Serendipity

Friday, February 12, 2010

Administration

The game of professional football as we know it is in danger of completely collapsing. For too long the clubs have been allowed to chase the dream with scant regard for the consequences of them failing to actually ultimately catch that dream.

It is the way of the business world that it is dog eat dog, devil take the hindmost and damn yer eyes!! as businesses which fail to compete successfully with their rivals simply fall by the wayside. “That's the wonder of Woolworths” as we might once have said although old FW himself may be turning in his grave at the recent eventual demise of a once-great High Street icon. “Serves 'em right” I hear you say. “If they can't keep costs low, sales up and sell the right things at the right price as they do so then who are we to care?” and in many ways that is dead right. We'll buy our sweets, kids' clothes and DVDs (if we buy them at all) elsewhere. No problem really.

Football is different though. Amazon does not need Woolworths. Nor does M&S, Matalan etc. need them either; a football team needs an opponent though or else there is nothing at all there. Football clubs also need an opponent of similar strength or else there is little point to what is there. Real Madrid wants to play and beat Barcelona (and vice versa natch), for instance. Millions of fans across the world want to see that game. Manchester United v Sticker u-11s would barely draw a crowd at Old T and the TV companies would not be queueing up to send the pictures from that match to the wider world (not more than once anyway).

It has always been the case that clubs fold though and there is no more reason that they should be any more exempt from the penalties of failure than any other business. Football cannot continue as it recently has though.

Losing money and going bust through failure may just about be acceptable but we now have the situation where clubs are being successful and they are still struggling to continue. As I write this it appears that Portsmouth FC are on the brink of being put into administration and are in all likelihood on the point of being wound-up and closed down for good and all this is happening as Pompey enjoy, what is for them, certainly in the extended modern era, an unprecedented period of success. We must not forget that they have been a fairly comfortable member of the Premier League since their promotion nor that they have won the FA Cup within the last 2 years or that they have been playing European football against teams like Inter Milan. Quite simply this is success beyond the wildest expectations of even their most ardent fans and even given that success they are virtually a dead duck and they are almost certainly trading insolvently at present and probably have been for quite some time. If they were a pub they would have been closed down long, long ago.

They are not the only club like it though. Last season Manchester United won the Premier League, were finalists in the FA Cup and the Champions' League, won the League Cup and Charity Shield (or whatever they call it these days) and the FIFA World Club Championship. On top of which they sold Ronaldo for, an as yet not re-invested in the team, £75m. Did they make money? No. Did they reduce their overall debt burden? No.

Even they are not the only club like it though. Liverpool are in similarly dire financial straits and they are both where they are largely as a result of the financial chicanery commonly known as the leveraged buy-out. A leveraged buy out occurs when a buyer buys a controlling interest, usually using borrowed money, of a business and then transfers that debt from the buyer to the bought. It is an accepted business practice and is exactly what has recently happened in the Kraft takeover of Cadbury's.

So it is all down to corporate profiteering? No. Look at Hull City. There has been no lack of support there as their council has supported their club in an unprecedented way through the construction of the KC stadium and the provision of an envied support infra-structure. Again there is no lack of success at the heart of this as Hull City currently occupy a Premier League spot for the very first instance in their entire history. They are another team for whom it can hardly get much better and yet another playing chicken with their creditors' goodwill.

And so it goes on. Is it just a Premier League issue then? No. Cardiff City are vying neck and neck with Pompey when it comes to broken financial deadlines and running at a loss. Just as Pompey beat Cardiff in that cup final they are probably just shading that particular little squabble now. Let's not forget that Cardiff are playing in a brand new swanky stadium, have a recent history of progress up through the divisions and are another for whom it cannot realistically get much better. Yet still they trade at a consistent and heavy loss.

And those are the successful clubs. What about those who are struggling? Well it is even worse for them as their income is lower still to start with due to TV wanting to show the glamour games and not the bread-and-butter ones. What choices do they have? Do they continue to struggle or do they try to improve their lot? If they want to improve then how can they? That is simple. They have to invest more, which means that they have to either spend, borrow or guarantee money that they cannot really afford because if they could afford to do so then they would be doing exactly that already. “Ahhh... but you have to speculate to accumulate and if you are successful then you can pay back through the profits made” except the experience of both Hull and Portsmouth suggests that the money cannot be repaid out of the extra income because they always have to spend more to get better players and a stronger team in the new, higher, more expensive and “better” level at which their fans demand that they compete and even if they do then the leveraged buy-out then swamps them with debt just as it has at Liverpool and Man Utd.

