How is football coping with the recession?

OVER THE next four days, CU Today will publish a series of feature length articles on ‘Football and Finance’ as researched and written by final year Journalism and Media student, James Robinson.  In the first article, he looks at football in the current economic climate.

BBC 5 Live presenter, Mark Pougatch, said football has always believed it is immune to the cyclical nature of all industries

Controversial businessman, George Reynolds, took over Darlington FC in 1999 and promised the club Premier League football within 5 years. Reynolds played the role of the good guy in this extravagant drama. After building a 25,000 all seater stadium, costing £20 million, his ambitious plan seemed to be on the right track. But Reynolds, 72, left in January 2004 after placing the club in its first period in administration and at the end of this drama, he reveals himself as the bad guy in this heart-rending story about an ailing lowly football club looking to reach the upper echelons of English football. After 3 new owners and mediocre seasons lying in the basement of English football, Darlington’s future looks bleak yet again and in February 2009 they were placed in administration for the second time in 5 years. The town of Darlington now faces the real possibility of not having a football team.

The story of football and finance can be compared to a play. All well-written dramas have a beginning, a middle and an end. In between the plot will twist and turn often in unexpected ways. The story of football during this recession looks set to follow these dramatised guidelines. This five part series looking into the story of football and finance will discuss some of the ideas involved, with input from sports media personalities, business leaders and football experts who understand how football can clubs cope financially during the recession.

Clubs across the country have all felt the effect of the recession in various ways. The arrival of a new foreign investor, administration resulting in points deduction, attendances dropping and wage deferrals. Despite clubs facing financial insecurity, the opening act of this play has actually seen clubs spending more forcefully. Business advisory group, Deloitte, announced in February 2009 that Premier League clubs, played by Prince Charming, in the January transfer window, broke their own record, spending a mammoth £160million in a mere 30 days. The amount surpassed last year’s total of £150 million. Paul Rawnsley of Deliotte told BBC Sport, “With the majority of their revenue streams already secured for the current season, whilst [Premier League] clubs are not recession-proof, they are relatively recession-resistant.” He said, “Looking forward, whilst the clubs will not be complacent, the latest transfer activity re-emphasises the financial strength and global appeal of the Premier League competition.”

…Sponsors are a saving grace for football clubs as they are in the darkest financial time many of them are ever going to face

The Premier Leagues vigorous spending in the winter transfer window showed their apparent immunity to the recession. Football correspondent for BBC Radio 5 Live, Mark Pougatch told me, “Football has always believed it is immune to the cyclical nature of all industries, the boom and bust reality of the world.” Is football immune in the current economic crisis? Economist Drew Nash disagrees with the report from Deliotte, he told me “No company or organisation is safe, and that includes football clubs”. Clubs spending, even in a recession, shows the twists and turns of a play that shocks the audience, and questions the decisions behind them. Why would clubs spend more when we are in a recession?

One reason is sponsorship, which plays the role of the ‘Good Guy’. Not only does sponsorship give football clubs huge financial backing, it also gives the Premier League itself a massive financial cushion. Barclays first sponsored the Premier League in 2001, in a three year deal worth around £48million. The sponsorship then switched to its sister brand, Barclaycard in 2004. In 2006 it signed a 3 year extension worth £65.8million, but as that deal is coming to an end, it looks like they may now pull out of sponsoring top flight football in England. Libby Chambers, Barclays global retail and commercial banking chief told Marketing Week in December, “the Premier League sponsorship is very much part of our overall sponsorship review” She added, “It [Premier League] has done a great job in raising the international profile of Barclays, but all our sponsorship property is being reviewed in 2009” Industry experts have told me that if Barclays is deemed not to meet a return in investment from the Premier League, then it will be axed when the current contract runs out in June 2009.

Michele Platini has questioned English clubs' ability to manage their finances

Professor Chadwick, head of the Centre of Business in Sport at Coventry University, believes that sponsors are a saving grace for football clubs as they are in the darkest financial time many of them are ever going to face, “Sponsors are a safe port in a storm for football clubs”. Newly relegated side, West Bromwich Albion went the entire 08/09 season in England’s top flight, arguable the most marketable sports league in the world, without being able to employ a shirt sponsor. When their last sponsors T-Mobile decided to cease their sponsorship, the West Midlands club started looking, but too no success. This is one specific example of football clubs being hit by the recession.

Business advisory firm, PKF’s annual survey of football club finance directors, showed that more Premier League teams expect to make a loss this season, with about 7 saying they had faced problems getting finance. Keith Morgan a partner at the firm told BBC Sport “Outside the so-called big four (Manchester United, Liverpool, Chelsea and Arsenal) there are some difficulties facing the clubs financially”. Philip Long, PKF’s head of corporate recovery agreed with Morgan. “Even the Premiership is not immune,” Mr Long said. “Given the present economic climate, it is understandable that banks are more reluctant to lend, but this may also reflect a deep-seated unease about the financial viability of some Premiership clubs.” He added: “We have so far only seen the beginnings of the credit crunch ripple effect. It is proving to be a reality check for the big teams who have to look at ways of tightening their belts, which should ensure the long term future of the game.”

Jurgen Klinsmann, formerly of Tottenham Hotspur and Germany, as player and manager, forecasts major changes in the European game as the economic crisis bites

Money from television companies has always been a main source of income for football clubs in the UK, but soon it might be a different format to what we are used to. The Premier League looks like it will recession proof its main source of income – television money – by launching its own channel, even as early as summer 2010. This will only go ahead if bids to gain the rights, from BskyB and others such as Setanta sports, who themselves are facing financial difficulties themselves, to show Premier League football diminish.  Economist Jack Kemp predicts this not to be a problem, “The Premier League to an extent is already ‘recession proof’. I don’t think broadcast companies such as BskyB will fold under the financial pressures that the Premier League faces them”

Jurgen Klinsmann, formerly of Tottenham Hotspur and Germany, as player and manager, forecasts major changes in the European game as the economic crisis bites. Italian television was the first; it nearly halved all its fees it will pay for the rights to show Champions League football from next season. More television companies will follow suit, and English football clubs in particular may feel the pinch a little more. Uefa president, Michel Platini, the evil stepmother in this production, will seek to use this to his advantage. Platini, often questioned due to his outspoken views, has always talked of his disapproval towards English teams and their constant debt strapped regimes. If the predictions of clubs becoming less financially stable in the near future turn out to be true, it has been rumoured in several newspapers that Platini will enforce laws on English clubs indebtedness, without having to go through the normal regulations that Uefa usually enforce.

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2 Comments

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2 responses to “How is football coping with the recession?

  1. Hey, I just wanted to say what a quality website. I totally enjoyed it and found it entertaining reading. Anticipating your next post!

  2. To be honest i don’t see much difference in how is football clubs are coping with the recession. The clubs at the top still spending alot of money on players wages and transfer buys. Nice post.

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