Football and Finance – the Financial Management of Well Known Businesses

In Association with:-

Online CPD for Accountants & Professional Advisors

Football and Finance – the Financing and Financial

Management of Well Known Businesses

Presenter: Michael Kealy, Dublin Business School

CPDStore.com Unit 3, South Court, Wexford Road Business Park, Carlow.

Block D, Iveagh Court, 5 – 8 Harcourt Road,

Dublin 2. 059 9183888 01 4110000

www.OmniPro.ie www.CPDStore.com

A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone.

Football & Finance –

The financing and financial management of well-known businesses in the sport entertainment

sector

Supporting Documentation Index

Contents Page Slide Set 1 – 26 Back Up Material

Listed Football Clubs 27

Arsenal's total salary bill 28

Arsenal Holdings PLC – accounts extract 29

Chelsea confident of meeting Uefa fair play rules despite £70.9m losses 32

Forbes Valuation of Soccer Clubs – April 2011 34

Manchester City Annual Report Extract 37

Paying by the Rules – article 40

Spurs – What’s The Point of a Football Club? – Blog extract 42 Faith in Football – article extract 45


Michael Kealy FCCA1

Jose Mourinho, when manager of Chelsea

2

OmniPro Education & Training Page 1 of 47


This talk will mainly concentrate on the UK Premier League and the financial experiences of some of its clubs

3

The Football Association (FA) 1863

Professional football in England dates from 1885

Football League formed in 1888

4



Man Utd (then Newton Heath) (established 1878) joined in 893joined in 1893

Liverpool (established 1892) joined in 1894

Woolwich Arsenal (established 1886) joined in 1894

7 of the original 12 founder members still play in the Premier league. Only 1 has wound up.

5

The initial Football League comprised of 12 clubs growing to 88 after WW1

Subsequent changes:

a pyramid system with promotion and relegation between division and with other leagues outside the gFootball League

Premier League breakaway 1992

6



Currently Football League includes 92 teams in 4 divisions

Various other regional leagues throughout UK

7

After formation of the Football League, Scottish clubs were deprived of income from games clubs were deprived of income from games against English teams

Scottish Football League formed in 1890 with 10 members

Glasgow Rangers (1873)and Glasgow Celtic (1887) both played in the initial league and have never been relegated

8



The top football clubs are big business in the UK and some European countries

Revenues earned range in 2009 – 2010 from:

(No.1) Real Madrid € 438.6m to

(No 20) Aston Villa €109m(No.20) Aston Villa €109m

9

• Top 10 club valuations Forbes (April 2011) range from:

(No 1) Man Utd $1,864m to

(No 10) Inter Milan $441 m

▪ Yet, below this level, clubs are still rooted in the community and could be regarded as SMEs.

10



While Football is a business, there are unique While Football is a business, there are unique sectoral issues which impinge on its financial success

These include:

The apportionment of fee income from TV rights The apportionment of fee income from TV rights

Stadium Naming Rights

11

The Bosman rulingg

UEFA’s Financial Fair Play rules (the break‐even requirement)

Insolvency and The Football Creditor rule

The Funding of Football

A Funding experience: Cambridge City FC

12



13

Contract start date

Length of contract

Broadcaster Annual rights fee (£m)

£m per live match

1983 2 years BBC/ITV 2.6 0.26

1985 6 months BBC/ITV 1.3 0.22

1986 2 years BBC/ITV 3.1 0.22

1988 4 years ITV 11.0 0.61

1992* 5 years BSkyB 42.8 0.71

1997 4 years BSkyB 167.5 2.79

14

2001 3 years BSkyB 400.0 3.64

2004 3 years BSkyB 341.3 2.47

2007 3 years BSkyB/Setanta 566.7 4.12

2010 3 years BSkyB/ESPN 594.0 4.30



15

While very many stadia throughout the world have adopted names of commercial sponsors only 5 adopted names of commercial sponsors, only 5 Premiership clubs have done so

Some have tried and were “dissuaded” by their fans Others are planning to do so – possibly Liverpool; Chelsea; Tottenham.

Value could range from £14.9 m (Arsenal) to below £1m for such as Norwich; QPR; Wolves; WBA

16



17

Arsenal ‐Committed to its mission of financial self sufficiency

18



19

20



Manchester City – a different financial perspective

22



23

24



25

1. Match day Revenue: largely gate receiptsg y g p

2. Broadcasting Revenue –from both domestic league and European competitions

3. Commercial Revenue –incl sponsorships and merchandising

26



On 15 December 1995, the European Court of Justice ruled that players should be free to move when their contracts had expired

It also ruled that EU clubs could hire any number of European Union players

27

The financial implications were that: Out of contract players sought large signing on fees and salaries as their new club was not paying for the transfer

Free movement of players resulted. An old UEFA rule that limited clubs fielding “foreigners” lapsed

Clubs were forced to pay higher wages to players post –Bosman.

They had to generate higher incomes

28



Increased ticket prices and television packages allowed fans to watch the new footballing millionairesg

Clubs were forced to sign their stars on longer term deals

When clubs were relegated or when TV deals collapsed (ITV Digital), these contracts were crippling.

Leeds; Sheffield Wednesday; Derby suffered and had to sell off ; y; ytheir stars at reduced prices to meet the costs.

• As for Bosman, he took the case at 25, was left in limbo for 5 years and at 31 had to give up football.

29

30



UEFA have introduced financial fair play requirements for the financial year end 2012

Basic premise – clubs should not spent more than the income generated

S ll l b ith i & t Smaller clubs with income & expenses < £5m are exempt

31

Income includes all revenue streams, player transfers and finance income.

