Tycoons turn goal-shy over club ownership (based on FT story)

We're under a week away from the much-anticipated return of the Premier League, but it seems not everyone is convinced about the growing appeal of the English game - with some tycoons appearing to have lost some of its lustre.

Once upon a time... it's used to be every rich man's dream to own an English football club. On paper, owning a Premier League club, even a relatively modest one, has never been more attractive; with even the smallest minnows being able to swim amongst the top 6 of any other league in Europe in terms of revenue. However recently, deals for Crystal Palace, Aston Villa, Hull City, West Bromwich Albion and Southampton have failed to materialise despite, in some cases, prolonged bargaining.

Dan Jones, a Deloitte partner, has been open in stating that, "The change in club profitability in 2013-14 was more profound than anything we could have forecasted. This may move clubs from being seen as exciting and enticing trophy assets to being recognised as business capable of delivering consistent profits".

Despite this, those involved in negotiations said buyers had been put off by tighter regulations on club ownership, worries over regulation and even geopolitical problems - like in West Bromwich Albion's case, when the deal collapsed after the Chinese stock market plummeted. Aston Villa were also affected, with the deal scuppered by sanctions on Russia over Ukraine. Crystal Palace's situation was rather different, however, as talks broke down when better performance on the pitch led to a price rise.

External circumstances are not the only constraint. The Premier League has made its 'fit and proper person' test (for potential owners) much tighter. Another recent law passed means shareholders and directors have to be approved. These internal regulations may make the prospect of applying for ownership of a Premier League club a daunting and burdensome process.

A banker who works on deals said football clubs were difficult to value and market. "This is such an unusual business because it's a talent business, but when you think about talent businesses, they are often part of a conglomerate. These clubs are standalone and relatively small in financial terms and that is a big risk". This insight reveals that there is high risk in acquiring a football club due to its volatile nature in terms of revenue and popularity - especially the vitriolic abuse that fans often hurl at their owners, especially when a club is failing to live up to expectations.

On the outside, the prospect of owning a Premier League club has never been brighter, with revenues from the £5.15bn television deal soon to kick-in for the 2016-19 seasons. However, the regulations and the overall package that comes with controlling a football club has made cause for potential purchasers to think twice.

Lucrative TV deal reflects the level of Season ticket prices

In the off-season, there is a lot of speculation flying around regarding which players will join which club, which managers will get the boot, what some players are choosing to with their free time. However, in this post, I am choosing to focus on arguably the most important component of the beautiful game... the fans. The fans are the ones who make it happen, because without the demand and the passion received from the fans, football would simply not be the median in which pulls together people from all around the world.

One direct effect on the fans is the price of tickets, in particular the price of season tickets for the select few. Over the years, it has been said that fans have been unfairly exploited by the Premier League clubs as they can charge whatever price they want, in the knowledge that fans will continue to turn up regardless. For example, the most expensive season ticket is at Arsenal at an extortionate £2,013, this is compared to the lowest at a Premier League club which is surprisingly Manchester City, who charge £299 for their least expensive season ticket. Analysing this with some basic demand and supply theory, allows us to see that most clubs are able to charge whatever prices they desire and demand exceeds the supply, as there will always be fans who are willing to pay more if the incumbent holders choose to give up their season tickets, with most clubs having waiting lists to be signed up to be a season ticket holder.

However, it's not all doom and gloom. Manchester United have decided to freeze their season ticket prices for the fourth consecutive season, whilst Arsenal have also announced a freeze, which also includes non season ticket prices - a victory of sorts for fans of the club. Other clubs including Stoke City and Crystal Palace have in fact cut their early season ticket prices; a decision that should be celebrated amongst the football community.

Overall, if clubs do really care about their supporters, more cuts and price freezes will hopefully be seen in the future, considering the increasing amount of funds they are receiving from the TV deals. Clubs can afford to freeze prices and should do, because the fans make the clubs what they are, so it is only fair to give something back to the fans.

Wages-to-Points Ratio: The Overachievers and the Underachievers.

Surprisingly for some, Chelsea are in fact overachieving when it comes to comparing wages to league position in the Premier League.

Chelsea are notorious for high spending, and this hasn't changed this season, with their wage bill racking up to a extortionate £197.7m; with the acquisitions of Cesc Fabregas and Diego Costa contributing to this. However, it isn't just the big names who are driving the wage bill up, but Chelsea have an unnecessary amount of players on loan who are all tied up to lucrative deals; this is one of the big driving forces which people tend to forget.

Let's not forget the 2 highest spenders, the 2 Manchester clubs, with Manchester United leading the way at £215m, Manchester City just a measly £10m behind (£205). United can thank the ever non-present Radamel Falcao who is reportedly earning a whopping £300,000 week as well as Wayne Rooney who is on a similar amount.

