Premier League clubs move towards financial controls

Chelsea FC is one of the clubs likely to be affected if a financial control is imposed on Premier League clubs. Photo: Stamford Bridge by Flickr/proforged

04.02.2013

By David Gold
With debt continuing to afflict the English game, Premier League clubs are moving closer to introducing a system of financial control. The big question is whether it will require clubs to break even, or if it will simply limit rising player salaries.

Following the introduction of UEFA’s financial fair play scheme, designed to force clubs to move towards breaking even, Premier League clubs, who are among the main culprits in the storm of debt engulfing football, are turning on each other.

In December, Arsenal, Liverpool, Manchester United and Tottenham Hotspur penned a joint letter circulated at a Premier League meeting which called for the strict implementation of UEFA’s new rules.

The targets of their appeal are Manchester City and Chelsea, whose respective unlimited oil wealth has inflated English football’s transfer market and player salaries.

With the notable exception of Manchester United, the signatories to the letter have all seen their ability to compete at the top of the Premier League damaged by the influx of foreign capital.

Arsène Wenger, the Arsenal manager, has called the spending of Chelsea and Manchester City ‘financial doping’.

Whilst both have cut back, Chelsea are struggling to balance the books (although they made a marginal profit last year according to their accounts), City recorded close to a £100 million loss last season, and there is a growing feeling that UEFA may not be able to enforce the new regulations.

So the Premier League has begun to move towards bringing in its own controls. In this, they will follow in the steps of Spain’s La Liga, which is mired in even greater debt than the Premier League, and who this week announced its own version of UEFA’s fair play rules.

Premier League introduce new rules
Already rules have come in which require teams to supply financial information to the Premier League, and if the league is not satisfied with a club’s accounts they can now step in. Transfer embargoes are among the sanctions that could be implemented.

Now, some form of wider ranging financial controls are drawing closer, with a Premier League meeting taking place on February 7 to try and resolve the impasse over whether to introduce a break even measure, or an alternative system which would limit the rate at which wage spending could increase.

UEFA’s system prevents clubs losing more than €45 million over the first two years of its operation, and in subsequent years losses will be analysed over a cumulative rolling three year period, with the sum they are allowed to lose incrementally decreasing towards zero. Premier League teams have discussed limiting losses to €24 million a year.

The four big sides pushing forward this proposal had suggested in their letter that clubs break even over a rolling three year period, as in the UEFA model, and Manchester United chief executive David Gill even suggested that they could use the European governing body’s systems to analyse accounts.

For United, pushing through these controls is their way of battling back against Manchester City’s wild spending and the estimated €400 million deal they have agreed for stadium and shirt sponsorship rights with Etihad, which some see as an attempt to circumvent UEFA’s rules, given that there are close links between the Abu Dhabi based airline and the Premier League champions’ owners.

The second idea, limiting wage spending, is pushed most enthusiastically by Sunderland, with the support of a number of teams lower down the league. A specific figure has not yet been agreed in terms of what the limit should be, but Sunderland chairman Ellis Short’s plan has one clear advantage over the break even model.

It guards against the heart of the problem English football is grappling with – wage inflation.

Whilst television revenues have naturally inflated the English market, clubs have still spent far too much of their money from broadcast deals on wages to recruit the best players.

Queens Park Rangers are a prescient current example of the problem. They have brought in a number of well-paid internationals over the last 18 months, and have gambled survival on another raft of signings this week, yet if they were relegated from the Premier League, as is likely at present, they will face a potentially ruinous pile of debt and could easily become the next Portsmouth or Birmingham.

If a restriction on wage rises came in, clubs would be limited when it comes to spending money on wages that they simply do not have. With the average wage to turnover ratio for a Premier League side standing at about 70 per cent, it is player salaries that are predominantly to blame for the €2.9 billion of debt which the country’s clubs are struggling to rein in.

A new €1.2 billion per year television deal is starting from next season, and sales of overseas rights could top £2 billion in the next three years meaning there is an urgency to get something done now.

Club owners are desperate to try and find a way to stop that money going the same way as most of the new revenues which have come into the Premier League since its inception 20 years ago – into the pockets of players and of course their agents.

Outright opposition
As well as Chelsea and Manchester City, three other clubs – Fulham, West Bromwich and Aston Villa – are opposed to any financial controls at all.

Fulham is an interesting case. They have an owner, Mohamed al Fayed, who has taken the club from the fourth tier of English football to the Premier League and developed what has become a solid mid table team, rarely in danger of relegation.

There is not a huge amount of difference between the Fulham owner and his counterparts at Chelsea and Manchester City, beyond the size of their wealth. The principle is the same though – a rich owner pumping money into the club to increase their resources and by extension their competitiveness. The only real difference is that Al Fayed is nowhere near as rich as Sheikh Mansour or Roman Abramovich, and so because his team have not been able to buy the title they have offended no-one. And these clubs would rightly object to a break even system which would entrench the dominance of those teams with the naturally largest revenue base.

There should be nothing wrong with an owner, however wealthy they are, injecting his or her own money to invest in making their team more competitive.

The first problem comes when owners walk, as happened with Portsmouth.When that happens, these teams are left with costs that they cannot hope to meet. If something happened and Abramovich walked away from Chelsea tomorrow, they would be plunged into deep financial trouble. The same goes for Al-Fayed at Fulham, or Dave Whelan at Wigan.

The other problem is that big spending pressures other clubs to increase their own outlay, and both measures on the table would serve to control the inflationary effect of unrestricted expenditure, and hopefully reduce overall debt.

Some kind of balance has to be reached to prevent these teams remaining perpetually on the brink of financial disaster through reliance on one individual, whilst trying not to restrict the rights of those individuals to spend their own money on their own assets.

It could well be that those teams in favour of some kind of financial control meet in the middle, permitting a set amount of losses and restricting an increase in wage revenues, to overcome the opposition of those who are flatly opposed to any controls, as this particular battle edges closer to its conclusion.

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