Debt mountains tower over clubs but football's rulers turn a blind eye

Posted Sunday, January 31, 2010 by theguardian.com

Debt mountains tower over clubs but football's rulers turn a blind eye
Sir Bobby Charlton alongside the Manchester United co-chairman Avram Glazer.

Debt is football's issue of the moment, propelled into prominence by the revelation of Manchester United's interest payments, Portsmouth's payroll problems and Crystal Palace's fall into administration. This is not, though, a new phenomenon, or surprising: it is one challenge among many that English football, in its unprecedented boom time, has failed, or been unwilling, to grasp.

Those Manchester United supporters who campaigned against the Glazers' takeover in 2005 warned then that this family of so-called billionaires were bringing to United only the massive borrowings they had taken out to buy the club in the first place. Portsmouth are creaking towards the winding-up court because they had an owner, Sacha Gaydamak, who allowed the club – with loans only, from him and banks – to overpay a team of stars way beyond their means. Then he pulled out.

After years of windfall TV income, sky-high ticket prices and rollercoaster takeovers, most clubs in the Premier and Football Leagues would be insolvent without the backing of owners. However much money comes in, they pay players too much, because of the nature of competition between clubs of different sizes. Football at the highest level already knew the calamitous cost of "living the dream" but Richard Scudamore, the Premier League chief executive, responded to the Football Association chairman Lord Triesman's warnings about the game's "debt mountain" in October 2008 by arguing that his clubs' debts were sustainable and the owners were managing them "responsibly".

Since then, Gaydamak has dropped Portsmouth and Bjorgolfur Gudmundsson, West Ham's Icelandic billionaire, melted down with his country's economy. The Premier League, despite rejecting Triesman's concerns publicly, did introduce some measures on debt, such as a "going concern test" whereby accountants pronounce on whether a club can fulfil their fixtures for a season. It is not clear, however, that this goes far enough.

At the majority of Premier League clubs, the accountants will say the debts are being managed provided the owners remain solvent and are putting their money in. When the owner becomes suddenly not very rich, as at West Ham and Portsmouth, or turns international fugitive (as happened to Manchester City's distinguished former owner, Thaksin Shinawatra), the club, immediately, are not sustainable at all.

The Premier and Football Leagues, and the FA, the game's overall governing body who should be responsible for these issues, all declined to give their thoughts to the Observer, though they said they may in the near future. Those who have contributed offer some fascinating insights, particularly from within football. Alan Smith, for example, noticed overspending creep in with the Premier League's breakaway in 1992. Football came through 1980s penury and disaster, to realise its true, national game status, then blew its new fortune on making multi-millionaires of this luck-kissed generation of players.

The debt problem which has resulted has a clear link with ownership. These sporting institutions, community organisations, cultural assets – define football clubs how you like but do not say they are ordinary commercial outfits such as vacuum cleaner companies – are bought and sold to anybody, from wherever, because they need the next backer with more money. The outgoing owners, too, usually want mountainous profits, which is contrary to English football's historic culture and rules, but has become ingrained and accepted in the Premier League era.

The idea that clubs should be mutuals, owned by their supporters, as are Barcelona and Real Madrid and, up to at least 51%, the German clubs, is increasingly recognised as the natural constitution for a football club. It does not guarantee good management, but provides stability of ownership, a strong foundation.

Action to restrain overspending is still required, and Uefa's financial fair-play initiative, requiring clubs to live within their means, is remarkable: a substantial measure, not mere words, or fiddly window-dressing, to address a major concern. A concern that led to fans protesting yesterday about the financial state of affairs at Cardiff City, following similar scenes in Portsmouth and a planned march in Manchester. United's debts were the subject, remarkably, of four articles in one newspaper's business section on successive days last week.

If Uefa succeed in establishing that rule by 2012-13, it should begin to rein in the overspending. After that, if the big clubs are willing, football can look at how to make the sport more equal, so the richest clubs do not inevitably monopolise the best players. NFL-style equalising of income, with a salary cap, is common sense, and a proven successful combination. There is simply no need for English football, in its richest ever era, to be leaving many millions of pounds unpaid to creditors, and clubs at the brink of ruin.

As for Manchester United- and Liverpool-style "leveraged" buyouts, they surely ought to be banned outright. They bring a scandalous drain to flourishing clubs, leaking out money for the benefit only of banks and the buyers, who seek a profit. It is still difficult to believe that in football, and wider business, such chicanery is even legal.