do not believe me – look no further than Oxford.