Norwich Financial Issue May Pale Into Insignificance

[yellow hammer 0]

A very relevant and topical post from Yankee.

Football is suffering from two economic weaknesses. The first is money-supply driven inflation. With a fixed pool of players to hire, when the amount of money available to buy them increases then the price of the players also increases. This is reflected in inflated transfer fees and players'' salaries. Over the long term young men will see the rewards that a soccer career offers and many more new hopefuls will enter the ranks as young academy apprentices, and a larger pool of players will tend to decrease wages. However, this will take far too long to have any immediate effect and whatever extra money is pumped into football will only serve to drive up players costs and cause more and more clubs to seek administration.

The second financial problem is the one that Yankee mentions and that is the amount of debt that clubs are carrying. One of the ways that new investors buys up clubs is to create an investment company and then goes to a financial institution and borrows the money required to buy out a club. The newly created investment company now holds all this borrowed money as debt. If they are successful in taking over a club, then the club is merged into the investment company which has the net effect of the club now actually owns all the debt that was raised from the banks in order to buy it out. Basically the club has been shafted and years of future revenue is now earmarked to pay off the debt. Now this is all economic madness and is not unusual at the peak of a speculative boom. What is happening in football eerily parallels what is happening in the financial markets at present. And it may well all come tumbling down. The survivors of the downturn will be those with the lowest levels of debt. So if NCFC has borrowed heavily for land purchases then it had better be thinking seriously more in terms of reducing the debt than holding out for a profit.

 

[lucky green trainers 0]

agreed its a huge amount of debt and was racked up in the good times, but it only ever becomes a problem if it can''t be serviced...there''s little scope for clubs to raise new debt at the mo...even against their future tv income,,,if that becomes vulnerable in a worldwide recession...but imo, the tv money looks solid, i bet that most punters would sacrifice other activities rather than jack their sky sports in!!! but obviously, it depends how severe and long the downturn becomes, cos yeah - the demise of itv digital a few years back caused the champs some probs then...the next prem tv deal renews in 2011 - who''s to say what the state of the economy will be then, nationally or globally??? scudamore could be right - and imo - if asia (and africa/middle east to a lesser extent) emerges relatively unscathed and quicker from the impending worldwide recession, and the prem continues to grow in popularity there - then the next prem tv deal could well be worth more than the present one, maybe even double???   it would mean that the worldwide tv rights would be bringing in extra revenue to compensate for what could be a weak domestic situaaashun,,,certainly with failing banks and a burst asset bubble - just like japan in the 90''s- we could see the uk economy experience a decade of stagnant growth - so expect scudamore and the FA to continue to agressively market the prem in these worldwide markets...so - clearly, as in all walks of life at the mo, its clear the cash rich enjoy a considerable advanatge over debt laden competitors, and its they who will we looking to snap up clubs/owners in trouble or looking to sell, most likely newcastle and liverpool...maybe even man u,,,in the papers today a super prime indian investor is looking to get in at troubled west ham,,,so it would appear the cash billionaires are still prepared in the prem!!!but,with no tv income to speak of - its the champs that is most vulnerable to bankrupcy - and not the superprime speculative investors in the champs - cos by defintion they are most able to ride out an economic storm - no, the clubs most at risk are traditional run clubs like our own - why???cos under our debt covenant, we are unable to raise extra debt (not that we could anyway at the mo - all we could do is renegotiate the terms of our debt repayments), our assets are almost worthless in the current economic conditions,,,and finally, if the downturn is severe - we could bleed income from falling ticket sales, restaurant and office rental income...regret to suggest NCFC and similar clubs could well be in trouble in the next 12 months - unless they can raise cash injections...its a case of simply surviving in this severe economic climate, as is the case for many businesses, individuals  and families at the mo/,.and those with spare cash will fare better,,,more than ever, a cash rich superprime would be the best suitor for NCFC - make no mistake...

 

[YankeeCanary 0]

Interesting comments from Dave Whelan of Wigan:

Wigan owner Dave Whelan has called for measures to limit clubs'' debt and punish those who spend way beyond their means.

Last week Football Association chairman Lord Triesman warned of the £3billion debt timebomb that could explode in English clubs'' faces as economies around the world continue to struggle.

UEFA, and in particular president Michel Platini, have expressed similar concerns about the financial figures in the Premier League.

Suggestions of a salary cap have resurfaced recently but Whelan told BBC Radio Five Live''s Sportsweek programme he believes rules should be introduced to limit debt.

"UEFA are going to say things about debt and actually, I agree with them,'''' he said.

"They are talking about salary caps again now but what we should be doing is limiting the amount of debt that each club can have.

"Let''s say 25 or 30% of your total income and you can''t have any more debt on your balance sheet than that. If you do, you are breaking the rules and you get points deducted or whatever.''''

Reading chairman John Madejski agreed with Whelan''s suggestion and said: "The Premier League in the last few years has been dominated by incredibly wealthy people from around the globe, it is big boys'' toys basically.''''

He added: "There is passion and I think people do leave their brains behind in the boardroom sometimes especially when they are spending other people''s money buying players.''''

[YankeeCanary 0]

Let''s try that again:

Wigan owner Dave Whelan has called for measures to limit clubs'' debt and punish those who spend way beyond their means.

Last week Football Association chairman Lord Triesman warned of the £3billion debt timebomb that could explode in English clubs'' faces as economies around the world continue to struggle.

