Friday, Feb 05, 2010
Football managers become accidental landlords: Can't sell players? Rent them out instead
BBC Sport: Premier League clubs' January transfer spending slumps
Premier League clubs spent £30m in the January transfer window, the lowest since the mid-season window was introduced in 2003. The outlay of fees compares with about £170m spent this time last year. (That's an 82% drop!). About 70% of transfers were loan arrangements. The tightening of club finances and credit availability have helped to dampen down the market. Next month, Deloitte is expected to confirm several Premier League clubs in the top 20 of the world's richest clubs. However its Football Money League is based on revenue alone and does not take debt into account.
--- [OK here's what's happening. Football teams borrowed lots of money. Bid up the price of players sky high. Now they're stuck with over-priced players, but don't want to sell, so they're "letting" them out instead.]
16 Comments
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1. little professor said...
Even at the height of the boom I never understood the huge prices being paid for footballers. Not just on a moral level, but a financial one. Footballers are generally depreciating assets, their value tends to decline with age.
Say for example Man City paying £37million for Carlos Tevez. A fine player, no doubt, but how can City ever hope to get any return on their investment? Even if they win the premiership, the prize money and increased sponsorship is not going to get anywhere near that amount.
2. little professor said...
Sorry, that should have been £47 million.
3. drewster said...
Needless to say, if teams actually tried to sell the players they would quickly discover that their current market value is far below what they originally paid for them. The banks loans are (presumably) secured on the value of the players. If transfer prices fall, the book value of the team collapses. Many Premiership teams would be bankrupt, unable to repay their debts. Hence the cover-up - loaning players instead of actually selling them.
Typical example: 12 months ago, Tottenham bought Robbie Keane for £12m for a 4-year contract (£3m/year). A few days ago Tottenham announced that he would be loaned to Celtic; the terms are undisclosed but rumoured to be around £65,000/week. At that price they are barely breaking-even on the deal.
Sometimes a picture is worth a thousand words:
4. drewster said...
Little Prof,
Football has largely been supported (pardon the pun) by the financial markets. Over the last decade ticket prices have sky-rocketed, satellite subscription prices are up, the fees charged for pubs to show games are up, the cost of official shirts are up. Sponsors have been splashing the cash too until recently - witness AIG sponsoring Manchester United. (In fact that deal doesn't expire until May 2010 - so Man Utd are still raking in the cash).
During the boom years, companies liked to be seen splashing the cash too. The price of a corporate box at a big match is eye-watering. Globalisation has also been a major force. Satellite tv allowed Premiership football to be sold to the rest of the world. More eyeballs means more sponsorship deals and more official merchandise. We live in a world where David Beckham advertises mobile phones in Japan.
I'm surprised that football hasn't fallen sooner. Back in 2006, AIG paid £56m for a four-year shirt sponsorship deal which was a world record at the time. Starting from May this year, Man Utd's sponsors will be Aon Corporation, another American insurance giant. They are paying a new world record of £80m for a four-year deal.
5. Crunchy said...
1. little professor
And the relevance to house prices? Double standards LP?
As I have said before it's all inter connected, even though we all have our own pet contributions and views that others may 'vehemently' disagree with.
A ditty from the 1920s era.
I'm forever blowing bubbles,
Pretty bubbles in the air,
They fly so high, nearly reach the sky,
Then like my dreams they fade and die.
Fortune's always hiding,
I've looked everywhere,
I'm forever blowing bubbles,
Pretty bubbles in the air.
6. jack c said...
I suspect that much of the foreign interest in UK clubs is part of an eloborate money laundering scam. It seems strange that the FSA has financial advisers jumping through verification of identity/address and source of funding hoops for a £60 per month regular premium stocks and shares ISA but little attention appears to be paid to some Russian bloke who pumps millions into a West London football club !
Liverpool FC have repeatedly re-financed roughly £300m worth of debt most of which I understand is with RBS a Bank that needed to be bailed out by the UK Government - in short you have Two bust businesses - does this mean that the Tax payer is effectively paying Stevie G's £150k per week pay packet?
7. mountain goat said...
Yes the football bubble is punctured.
The first bond issue by English football club Manchester United has become one of the market’s worst performers this year barely two weeks after its launch. ...
Tuesday FT Alphaville: Man Utd bond issue falls flat
8. luckyjim said...
I think wage inflation is a bigger problem than transfer fees.
The high wages make it impossible for well run clubs to develop players and succeed. Transfer fees don’t fully compensate them because they cannot afford the wages of equivalent players.
What annoys me is that our government says they can’t do anything about this because of EU employment laws. But we opt out of EU directives on working time, paternity leave etc. There are common sense exceptions to EU law on race and sex discrimination. In other words, we only follow EU employment law when it suits us.
Things will only change when one of the media darlings goes bust. Fingers crossed.
9. icarus said...
In the case of Man City isn't it just Abu Dhabi multi-billionaires amusing themselves?
Dubai rulers' investment in racehorses was never going to pay for itself either.
10. icarus said...
Funny how the most bankrupt countries pump, or have money pumped, into football clubs. England, Spain, Italy. Portugal don't do badly and even Greece won the European tournament last time but one. Where are Germany and France these days?
11. mystie010 said...
I hate football it's a silly game!
12. icarus said...
Thanks for sharing that with us, mystie.
13. smugdog said...
Dum de Dum de Dum............. what else can we talk about whilst we wait for capitulation?
14. greenshootsandleaves said...
smugdog@13
I too thought it was a little off-topic until I realised that RBS (to name but one bank) had been run in much the same way as, say, Leeds Utd.
Football clubs, banks, property speculators ... Could it be that the same rules apply to all of them? Surely not!
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