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It is important to note that the English game,
when looked at from the European mainland and indeed the rest of
the world, has in recent years achieved a number of major successes.
This is particularly so in terms of the way it has modernised its
business organisation, for which it is rightly admired. I am thinking
of issues such as the safe and efficient management of stadiums,
its league organisation, merchandising and business structure. I
believe it is right that those of us with an interest in the industry
should criticise it constructively. But this criticism should be
balanced. The industry has a lot to be proud of, and is certainly
not in crisis as some would have us believe. The Current Financial State of the Game First of all in this chapter I present a financial
profile of the English game. It is important to note that football
is no longer just a series of local markets. It is now a European
and global marketplace for playing talent, for TV rights and for
merchandising. English football has to operate within the reality
of this framework. Technology, largely related to broadcasting,
has made this possible over the last ten years. Off the pitch English
football is considered very successful; the rest of Europe really
does envy our financial performance.1 For example, looking at the
Premier League, between the 1991–92 season and the 1997–98 season
the compound annual turnover growth of the clubs in the Premier
League was 23.2%. In other words, in six years the Premier League
has grown to become 3.5 times larger than the old First Division.
This is a fantastic performance by anyone’s standards. In the 1997–98 season Premier League clubs spent
over £190 million on players’ wages. They spent a further £171 million
on transfers, of which 45% went on players from outside the UK.
Operating profits in 1997–98 were over £100 million – a record.
Seventeen of the 20 clubs are profitable on the basis of their day-to-day
activities. If you put the Premier League in a European perspective,
it is bigger in financial terms than Italy’s Serie A by 20%, than
Germany’s Bundesliga and Spain’s Primera Liga by approximately 25%,
and France’s First Division by 175%. France is a country which did
very well to win the World Cup, but in my view is excessively domestically
focused in the way it looks at the management of its game. And that
has put their clubs, as opposed to the national team, at a severe
disadvantage when competing in Europe. Indeed, I believe there is
a direct trade-off between prioritising domestic success and European
competition success. In 1997–98 the total revenue of the Premier League
was £569 million, of which £203 million (36%) was match-day receipts,
£152 million (26%) was TV receipts, and £214 million (38%) was from
merchandising and other commercial income. What this illustrates
is that, while TV money is an increasingly important part of the
revenue pie, paying customers through the turnstiles remain essential
to the financial success of the game. Attendances have continued
to grow. This is despite the fact that match-day tickets in the
Premier League (and the First Division before it) have risen by
four times the rate of inflation over the last ten years whilst
cinema tickets, for example, have only risen by the rate of inflation.
This is a very important point. What the market is saying is that
more people want to watch English football and they are prepared
to pay more money to do so, both in the Premier League and the Football
League. People like the product. That is a pretty powerful endorsement.
But let’s put all this financial expansion in some sort of business
context. Enterprise Oil has an annual turnover very similar to that
of the Premier League’s £569 million. But it is ranked only number
124 in terms of market capitalisation on the stock exchange. So
it is important to realise that Premier League football is only
a medium-sized enterprise by comparison with the real giants of
British industry, despite its considerable recent financial success.
Football’s Stakeholders: who are they? If football clubs are to be successful, they need
to build mutually beneficial relationships with a range of what
I would term ‘stakeholders’. The three main groups of stakeholders
are outlined in Figure 1 overleaf. I am unhappy when the choices in football are presented
as two opposites: a commercialised future where traditional fans
have no place and financial imperatives rule; or a return to some
form of idealised sporting model where financial issues are completely
subservient to the sporting ethos of the game. We need to adopt
a balanced approach. Clearly we need to retain the strengths that
football’s deep roots of tradition give it in people’s affections.
But we must also remember that football is a business, and we do
not have the option of choosing between a ‘sporting’ model of the
industry and a ‘business’ model. Business practices, and influences
from other business sectors such as television, are having a huge
influence on football. That is reality and therefore we have to
deal with it. We must not lose tradition and the other good things
that go with it. But the marketplace for football is global. Do
you want to compete? That is the key question. Any industry has
international, national and local ‘players’; football is no different.
Good policies and good practices are good for business whatever
industrial sector you are in. By way of example, we have a saying at Deloitte
& Touche: ‘no fans equals no value’. It is bad news for the
business not to look after the fans; looking after fans and running
an efficient and profitable business are not mutually exclusive.
Both objectives can be put into operation simultaneously, and already
are at the best clubs. For years we – as fans – complained about
the lack of proper business practices in football clubs, how badly
run they were, how poorly they treated the fans and so on, and now
there are proper business structures we complain that they are too
‘business-like’ or ‘commercial’. Football’s business continues to develop apace
– some welcome that and work to channel that dynamic force into
business efficiency which creates profitable activity and generates
cash for investment in players, stadiums, training facilities and
complementary activities to the core football club. Others bemoan
the passing of a more egalitarian age when ‘market forces’ was an
irrelevant concept. Whatever their point of view, what is undeniable
is that the Pandora’s box of business structure and market competition
has been opened in the football industry and cannot now be closed.