1885. The year when it became possible for a player to be paid a wage. To think that the maximum wage in 1901 was £4 - football really has evolved into the profession which has people talking. Whether it's justifiable is a subjective matter in itself. Is the enjoyment and entertainment that football fans crave worth it? I'll let you make your own mind up.

Anyway... back to the subject. So Southampton have done remarkably in terms of what they have achieved when comparing performance to their wage bill. They rank 16th on the wage bill league table, when compared to their current league position of 7th, it makes fine pickings for the Southampton board. They can thank this endeavour to the clever directors and scouting systems, who have managed to acquire bargains in the form of the Graziano Pelle and Dusan Tadic, as well as retaining the reliable Morgan Schneiderlin, who was on the brink of a move to Tottenham in the summer. Southampton also deserve credit on the way in which they have managed to progress youngsters from their academy, names such as James Ward-Prowse, Harrison Reed and Sam Gallagher have all managed to make the step and show their worth in this fine Southampton team.

On a negative note, QPR, who are 19th in the league at the moment, have the 8th highest wage bill in the league which clearly demonstrates the lack in football knowledge by their owner Tony Fernandes. QPR have not managed to get rid of unwanted players, so as a result have had to pay the price of keeping them on their wage bill whilst they play Golf and occasionally make an appearance in the reserve team.

Overall, the findings show a strong correlation between league standings and total wage bill, which is an encouraging sight, and shows at least for some of the clubs, the market mechanism of a higher wage bill to attract the best players for the best teams is working to an extent. More savvy management is needed in some clubs to cut down the wage bill and make sure that the clubs have the right players for their club, because only then will the players play to their full potential and only then will it be affordable for the club.

World Cup 2014 - The Other Side: Part 2

Continuing from the last instalment, we will explore the issues that arose in the build-up to the World Cup and how the organisational firm, PwC, helped to solve them to ensure a smooth running of the tournament. 

For a start, Brazil had to choose 12 cities out of 18 contenders, where matches were to be staged. 
Each city had to be interviewed in terms of the plans they had for the event and their capabilities. Once the selection process was completed, PwC checked out the infrastructure these towns had in place against the plans they had proposed and produced an implementation guide. 
The exhaustive process exposed many potential worries - one being the limits of Brazil's airports. Around 20, 000 fans would try to fly to the next event within hours of one game ending. However, most terminals at regional airports only had the capacity to process about 1,200 passengers every hour - huge delays would be expected. 

PwC put forward a plan for increasing capacity at terminals and boosting the number of flights - upgrades as such would expect to cost (US$ 3.6bn). The scale of the problem is magnified when considering that the World Economic Forum's Global Competitiveness Report ranks Brazil's airport infrastructure 134th of 144 nations in terms of quality. BIG improvement was needed. 

The second major concern was a shortage of hotel rooms. Tens of thousands of ticket holders as well as their families were in demand for hotels. This is no problem at all for cities like Sao Paulo, but it is for smaller towns. A bigger problem still, was trying to convince private investors that extra hotel capacity could be kept full even after the event had ended. 

As you can see from this instalment, there are many obstacles that need to be overcome to ensure the running of a successful event. In the next issue, we shall explore more issues and the ways in which Brazil can look to rectify the problems, all to ensure a smooth running of the biggest stage in the world. 

World Cup 2014 - The Other Side: Part 1

Brazil. World Cup. What a combination.

Whoever hosts a major event is sure to come under some scrutiny, whether it's about when the stadiums will be finished or how they will be able to cope with the sheer presence of the world's eyes on their country.

Soon after Brazil won the race to host the event in 2007, they hired PwC (Price waterhouse Coppers) to help assist with the preparations. Major events of the sort aren't solely about building stadiums, the World Cup puts strains on a Nation's airports, transport links, hotels and security. Getting everything up to scratch takes years and many billions of dollars of investment. PwC attracted Brazil's attention due to their success and experience in stewarding such events such as the World Cups in 2006 and 2010 in Germany and South Africa respectively.

Plenty can go wrong. The 1972 Munich Olympics is largely remembered for a terrorist attack that ended in a massacre of 11 Israeli athletes and coaches and a German police officer. It is fair to say that tragedies on this scale are rare, but glitches such as an electrical storm that cut off TV coverage of the 2008 UEFA European Championship semi-final in Switzerland for about 10 minutes can also dent a reputation for organisational competence.

In the next instalment, we shall explore how PwC identified problems in Brazil and how they chose to fix them. 

