IT WAS A prank, but at the same time so apt. It summed up the situation in the over hyped and high priced world of professional English football. It is well documented that the situation at Portsmouth Football has been dire for some time. Finally it found a new buyer in Nepalese born businessman Balram Chainrai. But wait, he only bought the club to hawk it to another owner.
But things got comical when the club was put up for sale on eBay. That is when one knew that things had got out of hand. While the actual listing was a prank, as many as 80 bids came in with the highest bid of £ 999,999.00. The auction was listed as “Portsmouth City Football Club Ltd.” on the British eBay site. The description says, “New owner desperately wanted for financially-stricken south-coast football club. Previous and current owner(s) have run this fantastic club into the ground and it is facing an uncertain future. Liars, crooks, asset-strippers and tax cheats are obviously NOT welcome. All bids considered but please get a move on as the electricity is about to be cut off moosh.”
Ha, ha, ha! Chainrai became the fourth owner of the club in a year. The Hong Kong businessman has taken over Ali al-Faraj’s 90% stake after the creditor had become frustrated at missed payments by the club. The Guardian reported that, “Portsmouth’s troubled season took another dramatic twist when Balram Chainrai seized control of the club from Ali al-Faraj, making the Hong Kong businessman the fourth owner at Fratton Park this season, following Sacha Gaydamak, Sulaiman al-Fahim and Faraj. Chainrai has taken over the 90% shareholding in Portsmouth that was held by Faraj after becoming frustrated that the club had missed deadlines to repay money he was due for substantial loans he gave to them earlier this season. Chainrai had loaned at least £ 17 million to Faraj to keep Portsmouth afloat through Portpin, the company he owns with his Israeli business partner, Levi Kushnir, and their associates. Those loans were secured against the stadium, the club’s future television revenue and Faraj’s 90% share. Angered by Portsmouth’s failure to make repayments on the finance, despite Portpin continually extending the deadlines, Chainrai’s patience ran out, and he instructed his lawyers to act. Under the terms of the loan Faraj’s 90% shareholding in Portsmouth was frozen and passes to Chainrai. It is understood Faraj may have to instigate court proceedings if he wishes to challenge the move.
“Chainrai had expected to receive a sizeable repayment when the Premier League paid all of its 20 clubs a £ 7 million instalment of television revenue early last month. Portsmouth’s, though, was withheld by the governing body as the club’s dire financial predicament meant they had been unable to pay transfer monies due to English and European clubs. A proportion of these were paid by the league using the television money. Chainrai travelled to England last month but was unable to secure the repayments. It is thought that he informed Mark Jacob, Portsmouth’s executive director, and Daniel Azougy, who oversee Portsmouth in Faraj’s continuing absence, of his disquiet then. Speaking to The Guardian, Chainrai said: “Portpin have made substantial loans to Portsmouth to try and ensure the club’s future. Portpin will [now] continue to work for the best interests of the club.” He hopes to appoint two new members to the Portsmouth board and is intent on stabilising the finances before looking to attract investors.
The irony is that while England plays host to this uber hyped professional league, its own national football team remains the pits. Every four years when the Euro Cup or the World Cup comes along, England players resplendant in their club avatars find the going tough at the highest level. England won its lone World Cup in 1966 at home, that too in extra time against Germany 4-2. Yes, 1966. It reached the semi finals in 1990 when it lost to Germany on penalties. In the European Cup, it is still more galling; two semi final finishes in 1968 and 1996. In the Olympics, it has won twice in 1908 and 1912. So, record busting attendances, gravity defying transfers and gangbuster hoopla notwithstanding, the English Premier League is a dead loss. Its business model flawed.
Maybe there is a lesson in all this for the Indian Premier League where franchise owners are similarly making losses, despite claims made otherwise. Earlier in January, EPL club Manchester City announced losses of $ 148 million, for the last financial year, the “second-biggest single-year loss for any club in the history of English football,” according to Sam Wallace of the London Independent.Manchester City’s “staggering losses are more than twice” the $ 70.9 million annual losses Chelsea announced last month. But the losses are “still not as big as those” Chelsea disclosed four years ago, when the club posted a deficit of $ 223.7 million. Wallace notes Manchester City’s losses “do not even take into account the summer’s” $ 199.6 million spent on players, as the club’s figures “only run to the end of May last year.” Meanwhile, Manchester City Owner Sheikh Mansour bin Zayed Al Nahyan has converted loans of $ 487.2 million “into equity and invested another” $ 143.2 million through the purchase of further shares in the club. Wallace notes it is “thought that Sheikh Mansour has earmarked around $ 1.23 billion for the entire investment, taking in the acquisition of the club, player transfer fees and wages.
The Premier League is the most lucrative football league in the world, with total club revenues rising 26% to £ 1.93 billion ($ 3.15 billion) as of 2007–08. Eleven of the twenty Premier League teams made an operating profit in that year. Wage costs also reached € 1.51 billion in 2007/08, considerably higher than that of the next highest-spending league, the Italian Serie A (at € 972 million). Individual salaries are rarely, if ever, confirmed in public, although a survey of players in 2006, conducted in conjunction with the Professional Footballers’ Association, showed the average basic wage in the Premier League was £ 676,000 per year, or £ 13,000 per week, before bonuses.
