Manchester United may be receiving a world-record fee of STG80 million ($A162 million) for the sale of Cristiano Ronaldo, but the amount is dwarfed by the club’s huge debt.
“It’s no wonder they’re getting this sort of money” from Real Madrid for arguably the world’s best player, said Philip Long, football industry specialist at British accountancy firm PKF, recalling that United’s parent company spent almost STG69 million ($A139.56 million) on interest repayments in 2007/08.
Debt has become an increasing problem in recent years for England’s elite football clubs, while the situation has worsened as the global economy suffers the worst downturn since the 1930s.
“Manchester United, Liverpool and Chelsea are all in massive debt and the rest of the Premier League is in debt,” Wigan chairman Dave Whelan said on Thursday as United looked to seal the sale of Ronaldo to Real Madrid.
“There is only one (Premier League) club that is debt-free and that is Birmingham. Everyone else is carrying too much debt,” added Whelan, whose club is a small player in the top tier of English football.
Manchester United’s parent company, Red Football Joint Venture, made a pre-tax loss of STG44.8 million ($A91 million) during the 2007/08 season, largely owing to interest payments on its debt.
According to latest accounts, Red Football’s debt stands at just under STG650 million ($A1.31 billion) after US tycoon Malcolm Glazer borrowed heavily to buy Manchester United in 2005.
Meanwhile, fans of football titan Liverpool are extremely worried about the club’s future after auditors recently claimed that its parent company was in danger of collapse because of unsustainable loan-repayments.
Liverpool’s American owners, Tom Hicks and George Gillett, face a July 24 deadline to refinance STG350 million ($A708 million) of debt which they have been servicing at punitive rates of interest, according to company accounts.
“The recession has an impact and we’ve seen it at clubs like Liverpool where the owners can’t refinance,” said Geoff Walters, an expert in football finance at the Birkbeck Sport Business Centre consultancy in London.
“But by and large football is a different industry to a conventional industry. You’ve got the fan loyalty,” he told AFP.
Fans of English Premier League side West Ham United have no doubt been buoyed by the sale of the London outfit last week to an asset management group for a reported STG100 million ($A202.27 million).
The sale came after previous owner Bjorgolfur Gudmundsson saw much of his personal fortune wiped out as a result of the Icelandic banking crisis caused by the global credit crunch.
Last Thursday meanwhile, a Singapore-based group confirmed interest in buying Newcastle United following the club’s surprise relegation from the Premier League, whose live games are partly screened by troubled broadcaster Setanta.
The Irish satellite station is attempting to secure an emergency cash injection to prevent it defaulting on payments it owes to the English Premier League.
The 20 clubs in the Premier League are “a bit more recession-proof” given the huge TV deal and the guaranteed TV money they get from British pay-TV operator BSkyB, which shows the bulk of live matches, football finance analyst Walters said.
The survival of England’s top-tier clubs is also being aided by the financial backing of wealthy tycoons — Roman Abramovich at Chelsea and Abu Dhabi-based owners at big-spending Manchester City.
Abu Dhabi-based property billionaire Sulaiman al-Fahim is meanwhile reportedly close to a takeover of Portsmouth.
According to the annual review of football finances from accountancy group Deloitte, published earlier this month, England’s top-flight clubs will buck the global economic downturn by continuing to increase revenues next season.
However this does not mean all is well and good for the country’s elite sides, which also include Arsenal, Aston Villa, Everton and Tottenham.
The accountancy group’s report — based on figures from the 2007/08 season — reveals that total debt among the 20 Premier League clubs hit STG3.1 billion ($A6.27 billion) in 2007/08 while wage costs surged 23 percent to reach STG1.2 billion ($A2.43 billion).
Deloitte’s Alan Switzer warned clubs could not afford to be complacent about the long-term sustainability of their debt levels given the possibility of failure on the pitch, an issue highlighted by Newcastle’s relegation.
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Pippinu said | June 15th 2009 @ 10:55am | Report comment
I come across plenty of articles like this, sounding warning bells about the massive debt that all EPL clubs are carrying, and it seems the bigger the clubs, the bigger the debt.
It’s unbelievable to learn that Ronaldo’s record transfer fee will make only the tiniest of dents in Man Utd’s debt level.
