Are footballers’ contracts a licence to print money?

IN HIS third feature, James Robinson looks at the surge in professional football players’ wages, and how this is proving detrimental to the clubs’ own financial stability. 

Ashley Cole chose club money over club loyalty by making the short trip west to Chelsea FC

Ashley Cole chose club money over club loyalty by making the short trip across London. He was rapped for this gesture to Arsenal fans recently

Premier League clubs are spending more of their money on wages than ever before, a report by business advisory group, Deloitte, has found. The revenues of top-flight English sides topped £1.5bn for the first time in the 2006/7 season. But the average ratio of footballers wages-to-turnover hit its highest level, 63%, since the Premier League began in 1992.

Pursuing success on the pitch both domestically and in Europe though, meant clubs spent heavily on players and wages but to the detriment of their own personal finances, the report said. Only 8 of the 20 Premier League clubs recorded an operating profit in 2006/7 – half the number which did so a year earlier.

The report into football finances added however, strong English representation in the Champions League, with three semi-finalists in successive years and three teams in this year’s semi-final; suggested that the quality in the Premier League was continuing to improve. Wages paid by top-flight English sides grew by 13% from the previous season to £969 million. One club, Reading, saw its wage bill more than double, while Portsmouth and West Ham United spent 49% and 41% more on paying their players respectively.

Chelsea had the highest wage bill, totaling £132.8 million. Spending recently was probably ambitious due to the arrival of a new three-year broadcasting deal – worth around £1.7bn – which began in August 2007. Finally, Deliotte’s report found that Premier League clubs revenues for the 2007/8 season propelled to around £1.9bn. “A number of clubs essentially spent some of the money on new players and wages in advance,” said one of the report’s authors, Deloitte’s Alan Switzer to BBC Sport. “They knew the broadcast revenue was coming so it was acceptable to do so, but what would be more worrying would be if clubs’ wage bills increased even more significantly in coming years.”

Mr Switzer, of Deloitte sports business group stated, “Wages will have gone beyond £1 billion for the season which has just ended. It will be interesting to see what happens next, and how high they will go

The average wages-to-turnover ratio in the Premier League hit 63% in 2007/8 compared that to 48% in 1996/7, though Mr Switzer said this was “still at a sustainable level”. Professor Simon Chadwick of Coventry University’s Centre of Business in Sport recently stated that “Manchester United’s wages-to-turnover is at 70%, whilst Chelsea’s currently lies at a staggering 90%”. He said that clubs “should be looking to be in the 50% – 60% bracket” Prof Chadwick agrees with the findings from the Deloitte sports group, but with Manchester United’s and Chelsea’s wages being significantly higher than others, you have to wonder, is it worth it? As a fan you would have to say ‘Yes!’. After all they have both dominated the Premier League and internationally for the last six years, proving to some, that money can buy you success. Mark Pougatch, football correspondent for BBC Radio 5 Live also agrees, he told me “Economists always told me 60% tops what any business should spend on wages” he said. “Chelsea’s model only works because of the owner. It’s not sustainable in the long term. If he were to leave……”

Mr Switzer, of Deloitte sports business group stated, “Wages will have gone beyond £1 billion for the season which has just ended. It will be interesting to see what happens next, and how high they will go.” Dan Jones, a partner in Deloitte’s sports business group told Sky Sports News, “Most of the investment has been at clubs which have seen new foreign owners at the helm of the club”. However, the failure of clubs to manufacture a strong bottom line suggested that club owners might not have a “real desire” to make noteworthy profits. “The improvement in cost control which would demonstrate a normal business culture of maximising profitability does not appear to be happening at Premier League clubs,” he said.

“It seems that, as in prior decades, we are seeing football clubs treated as ‘trophy assets’, except the clubs are now owned by billionaires from a range of nationalities rather than local successful businessmen, reflecting the global appeal of the game.” The “key strategy” to making money for the club was in selling it on by building up a brand value, he added, “rather than a more tangible ongoing measure such as profitability”. Premier League Chairmen, who take these gambles are playing the role of the Fairy Godmother. They are overlooking all the outgoings that their club pays, and squeeze out every penny.

Elsewhere in Europe, the top flight of the French, Ligue 1, Italian, Serie A and Spanish, La Liga, saw about the same proportion of turnover being spent on wages as in the English Premier League. However in Germany, only 45% of income went on salaries. The Bundesliga had the highest operating profit margin in Europe, Deloittes report said it was at 18%. This was helped by Germany having Europe’s highest average attendances – with fans drawn by the countries low ticket prices. The report also noted that “the price of the Bundesliga’s clubs very good financial performance seems to be a struggle for them to reach the latter stages of European club competition in recent years”.

Some argue that a salary cap is needed, players nowadays do not play for the shirt; they are happy just picking up their pay cheaque every week and these rumblings from fans causes discontent

One scheme that a few key men, including Uefa president Michel Platini are interested in testing is the idea of putting a salary cap on clubs. Pougatch, is against this idea claiming it would, “never happen”. He told me, “There are far too many vested interests. Why would the big turkeys ever vote for Christmas?” Some argue that a salary cap is needed, players nowadays do not play for the shirt; they are happy just picking up their pay cheaque  every week and these rumblings from fans causes discontent. Mark Pougatch has, “no problem with entertainers earning what they can” he told me, “the upshot is that players and agents have all the power and too often it seems as if the shirt means precious little to them”, although this is argued to be the case for some, he mentioned some positives, “The best are those who earn well and respect those who come and watch every week – players like Paul Scholes and Steven Gerrard.”

Wages do play a huge role in English football, they attract the best players, with the most money. The money that is around in today’s game is colossal, players like Sir Tom Finney who played in between 1946 – 1963 are still known for their generational football which unfortunately did not have the financial perks that today’s players get. Sir Tom Finney spoke to the Daily Mail in March 2009, about todays, “pampered millionaires”, he said, “I don’t begrudge the special players a penny”. Sir Tom Finney, 87; last pay packet at Preston North End in 1960 was for the handsome sum of £20. He went on to tell of, “That lad Ronaldo at Old Trafford is one of the best three footballers in the world now. There are a few around in the Premier, but there are a lot more ordinary players getting £60-70-80,000 a week”

This public sign of disproval towards those players who are “ordinary” by comparison to a man like Sir Tom Finney should ring some truth; the man has seen everything but understands the game has changed since his career. By making ordinary players look like superstars they are becoming “pampered millionaires”. In the months that we are facing, and have faced, with the recession, the “pampered millionaires” as the Daily Mail calls them, will and still keep earning mega money throughout as their own personal wealth and commercial appeal will outstay any financial and marketable trouble.


1 Comment

Filed under Features

One response to “Are footballers’ contracts a licence to print money?

  1. Recently, there has been a good deal of inquiries by the
    US Federal trade comission against bloggers and website promoters
    for not revealing their advertising income, or existing
    relationships with advertising agencies.

    What are your thoughts about how this could impact
    the blogging community?

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s