The Business of Football
The first football clubs were formed by friends, workmates or existing sporting associations, and were simply a way to enjoy playing the game and competing. With the onset of professionalism and larger crowds, the first football grounds began to be built. Larger clubs became limited companies so as to protect their members from the liabilities of wages and ground development. However they remained clubs in spirit, and fast became the focus of local communities.
Companies in Football
Inevitably the popularity of the professional game attracted entrepreneurs who were interested in the game as a commercial profit-making exercise, and clubs such as Liverpool, Chelsea and Portsmouth were formed in this manner.
Businessmen who tended to own clubs at this time presented their activities as a form of public service. Their task was to keep the clubs in good health, rather than to make money. Indeed The FA had safeguards to protect the game from commercialism. Its Rule 34 stated:
No member could draw a salary as a director of a football club. (In 1981 this was amended so that a single director could be paid, and today there is no restriction on the number of paid directors, but they do have to work full-time at the club)
No member could derive an income from owning football company shares; dividends were restricted to 5% of a shares face value
If a club was to be wound up, any surplus assets had to be distributed to local sporting benevolent funds or local sporting institutions. This protected football clubs from ‘asset striping’
Directors often described themselves as custodians – as putting something back into the local communities, but in many cases such a role was very useful. Their enhanced profiles allowed many self-serving businessmen to receive perks, do deals and make money illegitimately. Many have argued that these amateurishly run clubs, combined with the class system, created poorly run businesses with owner-directors having little regard for supporters and their comfort and safety.
However the rules preventing clubs becoming businesses ensured the game remained affordable and accessible to all. Admission for children was free even at the big clubs and clubs saw their support passed down from generation to generation, with the game becoming a big part of popular culture.
Although Alan Sugar’s Tottenham Hotspur became the first club to float on the stock market in 1985, it wasn’t until the mid 90’s that the rest of football’s chairman saw this as a new way to make money. Sugar (left) managed to by-pass The FA Rule 34 by creating a holding company – Tottenham Hotspur plc – with the club merely a subsidiary whose assets were transferred to the holding company. This model was used by successive clubs.
These were the first tentative steps towards turning football from a sport into a business – and industry within the entertainment sector. Supporters were no longer seen as fans, merely a ‘captive market’ whose support was ‘inelastic’ as the more a club charged for tickets, the more they would pay. For the bigger clubs, with national (and international) fan bases, such conversions into business became successful. In 1997 Manchester United had 3.29 million supporters, Liverpool 2.18 million and Newcastle United 1.42 million. This audience would happily buy into a clubs various aspects of merchandising, and being ‘brand loyal’ meant clubs such as Manchester United could more or less get away with releasing three replica versions of their kit within one season.
Rule 34 was still in existence, and yet even though it was fully aware that clubs had found a loophole, The FA’s allowed this practice to continue, believing ‘market forces’ should be allowed to do their work. The FA had by now abandoned its role of protecting football from the forces of commercialism – indeed it practically encouraged it in its blueprint. With the floatations, the 90’s saw massive growth in the game, new and improved stadiums, imported foreign players and a game that appealed to a wider (more affluent) audience. It also saw inflated players wages and transfer fees, increasing ticket prices and abandonment of the game at grassroots. Those who made the greatest gain were of course the chairman, making massive personal fortunes from the sale of their shares.
Ten years ago Northampton Town Football Club was faced with extinction after continual financial mismanagement. Supporters of the club decided that enough was enough, and with the future of the football club that they loved and supported resting on a knife-edge, decided it was time that ordinary supporters did something to help save professional football in the town. They succeeded in raising £60,000 with the help of local businessmen and the clubs administrators, and in return set up a trust owning 18,000 shares (8% of the club), and can elect a director to the board.
Successes have included moving the club to Sixfields Stadium in 1994, a ground that was built and owned by the council and rented by the club. This saved the club from the major expenses of its upkeep and made the club less venerable to potential asset-stripping businessmen interested in the ground. The trust has remained vital to the health of the club, especially this year when the club has gone up for sale, by ensuring any potential owner of the club has its best interests at heart.
Looking at a means to increase fan participation within the sport, the government’s football task force looked at the success at Northampton Town and used it to form the basis of Supporters Direct, a publicly funded initiative based at Birkbeck, University of London (home of the Football Governance Research Centre).
Brian Lomax, Northampton Town’s first Supporter-Director, explains the benefits of supporter ownership:
Supporters feel they have a real stake in their clubs. They are not just brought through the gates and fed bullshit by the board. The club is woven into the community, and there are many great advantages to that.
Humans create rituals which fulfil our craving for solidarity, for expressions of comradeship and loyalty. In a world which is losing its sense of togetherness, there is a great requirement for places in which solidarity can be found. I believe that is what football support is all about.
Supporters Direct aims to give support, advice and information for those wishing to play a responsible part in the life of the football clubs they support. Legitimate objectives of a supporter trust will include:
Influence – the formation and running of representative bodies for supporters
Ownership – acquisition of shares in football clubs to pool the voting power of individual supporters to further the aims of supporter trusts.
Representation – securing democratic election of supporter’s representatives to the Boards of Directors of individual football clubs.