So what happens with the clubs that do not chase the dream and try to operate as a sustainable business? Their fans demand ever greater success too and are not happy when they perceive that their club is losing because it is being outspent by those it is competing with and that this, of course, is hamstringing their chances of future success.

It is clear that the national and international laws will not help to protect the clubs that need to survive and on which the survival of the very ethos of the competition between clubs is based. The truth is that the relationship of which I talk is symbiotic because every club needs every other club for the concept to continue to thrive as it has since its inception. You can't even look at it as a parasitic relationship because the healthy host may be a requirement for the parasite to survive but this relationship does not actually harm the host at all. We are talking saprophytism here because the ones that are thriving are doing so on the rotting remains of what was once a fine and noble organisation.

Tomorrow cash-strapped and dying Pompey will play thriving and resurgent Southampton, themselves having benefited from an administration settlement deal last season in an FA Cup tie that might prove to be the last competitive match in their proud, but imperilled, history. The financial courts will surely do the right thing and close them down permanently and save them the final death throes of making them suffer administration, a 10 point penalty and eventual bankruptcy. Their debts are just too big and the backers too reluctant to step forward and take on the responsibility because it will cost tens of mi££ions if they do and the current global financial environment will not support it.

I don't blame the courts at all if/when Pompey do fold. I blame those who nominally have the power to enforce rules which protect the clubs that compete in the name of it. The FA runs the Premier League, in theory, but the clubs are the ones who control the power and the clubs are all relentlessly driven by the demand to be ever more successful in a quest that we can only expect to end in financial chaos as discussed at the start of this piece.

As things stand the clubs are like turkeys voting for their own private Christmas; they demand the right to operate independently as they think suits them best and will resort to legislation to protect their ability to do just that; the Premier League has a need for a big majority vote before it implements any significant and radical rule changes and that majority will never be achieved; the FA cannot enforce anything that the clubs do not approve of; the Football League is a complete irrelevance and was sidelined years ago when the PL was created; government does not see how it can change national, and especially not international, business law and practice (they can't even enforce policy in the banks that they now own let alone make law changes that affect control over them); FIFA is our best and perhaps only hope but the “restraint of trade” lobby will fight them tooth and nail no matter how keen Michel Platini is for change to happen.

Perhaps market forces will ultimately save the day in some shape or form but I don't hold out much hope that it will. Maybe the extinction of Pompey will precipitate a few others to go too as they forfeit on agreements to pay money to other clubs who in turn have spent or at least committed to spend, that same cash. So despite being as successful as they could ever hope to be, despite filling their stadium week-in week-out, despite a proud and glorious history, despite playing in the richest national league in the world, despite recent European football and despite a recent FA Cup win Pompey look as though they will be the first domino to fall and their failure will drag others down with them both inside this country and without.

If that leads to a fairer distribution of the huge wads of cash, currently flooding into English football in greater amounts than ever before, so that it ends up not in a handful of pockets but in many if not all then it might not be such a bad thing. On top of that the bodies which control our game need actually to exhibit some control that is meaningful and put in place penalties that are meaningful for those who seem to glibly assume that going into administration is an easy option and a cash-effective way of writing off the debts that follow catastrophically poor decisions of clubs at management and boardroom level whilst at the same time leaving the unpaid creditor to pick up the tab. Maybe the only hope we have at a legislative level is that HMRC, on behalf of all of those of us who do pay our taxes and stick to our budgets, will exert pressure either practically, through the courts, or on the government, through legislation, that is effective because if they do not then the spoils will always go to the most profligate, the least responsible and the morally corrupt and the risk will be absorbed by those that trade with them.

The advantages enjoyed by those who ignore the moral case for running a football club on a slightly more acceptable moral plane than that lived on by the venal, grasping and, what I believe amounts to being, corrupt clubs mean that they are effectively cheating those against which they compete and and the very ethos which under-pins the concept of sport as a contest. The golden egg-laying goose is strangling itself.

The situation we are now facing is scandalous and it is a scandal that it has been allowed to develop as far as it has. If that is not bad enough nobody anywhere who might be able to prevent it from happening has shown any inclination at all to even monitor what has been and is happening and even less that they might have any control over the same events as they unfold; if they have no control then just what is it that they do that deserves their receipt of their vast salaries? Their wages are taking on the appearance of a bung being pushed towards them for, at worst, their complicity and, at best, looking the other way.

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