The problem with football is money. We all know it. We hear from our grandparents how the teams would travel to matches on the bus with the fans and buy them a drink in the pub afterwards. But then the old Chairmen started to sell their clubs and the professionals moved in.
So if money is the the whole answer what lessons can be learned from it? It seems to me that clubs in England fall into three groups: the old fashioned privately owned business, the clubs owned by oligarchs and the businesses. In Europe there is a fourth category – the true “club” owned by the members and managed by a Chairman elected by the club. Real Madrid, Barcelona and Bayern Munich run on this basis.
The former clubs are the poor man’s oligarch club run on the wealth of a local businessman. Wealth is in millions and too many of these begin life with clearing old debt. Many a well-intentioned rescue has been turned into financial ruin due to the ongoing demand for money. What begins as a desperate grasp for survival turns into ambition no matter how hard all the participants try. The poor Chairman sinks his own hard-earned cash into a failing club in an act which should earn the eternal gratitude of the fans. Unfortunately, it seems fans are no longer satisfied with league football and a local presence. The story always ends up with the fans disgruntled and demanding the Board departs. The Board of course are reluctant to leave their investment behind and so they either hang on (because departure would been bankrupting the club to retrieve their assets) or wait to sell to a buyer who will clear their debt in the process. The buyer in turn feels they have some additional money to spend but this disappears within a couple of seasons and the spiral continues.
The oligarchs have initially an ambition of flaunting their wealth and worldwide recognition. Maybe even gaining attention for their home nation. They are so wealthy that the amounts of money needed to create a successful team are trivial to them. The only challenges they face is that money is not the only issue for some players. You can’t guarantee success by spending money. The other problem is that in the super-rich league table there is still competition. If PSG, Monaco, Chelsea, Manchester City, Anzhi Makhachkala are all spending they can’t all be number one. They are also having to break into the stratosphere of the emotional magnets that are Real Madrid, Barcelona, Bayern Munich and Manchester United. To date, no-one has managed to bridge the gap in the long term. The effect of these teams is that they spoil the game for everyone. All sense of proportion goes when teams bid in the sums which attract players to a substandard proposal rather than reflects their true value – this is the ultimate indecent proposal and everyone knows what they are doing.
And this leaves the Arsenal’s of this world – the true businesses trying to make money from the world of football. It astonishes me how little fans appear to understand business and even more, how in the thirty years of my working life, business has changed to respond to economic pressure. If we accept that football is a business there are plenty of text books and case studies that show how this all ends if we choose to read them.
In The Damned United David Peace paints a picture of a Chairman unable to control his manager who would commit to spend money on his behalf. In business just think what the term Manager means. The Chairman is at the top of his business overseeing the main Board of Directors. They in turn have a number of Managers reporting in to them and this is where the modern manager sits – a piece of the jigsaw in the Football Operations division of the Football plc. In a fan’s eyes he is the number one person to be blamed for everything but his authority is limited. You could of course argue that where else in the corporate world would anyone with so little business experience and questionable people management skills find a senior role.
At the start of every business year the Board will discuss budgets. This is a combination of operational necessity (how much does our electricity bill come to), established facts (revenue from season tickets) and some strategy (what can we achieve next season?). But a budget is always about money and pragmatism. There is no room in a plc for flights of fancy – “we’ll win the Premier League in two season’s time”. The Chairman-owner and the oligarch can do this because they are not accountable for the results. In the plc the objective is to make the most money possible. In the world of airlines you can see there are many ways to achieve this. Emirates charge a premium for ultimate luxury whereas it is clear Ryanair take a different approach but both make profits. There is no inherent need for a football plc to win silverware unless the cost of doing so is outweighed by the revenue which would result. You seldom, if ever, see a publicised aggressive strategy from a plc – not least because the shareholders are similarly dispassionate about on-the-field results. They don’t aspire to having an award-winning chemical works in their portfolio or the world’s deepest mine; they want to hold shares in the world’s most profitable businesses. And don’t make the mistake of thinking shareholders are individual wealthy people. Those people use investment funds to maintain a portfolio. Insurance companies also manage shares to underwrite the risks their policies carry. The investment fund managers are the ones who put the pressure on the Chairmen because they in turn are measured on the success of the portfolio. Michael O’Leary has no interest in the complaints and concerns of his customers – in his terms he has put on a football match at the time stated and you bought a ticket. As soon as his profits slip though he has to let his shareholders know the risk in advance and explain why it has happened. If the investors think a Chairman is underperforming they will pressure him or force him to leave. In truth football clubs are too small as businesses to worry the big players but the principles nevertheless apply.
A newly promoted club entering the Premier League will benefit from what seems like a huge amount of television money and will set its strategy according to its owner. A Chairman-owner may well see the opportunity to finally get a return on his investment. Arrival in the top flight maximises the value of his shares and he could decide to sell at that point and walk away. Alternatively he could think that historically very few promoted clubs last more than a couple of seasons so the best strategy could be to retain all his players, not spend much to stay up and to take relegation and the parachute payments with a view to being a consistently top of the Championship club. The best strategy is to spend just enough money to avoid relegation. There is very little difference in prize money for places on the league but a huge drop for relegation. Realistically there is no chance of winning the league but an outside chance of achieving a European place after establishing yourself for a few seasons. This is where the business strategy needs to come in. Leeds United gambled heavily in the 1990s and almost lost their club as a result by spending too much on a risky strategy which aimed too high.
This is why Arsenal are the best modern football club in Britain. They worked out that to make the most money you need to maximise match day income and so they bought a much larger ground with lots of Corporate boxes. To pay for this they needed to reduce expenditure on players and so they realised it was unrealistic to aim for winning the league. They asked their manager to achieve European qualification and asked him how much he would need to spend to do this. He warned them that some players would want to leave the club with this ambition but that a good youth policy and a strong squad, well managed, should achieve the objective. And that is what they did. They went into the period of paying for the ground with a League winning squad and Arsene Wenger delivered his part of the job. At the same the marketing team worked out how to maximise revenue in the Far East and bought a couple of players from Japan and South Korea with no pressure for the manager to play them except on tour. This season I would expect the strategy to be to win fourth place and put pressure on the third team because the cost of doing anything more and the chance of success in competing with oligarchs is slim. Arsene Wenger will be a superstar if he keeps within his budget and achieves fourth place. Of course the Board will never admit this is their strategy because their PR department will want to protect the Brand. Arsene Wenger is an intelligent football manager how understands the importance of business in football and he is paid a king’s ransom to take the flak on behalf of the Board. The “fans” of course don’t ‘get it’ but every year they do the same calculations when they book their own summer holiday. Many people could afford an exotic holiday if they stretched themselves but they don’t take it because they are worried about their job, would feel guilty about spending so much, may have some other expenses coming up next year. So they settle for something which is good enough within budget.
In the long run it is inevitable that either all clubs become PLCs or all revert to fan-owned clubs. In either case the principles applied by Arsene Wenger and Arsenal will apply. The European Financial Fair Play regulations – regardless of whether they are fully implemented – are just a signpost that unless some common sense is applied to the sports we love we may lose them forever. We are going to have to learn to live with less silverware and more silver.