Expenses includes costs of player acquisitions, finance costs, all expenditure except depreciation, youth and community development and taxation

The regulations also cover other adjustments e.g. related party transactions must reflect their fair value

32



Assessment will use a multi‐year approach.

Clubs with aggregate deficits >£5m may be sanctioned......possibly excluded from lucrative UEFA competitions.

Cl b h Ch l ( ti l 6 A il Clubs such as Chelsea (operating loss £69m y.e. April 2010) and Manchester City (operating loss £195m y.e. May 2011), who hope to play to Europe, are interesting cases

33

From 1986 – 2008, 56 clubs went bankrupt h f l Just one (Portsmouth 2010) from Premier league to

date, but Liverpool may have been close 10 points deduction for a club in administration may mean:

Relegationg

Less likely to attract sponsors and other investment

Future commercial prospects may suffer

34



In insolvency “football creditors” have to be paid in f ll dl f h l b f l b lfull, regardless of other claims, before club can play league football again.

Reason? “Football can only survive as a collective group, so clubs may not avoid their liabilities“

Th R h d hi l i The Revenue have contested this rule many times, sometimes unsuccessfully Wimbledon FC (1994)

35

Leeds Utd’s recent history is:

Premier League 1992 ‐ 2004Premier League 1992 2004

Championship 2004 ‐ 2007

League 1 2007 – 2010

Championship 2010 – now

Leeds were a successful Premier league team. They borrowed heavily f h b f l d l f fagainst future TV & sponsorship income, but failed to qualify for

European competitions and faced an income shortfall.

They sold players (incl Rio Ferdinand £30m) to cover the shortfall. Results were poor – relegated in 2004 to Championship

36



Narrowly missed promotion; more players and managers di d ith Fi ti d t d li dispensed with; Finances continued to decline

In 2007, HMRC refused to accept £77k of the £7.7m owed to them.

Result ‐ club went into administration; suffered a 10 point penalty & were relegated to League 1 for the first time in its g ghistory.

Purchased by Ken Bates from KPMG

37

‐Also incurred a 15 point penalty for not obeying l dLeague rules on going into administration

‐HMRC did not collect

‐2007 – 08 trading ....profit of £4.5m approx incl7 g p 4 5 ppplayer transfers of £23m.....!

38



Tottenham Hotspur (Spurs) were the first football club to float on the Stock E change in 983float on the Stock Exchange in 1983

Since then 26 UK clubs have floated with just a few remaining – Spurs and Millwall are delisting currently.

Original subscribers were frequently supporters and their motive was more likely to have been success rather than profit

Over time, ownership vested in a small number of wealthy individuals

39

Traditionally, club owners were local businessmen who partly funded the club and stayed for the long termfunded the club and stayed for the long term

The Moores family in Liverpool; Peter Swales and the Edwards family in Manchester.

Jack Walker – Blackburn (1994 – 95) was the first to “buy” success

Roman Abramovich’s est. £750m at Chelsea

Manchester City ‐ £800m from Mr Shinawatra and now Sheikh Manchester City £800m from Mr Shinawatra and now Sheikh Mansour subsidises their loss of £197m and player purchases of £156.5m

40



Others ‐ the Glaziers in Man Utd with debt secured on the cl b’s assets and an Asian floatation in the offingclub’s assets and an Asian floatation in the offing

John W Henry and Fenway Sports Group, having delivered Liverpool from George Gillett and Tom Hicks appear to be realistic owners of Liverpool

41

Due to the location of many old football grounds, football regularly attracts redevelopment investmentregularly attracts redevelopment investment

Arsenal’s Highbury stadium is now residential

The Millwall board are examining their options

Liverpool, Chelsea and Spurs also

West Ham and the Olympic Stadium

42



Cambridge City FC – 7th in the Evo‐Stik Southern LeagueRoss Ri er Ltd Cambridge Cit Football Cl b Ltd [200 ] Ross River Ltd ‐v‐Cambridge City Football Club Ltd [2007]

Large debts and low revenues Agreed to sale and lease back of 3.7 acre ground for residential development.

Agreed price £1.3m Agreement also included overage – a top up to the price in certain circumstances.

43

For assessment of overage, club relied on the developer’s agentagent

Advice received by the club on potential development profit was understated

Club’s finance were poor so decided to sell overage agreement back to developer

On discovery of true valuation position, the club sought to On discovery of true valuation position, the club sought to terminate that contract and again become entitled to overage, when due.

The court found in favour of Cambridge City FC44



Consider these facts Since September 2008: Since September 2008: Loss of sponsorship income (e.g. Manchester United and AIG)

Several clubs up for sale (e.g. Newcastle United…regularly!)

Questions asked about debt financing of US owners (Glazers, Hicks)

Control of West Ham decided by Icelandic bankruptcy court

Clubs entering insolvency proceedings (Southampton, Darlington, Chester City, Stockport County, Portsmouth)

45

In 4 seasons, from 2001 – 2002 to 2005‐2006, the clubs across the four divisions lost > £1 bn approx four divisions lost > £1 bn approx

Ownership in football capitalism appears to highly unstable (Manchester United?)

Supporters demanding changes in management and in ownership (A Vill Bl kb S d l d l )(Aston Villa; Blackburn; Sunderland currently)

Ownership changes – Liverpool; Manchester City, Arsenal

46



Frequent insolvency in lower leagues – 56 clubs from 1986 to 20082008

Player wages still increasing

Does financial success now depend on your transfer market spend?spend?