UEFA, and in particular president Michel Platini, have expressed similar concerns about the financial figures in the Premier League.

Suggestions of a salary cap have resurfaced recently but Whelan told BBC Radio Five Live''s Sportsweek programme he believes rules should be introduced to limit debt.

"UEFA are going to say things about debt and actually, I agree with them,'''' he said.

"They are talking about salary caps again now but what we should be doing is limiting the amount of debt that each club can have.

"Let''s say 25 or 30% of your total income and you can''t have any more debt on your balance sheet than that. If you do, you are breaking the rules and you get points deducted or whatever.''''

Reading chairman John Madejski agreed with Whelan''s suggestion and said: "The Premier League in the last few years has been dominated by incredibly wealthy people from around the globe, it is big boys'' toys basically.''''

He added: "There is passion and I think people do leave their brains behind in the boardroom sometimes especially when they are spending other people''s money buying players.''''

 

[astrodyne 0]

So, if football is such a bad thing to get involved in, why are people still ready to get involved in it - i.e. Man City and Charlton?IMO its just alot of rich people crying because there are others who are richer. Did I see Whelan or Madjeski come out with these sorts of remarks 5 or 10 years ago, when they themselves were buying success? No.39th game anyone? - guaranteed to bring in mega riches from the emerging markets in the far east [:#]

[whoareyou? 0]

One of the reasons some billionaires want to get involved in the Premier League is to legitimise their ill gotten gains. I''m not saying that the money they have is illegal but rather it may have been acquired at the expense of others who had either done the work for them or maybe should have had a share of it.

[yellow hammer 0]

Interesting statistic from CNN this week, that by 2005 US citizen''s household debt to annual income ratio stood at a whopping 139%. That is exclusive of mortgages. So the Yanks have been living beyond their means and now its payback time.

Oh and in case you''re wondering, UK debt to income ratio in the same year was 173%. Much worse than our cousins across the pond. So if anything, the Brits have been the greater spendthrifts and are now facing a worse crisis than the Americans.

Football debt is serviced on the basis of future income. NCFC debt being securitized on future gate receipts. If season ticket sales fail to materialize next year, it is going to get quite sticky for us, and any new investor may have to pledge cash to service the debt as well as investing in the playing squad.

As far as capping debt goes, I doubt it can fly. Accountants can creatively manipulate the numbers to move debt off balance sheet. If a club was up against the wall, I''m sure they''d try it.

Capping salaries and transfer fees might work, but the root cause is the huge amount of money sloshing around in football. The FA should divert more TV money to the lower leagues, schools of excellence and into Academy football which would all be an investment in the future of English soccer. It won''t happen, of course, since it''s the big 4 that wags the tail of the FA dog.

Ah well...

[lucky green trainers 0]

[quote user="astrodyne"]So, if football is such a bad thing to get involved in, why are people still ready to get involved in it - i.e. Man City and Charlton?IMO its just alot of rich people crying because there are others who are richer. Did I see Whelan or Madjeski come out with these sorts of remarks 5 or 10 years ago, when they themselves were buying success? No.39th game anyone? - guaranteed to bring in mega riches from the emerging markets in the far east [:#][/quote]exactly - this is the same ole story rehashed by poor millionaires - both whelan and john maj speculatively invested and bought success for their unfashionable clubs - if it was down to their fan base/support and club history, then these 2 clubs would be league 1 at best imo...they''ve been artifically promoted by the financial muscle of their rich benefactor owners...but that was ok for them 5-10 years ago, when they were the big fish in the pond - but now they are minnows among billionaires, they are blubbing like spoilt kids - wot a couple of ole tossa''s!!!its about time people got their head around the fact, that the prem and footy in general revolves more than ever around super rich people investing cash (no more debt models for the time being) hoping that in 5-10 years time, they will (a). make a profit and (b). have a bit of fun///and sure, its clear that to run with the big boys - NCFC need similar finance if we are to properly grace the prem again, make mistake...our poor millionaire owners couldn''t afford to buy NCFC on their own terms now???and yeah, even in the current economic conditions, ashley has potential suitors looking to give him a nice return on newcastle, charlton have middle-eastern investors bidding, west ham have a super-prime indian suitor in the wings, and its rumoured liverpool will be taken over by a dubai based consortium soon...credit crunch - wot credit crunch...if theres a bubble, its a cash bubble - cos i suspect the majority (say70%)  of the £3b debt owed by footy clubs is backed up by cash rich superprime owners anyway,,,even chelsea has a big debt - so i assume it gives them a tax advantage???   and yeah - i agree with wru - that ''where''s the fudging money gone'' = imo - as well as regulating the city of london - there should be world-wide regulation,,,the days of secret banking must end - the free market needs access to all available information to function properly - clearly, the rise of the off-shore banking has distorted the free market by allowing wealthy individuals/consortiums to hide money/activities from the market, and then manipulate for their own gain...imo - if US10 trillion has been lost through the dot com and housing/asset bubbles - then i bet alot if it is now trousered off-shore,,,and where money accumulates, then power and vested interests form around it and corruption can occur///rein in the rogues - cos clearly national governements are powerless to contain these uncertain market forces, imo - international co-operation is required and the off-shorers need to come back under regulation and supervision...its a good bet that more money is held in accounts off-shore than in the combined central banks of the world right now, and that can''t be healthy and certainly not right...