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Is football the next Lehman’s?

Nick Isles, Chair of the High Pay Centre looks at footballer's pay and the impact it is having on the clubs and the players.

This was the question the High Pay Centre was asked last week on the back of Rangers players agreeing to take big cuts in their pay. And the answer is a qualified 'yes'. The economic facts are stark. In the Premier League 68% of clubs' turnover is taken in wages. This is around 20% too high to be sustainable. Only three clubs out of the 20 had ratios of player's pay to turnover below 60% - Arsenal at 29%, Spurs at 56% and Manchester United at 46%. In total last year the Premier League clubs lost over £500 million. A similar tale can be found in Spain, Italy and elsewhere in Europe. For clubs like Manchester United their fees from TV broadcast are more than their gate receipts, despite having the largest club stadium in the UK. United's net debt is over £500 million and Chelsea's over £700 million. United's interest payments on its loans at over £100 million per annum exceed their take on ticket sales.

It is clear that Football is in a financial hole of its own making. But why? In days of yore professional footballers were paid enough to buy a pint and packet of fags after the game and not much more. Footballers played for the love of the game. Today's footballers profess to do the same but between 1960 and today so much has changed. Top players earn more than £10 million a year just from playing. Who can forget Ruud Gullit's demands for a pay package of many millions that was expressed as 'netto' or after the tax had been paid by the club? Even run-of-the mill premier league players average earnings top seven figures. It is thus not surprising that parallels with the Banks and other City financial situations are being drawn.

The reasosn for this explosion in top pay for players is complex. The 1995 Bosman ruling on the right of a player to ply his trade wherever he wished once his contract had finished fundamentally shifted power towards the players and their agents. Clubs became fearful of prize assets walking so have tried to lock them into longer contracts which have turned into pay escalators. Second instead of remuneration consultants football has agents. The agent has only one interest - to maximise the earnings for their principle - the player. This focus is admirable but damaging. Just as we see with FTSE CEOs a race to the top has been underway for quite some time. Arsenal are to be lauded for trying to establish a sensible salary structure that has tried to mitigate the baleful impact on clubs of the agent.

Then there has been the central cultural role football plays in our national life. Footballers are revered by many and so tolerance of their rewards has been long and deep. The visceral dislike and sense of unfairness felt by many towards bankers is far less evident towards footballers. Finally there is the malign influence of the playboy billionaires and millionaires who have treated football clubs as glamorous playthings with which to adorn their global status. The money these individuals have pumped into some clubs has forced others to compete from a far less equal playing field, loading themselves with debt as a consequence (Liverpool and Manchester United for example).

All of this places football in something of a crisis and cheats the people who pay money at the gate or through their subscriptions to Sky TV for live games. They are watching a degraded sport where only a handful of teams are in a position to win anything each year. This winner-takes-all market means that outside the two Manchester teams and Chelsea and Arsenal nobody else has a realistic chance to win the league title. (The best they can hope for is a league or FA Cup). In Spain you have a choice of Barcelona or Real Madrid. In Scotland it was Rangers or Celtic. Rampant over-paying of top footballers has inflated the wage bill of everyone yet only a few can win anything meaningful . This traduces the spirit of the game.

So what should be done? I would suggest the following.

1. Why doesn't the FA or Premier League agree some sort of salary cap to be applied to every club? This has worked very well in Rugby Union's top league and means that on most occasions every game is competitive. Of course some teams seem to always be in the mix such as Leicester but on the whole it works well in bearing down on excessive pay while giving the clubs flexibility to pay their star players more.

2. Every club has an academy to produce the next generation of players. Why not create a form of drafting as one finds in the American football league in the US? Here the best college players (young players are developed through playing college or university football and then the best each year are 'drafted' into the professional teams) are drafted to the bottom team that year the next best to the teams above them and so on. The idea is to provide every team with as level a playing field as possible in terms of emerging talent. This strengthens competition in the league and provides a better return for fans.

3. The UEFA Financial Fair Play rules due to be introduced in 2013 cannot come soon enough. Thiese new rules will force clubs to pay within their means.

4. The television companies should pay less to broadcast the games. This would then mean lower subscriptions for paying viewers and ultimately more subscribers. It would give clubs less working capital and force them to address the way they are operating.

5. The FA should revise it's 'fit and proper' person rules to ensure that clubs are owned by people who really care about their club and who are not in a position to so distort the market in players' salaries as to create the sort of imbalances we have seen in recent years.

Clearly something does need to change. Though the talent of a Wayne Rooney or Lionel Messi is transparent, unlike so many of the corporate bureaucrats who run major companies, their salary levels are arguably now too high to be sustainable. If people really value football the large balloon that it has become needs releasing slowly otherwise it is likely to go bang.

Posted on 16 March 2012

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