If so, is it gambling or business?

47

Yet…supporters are loyal…… to successful teams

The demand for football still appears to be growing, particularly in Asia

The Premier league is stable

Some clubs may have a debt crisis looming Some clubs may have a debt crisis looming

And, in recent years, football capitalism has been verysuccessful relative to the alternatives

48



But…. the main problem in the business of football capitalism is that it is almost impossible to trade profitabl capitalism is that it is almost impossible to trade profitably and generate sufficient cash

So regular changes in ownership…and insolvency will probably continue to be the norm…..?

49

Will UEFA’s financial fair play requirements and the Will UEFA’s financial fair play requirements and the requirement to break even from the 2011‐2012 season change all that?

Let’s wait and see!

50



“You can have the top stars to bring the attention, you can have the best stadium, you can have the best facilities, you can have the most beautiful f , y fproject in terms of marketing and all this kind of

thing.

But if you don’t win… All the work these people are doing is forgotten ”doing is forgotten.

51

Deloittes Football Money League 2011

Deloittes Annual Review of Football Finance

Various research papers by Stephen Morrow (University of Stirling), and by

Stefan Szymanski & Stephen Hall (Imperial College London) y p p gavailable on the internet

Various articles from The Guardian and The Telegraph

52



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Arsenal's total salary bill rises 12% to £124.4m, annual accounts show Matt Scott 30 September 2011

Arsenal's annual accounts reveal a club pedalling fast to keep up with their Champions League peers. The inflation spiral in player wages forced the club to raise their total salary bill to £124.4m in the year to May 2011, according to accounts released on Friday. That constituted a 12.4% increase on the previous year's wage cost and took the ratio of wages to football turnover to 55.2%.

To put the relative rise into perspective: Manchester United describe a 50% wages-to-turnover ceiling as their golden rule. With senior players such as Robin van Persie and Theo Walcott in the final two years of their contracts, there could be further pressure on player costs.

However, although cash profit from football operations before tax and interest consequently fell by £10.7m to £46.5m, the past years of careful financial management have paid off. By releasing funds generated by the sale of properties at the old Highbury stadium, Arsenal could ensure their football costs were affordable. "Our investment in player wages, which means not just a significant current cost but also represents a high level of committed future cost, is underwritten by our accumulated property profits and cash reserves," wrote the club's finance director, Stuart Wisely.

Total bank balances at the year-end stood at £160.2m, up from £127.6m the previous year, a position of strength that allowed the Gunners to invest a net £14.6m in transfers (against £13.6m of income the previous year). This relates only to the trading during the summer 2010 and January 2011 transfer windows, and does not include the sales of Cesc Fábregas and Samir Nasri.

The Emirates Stadium debt, long considered a millstone, is in fact encouragingly cheap. The club saved £4m on the previous year's debt payments, down to £14.2m from £18.2m. Considering this expense allowed Arsenal to earn £93.1m from matchday revenues, up from £44.1m in the final year at Highbury (which also staged several more games due to Arsenal's run to the Champions League final), this underlines how manageable the Gunners' debts are.

But although property developments could drive a £40m windfall, Arsenal cannot rely on past reserves and property revenues forever. This means they must grow football revenues to maintain their self-sustaining template.

Stan Kroenke, Arsenal's majority shareholder since April, separately said on Friday how he intends to bring Arsenal's commercial revenues to the level of Manchester United's. The annual report gives an indication of how big is the gap between the two clubs in this area. Arsenal's commercial revenues were marginally up to £46.3m, gaining £2.4m on the previous year; over the same period United's reached £103.4m.

This could continue to constrain Arsenal in the transfer market until the headline shirt-sponsorship agreements with Nike and Emirates expire in 2014. Ivan Gazidis, the chief executive, is clear about the challenge.

"To give the club the best opportunity to achieve success on the field we must drive a virtuous circle of increased revenue, increased investment in the team and a larger engaged fan base, and we must do this in a way which is self-sustaining and protects the long-term future of the club.”



ArsenAl Holdings plc 37Consolidated Profit and Loss Account for the year ended 31 M

ay 2011

2011 2010

Note

Operations excluding

player trading£000’s

Player trading£000’s

Total£000’s

Operations excluding

player trading£000’s

Player trading£000’s

Total£000’s

Turnover of the Group including its share of joint ventures 257,107 735 257,842 381,262 460 381,722

Share of turnover of joint venture (2,150) - (2,150) (1,866) - (1,866)

Group turnover 3 254,957 735 255,692 379,396 460 379,856

Operating expenses 4 (212,128) (21,658) (233,786) (319,272) (25,033) (344,305)

Operating profit/(loss) 42,829 (20,923) 21,906 60,124 (24,573) 35,551

Share of joint venture operating result 822 - 822 463 - 463

Profit on disposal of player registrations - 6,256 6,256 - 38,137 38,137

Profit on ordinary activities before finance charges 43,651 (14,667) 28,984 60,587 13,564 74,151

Net finance charges 5 (14,208) (18,183)

Profit on ordinary activities before taxation 14,776 55,968

Taxation 8 (2,143) 5,024

Profit after taxation retained for the financial year 12,633 60,992

Earnings per share

Basic and diluted 9 £203.05 £980.31

Player trading consists primarily of the amortisation of the costs of acquiring player registrations, any impairment charges and

profit on disposal of player registrations.

All trading resulted from continuing operations.

There are no recognised gains or losses in the current or previous year other than those recorded in the consolidated profit and

loss account and, accordingly, no statement of total recognised gains and losses is presented.