The Premier League’s gross revenue is the fourth highest of any sports league worldwide, behind the annual revenues of the three most popular North American major sports leagues (the National Football League, Major League Baseball and the National Basketball Association), but ahead of the National Hockey League. On a per club basis, the average revenues of the 20 Premier League teams are thought to be close to those of the 30-team NBA. However, there is much greater financial disparity among Premier League clubs when compared to the members of any of the “Big Four” North American leagues.
Something surely stinks to high heaven. Cost efficiencies are a distant dream for the club owners. Paul Kelso writing the other day inThe Telegraph said that a study of the finances of football clubs across Europe is ringing alarm bells. Kelso’s article is a must read. His hypothesis is even more scary. He argues that half of all European football clubs are running at a loss. So, this is not merely a problem in England, but has spread across to the mainland as well. I am reproducing parts of it here: “Half of all European professional football clubs are running at a loss, with more than 20 per cent recording ”huge” deficits in the past year despite the game generating record revenues.
The shocking figures, compiled by European football’s governing body Uefa and due to be published next month, reveal the full scale of the financial excesses in club football across the continent. Uefa’s general secretary Gianni Infantino said the financial plight of clubs in England and across Europe demonstrated the need for new regulations. Uefa, fearing a spiral of wage inflation across the continent, is pressing ahead with new rules requiring clubs to live within their means rather than relying on wealthy owners or bank debt to underwrite player wages and transfer fees.
The intention is to prevent a repeat of the difficulties being felt at English Premier League clubs Portsmouth and West Ham United, as well as limit the ability of benefactors such as Sheikh Mansour bin Zayed al Nahyan at Manchester City to fast-track success with short-term spending that the clubs could not otherwise sustain. Uefa president Michel Platini’s ”financial fair play” initiative will require clubs competing in European competition to break even or turn a profit, relying only on what they earn from football revenues. Clubs repeatedly making a loss over a three-year cycle could be barred from the Europa League and Champions League. The new rules, which will be welcomed by those concerned at the financial extremes of the Premier League, will be published in the summer and introduced from the 2012-13 season. They will not limit the amount of debt that clubs can carry, but interest payments will have to be covered by income. Clubs will be able to record losses as a result of long-term football investment such as stadium improvements. Short-term spending will have to be funded from club earnings, and heavily leveraged models such as that imposed on Manchester United by the Glazer family, will be imperilled.
“The implications for English football are serious. In the 2007-08 season, 14 of the 20 Premier League clubs made a loss, including Manchester United, Chelsea and Liverpool. Major European clubs such as Inter Milan, AC Milan and Real Madrid will also be affected. Infantino said: ”What we are doing, with the support of all the stakeholders in the game, including the major professional clubs, is to try and improve the long-term stability of European club football by encouraging clubs to live within the revenues that they generate. ”We are concerned, and many of the clubs and owners are concerned, about the sustainability of the game. ”We surveyed more than 650 clubs all over Europe, and found that 50 per cent of those clubs are making losses every year, and 20 per cent of them are making huge losses, spending 120 per cent of their revenue every year.”
So, what is at the kernel of this problem? Well for starters, it is the absurd wages that are paid. Actually, they can hardly be categorised as wages. Infantino has said the primary reason for the losses was wage and transfer inflation driven by clubs relying on owner finance or debt. ”Around one-third of the clubs are spending 70 per cent or more of their revenues on wages. Revenues across European football grew by 10 per cent last year, but the salaries of players and coaches have gone up by around 18 per cent. It is clear that if we continue like this it will end up with a spiral of inflation, so we need to bring a more rational and reasonable approach to this crazy game.”
It is clearly economics, stupid. Revenue shortfalls like this cannot be sustained by the whims and fancies of bulge bracket owners. Rich men with sport as their hobby horse is not a sustainable business model. Sheikh Mansour of Manchester City has coughed up $ 199 million just to acquire players. It is bizarre.
At least in the IPL there is a cap on the amount that can be spent on player auctions. Otherwise, we would have similar sums of money beind bandied about. When the news telly wallahs and subsequently ToI went ballistic on the sum of money paid for Kieron Pollard, I asked IPL commissioner Lalit Modi and he denied the exorbitant sums of money outright. One can argue that the cap for the 19 January auction was $ 750,000 and in the event of a tie breaker installed for the very first time in IPL history, the surplus over the $ 750,000 amount was to go to the IPL kitty and given these circumstances, Modi would have preferred not to divulge the real figure. But even then, look at what happened last year – both Kevin Pietersen and Andrew Flintoff went for $ 1.5 million and change. Freddie Flintoff broke down, while Pietersen was a pale shadow of his usual self before he flew back to London for his England commitments.
Subsequently it was discovered that his achilles heel problem flared up during the IPL. Paul Collingwood and Owais Shah were acquired by Delhi Daredevils and all they did was warm the bench since IPL has a cap of four foreign players per match. And mind you they were paid.
Some semblance of profit and loss has to be imbibed by the people who run city based franchises. Otherwise, they will discover very quickly that while it is fashionable to own a sporting franchise, it can well end up as a no brainer. And of course burn a very deep hole in their pocket.