Is this sustainable? I honestly don’t know.
On the one hand, overall revenues from all sources are at record highs.
On the other hand, I know of no business model that allows debt to keep increasing at ever higher rates with nothing on the horizon suggesting they will be reigned in at any time soon.
True Tah said | June 15th 2009 @ 10:58am | Report comment
Pip
you do not make a motza in professional sports. Ownership of the EPL clubs is a status symbol by guys who have enough cash to indulge in their hobbies.
Slippery Jim said | June 15th 2009 @ 11:01am | Report comment
La Liga is in as much, if not more financial trouble than the Premier League. None of the top four in England are in real danger of going belly up, Man Utd’s debt is not a major concern when looked at as a percentage of their revenue. How many of us have mortgages or other debts that exceed our annual salaries, for instance? No need to panic if the income streams continue at present levels.
In Spain, however, one of the top three clubs (Valencia) is in real trouble of going belly up, and many of their clubs have been financially bailed out by the government, something that is unthinkable in the Premier League.
Besides, question marks arise over where exactly Real Madrids big money injection came from for recent purchases…
Colin N said | June 15th 2009 @ 11:03am | Report comment
I saw somewhere that Manchester United had made a profit of £80 Million last season, but the debt increased by £16 Million from something like £520 to £536 Million, meaning that the interest raised on the huge debt had amounted to £96 Million, an incredible statistic.
True Tah said | June 15th 2009 @ 11:06am | Report comment
Slippery Jim
Im no expert on Spanish futbol, but in Spain dont the individual clubs negotiate separate pay TV contracts? Therefore it doesnt surprise me that outside the duopoly, a lot of the clubs may be struggling financially.
In the UK, the windfall from Pay TV is spread a bit more evenly, and I highly doubt you will ever see another EPL go out of business, if anything the FA/UK government would probably step in and prop them up.
Pippinu said | June 15th 2009 @ 11:19am | Report comment
sj
the analogy with homes and mortgages is a good one, but one can flip that around.
As average home owners we want to be in a position where the mortgage is declining over time rather than increasing – because if the latter is happening for too long a period, there is generally only one outcome, the house is lost.
So with the EPL, the question becomes, for how long can the debt levels keep on increasing? Surely not forever?
tifosi said | June 15th 2009 @ 11:31am | Report comment
Ask the fans of Manchester Utd and liverpool what they they think of their American owners and the massive debt levels they have brought in. You wont get a nice story im sure.
As for Real madrid, they are practically run by the spanish people and the banks have no hesitation in giving them money.
Slippery Jim said | June 15th 2009 @ 11:42am | Report comment
True Tah, that’s right, La Liga clubs negotiate individual TV contracts, so the revenue is less evenly distributed.
The latest figures available show €3 billion debt for La Liga clubs (since the report was published five of the Spanish clubs in La Liga have been relegated, which will likely exacerbate their financial problems).
So La Liga has €3 billion in debt and the Premier League the equivalent of €3.2 billion at current conversion rates. The Premier League has about £1 billion higher revenue than any other league. The Premier league last season also enjoyed a 26% increase in revenue (La Liga had about a 15% increase). It should also be noted that Chelsea’s debt (currently £339.8 million) are interest free, and most Premier League clubs have substantial assets.
Real Madrid had €527 million in debt when the latest report was published, and in view of their lack of success over the last season, and their record breaking signings in the current transfer market (with more likely to come) it is frankly unbelievable that they are spending such incredible sums of money on recent signings. Having said that they do currently have the highest revenue in club football at €365.8 (Man Utd are second with €324.8).
Concerning La Liga debt levels, one recent report stated:
“Some clubs are even in a technical situation of bankruptcy, that is to say that their assets are lower than the existing debt and, consequently, with all their assets and investments, are not in a position to pay off their debts.”
http://www.goal.com/en-us/news/722/la-liga/2009/1/7/1048072/new-report-reveals-massive-debts-in-la-liga
Towser said | June 15th 2009 @ 12:02pm | Report comment
Seem to remember Real Madrid always in debt.
Mice said | June 15th 2009 @ 12:52pm | Report comment
Interesting link on the Guardian website discussing this topic.
http://www.guardian.co.uk/football/blog/2009/jun/10/andy-burnham-football-association-david-conn