38 ArsenAl Holdings plcBa

lanc

e Sh

eets

as a

t 31

May

201

1

Note

Group 2011

£000’s

Group 2010

£000’s

Company 2011

£000’s

Company 2010

£000’s

Fixed assets

Tangible fixed assets 10 431,428 434,494 - -

Intangible fixed assets 11 55,717 60,661 - -

Investments 12 1,648 1,053 30,059 30,059

488,793 496,208 30,059 30,059

Current assets

Stock - development properties 13 33,460 45,755 - -

Stock - retail merchandise 1,114 1,887 - -

Debtors - due within one year 14 27,435 62,289 2 2

- due after one year 14 2,214 2,928 131,259 125,601

Cash and short-term deposits 15 160,229 127,607 10,384 16,246

224,452 240,466 141,645 141,849

Creditors: amounts falling due within one year 16 (131,104) (154,835) (2,528) (21)

Net current assets 93,348 85,631 139,117 141,828

Total assets less current liabilities 582,141 581,839 169,176 171,887

Creditors: amounts falling due after more than one year 17 (275,912) (283,883) (14,117) (13,779)

Provisions for liabilities and charges 19 (38,274) (42,634) - -

Net assets 267,955 255,322 155,059 158,108

Capital and reserves

Called up share capital 20 62 62 62 62

Share premium 21 29,997 29,997 29,997 29,997

Merger reserve 22 26,699 26,699 - -

Profit and loss account 23 211,197 198,564 125,000 128,049

Shareholders’ funds 267,955 255,322 155,059 158,108

These financial statements of Arsenal Holdings Plc (registered number 4250459) were approved and authorised for issue

by the Board of Directors on 30 September 2011.

Signed on behalf of the Board of Directors

p.d. Hill-Wood

director



ArsenAl Holdings plc 39Consolidated Cash Flow

Statement

for the year ended 31 May 2011

Note2011

£000’s2010

£000’s

Net cash inflow from operating activities 25a 53,142 176,560

Player registrations 25d (1,528) 15,903

Returns on investment and servicing of finance 25d (17,220) (17,649)

Taxation 13,664 (6,294)

Capital expenditure 25d (9,546) (5,342)

Net cash inflow before financing 38,512 163,178

Financing 25d (5,890) (135,188)

Management of liquid resources 49,340 (48,542)

Change in cash in the year 81,962 (20,552)

Change in short-term deposits (49,340) 48,542

Increase in cash and short-term deposits 32,622 27,990

Management of liquid resources represents the transfer of cash (to)/from the Group’s bank accounts to short-term bank

treasury deposits.



Chelsea confident of meeting Uefa fair play rules despite £70.9m losses

Owen Gibson guardian.co.uk, 1 February 2011

Chelsea yesterday insisted they were "well-positioned" to meet forthcoming Uefa rules that require clubs to operate close to break-even, despite announcing increased annual losses of more than £70m.

The former chief executive, Peter Kenyon, had said as recently as 2008 that the club remained "determined" to reach operating break-even by 2009-10.

But the summary of the club's accounts, released on the day Chelsea spent more than £70m on Fernando Torres and David Luiz, revealed that in the year to the end of April 2010 operating losses stood at £68.6m.

The total loss of £70.9m was a substantial increase on the previous year's total of £44.4m, a reduction on the previous year aided by the banking of transfer fees for Wayne Bridge, Glen Johnson and Steve Sidwell.

The chief executive, Ron Gourlay, attempted to put a positive spin on the figures, arguing that increased turnover (up £2.5m to £205.8m) and a £3.6m reduction in operating loss from the previous year proved the club was moving in the right direction.

"The reduction in operating losses and increased sales in 2009-10 shows that we are moving in the right direction especially when viewed against the difficult macroeconomic environment," he said. "The club is in a strong position to meet the challenges of Uefa financial fair play initiatives which will be relevant to the financial statements to be released in early 2013."

Despite winning the domestic double last season, and reining in transfer spending in comparison with previous seasons, the club appears a long way from meeting Uefa's financial fair play criteria, which will require clubs to break even on all football activities. With an ageing squad, nor is there much resale value in many of their big names.

But Chelsea are confident that next year's figures will show that they are moving in the right direction, because they will show the impact of last summer's rationalisation of the squad and recent moves to cut costs.

The sale or release of Joe Cole, Deco, Ricardo Carvalho, Michael Ballack and Juliano Belletti is estimated to have brought in around £15m in transfer fees and saved £20m a year in wages.

Even once the impact of the Torres fee and wages are absorbed, there is confidence that improved revenues from ticket price increases, reduced bonus payments for players, a renegotiated deal with Adidas and more money from new Champions League and Premier League TV deals will more than mitigate the impact. The club is also continuing to search for a buyer for the naming rights for Stamford Bridge.



Like all transfer expenditure, the Torres fee will be amortised over the course of his contract.

Under the new Uefa financial fair play rules, clubs must pledge to break even on all football activities, subject to a sliding scale of acceptable losses that can be covered by a club's owner.

In the first two years that will be analysed by Uefa's team of accountants – 2011-12 and 2012-13 – clubs will be permitted to overspend by a total of €45m (£37.4m) as long as that figure is cancelled out by an equity injection from the owner.

Over the following three seasons, the permitted losses will again be set at €45m over the entire period. That will then drop to €30m over three seasons, then €15m, then zero.

Once a club, which will be investigated in detail if it exhibits one of a number of warning signs, fails the test the case will pass to a new panel set up to decide on sanctions.

