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Just how broken is football's financial model?
 

Just how broken is football's financial model?

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Dr. John Beech & Christian Muller of the DfL talk you through the issues. ...

Dr. John Beech & Christian Muller of the DfL talk you through the issues.

We've now seen well in excess of 50 insolvencies at football clubs since 1992 compared to no insolvencies in the Bundasliga during this period, leading to most expert commentators on football finance now agreeing that ‘light-touch' regulation is at an end.

We heard from one of the most respected academics in his field, Dr John Beech of Coventry University, about what has failed and what he believes needs to change. and the DfL's Christian Muller on how they do it in Germany,

For Christian Muller's presentation look on our main presentations section.

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    Just how broken is football's financial model? Just how broken is football's financial model? Presentation Transcript

    • Supporters Direct 2010 Just how broken is (English) football’s financial model? Dr John Beech Head of Sport & Tourism Applied Research Centre for Sustainable Regeneration Coventry University
    • The Myths The underlying myth – the club The myth of the benefactor The myth of investment The myth of the new stadium What are the alternatives? Christian Mueller of the Bundesliga Some issues of implementing change
    • The Myth of the Club A breach of the Trade Descriptions Act? ‘an association of two or more people united by a common interest or goal’ ‘an organisation run by and for its members’ Went with professionalisation Replaced by the limited company
    • ‘The Club’ Construct Company Crew
    • Crew Trigger’s broom Constantly changing Transfer to opposing clubs 2010 Cup Final Days of local identity long gone Still our heroes or zeroes
    • Company The owner(s) The board of directors The Chief Executive Officer The business element Finance and accounts Making a profit or at least not making a loss
    • (Social) Construct The ‘till I die’ element Tattoos The heritage, culture, mentality and mythology The fans’ construct It doesn’t physically exist yet it’s the most permanent dimension
    • Confusion Need to keep the three elements distinct when analysing ‘Save our Stanley’ actually meant ‘Save our Board of Directors’ Exploitation of fans; ‘taxation without representation’
    • Can these three elements merge? Do we want them to?
    • How have they become separated? Is this irreversible?
    • The professionalised era FANS LEAGUES OWNERS CLUBS PLAYERS
    • The commercialised era SPORTS BROADCASTERS INVESTORS FANS LEAGUES OWNERS AGENTS SPONSORS CLUBS PLAYERS
    • The model depends on money in from fans and, when necessary, benefactors To be ambitious requires serious financial input from the benefactor The model is not sustainable if the money just flows through the club to players and agents, unless the benefactor is infinitely rich and does not lose interest
    • The Myth of the Benefactor Origins go back to professionalisation Usually either churches or breweries Very different, but share the outcome of local commitment From the 1980s local benefactors largely replaced by external ones
    • Jerry Sherman One of football's most unexpected marriages will be consummated when Newport County, the unfashionable and down-at-heel third division club, is taken over by Jerry Sherman, the handsome American multi-millionaire. (The Times, 1 October 1986) By February 1987, the club is facing a winding up order over debts of £600,000. Sherman goes, and so does the club Sherman believed to be currently in prison in Seattle for defrauding an ice hockey club
    • Spencer Trethewy The 19 year-old property developer who would save Aldershot in 1990 Club was wound up In 1994 Trethewy was imprisoned for fraud Now manager (owner?) of Chertsey Town, using the name Spencer Day
    • Jack Hayward Wolves were insolvent in 1982 and again in 1986 Hayward bought them in 1990 (then in Tier 3) Quit in 2003, having lost £40m (Club made the premier League in 2003, only to be demoted after one season)
    • UEFA’s Financial Fair Play protocol will end this model being possible, even at Chelsea or Manchester City
    • The Myth of Investment Shares (equity) or loan? Fans misinterpret loan as purchase of shares If it’s a loan, the benefactor may want his money back if his circumstances change. But will the club be in a position to repay it?
    • Roman Abramovich Bought Chelsea from Ken Bates for £140m in 2003 Has achieved great success on the pitch Chelsea have been indebted to him for £700m in interest-free loans Wrote of £346m in debt for equity swop (or did he?)
    • The Booths Ken Booth had a genuine love for Rotherham United and saved them in the eighties. In his eighties, he handed over to his sons, who did not share his love. He was owed £3m he had loaned, and took the stadium in lieu. The sons pushed the rent so high that the club had to move out of Millmoor and go into exile at the Don Valley stadium in Sheffield
    • John Bachelor John Batchelor arrived at York City promising to: • buy the club and the ground • give the Supporters Trust 24% of the shares • have two supporters on the board Far from being an investor, he later admitted that his policy was in fact to asset strip
    • Other benefactors who failed to invest enough Michael Knighton – Carlisle United Mark Guterman – Chester City Mark Goldberg – Crystal Palace Simon Jordan – Crystal Palace Mike Connett – Northwich Victoria Ali Al Faraj – Portsmouth Sulaiman al Fahim - Portsmouth Alex Hamilton - Wrexham
    • The Myth of the New Stadium Fossetts Folly Farm
    • Ron Martin @ Southend United Now in League 2 Average gate 2009/10 – 10,329 (L1) Capacity of Roots Hall: 12,306 Fossetts Farm planned since 1998 With a capacity of 22,000 114-bedroom hotel, conference facilities, retail park Roots Hall sold and leased back in 1998
    • Estimated cost now £80 million Not a sod has been cut Costs already of £1.2 million Club described in court facing HMRC winding-up petition as a ‘serial offender’ Last two times were for £0.6 million each Club now seriously committed to Sainsburys Financial beneficiaries of Fossetts Farm? The Martin family
    • Darlington Arena
    • George Reynolds @ Darlington Opened in 2003 with a capacity of 25,000. Currently restricted to 10,000 on H&S grounds Record gate – 11,600 at first ever game Average gate last season – 1,943 George was going to take Darlington to the PL, but, before he made it, he was given a three year sentence for tax evasion and declared bankrupt Darlington in Administration in 2003 and 2009
    • The ‘Cargo Cult’ Belief ‘Build a new stadium and it will fill up’ This will finance better players, and hence lead to promotion, in some kind of virtuous spiral The evidence suggests otherwise It tends to lead to unforeseen additional construction costs, and unsustainable maintenance costs Can lead to Administration and thence loss of ownership
    • Other clubs with ‘new stadium’ issues Bristol City and Bristol Rovers Coventry City Grays Athletic Hereford United Kettering Town Leigh Genesis Nuneaton Borough Plymouth Argyle Worcester City (and then there’s Liverpool and Everton!)
    • To be financially healthy, a club would • maintain a steady position to: centre of the want appropriate for their in the table of a league which is potential fan base, avoiding relegation, and to some extent, promotion; • avoid the longer-term uncertainty of benefactor dependency; • own its own stadium, one which has appropriate facilities for matchday hospitality and non-matchday activities which generate revenue streams;
    • • develop a committed local fan base; • develop a long term relationship with a sponsor which is itself financially stable; • have performance-related contracts with its players; • maintain a squad which reflected its current league position in terms of performance and wages; • employ a manager who is successful on the pitch and appreciative of financial constraints.
    • My verdict? Broken! Two options: a) Fix it b) Change to a model that is better fit for purpose
    • The Alternatives Supporters Trust ownership Community Interest Companies The North American model The Spanish model The Bundesliga model Please welcome Christian Mueller of the Bundesliga
    • Some change issues Stadium ownership Transition Mature market with crass inconsistencies Enormous financial differences up and down the pyramid Resistance (club v. League?) Scaling down wages Broadcasting rights?
    • The End footballmanagement.wordpress.com John@Beech.net