High-risk game of two halves

Two Premier League club owners had their fans scratching their heads over the past week.

Mike Ashley, owner of Newcastle United, sacked manager Chris Hughton. The Rao family, whose Indian chicken production company bought Blackburn Rovers in October, sacked manager Sam Allardyce.

The fans’ puzzlement was that these were clubs with limited prospects, yet so far this season they had reached respectable mid-table positions. But that was not enough to satisfy their owners’ ambitions.

That business people buy football clubs in the first place has long been a source of head-scratching. This year, for example, Portsmouth became the first Premier League club to go into administration .

Heavily indebted Liverpool was prised out of the hands of one group of Americans into the hands of another, after a courtroom battle. And the Glazers, owners of Manchester United, issued a £500m-plus bond to restructure the club’s finances .

Further down the football pyramid, one club owner after another was dragged to the insolvency court by an increasingly hostile taxman.

Barely any of the owners of England’s 92 clubs in the Premier League and Football League have avoided falls in attendances and merchandising sales from the recession. Meanwhile, players’ wages have reached levels considered unsustainable by all but the recipients and their agents.

According to Greg Clarke, chairman of the Football League, the financial weakness in English football is now endemic.

“If you look at the amount of debt in football at the minute, and the amount of losses, and how much turnover is being chewed up by player wage bills, I would venture to guess we have more financial risk and volatility – systemic risk – in our football game than we’ve imagined before,” says Mr Clarke. So why do people buy football clubs?

“Some of it’s kudos, some of it’s genuine business reasons and some of it’s for sympathetic reasons,” says Eddie Davies, owner of Bolton Wanderers.

Mr Davies rubs shoulders with Russian oligarchs, Gulf sheikhs, US sports franchise owners, hedge fund managers and other English self-made men. A Bolton man who made his fortune out of electronic heating controls for kettles, he set out a strategy for the club that was part-business, part-philanthropic.

“The strategy really was to get in the Premier League and the long-range plan was to have at least 10 years in the Premier League and enjoy ourselves, try not to lose any money and make history for the town,” he says.

All of that has been achieved – except the financial part. Bolton lost £35.4m last season. Mr Davies describes Bolton as a trading club, its profit and loss account dependent on its transfer deals. In the next January transfer window, players will be sold to correct “a big slug of wage bill that we didn’t need”.

Fans are used to it, says Mr Davies. “We bought Nicolas Anelka for £5m and sold him for £15m to Chelsea,” he says. “I never heard any complaints from the fans.”

That is because the owners’ main purpose in making a profit from player trading is to buy better players rather than take a dividend.

“I don’t think you go into sport to make a profit,” says John W Henry, principal owner of New England Sports Ventures, which bought Liverpool in October. Alluding to NESV’s exit strategy, he adds: “We hope some day that Liverpool will be much more valuable than it is today.”

Such an outcome is not impossible – former Thai Prime Minister Thaksin Shinawatra bought Manchester City’s equity in 2007 for £20m and sold it a year later for a sum believed to be £100m.

But football authorities want owners to adopt longer-term financial strategy, while Mr Clarke says the use of the transfer market by owners to wipe away their losses remains the abiding short-term philosophy.

“Football clubs don’t have five, 10, 15-year plans. It’s not the way,” he says.

TV rights income has been the pillar of every owner’s financial planning. The promise of sharing in the Premier League’s rights deals drives Championship clubs to stretch their balance sheets to win promotion. Tom Glick, chief executive of promotion aspirants Derby County , was last month purring at the prospect of his club’s Championship match at Burnley getting TV exposure in 112 countries. “The stage offered when one is in the Premier League, in terms of total reach and quantity, is greater,” he says.

At Bolton, the reliance on TV rights has reduced the percentage of turnover from gate receipts to 10 per cent. Other clubs, particularly those taken over by US owners, believe their brand can be better exploited to maximise revenues. Further down the league, attendances are essential.

“The gates are all down at the moment,” says Mary Gibbons, who with her husband was part of the consortium that paid £375,000 to keep League Two’s Stockport County going in April. “Things are tight across the board.”

Mr Clarke recalls the competitive zeal of football in the 1980s and concludes that the ambition of owners is no different today. “But what has changed is people seem to want to spend a lot more money and adopt a much higher-risk profile.

“The club owners of those days were hard-bitten, self-made men. They’d made their money, they had a relationship to real money. The current owners are willing to pay more for success and take bigger risks for success. It seems now that chasing the dream has become a more high-risk activity than it used to be.”