But there are crucial caveats. If clubs can show that they are travelling in the right direction, that their losses are reducing year on year and can point to them being a result of contracts signed before June 2010 when the rules were enshrined in Uefa's rulebook, that may reduce the sanction.

Chelsea's chairman, Bruce Buck, said: "That the club was cash generative in the year when we recorded a historic FAPL and FA Cup double is a great encouragement and demonstrates significant progress as regards our financial results."

Gourlay has previously conceded that the club would not meet his predecessor's break-even target. In February 2008, Kenyon had said: "Our long-term target of operating profit break even by 2009-10 remains ambitious but we are determined to meet it or get as close as we can."

Manchester City's most recent accounts showed they made losses of £121m in 2009-10. At Manchester United, operating profits topped £100m for the first time but the club was left in the red by £79.6m due to interest payments on its £521.7m debt and one-off losses on interest rate swaps.



Forbes Valuation of Soccer Clubs – April 2011


#1 Manchester United

Country: England League: Barclays Premier League Owner/Majority Shareholder: Glazer family Stadium: Old Trafford (Seating Capacity: 76,000) Current Value: $1,864 mil 1-yr Value Change (U.S.): 2% Revenues: $428 mil Most valuable and profitable (as measured by earnings before interest, taxes, depreciation and amortization) sports team in the world. Powerful global brand with 333 million supporters worldwide, including 193 million in Asia, and 9.5 million Facebook fans. Commercial revenue of $122 million growing at double-digit annual rate thanks to new deals with Turkish Airlines, Betfair and several telecommunications companies. Value of Red Devils up 12% past year in local currency.

#2 Real Madrid

Country: Spain League: Liga BBVA Owner/Majority Shareholder: club members Stadium: Estadio Santiago Bernabeu (Seating Capacity:80,400) Current Value: $1,451 mil 1-yr Value Change (U.S.): 10% Revenues: $537 mil Los Blancos generated the second-most revenue (behind the New York Yankees) of any sports team on the planet last year, $537 million.

#3 Arsenal

Country: England League: Barclays Premier League Owner/Majority Shareholder: E. Stanley Kroenke Stadium: Emirates Stadium (Seating Capacity:60,400) Current Value: $1,192 mil 1-yr Value Change (U.S.): 1% Revenues: $336 mil Inked multi-year deal in late 2010 with YES Network, largest regional sports channel in U.S., to televise games on tape delay as well as magazine shows.




#4 Bayern Munich

Country: Germany League: German Bundesliga Owner/Majority Shareholder: club members Stadium: Allianz Arena (Seating Capacity:69,000) Current Value: $1,048 mil 1-yr Value Change (U.S.): 6% Revenues: $396 mil Won the domestic league and German Cup double last season and reached Champions League final where they lost to Inter Milan.

#5 Barcelona

Country: Spain League: Liga BBVA Owner/Majority Shareholder: club members Stadium: Camp Nou (Seating Capacity:98,800) Current Value: $975 mil 1-yr Value Change (U.S.): -2% Revenues: $488 mil Debt-saddled team's lucrative broadcasting deal with financially distressed MidiaPro in jeopardy.

#6 AC Milan

Country: Italy League: Serie A TIM Owner/Majority Shareholder: Silvio Berlusconi Stadium: San Siro (Seating Capacity:80,100) Current Value: $838 mil 1-yr Value Change (U.S.): 5% Revenues: $289 mil Drop in average attendance of 15,000 per game at San Siro resulted in match day revenue decreasing 6% last season.

#7 Chelsea

Country: England League: Barclays Premier League Owner/Majority Shareholder: Roman Abramovich Stadium: Stamford Bridge (Seating Capacity:42,500) Current Value: $658 mil 1-yr Value Change (U.S.): 2%




Revenues: $313 mil Two years ago Roman Abramovich moved his 726 million-euro loan to his team to his holding company Chelsea Limited. Even though the loans from the holding company were converted to equity by the team last year we include the debt in our leverage figures because it is still repayable to Abramovich, who owns both entities.

#8 Juventus

Country: Italy League: Serie A TIM Owner/Majority Shareholder: Agnelli family Stadium: Stadio Olimpico di Torino (Seating Capacity:27,500) Current Value: $628 mil 1-yr Value Change (U.S.): -4% Revenues: $251 mil The Old Lady is moving into a new, privately financed 105 million-euro stadium next season that will seat 41,000, 49% more than the current stadium.

#9 Liverpool

Country: England League: Barclays Premier League Owner/Majority Shareholder: John Henry, Tom Werner Stadium: Anfield (Seating Capacity:45,300) Current Value: $552 mil 1-yr Value Change (U.S.): -33% Revenues: $276 mil New England Sports Ventures paid $476 million to buy the debt-laden team from Tom Hicks and George Gillett in October.

#10 Inter Milan

Country: Italy League: Serie A TIM Owner/Majority Shareholder: Massimo Moratti Stadium: San Siro (Seating Capacity:80,100) Current Value: $441 mil 1-yr Value Change (U.S.): 7% Revenues: $275 mil Massimo Moratti has injected an estimated $100 million into his team during the past three years to fund operating losses.



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Paying by the rules 11 January 2010 Research published by the Centre for the International Business of Sport at Coventry University in 2008 revealed that clubs in the top four tiers of English football between the 2001-02 and 2005-06 seasons made an aggregated loss of more than £1bn. In addition, 56 clubs in the English leagues went bankrupt between the Insolvency Act’s introduction in 1986 and June 2008.