The BT vs SKY war makes the rich untouchable

 

With the Premier League clubs already enjoying the benefits of their new domestic and global TV deals, the cash from the recent £900m gamble from BT will start to flow in the accounts of England's leading clubs from 2015-6. Everybody is getting richer, but unfortunately the gap between the rich and the really rich will grow larger every year.
 
The fundamental effect of BT's new deal will be additional wealth for England's top 4, the one's which make it into the Champions League places. The effect will be that there will be 6 teams playing to get into the Champions League spots, whilst the 14 teams play for survival, as teams such as Everton and Newcastle will never get near the top again, as the difference in revenues will be too great.
 
The main worry is that the new deal will make the Premier League as a whole, less competitive and thus less attractive to viewers to watch. In the past it has been this competitiveness which has made the BPL such as compelling product, but this is likely to be reversed with this news.
 
However, evidence for this supposed superiority as a result of this deal is being rebuffed by certain people with the claim that many relatively less wealthy clubs such as SV Zulte Waregem, Real Sociedad and Grasshoppers have all qualified for the Champions League despite being in the bottom half of wage-payers in their league. Also, in recent years,  the likes of SC Braga, Borussia Dortmund and FC Basel have punched above their weight at elite European competition - further evidence that wealth is not everything in the 'beautiful game'.
 
The argument cannot be concluded however from the basis of past evidence, it must now be seen if this new implementation has any effect in the future of the power England's top clubs and whether it really does lead to a less competitive league, which for all neutrals of the game, we hope not.

Hollande stands firm on the 75% tax rate despite strike plans

As I previously revealed in my blog about Monaco and its illustrious tax haven, France are planning to impose a 75% tax rate on earning above 1 m euros (£850 000).

Mr Hollande met with the club presidents and informed them of his choice to go ahead with the plans amid talks that it could spark an exodus of players. They have joined the chorus of protests from business and wealthy individuals who have recently condemned the tax and have left the country.


"The need to rebalance public accounts fully justifies this effort asked of companies that have made the choice of paying annual salaries at such a level," Mr Hollande said.


In response, Jean-Pierre Louvel, the head of the UCPF club union, said after the meeting that clubs would refuse to take part in match fixtures from 29 November to 2 December in protest. 


If this occurs, then this will be the first football "strike" since 1972.

The proposed levy will last the rest of 2013 and 2014. 

The initial proposal to tax individual incomes was ruled unconstitutional by France's top court. But the government modified it to make companies liable for the 75% tax rate for salary paid above the 1m-euro mark.

However, it still requires approval by parliament.

The Qatari-owned Paris Saint-Germain, France's richest club, has more than 10 players whose pay exceeds 1 m euros, including the Swedish striker Zlatan Ibrahimovic and the Uruguayan striker Edinson Cavani

Last season the Ligue 1 clubs registered a combined loss of 108m euros and paid around 700m in social charges and image rights, which was more than they received from the television deals.

The new tax, they say, will hit them hard, sparking an exodus of top players, to the greater detriment of the French domestic leagues.

Although this levy will not affect Monaco, the rest of the French Leagues, in particular Ligue 1, will feel the full effect of this ruthless tax, and this may unfortunately result in players of the highest calibre, including Ibrahimovic, Cavani, Lucas, and many more leaving the league which is definitely not positive for French football as a whole.  

Transfer Aftermath: How can Real afford Bale and is the myth of the British Premium true?

So... Transfer deadline day is finally over, much to the relief of many football fans. Along with that, Bale's transfer saga, which was FINALLY concluded last Sunday, with the former Tottenham player making his 'dream move' to Real Madrid was a extortionate fee of £85 million!!! But how can Real Madrid, or any club for that matter, afford this humongous fee?

Over the past 13 years, Real Madrid and their President, Florentino Perez, have broken the world record transfer five times - Figo in 2000, Zidane in 2001, Kaka and then Ronaldo in 2009 and now of course Bale in 2013. Those five players cost a rather cool £303.6m!

But it is what Real Madrid can afford, not surprisingly, with the club earning £415 million in 2012 - hence making them the wealthiest club in the world (as stated in one of my earlier blogs). Perez argues anyway that the big marquee signings will pay off in replica shirt sales and sponsorship. 

But still, how can clubs all over the world afford and justify paying huge sums for players. Even Arsene Wenger, who is seen in world football as the stingiest of them all spent a massive £42 million on Mesut Ozil. 

Well once again, it's all down to pay TV. Starting from this season, clubs in the Premier League will  benefit from the new £5.5bn, three-year deal for domestic and overseas TV rights. Much of this - £3bn - comes from Sky and BT Sport. The competition between these two companies has helped inflate the football economy to unprecedented levels. The bigger clubs will get a larger share of the TV money, the reason why they can afford to buy these big name players.

