Interesting Read..

[Louis]

Last week saw the publication of the Deloitte Annual review of Football Finance. This is a report produced on the state of finances in the English game and also features comparisons with other European Leagues. Anyone who is interested can find more information on the Deloitte website. The report draws general conclusions given the overall state of the English game and makes suggestions based on the findings therein. Whilst the material is skewed towards the Premier League given that is where most of the money is, lessons still exist for the Irish game. The cost and effect of wages are a key section in the report.

 

The Premier League saw double digit wage inflation in 2006/07 and this saw a fall in operating profits, despite overall revenue increase. The report notes that “Again we appear to be seeing game theory in action. A shared will, and action, individually by all the clubs to limit wages growth would deliver increased profitability for all, but the pursuit of on-pitch success and the intense competitive desire to gain an edge means clubs continue to invest heavily in their playing squads and bid the market up, to the detriment of all clubs’ finances and the benefit of players and their agents.” Supporters of Irish clubs can observe the same process in operation in the domestic game. The move to full time football since 2000 has seen rapid wage inflation whilst the clubs have struggled to impose cost controls. It is obvious that if all clubs set to strict wage budgets then player wages would be forced to adapt to fit within these.

 

However clubs will fall into the classic game theory error and thus break from optimum strategy, thus leaving everyone worse off in the long run. Whilst the League has sought to impose a wage cap of around 65%, the clubs must collectively come to a decision to improve the game as a whole. Crowds aren’t getting any bigger, the money coming through the gate is not increasing significantly and yet costs continue to spiral, primarily into the pockets of players. Bohs losing €1.4m last year, Cork budgeting to lose €1m this year and even Sligo losing nearly €180,000 in the last financial year. Remember it was a debt equivalent to Sligo’s that nearly put Derry City out of existence. People will object that you must “speculate to accumulate”, but at what cost?

 

The cumulative net debt of the clubs in the English Championship was £289m at the end of 2006/07. The report concludes that the spiralling wage inflation means that the realistically most Championship clubs will only reduce this debt by promotion to the Premier League of the injection of new equity from the club owner. The conclusion is that whatever the revenue increases are, this will be swallowed up as the clubs fail to limit wages and other costs. On the other hand the German Bundesliga is held up as the shining light in respect of the big Leagues within Europe. The state of the art facilities include designated standing areas, and clubs have kept ticket prices relatively low.

 

As a result, the Bundesliga once again has the highest average attendances in Europe and German club revenues have increased strongly with a new broadcasting deal, moving the league into second place behind the Premier League in revenue terms. Again, the report notes “In addition, Germany is now the most profitable league in Europe, with an operating margin of 18%, three times that of the Premier League. The German licensing system clearly influences clubs’ performance, but it is curious to compare the profit performance in Germany, where individuals are prevented from owning clubs, with that of the English clubs.” Again, critics may retort that profits don’t matter, that performances on the pitch are what counts. The Bundesliga clubs may no longer regularly feature in the last four of the Champions League, but this may in fact make it a even more critical model for Irish club football to adopt.

 

The wage/turnover ration in the Bundesliga currently stands at 45%, whereas the figures for the Premier League and Championship currently stand at 62% and 79% repectively. The figures for the domestic game don’t make pretty reading, with the stand out figure was one club which were spending more than 100% of turnover on wages. To repeat that again, it means that every single penny which the club received, and more, went to pay wages, irrespective of other costs such as insurance, logistics, admin staff etc. The benefits for the League for instituting cost controls and seeking to make an operating club are obvious.

 

To be blunt about this, most of the players are going nowhere. We may lose a few of the top players to the England and Scotland, but that would happen even with no controls. The rest of the players are limited by their options. Capping your wage costs allows money to spent elsewhere, on club promotion and marketing, on youth development, on infrastructural improvement. All these things are at the bottom of the barrel at the money, with “strengthening the squad” the main priority. However these priorities are equally as improvement for the long term health of the club. This is one of the factors which attracts people to games. We have improved the pitches, we have improved the quality of football on offer. There is now a steady stream of live League games available for the casual fan to watch (tonight included), as well as the fantastic MNS highlights package. However this has not yet delivered the improvements in attendance which the games deserve, and need. More finance must be directed to off the field attractions, to make the package more and more attractive to potential new support.

 

The same questions could be directed to any club across the country. If you bring your family to the match, is it worth it? Will they be able to see the game? What is the selection of food like? Are healthy options available? Is there a family section to sit in? What are the toilet facilities like? Does the club shop have items you want to buy, and are they in stock? These are only a few of the questions clubs need to start asking themselves, and questions that fans need to start demanding answers for. People are probably reading this and arguing that people will only watch a winning team. I ask people to stop and think. Derry played Cork on Sunday, a clash of probably the two best supported sides in the country and there will be less than 5000 at the game. Nowhere near enough people are watching winning teams, never mind losing ones.