Clubs and governing bodies need to choose between embracing that
dynamism with attitudes and structures designed for the modern business
age; or they can react to events, resist the forces (rather than
ride them) and end up being swept along in a reluctant and introspective
mode. Whatever the strategy, the high profile of the game and its
principal players (clubs, chairmen and directors, players, governing
bodies – even government), now mean that there is an ever-present
need for accountability, responsibility and transparency in dealings. Media ownership of clubs: a red herring? A major point of debate on the regulation of football
between what might be termed the ‘traditionalists’ and the ‘modernisers’
has been around the issue of whether media companies should be allowed
to take over football clubs and whether this will lead to further
polarity in performance. I feel that there is a danger of the game
becoming bogged down in this debate as it misses two key points.
First, it is not who owns a club which is important, as fans always
feel they own their club emotionally anyway regardless of who owns
the shares. The critical issue is how clubs are managed as a business,
and the extent to which they satisfactorily address the concerns
of their various stakeholders. Secondly, polarisation of ‘football
power’ has always existed. We at Deloittes believe that properly
structured commercial development enhances competitive balance.
Dramatic intervention by government or regulatory bodies is not
what is required here. What really is important is that clubs organise
themselves on a professional basis, recruit and retain competent
and imaginative managers with the skills and experience to manage
a growing business in a dynamic marketplace. A lot of people get
very irate about the stockmarket flotation of clubs and complain
that this has distanced them from their supporters. I do not accept
that this has in fact happened; clubs have always been private limited
companies owned by private investors. Fundamentally, I think the
focus on how football club ownership has changed as more and more
clubs have floated on the stock exchange reflects a nostalgia by
many who enjoyed far greater influence over the game in its, it
has to be said, inefficiently managed, traditional, established,
order. This group have much less influence in the market-orientated,
media-floodlit football industry of today, and I am afraid many
of them have not adapted to these changes in the game, to the extent
that they are blinded to its genuine successes. Players’ wage demands: who decides? The players’ wages, and in particular the way in
which they have dramatically increased in recent years, have become
a major talking point within the game. Between 1996–97 and 1997–98
alone the total players’ wage bill in the Premiership rose by around
40%. Since the Premiership’s inception in 1992–93, compound annual
growth in players’ wages has been 26%. The concern is that the spiralling
wages will effectively bankrupt many clubs, and that they need to
be curbed. The views of Gordon Taylor, chief executive of
the Professional Footballers Association, are reported elsewhere
in this volume (Chapter 4). As far as I am concerned, the key question
that should be asked is: who should be responsible for deciding
players’ wages? Who should be accountable? The player, the agent,
the PFA, the manager, the coach, the sponsors, the league? I actually
do not think any of these should be. They all have the right to
do their best for their client or their interest but the people
who are actually responsible are the chairman and the board of directors.
All our clubs have been limited companies for roughly a hundred
years and the limited company structure places responsibility for
employee wages firmly with the chairman and the board. We very often hear football club chairmen and directors
bemoaning their lot. What they don’t say (but in effect mean) is:
‘Please help us to help ourselves. We need to be protected from
our own weaknesses.’ I think, though this may sound a little cynical,
that this attitude represents a failure to accept responsibility
and is a negation of duty. Clubs must acknowledge and take responsibility
for managing their own players’ wage bills. A number of centrally organised remedies have been
proposed to deal with wage inflation. Some sort of centrally administered
salary cap is one, but I think this is extremely unlikely to happen.
To be successful it would have to be organised on at least a European
basis so there would be problems in co-ordinating such an initiative,
particularly where clubs have such a strong incentive to secure
competitive advantage by bypassing such a stricture. It would also
be open to challenge in the employment courts in the same way as
the Bosman case. Another option is to have more redistribution of
income within the leagues to help shore up the finances of lower-division
clubs in particular. A variation of this scheme operates in English
cricket. However, again, I think this kind of intervention is extremely
unlikely to happen given the current structure of the football industry
in England. And as I have also stated in the latest Deloitte &
Touche Annual Review of Football Finance,2 there is a strongly held
point of view that those who do not control costs with firmness
should not be entitled to look to others for handouts. It is clear that some action must be taken by clubs,
particularly in the lower divisions, if they are to survive. The
Premier League clubs may be able to sustain higher wages, albeit
increasing at a lower rate, provided they can improve the quality
and size of their revenue streams from other sources and be more
disciplined in their negotiating with top players. But in the lower
divisions some tough decisions will need to made – either individually
at club level or prompted by initiatives at divisional, or Football
League, level. An excellent precedent is set by rugby league’s ‘Super
League’. The intention is to pay players’ performance-related pay
out of merit awards (for final position) rather than the game’s
guaranteed payments for appearance money as at present. Football,
perhaps starting from Division Three and working upwards, would
do well to follow suit. There are, though, prerequisites – unanimity
from the clubs, a clear rule and strict enforcement. Football’s hierarchy of power: a bigger say
for clubs? If one were asked to list an established pecking
order of where power lies within football, a conventional and traditional
response would be to start with FIFA, the world governing body,
work your way down to UEFA, the European governing body, proceed
to the FA and then to the individual clubs. But I would pose the
question: how entrenched and established is this order? Critically,
Manchester United’s decision not to enter the FA Cup in 1999–2000,
and the FA’s decision to allow them not to compete in order to permit
them to participate in FIFA’s World Club championship in Brazil
in January 2000, has thrown this question into some relief. In my view the clubs have the real power in football.