Anyway...moving on...

Every time an Andy Carroll or Jordan Henderson, or Jack Rodwell get sold and Liverpool (over-)pay for British-born players, the idea of an English (or sometimes, British) premium is bandied about.


But... is it really true that you have to pay a premium for English players? The underlying idea here is that there is positive discrimination in the English player market, with selling clubs charging a little (or a lot) extra for English or British players.

A study was recently undertook to find out if the 'British Premium' exists in reality. To figure out if there is evidence of a premium, it conducted several regression analyses to see if a player's "Britishness" is a significant predictor of his market value once it takes into account a variety of factors that also might determine how much he goes for - things like age, his contract year, which club he plays for, position, etc. 

The results covered from the investigation are as follows:

Non-British: £7.45
British: £5.07

Non-English: £6.97
English: £4.99

To see how this plays out,  the models can be used with some fancy math to determine how the market values two identical players. Take two 25-year old midfield players who are - for the sake of argument - identical and average in every other way. The prediction for the British player would be that he is valued at £3.96 million; for the non-Brit, the model predicts £6.58 million. Or take the average 28-year old forward for example; the Brit would be valued at £4.74 million; the equivalent player from elsewhere £7.36.

So can the myth be dispelled? Well there exceptions to the rule, with players such as Andy Carroll costing £35 million, and other names, but in relation to foreign imports, it can be concluded that British players are significantly cheaper, much to the surprise of some. 

So maybe, clubs should start investing in local talent instead, grabbing themselves a bargain and on the bigger scale - helping out the national team, which is clearly lacking in top quality.

Programme, Pie and Pint...The Triple P Index

On a typically cold and windy British Saturday afternoon, football fans like you and I will be tucking into a toasty, crisp pie at our respective fixture to help warm our insides, but the question is - are we getting ripped off by our teams?

Well the obvious answer is YES. Pies on average at a Premier League fixture cost £3.06 - you wouldn't usually pay this much for a low-quality pie when popping down to your local Tesco's. 

But it isn't just Pies that we're looking at. A survey has gone out in the 2012/13 season to find the 'Triple P Index' at all 20 clubs in the League, comparing prices of Pie (of course!), a Pint and the match-day programme. 

Team	Programme	Pie	Pint	Total
Arsenal	£3.00	£3.30	£3.50	£9.80
Aston Villa	£3.00	£3.10	£3.50	£9.60
Chelsea	£3.00	£3.60	£3.50	£10.10
Everton	£3.00	£2.80	£3.50	£9.30
Fulham	£3.50	£3.90	£4.20	£11.60
Liverpool	£3.00	£3.20	£3.60	£9.80
Manchester City	£3.00	£3.50	£3.40	£9.90
Manchester United	£3.00	£3.10	£3.30	£9.40
Newcastle	£2.50	£2.80	£4.00	£9.30
Norwich	£3.50	£2.50	£3.50	£9.50
QPR	£3.00	£2.90	£3.80	£9.70
Reading	£3.00	£3.20	£3.90	£10.10
Southampton	£3.00	£3.20	£3.60	£9.80
Stoke	£3.50	£2.70	£3.70	£9.90
Sunderland	£3.00	£2.90	£3.60	£9.50
Swansea	£3.00	£3.00	£3.45	£9.45
Tottenham	£3.00	£3.70	£4.00	£10.70
West Brom	£3.00	£2.40	£3.10	£8.50
West Ham United	£3.50	£3.00	£4.00	£10.50
Wigan	£3.00	£2.30	£3.20	£8.50
Average	£3.07	£3.06	£3.62	£9.75

As can be clearly seen, on average of the 3 P's, the pint is the most expensive, with Fulham charging an extortionate £4.20 for 1 pint!!! Fulham also claim the gong for the most expensive Pie at £3.90. They then have to share the award for the most expensive match-day programme with Norwich, Stoke and Wesh Ham at £3.50. 

These results may be perceived as quite surprising as you wouldn't associate Fulham or any of the other clubs mentioned above as the most successful clubs, raising the question to why do Fulham charge the most out of all the Premier League clubs. 

A correlation that is evident to see is that, as you get closer to London, the deeper the pockets required, with Chelsea, Fulham, Tottenham and West Ham being 4 out of the 5 clubs with a 'Triple P Index' above a tenner. 

So seeing as London is the capital, it may be understandable why there are more extortionate prices there than elsewhere, but what is still is not explainable is that fact that Fulham can charge £4.20 for a pint!

And if you're wondering, like I know you are, Ipswich are at the top of the football 'pie league', with their pies being voted the most mouth-watering pies around.