While no club has ever become insolvent while in the Premier League (established in 1992), there has been a pattern of clubs becoming insolvent shortly after being relegated from it, including Bradford City in 2001 and Leeds United in 2004, indicating that clubs often spend beyond their means in order to retain their positions in the top flight.

Football has overstretched itself and is now starting to suffer. In 2008 FA chairman Lord Triesman estimated that the debt figure across English football stood at £3bn. Buyouts of clubs in recent years have often been heavily leveraged and many are now struggling to meet interest payments to lenders. Additionally, very few clubs break even as a result of player wage costs.

For clubs that enter administration the consequence is a 10-point deduction from their league table position (nine points for Premier League clubs). This is to penalise clubs that do not and cannot pay their creditors because of financial mismanagement. However, it applies irrespective of whether some unforeseen catastrophe is the cause, or whether the administration is the result of poor management.

A points deduction is likely to result in the club being relegated, which will dissuade commercial investment and damage its future prospects. Many therefore question whether this blanket deduction is fair and reasonable.

The football creditors rule

In an insolvency scenario the ‘football creditors’ rule provides that football creditors have to be paid in full, irrespective of the position of any other unsecured creditors of the club, before the club is eligible to participate again in league football.

The Football League and FA argue that the rule maintains competition. It is also argued that football clubs are a community of businesses that can only survive as a collective, so that allowing one club to escape its liabilities to other clubs should not be allowed.

Nevertheless, there has been severe criticism that the rule operates unfairly (and some argue illegally) because it supersedes the order in which creditors are ranked by insolvency legislation. Critics ask: why should a club, or one of its players, either of which is an unsecured creditor of another club in administration, be more deserving of being paid than the club caterer or HM Revenue & Customs (HMRC)?

Certain examples illustrate the rule’s potentially distasteful effect. At Bradford City, which collapsed in 2002, 36 workers in club shops were sacked, while money was also owed to local



authorities and to St John Ambulance. However, the highly paid players, including Benito Carbone (on £40,000 a week), had to be paid in full.

The Inland Revenue (now HMRC), in Inland Revenue Commissioners v Wimbledon FC (2004), has challenged the operation of the football creditors rule in the Court of Appeal, but lost the case.

Leeds United

The penalty for entering administration has the ability to work harshly when it is read in conjunction with the football creditors rule. The Football League requires clubs coming out of insolvency to agree a company voluntary arrangement (CVA), a settlement that requires approval by 75 per cent of creditors.

In the case of Leeds United’s 2007 CVA proposal, HMRC was in line to receive around only £77,000 of the more than £7m tax bill it was owed, while Leeds’ football creditors would receive full repayment.

HMRC refuses to agree to be paid only a proportion of the tax it is owed, while under the football creditors rule players’ wages and any money owed to other clubs are being paid in full. As a result HMRC tends to vote against CVAs proposed in relation to clubs.

HMRC therefore challenged the Leeds CVA (which had the requisite majority agreement), which led to the administrators collapsing it and being forced to complete a private sale. Due to this legal challenge Leeds incurred the automatic 10-point penalty when the club went into -administration, then accepted a further 15-point deduction in League One when it failed to achieve a CVA (HMRC did not eventually follow through with its challenge to the CVA).

As the recession continues to bite it seems almost certain that more clubs will collapse under the weight of their debts. Since HMRC will almost always be a significant creditor clubs will require its support to exit from administration via the CVA mechanism required by league rules. Yet HMRC has made its opposition to the distortion of statutory insolvency rules that the football creditor rule creates clear and will likely continue to vote against CVAs that abide by it, with clubs potentially being penalised with further point deductions.

Consequently the football industry is facing a period of uncertainty and instability that is likely to shape it for years to come.

Adam Plainer is a partner and London head of business restructuring and reorganisation at Jones Day



Spurs – What’s The Point of a Football Club?

March 4, 2011 A Tottenham Hotspur fan blog

We the fans clasp the precious heritage and soul of our club in our hands. In a mixed up muddled up shook up world, we and only we provide continuity and unstinting commitment. Players and managers come and go. They may kiss the badge or effectively trample it underfoot, we hold it close to our hearts. We will be back next week.

In the build-up to big games, the media turn to us to validate the significance: the atmosphere builds, the ground is rocking, the town is alight. Not literally, presumably. Yet in the cold light of day, we will be told that football is a business. Be realistic – make money in order not only to be viable but also to compete in the quest for the Holy Grail, the sacred, some would say mythical, Next Level. No one is quite sure where that is or how to reach it, but we’re on our way. Teams field weakened sides in cup competitions because the bigger prize is to climb one or two greasy steps to mid-table mediocrity. Supporters kvetch about ticket prices. Crowds drop but that’s fine, as long as the drink is flowing in the corporate lounge. Success on the field is no longer the only goal. So what, exactly, is a football club for?

Until comparatively recently, there was a relatively straightforward answer. Each club was a private company run by a small board of directors who certainly controlled and probably owned the vast majority of the strictly limited shares. Well over 90% of the income was generated by fans coming through the gates. Those gates may have been ancient and rusting but the directors didn’t to need waste money on oil, let alone on any facilities inside the ground because the fans would come to see their team regardless. More success on the field, the fuller the terraces.

In the last 25 years, the number of stakeholders in the club, any club, has increased. The main newcomer is the shareholder because most of the big clubs are now public companies. Spurs were forerunners as Irving Scholar made us the first club to float on the Stock Exchange.