They just have not yet learned how to use it properly. The birth
of the ‘super league’ concept, of which the FA Premier League was
the first incarnation, was the initial manifestation of this power
in a negotiating context. It represented an attempt by the bigger
clubs to have a larger say in how the game was run, the future direction
it would take, and the distribution of the financial rewards. Now
the major Scottish clubs have followed suit and set up their own
Scottish Premier League. The attempted setting up of a European
super league outside the existing FIFA and UEFA structures in 1998
was the most aggressive manifestation of this trend. It forced UEFA
to overhaul its competitions and establish a ‘new’ Champions League
more in tune with the demands of the major European clubs. Clubs have started to recognise their own power
and have begun to use it. And power follows control of the commercial
properties in the game: image rights, TV rights and so on. So it
is all about a battle for control of those commercial properties.
We can look at the music industry as an example: there, power has
actually passed from the traditional seat of power – the recording
companies – to the individual entertainers. I do not think that
will happen with football, certainly not fully, because we are dealing
with a team game here. But power will certainly continue to move
from football’s current governing bodies, associations and leagues,
to the clubs. The battleground on which clubs will fight for
influence with the industry’s current governing bodies is illustrated
in Figure 2 below. Clubs have a critical source of power in that
they provide the players to all competitions, at whatever level.
Currently clubs’ power can be measured as increasing the further
they are removed from the international competitions (north to south
on the right-hand axis in Figure 2). But even at the level of national
country team competitions clubs have some potential leverage because
of their control over the supply of players. The power of the game’s administrative bodies is
currently strongest the further you move away from the domestic
leagues (west to east on the horizontal axis). Correspondingly,
the power of the clubs is obviously high where they organise their
own league, such as the Premier League, which is managed by the
20 clubs concerned. Essentially, there is a battle for power going
on between football’s governing bodies and the clubs. If you drew
a line from top right to bottom left across Figure 2 dividing football
into two spheres of dominant influence, with the governing bodies
on the left and the clubs on the right, each side is trying to push
that line in the opposite direction to expand their sphere of influence.
And obviously that struggle is the source of many well-publicised
tensions. I do not have the answers to all of the questions
raised by this struggle for power. But I do have some views on them.
Critically, I believe this struggle is all about who controls the
game and its many competitions. The player and squad numbers will
provide the upper limits on capacity for both the total number of
games it is possible to play and competitions it is possible to
compete in seriously. The decision by Manchester United to withdraw
from the FA Cup to participate in the World Club championship is
not a one-off problem, despite what people say, but simply the manifestation
of what will be a growing problem as the possibilities expand for
more lucrative and attractive international competitions. This raises
key questions: where do the clubs want to draw the line in terms
of deciding which competitions to compete in? Would they prefer
that their governing bodies make those decisions for them? Or should
they make these decisions themselves? And if the clubs are being
forced to make those choices, they have to be given the real authority
to actually make the choices and not be the ping-pong ball in the
middle as has been Manchester United’s experience over their decision
to withdraw from the FA Cup. Giving them this authority, or them
seizing it, has major implications for how the game is currently
organised. Essentially the problem is a scheduling issue.
Why do we not have one overall authority to schedule all games and
competitions? Why can football not organise itself so that all these
power groups do not conflict the way they do now? I am not giving
a view personally either way, but I do think the furore over Manchester
United’s decision to withdraw from the FA Cup raises a critical
question for fans of English clubs. Domestic audiences need to decide
whether they support the global ambitions of England’s largest clubs
or whether they want to put domestic issues first. Does choosing
the latter demonstrate a lack of ambition? We do need to preserve
the best aspects of the game’s long traditions, but the football
marketplace is changing and we in England cannot suddenly slow down
the market. In conclusion, the number of games and the size of
divisions are actually a function of scheduling and agreed priorities.
Conventional business organisations would find that difficult but
they would sit down and sort it out using business processes. Football
needs to address this issue in the same pragmatic and businesslike
way. We have a unique challenge here. Regrettably, football’s stakeholders
do not have an exemplary record when it comes to resolving such
issues – but (as you would expect from an Oldham Athletic fan) there’s
always hope! |
