March 2, 2015    5 minute read

Premier League Football: Boom & Bust Cycles

   March 2, 2015    5 minute read

Premier League Football: Boom & Bust Cycles

Since the first season of the Barclays Premier League, we have seen top football clubs struggle to keep up with the ever-increasing financial pressure that the top leagues provide. From Portsmouth F.C., who faced bankruptcy after winning the English F.A. Cup in the 2007/2008 season, to Real Oviedo, who faced extinction after spending 38 seasons in the Spanish top division, the balance between running a sustainable financial model and seeking glory in the top competitions is one that many football chairmen fail to master.

Glory above all else

Manchester United F.C. is a prime example of a successful footballing model, but a business model that has failed spectacularly. The club’s most recent figures have announced that they face a debt of £380.5 million, which comprises around 18% of the club’s total value, according to Forbes. Despite Manchester United being third in the world’s top debt list, it is no surprise to see that two of the world’s most successful clubs, in footballing terms, also make it on to this list: Real Madrid and Barcelona. As such, there is a clear correlation to be seen between the amount of debt that a football club is in and the success that it can capture. Manchester United’s £27 million acquisition of Wayne Rooney in 2004, Gareth Bale’s reported £85.3 million transfer to Real Madrid and Manchester City’s £38.1 million purchase of Sergio Agüero all depict the fact that it is possible to buy success in football, perhaps encouraging relatively big clubs to take out loans against the club in order to reach the level of becoming an elite ‘super club.’

Money doesn’t always buy happiness

However, the main thing that these ‘super clubs’ have in common is that they are able to finance their debt through the success that they have. Málaga CF are a club of relative success, having qualified for the UEFA Champions League for the first time in its history in 2012. This was after the club looked to make the step up from a club of reasonable stature to that of an elite football club. This was marked by the club’s record signing, of Santi Cazorla for €21 million, being executed in 2011. This, therefore, resulted in the club reaching the quarter-finals of the UEFA Champions League in the 2012/2013 season, having been knocked out by German giants Borussia Dortmund. Despite this seeming like a relatively successful campaign, particularly in Málaga CF’s debut season in the UEFA champions league, this result was not enough to cover the debts created by the acquisition of the star players that had been purchased previously. Given this, Málaga CF was banned by UEFA from entering any European competition in the subsequent season, thus limiting the revenue that the club could gain in the 2013/2014 season. As such, Málaga CF were forced to sell some of their star players, such as Isco to Real Madrid, as they could no longer afford to pay the high wages that the players were demanding. In addition, the club needed to use the money from the transfers of their star players to finance their high level of debt. Consequently, this has meant that Málaga CF have failed to reap much success from recent seasons, as they were forced to sell their top talents in order to finance their high levels of debt.

An exemplary business model

In spite of the large amounts of debt that many of the European giants possess, there are a few top football clubs that are run as successful business models. For example, Arsenal F.C. are a club that enjoy a huge following across the world, and took a revenue of €359.3 million in the 2013/2014 season. This, according to Deloitte, makes Arsenal the 8th most widely supported football club in Europe. In addition, Arsenal Football Club possesses no short-term debt, according to the club’s latest financial results. The sales of Robin Van-Persie to Manchester United in 2011 for £24 million and Cesc Fàbregas to Barcelona for £35 million have also helped the North-London club gain a very stable balance sheet. However, in terms of footballing performance, Arsenal F.C. can be considered to have struggled. Having infamously failed to win a trophy for nine years between the years of 2005 to 2014, Arsenal were forced into adopting the strategy of many of its debt-ridden rivals, as the acquisition of Mesut Özil for a club record fee of £42.5 million arguably spurred Arsenal on to finally end their nine year baron trophy run with F.A. Cup glory in the 2013/2014 season.

Balance sheet or silverware?

It can be seen that the trade-off between a financially sustainable football club and a successful club in footballing terms, is one that cannot be taken lightly by chairmen. A club’s financial status can almost be seen as its own economy, as there are importers and exporters of footballing talent around the world, while all of the footballing ‘economies’ look to grow as sustainably as possible. However, it seems as though those ‘economies’ that are ‘importers’ of foreign talent, such as Manchester United F.C. and Real Madrid C.F., seem to be the more advanced, elite super clubs, and seem to experience much more success than those football clubs who look to ‘export’ their talent and retain a healthy balance sheet. As a result of this, it can be argued that a football club doesn’t need to be too concerned about a large level of debt, as long as they can finance this debt through the enormous revenues that come with winning the greatest trophies in football.

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