Now, when key decisions are made, as with any public company the interests of the shareholders must be taken into consideration, and that means profit. The composition of the board is different too. Directors are co-opted for their skills and influence. Most significantly, Tottenham Hotspur PLC is owned by ENIC, the English National Investment Company. The clue’s in the name – they need a return on that investment. Finally, football clubs still attract overbearing egos to their cosy boardroom, hoping to bask in the particular fame and glory that only our wonderful game can bestow. However, they are also doing what they do best, nose down on the trail of the filthy lucre. Alan Sugar is hardly revered for his achievements at Spurs, but despite a lack of success on the field and below capacity crowds, when he cashed in his chip he trousered a profit estimated to be anywhere between £25m and £35m overall. He saw an undervalued public company with assets and the capacity for growth.

Other stakeholders have elbowed their way into consideration. The F.A. always had a role in governing the game but it has been unceremoniously shoved aside by the all-conquering Premier League, whose aim is to generate as much money as possible for its members, rather than for the game as a whole. Sky TV is so close to the Prem, if we kicked the League up the backside,



Murdoch would get concussion. The very fixture list is governed by their requirements. It’s the same in Europe. After a make-over, the revered European Cup, the ultimate prize, now rewards league failure with a lucrative and unnecessary group stage, so everyone has more chances of thrusting their noses into the trough.

This brave new world has distorted our priorities and our language. In the past, defining ‘success’ was easy enough – win something, if not, finish as far up the league as possible with a decent cup run thrown in for good measure. Now, success can mean other things. The prospect of winning a trophy, certainly of advancing as far as possible in a cup competition, is secondary to Premier league survival. The surprise is not that sides field a weakened team, it’s that anyone is surprised. Finishing fourth in most sports is finishing nowhere. In football, it opens the door to Aladdin’s cave. We fight, mewl and screech in the pursuit of also-ran status.

These issues apply to most top clubs in the country but at Spurs, recent events have thrown them into sharp relief. Setting aside the rights and wrongs of a move to Stratford, the debate created lines of battle. The Olympic site was the best decision in terms of the club’s finances, according to the board. Increased capacity and better infrastructure at an allegedly lower price was in the best interests of the club, as Daniel Levy put it. Many fans thought differently – it wasn’t in their interests, playing far from home, in another team’s territory in fact. Many would have gladly sacrificed the sanitised plazas with their cafes and leisure park and a trip on the Jubilee Line for a proper rebuilt football ground in our spiritual home, no matter how difficult it was to get a decent pre-match cappuccino.

In the long run, so the argument went, financial stability and increased income benefits us all because this can be re-invested in the team. However, it also means better dividends for shareholders and the club is a far more attractive prospect for potential buyers, should ENIC wish to sell, bearing in mind that the object of any investment company is to maximise the return on its investment.

In the debate, the name of another stakeholder was taken in vain, the local community. In the desire to get planning permission for the NDP, much was made of the improvements it would bring to a run-down area of London. As soon as that permission was granted, the people of Tottenham were unceremoniously and ruthlessly jettisoned, having served their purpose. Now all that mattered was money.

This conflict has always been there. Once it was a walk or bus-ride to the club for most spectators. These days, fans come from far and wide and whilst they bring business to local traders, they also bring disruption and traffic chaos. The anti-Stratford lobby looked to local MP David Lammy for support but he has a duty towards his constituents, not the likes of you and me. I was talking to a Spurs fan who has lived in the area for many years. Despite the much-publicised community work and appearances of the players in worthwhile local projects, he is scathing about their lack of genuine commitment to N17, saying the club has little or no connection to the locality and no genuine interest in the issue.

I believe the club has a duty to the community of which it is a part, regardless of whether it increases gates. The activities that do take place are valuable and should be extended. There’s the



education project that brings football and education to local children and to those with disabilities, plus charity donations and the support of a football team for homeless people. Long may this continue, and should become a primary goal of the club, one of the benchmarks against which success can be measured.

My definition of success for the club is an organisation that has sufficient financial stability and the resources to function at the highest level of performance. Finish as high up the league as possible, and win something. This is not the be all and end all, however. The pursuit of profit and success on the filed at all costs must be mitigated by a sense of responsibility towards two other key stakeholders, the fans and the local community. If this means redistributing a proportion of our income or keeping a lid on ticket prices, then thinking twice about paying vastly inflated salaries, so be it.

Football and footballers are routinely vilified as poor role models for the young people who are in thrall to its charms. Watching my 11 year old grandson on a Sunday, their enthusiasm is infectious, However, there’s this one kid who hurls himself to the ground in agony if an opponent so much as touches him, others who mimic precisely bizarre gestures of open-palmed innocence if the ref blows against them. Ashley Cole brings a rifle to his workplace yet he’s free to play a few days later because it’s a vital game, one where one manager refuses to follow the rules that apply to all his peers and talk to a camera.

Football has a different, better message to deliver. Clubs should embrace the opportunities they have and exercise some social responsibility to their fans and their community and if this means success on the field or in the boardroom is harder to achieve, that’s fine. In fact, the League is so awash with money, this would cost but a fraction of their resources. Clubs can be role models too, of an organisation that understands its priorities, sticks to decent values and does the right thing. That would make us feel more part of what’s going on and ensure the club’s future by looking after the people who truly matter.



Quarterday - issue 72 - christmas day

Faith in footballben yates, associate T +44 (0)20 7524 6711 [email protected]

in the recent case of Ross River Ltd and another -v- Cambridge City Football Club Ltd [2007] eWhc 2115 (ch), the high court has provided guidance on the circumstances in which a duty of “mutual good faith” can be implied into arm’s-length commercial property transactions.

