Despite making a record income in the 2009/10 financial year, the 20 teams of the English Premier League, managed to lose nearly half a billion pounds. Their total combined revenues, from TV deals and the world’s most expensive tickets, was £2.1bn. 16 of the 20 made losses and the same number relied on funding from wealthy owners.
Last year’s wage bill was £1.4bn, representing 68% of their combined income. Not only is the fact that the Premier League clubs earn a fortune, but cannot control their players’ wages, proof of incredible business ineptitude, it may also mean they will fail to reform in time to meet Uefa’s new financial fair-play rules.
These rules require that, over the next three seasons, clubs will be permitted to record losses, in total, of only £39.7m (€45) and cannot rely on owners’ subsidies, if they want to participate in European competitions. This may prove problematic.
The top seven clubs all made substantial losses, with the exception of Arsenal, whose income of £382m (£56m profit), was on the back of selling luxury apartments at the Highbury development for £156m. Manchester City made the biggest loss and Sheikh Mansour used his oil riches to pay off their £121m deficit, racked up buying and paying players they needed to win trophies.
The other Manchester team,United, had a turnover of £268m, but interest on their debts to the Glazer family, pushed them into a loss of £79m. Chelsea, whose owner is oligarch, Roman Abramovich, made the next biggest loss, of £78m.
Premier League clubs face multiple challenges if they are to comply with future financial fair play requirements. They have to stop paying ever-increasing wages to players and their agents. They must also stop alienating fans, who are concerned Uefa’s principle of clubs relying on income, rather than wealthy benefactors, will lead to increased ticket prices.
Football fans live in the real world, where there is a deep recession and, if clubs are going to maintain their fanbase and ambitions, they will have to learn some important business lessons.
They could do a lot worse than to cross the Atlantic and visit the school of US college sports.
Uniquely, the United States hosts big-time sports at its institutions of higher learning and college sports are deeply ingrained in the American culture, with half a million students playing intercollegiate sports each year. Millions of spectators go to college football stadiums each week and tens of millions more watch on television.
Incidentally, there are no leagues between college and professional, so once a student finishes at college, he will never play in an organised league again, unless he turns professional.
The March Madness basketball tournament is a major national event, with 80 million viewers, ESPN owns ESPNU, a dedicated college sports channel and Fox Sports and other cable companies are developing regional channels just to supply the huge demand for college sports.
The football teams at Texas, Florida, Georgia, Michigan and Penn State, all reportedly make between $40 million and $80 million in profits every year, even after paying coaches multi-million dollar salaries. Despite the recession, in 2010, a single college athletic league, the football-mad Southeastern Conference (SEC), became the first to take receipts breaking the billion-dollar barrier.
The revenue comes from ticket sales, merchandise and licensing fees, but mainly television. Big companies throw their money at universities, so they can be associated with their star athletes, and the universities grab it eagerly.
American universities are in thrall to their athletic departments because of the riches they can generate; television networks pay huge sums of money and furnish college theatres, in return for which, if live football is broadcast on a Thursday evening, the university will close down at 3pm.
However, where there is great wealth, there is invariably corruption.
The structure of college sports means that student-athletes generate billions of dollars for their colleges, but earn nothing for themselves. In 2010, the NCAA sanctioned the University of Southern California, after its star running back, Reggie Bush and his family, received ‘improper benefits’, including free air travel, limousine rides, a car and a rent-free San Diego home, from sports agents wanting him as a client.
USC was stripped of its 2004 national title and Bush returned the Heisman Trophy he had won in 2005. In 2010, Auburn University won a national championship, in an undefeated season, but its star quarterback, Cam Newton, was dogged by allegations that his father had solicited up to $180,000 from Mississippi State, in exchange for his son’s attendance after junior college.
Jim Tressel, the successful head coach of the Ohio State Buckeyes, was forced to resign last year, after the NCAA alleged he had feigned ignorance of rule violations by members of his team; at least 28 players, over the past nine seasons, had traded team memorabilia and autographs, at a local tattoo parlour, for cash or tattoos. There was also a terrible sex abuse scandal at Penn State.
Recently, journalist, Jordan Weissmann, asked the unthinkable; would colleges actually be better off without football?
What effect does athletics have on a university, including those students who don’t actually play sports? What effect does sport have on a university’s finances, its academics and its reputation?
College football makes the powerhouses rich, but the overall picture is mixed.In August, 2010, the NCAA released a financial breakdown of college athletics programmes, from 2004 to 2010.
In that time, just over half the 120 teams, in the Football Bowl Subdivision, generated a profit from football. Those teams made an average gain of $9.1 million. For those in the red, the average loss was $2.9 million. For elite football schools, the game is a cash cow, which can subsidise less lucrative sports. For the also-rans, it is just one more expense.
University administrators commonly claim that alumni are more likely to donate to their old college, when their football teams are winning, but research on this is mixed. A 2004 study, by professor Irvin Tucker, of North Carolina University, showed better records and bowl appearances could boost alumni giving, but this was refuted by a 2001 paper.
Public universities are dependent on legislative giving, and, in 2003, UMBC’s Brad Humphreys, found winning teams received more generous funding. He said: “A successful football season might increase state appropriations by 5 to 8%, the following year.”
Increased funding in college football does not guarantee better returns, but surely college football must be good for a school’s reputation, with winning colleges getting more applications and higher rankings? For schools, football programmes represent marketing, including national television advertising and on-field success leads to a surge in academic applications. This phenomenon is known as the Flutie Effect.
In 1984, quarterback, Doug Flutie, led Boston College to an upset win over reigning champions, Miami, with an incredible 60-yard touchdown pass, still regarded as one of the finest plays in sports history. Over the next two years, applications to Boston increased by 30%. After its unlikely Rose Bowl run, in 1995, Northwestern University saw a similar spike in student interest, as did Florida, when it won titles in basketball and football, in 2006.
It is not only students who pay attention to sporting victories; academics are drawn in too. 2010 research, looking at the effect of football success, found that finishing strong in the year-end rankings, could have the same effect as a 42 point boost in SAT scores.
So, a winning team can boost academic reputation, but in terms of academic performance, a football-driven culture can have varied blessings. Just last month, the University of Oregon tracked how student grades were influenced by the football team’s success; not just those of student athletes, but of all students. How had the Oregon Ducks’ seasons, over the past decade (ranging from middling to superb), affected its students?
When Oregon won more, men’s grades dropped relative to women’s, when they lost, men’s grades recovered. 28% of men and 20% of women said they drank more when their team won. It seems football might be a distraction from study, but a 10% increase in a university’s win rate, over six years, led to an increase in graduation of over two percent. Maybe students just like sticking around to support their teams.
So what could the Premier League learn from US college athletics?
Well, English football teams are not too bothered by academic success, but if their players turned out for less than £50,000 a week, they might have a better chance of turning a profit. And who would begrudge them the odd free tattoo?