Can football be financially stable?

Originally I was going to write this article in response to the BBC’s “Price of Football Survey 2012”. I thought it would be interesting to try and build a hypothetical model of how a top flight system could function in both keeping the club financially stable (and thereby ensuring the fans don’t absorb unnecessary ticket inflation) while at the same time promoting competition that continues to see the sport grow. However, I see that Liberal Democrat President Tim Farron has come up with his own solution and has tabled a motion in the House of Commons that wishes to:

“encourage people to go and see local non-League teams like Kendal Town or Barrow in the South Lakes, where ticket prices are 60-80% cheaper; […] that switching to support non-League clubs will boost community football whilst also bringing collective consumer pressure on the top teams to reduce their prices”

While promoting local football teams is important, and certainly there needs to be less disparity between the top and bottom rungs of the FA, such a strategy does not really address many of the systemic problems that are causing price rises. The thought that the migration of fans to lower leagues would somehow pressurise the top clubs to change their ticket prices overlooks many facts, one of them being that there is a massive stratification of wealth within the top division itself. Such a proposed move would affect different clubs in different ways. For those that can adapt: the percentage of corporate seats will increase in order to offset the loss incurred by the departure of non-corporate members. For those that can’t adapt – such a detraction in revenue will turn what is in most cases an already unstable business model (which struggles upon the basis of player wages) utterly volatile. As we have seen with Portsmouth and Rangers, supposedly big clubs are extremely susceptible to entering administration even in the relative aftermath of success on the pitch (Rangers securing the SPL; Portsmouth the FA Cup).

So if player wages are one of the aggravating factors, why not pay players less? Well the simple answer relates to the supply and demand of footballers. The talent pool of elite footballers is extremely small and clubs in the top level of any country are in competition with each other and the rest of the world to secure their services. Complaining about players earning large salaries is ineffective – what should be determined is the global market price of a player and whether an English club, (in the fight for securing the player) has over inflated it beyond what might be deemed reasonable.

This is just one facet of the game that need to be looked at, but the larger question remains: How do we protect the fans and at the same time protect the club? I don’t pretend to have the correct answer but I certainly think we can learn a little bit from a simplistic overview of the current model.

Consider the diagram below. In it I have labelled three factors: a) the fans; b) the sponsors and c) the business mind of the club. (I haven’t included players at this stage because I don’t want to complicate things, I’ll return to them in a bit). Now each one of these parties shares the same goal – they all want success on the pitch. However their motivation for that goal is arguably different.

The business (taken to mean the management of the club) want success on the pitch because it equals financial success. Awards, higher advertisement revenue, media revenue etc. all mean that the business can continue to function, to accumulate wealth and of course compete for the best players around.

The sponsors want success on the pitch because it equals brand recognition. It makes their name or product more marketable if it is associated with success.

The fans however are unique. Each fan is effectively a shareholder, but their share is a physical space because their investment equals a seat in the stadium. (As opposed to financial shareholder who just get a metaphysical share). Importantly, fans get no monetary return for their investment. They purely consume performance, not its financial gain. That means they want success on the pitch for the sake of seeing it happen. Yes, of course they also want the club to be financially secure, but that’s only so that it can continue to acquire good players and deliver what they primarily want, success on the pitch.

So we see that the three main elements of the club are not in perfect alignment. In particular, success on the pitch is a means to an end for both the sponsor and the business, whereas for the fans it IS the end, and finances are just the means to reach it. Thus the MONETARY goal of the business and the sponsors does not equal the PERFORMANCE goal of the fans.

Now we introduce the fourth element: the players. They have equal goals (in theory) of success on the pitch and monetary reward for their services. However, they carry the responsibility of the club along with the business. And this is where the model begins to become unstable. If performance falls, then sponsors pay less and the business loses financial power. The players however, although not receiving performance bonuses, continue to enjoy high wages (based on previous performance elsewhere). They do not absorb any financial risk as a consequence of the business beginning to struggle. The shortfall is instead absorbed by the fan base. But it is neither in the fans immediate interest OR responsibility to do so.

So what am I saying, that the problem is the players? Not exactly. Nobody who works for a company realistically expects their wages to fluctuate in accordance with performance of the company in general (unless you are in sales of course). The problem in fact is the commoditization of players – their ability to move around drives up inflation of wages through financial competition between clubs to procure their services. When the Premier League negotiated its own broadcasting rights it was able to attract the best talent with lucrative wages. If we are to look at the statistics of top flight wages, we can see from fig. 2 how exactly this has been a catalyst with reference to the average UK worker wage.

So what’s the solution? Stop the players from moving around? Well EU regulations mean that you cannot exactly restrict the right of someone to work in this way. Therefore the answer has to come from the way wages are managed in the first place. This is not an easy problem to address. Firstly if you were to reduce wages significantly then the league would quickly self-destruct as all the players would join foreign leagues, team performances would decline and sponsors would pull out. But at the same time fans need to be protected from the financial risks associated with clubs, so somethings got to give.

Here’s my solution in an ideal world (i.e. it’ll never happen):

a)      Capped-fees: All players in the top league of their respective countries should be paid the same wage by their club. It doesn’t matter if your Wayne John Terry Rooney, the club pays you the same as it pays everyone else in the first team. This measure will prevent the reckless inflation that is associated when player contracts are negotiated. For this to work, the league wage should track exactly the global wage.

b)      Sponsor top-ups: In order to then ensure competition, and therefore growth of the club and the sport, the sponsors should absorb any additional performance bonuses that are used to lure a top class player to a club. This is a way for the clubs to continue to attract top talent and it also incentivises players to go out and play well (not sit on the bench and refuse to warm-up as has been the embarrassing case in the past). This means that sponsors are directly responsible for giving a club an “edge”, something they supposedly want to be seen to be doing anyway. This is important because the agreement between a sponsor and a club can be negotiated in a way that it cannot not be done so well between a fan and the club.

These two simple steps could potentially relieve many of the problems associated with the financial management of the modern game. Fans would be protected from ticket inflation, players would be less volatile in their movement from one rich club to another, and wealthy owners would not be able to take over a club and burden it with wage increases that it could not sustain should the figure head decide to leave at any moment. With the clubs only liable to a set, predictable wage, budgeting of its cash-flow can be made much more stable reducing massively the risk of clubs going into administration.

However, the model is of course not without its limitations. First of all it requires uniformity across all leagues, and that will never happen for a number of reasons. Also, needless to say, each club has its own particular problems and obstacles which a general model such as this does not take into account. Although by no means a complete solution, I hope that the analysis at least has identified where some of the systemic problems associated with the relationship between members of a club can stem from. This is definitely a debate worth exploring more because the truth is the current model of the Premier League is unsustainable – there will come a point where fans will start to boycott match-days because of ticket prices. I hope something changes before then.

If you have your own ideas on how you think top flight football should be run, I would love to hear them.

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