The FacTsafter a long period of steady decline since its heyday in the 1960s, cambridge city F.c. entered the 21st century with small crowds and big debts. the non-league side’s beleaguered management felt that the only way the club would reach its 2008 centenary would be if it realised the development potential of its ground. in February 2005, the club therefore agreed with ross river (an offshore vehicle of york developments) the £1.3m sale and leaseback of the club’s 3.7 acre ground at milton road, for residential development (the sale agreements). in negotiations the parties agreed to share equally the increase in the value of the ground arising from obtaining vacant possession and planning permission, after deduction of the costs of planning and development (the Overage).

Owing to the club’s poor financial position, following completion of the sale

agreements its surveyor, edwin Lee entered into discussions with ross river’s project manager, Paul harney, to sell the club’s share of the Overage. mr. Lee asked mr. harney for information on the planning position for the development, to help him price the value of the club’s share of the Overage. mr. harney provided limited information in response.

subsequently the club entered into an agreement with ross river (the Overage agreement) that it would:

accept £900,000 for its share of the Overage; andsurrender its lease, which was terminable only once planning permission had been obtained, in exchange for a new lease, which ross river could terminate by giving six months’ notice.

ross river gave notice terminating the lease on 31 may 2006.

•

•



j.crabb

Cross-Out

j.crabb

Replacement Text

applied to

The DecIsIonin a lengthy judgment, briggs J held that:

the club was entitled to rescind the Overage agreement for fraudulent misrepresentation;the sale agreements could not be rescinded. ross river was therefore entitled to possession of the ground;the club should, however, be entitled to remain as tenant for a further two years, since it had been induced to give up its rights of occupation by fraudulent misrepresentation.

the club was entitled to rescind the Overage agreement because it had been induced to enter into the agreement by the fraudulent misrepresentation of the claimant’s agent, mr. harney. the limited information provided by mr. harney had been “designed to justify a pessimistic appraisal of the value of the Overage”.

ross river argued that mr. harney’s representations in respect of the Overage agreement were not material because the club would, even if the representations had not been made, still have entered into the contract. briggs J rejected this argument, stating that it was sufficient for the club to show that the misrepresentation “was actively present to [its] mind” (per Bowen LJ in Edgington -v- Fitzmaurice (1885) 29 ch. d 459 at 483) when it chose to enter into the contract.

there had been no impropriety in the “hard fought arm’s-length commercial negotiation” that had led to the making of the sale agreements; the sale agreements could not therefore be set aside, as this would have been an injustice to ross river.

•

•

•

the limited information provided by mr. harney had been “designed to justify a pessimistic appraisal of the value of the Overage”.

Foul playit then became apparent to the club that:

in June 2005, during the negotiation of the Overage agreement, mr. harney had arranged for a payment of £10,000 (funded by ross river) to be made to the club’s chief executive and negotiator, arthur eastham. mr. eastham informed only one of his three fellow directors of the payment; andthe information supplied by mr. harney to mr. Lee had been misleading and unhelpful, giving an unrealistically pessimistic impression of the develop-ment. With hindsight the club considered that £900,000 had been too low.

the club therefore registered a unilateral notice at the Land registry against ross river’s title to the ground.

The claIm anD counTer-claImross river brought proceedings seeking the removal of the unilateral notice and claiming a six-figure sum in damages.

the club counter-claimed that it was entitled:

to rescind the Overage agreement and the sale agreements owing to the bribery of mr. eastham; andto rescind the Overage agreement because of mr. harney’s fraudulent misrepresentation, and because ross river should have disclosed all the material facts during the negotiations that preceded the agreement.

•

•

•

•



Quarterday - issue 72 - christmas day

briggs J decided that ross river did not have a positive duty to volunteer information to assist the club in the Overage buy-out negotiation because the parties had already agreed detailed provisions for the stages in the project when information was to be disclosed to the club. however, once the club had asked specifically for information to price the Overage, ross river was required to act in good faith towards the club. by purporting to answer the club’s request, but in fact concealing vital information, ross river had breached its obligation of good faith.

commenTthe parties to a commercial property contract may have mutual duties of good faith if their arrangement could be construed as a joint venture, even when the contract has been negotiated at arm’s-length between parties with comparable bargaining power.Professional advisers beware: in attempting to get the best deal for their clients at the expense of another contracting party, they could risk causing a costly breach of their clients’ duties of good faith. in the context of overage buy-out agreements, briggs J’s reasoning implies that, in the absence of detailed contractual provisions governing the disclosure of information, a positive duty of disclosure could arise.

•

•

•

The DuTy oF gooD FaIThthe sale agreements placed ross river and the club under mutual obligations to co-operate in the development of the ground: they contained a provision stating that the parties were not in partnership, but also contained mutual obligations which gave the development project the nature of a joint venture. the parties were therefore under a duty to conduct themselves with mutual good faith, not only in relation to the development itself but also during the negotiations leading to the Overage agreement.

the development project was to be carried out for the parties’ mutual benefit, and the costs of the project were essentially to be shared, by way of deduction before distribution of profits. briggs J decided that the rights, powers, duties and discretions given to ross river under the sale agreements indicated that ross river’s (and mr. harney’s) role was to serve the parties’ joint interests, not just the separate interests of ross river. ross river was not entitled to use, conceal or otherwise deal with information obtained from professional advisers for ross river’s separate interests, especially given that the information had been obtained at the parties’ joint cost.

Professional advisers beware: in attempting to get the best deal for their clients at the expense of another contracting party, they could risk causing a costly breach of their clients’ duties of good faith.

