Sunday, 21 February 2010

A tale of two rulebooks

Yesterday was a bad day for United on the pitch at Everton, but United supporters, and indeed all football supporters should spare a thought for Portsmouth fans this weekend.  The defeat against Stoke at Fratton Park could, if things go wrong in court on 1st March, prove to be Portsmouth Football Club’s last ever league game.

Portsmouth’s financial problems are so hugely complex that they make the Glazers’ murky affairs look like a GCSE maths problem (if you want a decent insight into what’s going on I’d recommend Matt Slater’s excellent blog on the BBC website).  The common thread running through both United and Portsmouth’s problems as well as those of West Ham, Hull, Crystal Palace, Notts County, Chester (and I could go on and on) is the total unwillingness of the Premier League, Football League, Football Conference or the Football Association to take any action to prevent these situations arising in the first place.

There are a huge number of ways that football’s regulatory bodies could change their rules to prevent the game’s financial crisis.  One of the most often mentioned areas is the “fit and proper person” test for owners (which I couldn’t help thinking of when I heard Peter Risdale, now Chairman of Cardiff City, on 5Live on Saturday).  Assessing individuals is however, inherently subjective and thus open to legal challenge.  By contrast, adding certain financial requirements to league or FA rules is very, very easy.  To see how easy, we just need to look at the US’ National Football League (“NFL”) and its limits on debt.

The NFL’s rulebook (or to give it its full name, “The Constitution and Bylaws of the National Football League”) came into force in 1970 and has been amended by 106 resolutions since.  The rulebook covers a myriad of topics, including “unsportsmanlike conduct”, Superbowl tickets and the coaches’ pension plan.  Club debt, is covered by various resolutions which set a “debt ceiling” (formerly called a “debt limitation”) for each member franchise.  The first ceiling was set in 1988, with all clubs being limited to $35m of debt (other than trade creditors).  The 1998 resolution put in place a provision for the limit to be re-examined every year.

Fast forward to the most recent resolution on the subject (in 2005, page 264 of the pdf version) and the limit today is $150m, with provision that within this sum, only $25m of the owners’ liabilities could be secured on club assets.  There is also the following, relating to borrowing incurred when buying a franchise (my emphasis):

“…in connection with any acquisitions of a member club or any controlling interest therein, the principal and/or controlling owner shall be required to invest equity (cash on hand or funds borrowed against other current or determinable futures assets of such owner) in a minimum amount to be determined by the Finance Committee, and no acquisition transaction that the Finance Committee finds to be excessively leveraged shall be recommended by the Finance Committee for membership approval. 

So if you want to buy an NFL franchise, you need your financial structure approved by league’s Finance Committee, with the additional warning that anything “excessively leveraged” won’t be approved. It almost goes without saying, but if the Premier League had the same rules, the Glazers’ takeover of United and the Hicks / Gillett takeover of Liverpool would have been forbidden.

I’m not advocating for one moment that English football becomes like American “football”, but the NFL debt rules are almost breathtakingly simple and show how easy it is to impose financial discipline.  In the Premier League, a debt limit based on a single number for all clubs would be madness of course.  Wigan Athletic has a turnover of around £50m and United has a turnover of around £280m, so to set them both the same limit would make no sense.  Tough though it is to admit it, Dave Whelan of Wigan probably had it about right last week when he suggested a debt limit of 25% of turnover for Premier League clubs.  Any new rule would probably need additional limits relating to borrowing to build or enhance grounds, nobody would want a system that prevented Arsenal building the Emirates.  The principle remains however that it is extremely simple, if a sporting league chooses to do so, to impose rules restricting member organisations debts for the good of the sport.

All this is obviously an anathema to not only the Glazers, Hicks and Gillett but also to Richard “860k a year” Scudamore, the self styled football “traditionalist” and Premier League Chief Executive.  Scudamore, who must drive his in-house PR people insane with his constant forays into the media has several objections to limiting football debt, each more perverse than the last.  The weirdest I have read is his suggestion that debt is too hard to define, yet the NFL rules manage it in forty-five words.

A current favourite, pedalled in the News of the World recently under the optimistic (or fatalistic depending on where you place the emphasis) headline “We Haven’t Lost Any Clubs Yet” was the argument that clubs should run their own affairs.  To quote the great man:

“……I'm sure you don't want the Premier League running your club. Club directors have the opportunity to run their clubs how they see fit - all the ones I meet want what every fan wants; success on the pitch.

Now of course nobody wants the Premier League to run anything important, given its lack of action at Portsmouth, you wouldn’t let it look after your cat whilst you went on holiday.  But Scudamore’s is of course a specious argument.  Some sort of NFL style “debt ceiling” does not mean the league “runs” clubs, it is a criteria for allowing a club into the league.  The Premier League’s rulebook (a lot glossier than the NFL’s) is full of requirements for clubs (such as the away dressing room having to exceed 30m2 for example or more importantly the collective negotiation and sharing of media revenues).  It is in the nature of sports leagues that they have rules, and a debt ceiling would just be another rule (albeit an important one).

The problem with Scudamore of course is that he is one of the last true believers in capitalism in football.  In a Telegraph interview last week (imagine those Premier League PR people crying themselves to sleep again) he came out with this:

“There is some emotiveness about leveraged debt. I understand that. We go through this constant struggle between people saying 'clubs should be more professional and businesslike’ but actually a lot of people don’t like some of the business methods brought into the game — like leveraged debt.’’

I think this could have been the best Scudamorism yet.  Putting aside which “people” are saying that clubs should be more “businesslike”, why on earth should particular “business methods” be brought into football if they add nothing?  Certain very common “business methods”, such as clubs being able to takeover their competitors for example, are banned already and I don’t hear a clamour for this to change.  Supporters of Liverpool and United aren’t “emotive” about leveraged debt, they are rightly appalled by it.  Leveraged buyouts have some limited value in commercial life, I’ve invested in some over the years, but their principle positive, driving efficiency in companies, has operated in a perverse way at England’s two most successful clubs.  Neither United nor Liverpool were “inefficient” operationally, in United’s case it was the most efficient football club in the world.  The Glazers have “improved” United financially in only one way, they have tested the supply/demand balance for tickets by raising prices.  At Liverpool, the owners have blown a hole in the balance sheet that has hugely delayed (at best) the one “efficiency” the club needed, a new stadium.  So, zero out of ten for this particular “business method”.

Scudamore and his trappist equivalents at the Football Association (you’d almost think it was World Cup bidding year) are the King Canutes of the modern game, shouting at the tide of debt  as it begins to seep under their toes.  Football might be a business (a strange one where the vast majority of companies make no money), but it is first and foremost a sport and sports can have rules, sports DO have rules.  Big bad capitalist American sport has rules.  If the NFL can limit debt in its clubs with one page of A4, there is room in the Premier League’s 165 page rulebook too.

LUHG

2 comments:

Tony Attwood said...

This is a truly superb article, and I take my hat off to you.

Running the "Untold Arsenal" blog my co-writers and I obviously indulge in the parochial pot-shots at United and other clubs, but we do also try and take a more serious and more dispassionate view of what the hell is going on in football.

I've posted earlier today a piece about the new Euro regulations that UEFA are announcing, and will give a link to this site - it is a great analysis.

Many thanks
Tony Attwood

andersred said...

Thanks Tony, that's very kind.