However such trusts tend to only be successful when clubs are in danger. Some supporters now question the validity of the trusts objectives at Northampton Town, and newly founded trusts such as those at Walsall and at Premiership clubs such as Aston Villa, tend to attract only a small proportion of club’s total fan base. This needs to change – especially at smaller clubs in lower divisions which are more likely to head towards financial ruin. At such clubs long-term objectives can be to see the club owned by the fans (as has happened at Chesterfield) whose loyalty is likely to last far longer than some ‘white-knight’ new chairman. But these trusts are equally important at larger clubs whose owners are becoming ever more powerful.
Football clubs have now become to rely on TV revenue as their main source of income, and expected successive deals to be larger and bring greater wealth. This was the case in 2001 when the last round of TV deals were made, but were no doubt the last time football was to attract such large amounts of money – £1.6 billion being paid by BSkyB and ITV for Premier League matches and highlights respectively. The Football League had also managed to secure a lucrative contract of £315 million pounds from ITV Digital – the digital terrestrial platform backed by media giants Granada and Carlton. These deals were done at a time of the ‘dot com bubble’, where media companies believed large payments for such events would come good in the end.
Of course in terms of the Premier League, that is probably true, but the match up of both the lowly subscribed ITV Digital and less attractive Football League was a flawed proposition from the start. ITV Digital was in a similar position to that of Sky in the early 90’s. Where as Sky gambled its fortunes on the Premier League – whose teams attract supporters from across the country, ITV Digital secured rights to all three Football League divisions, whose supporters are more locally based and more likely to go the grounds than watch the games on the telly. ITV Digital was also flawed as a platform, weak signals and a coverage that didn’t cover the country meant that those who did decide to watch their local team probably couldn’t receive its ITV Sport Channel anyway. The situation wasn’t helped by not being able to secure carriage of the channel on Sky – whose platform attracted around 6 million subscribers.
It was with this in mind, that Carlton and Granada, making a loss of £1 million a day from ITV Digital, tried to renegotiate its contract with the Football League to who it still owed £178.5 million over two years. Unsuccessful in its attempts, it pulled the plug on ITV Digital, leaving 72 football clubs without important TV revenue, and perhaps 30 in serious financial trouble – some of who were already in administration.
Increasing Players Wages
Many fans saw the ITV digital crisis and immediately blamed the TV companies. But the crisis only really brought forward problems regarding TV deals that would have emerged next year, and these problems are likely to affect even the Premiership.
The problem lies with players inflating wages, and chairman’s increasing willingness to spend big on players transfer fees and more importantly wages, regardless to whether the funds actually exist to pay them. The top players such as Michael Owen and David Beckham can expect to attract between £70-100,000 a week. Lesser players also expect similar rates of pay, whether they’re actually worth it or not. When the Premier League has become the only league that matters, chairman have no option but to gamble their clubs futures on securing membership, and paying the wages to attract the otherwise unattainable players.
QPR was at one time in the Premiership, but is now in administration languishing in the lower league positions, having lost £27 million in four years. As a Premiership team it had 61 professional players, some who would never make the reserve team, let alone the first. Its youth team players were on equally ridiculous salaries – employing two players who would hardly make the youth team yet still earned nearly £100,000 a year. In a recent BBC interview Alan Sugar, the Former Chairman Tottenham Hotspur FC said:
If you give a club £50m they’ll spend it. If you give a club £100m they’ll still spend it. And what does it get spent on – transfers and salaries.
This has been possible in the past because TV companies were expected to pay more and more money for rights with each successive deal. But next time round, Sky – the only real contender for rights available to the clubs now, is likely to only put forward a considerably reduced offer to what would have been expected, yet players are unlikely to agree to reduced salaries.
Players wages have led to fans believing the players are no longer motivated because they get paid whatever the outcome of the games and is leading to a detriment of game in general. Suggestions of reintroducing maximum wages per player or divisional wage caps are means of clubs needing to save themselves from themselves.
Responsible Business Management
The situation with players wages has only arisen because clubs forgetting football is a sport not a business. As a football club, you don’t need to make profits just avoid sustained losses. But as chairman of football businesses, they tend to have their feet firmly in the City, believing in its philosophies such as
the market will regulate itself naturally quoted from Southampton chairman, Rupert Lowe.
However there are signs of change in the game, and some clubs such as Preston North End, are starting to realise the benefits of running clubs responsibly. In 1994, Preston was brought by the Baxi Partnership – a major employer in Preston and the country’s largest employee owned manufacturing company – who
wanted to put something back into the community. Bryan Gray, Chairman of Preston North End and Baxi Chief-Executive:
The 40% Baxi ownership and large supporter shareholding help preserve the ethos of the football club, which is to serve its supporters, to build and be successful.
Although this is the usual spiel given by companies looking to take over clubs, this time it was generally meant. Not that the club is run as a charity – it is run to make a profit, but for a purpose – for the club. The club was floated on the Alternative Investment Market, but not for Baxi to cash in on its shares, but to raise money for the club. Gray believes that good design is integral to a football club’s sense of itself and projection to the community:
Even people in the city who don’t like football are proud of the stadium as a well designed piece of Preston architecture – the club has immense good will in the city.
This belief extends to the clubs merchandise. Its store was crafted by its merchandising manager Steve White, a designer and a lifelong North End fan. The store stocks kit designed by White and manufactured by the club itself. White also brought in a range of clothes and leisure wear, branded with a discreet ‘PNE’ logo. Gray:
Every professional football club has a fund of loyalty in its town. If the club produces merchandise which is well designed and good value, people will be glad to be associated with it… these really are not difficult ideas. They’re absolutely basic to any good businessman.