Counting the cost of football's money madness

November 26, 2009
By Norman Hubbard
(Archive)

It is an old joke and, some might say, not a particularly funny one: How do you make a small fortune in football? Start off with a much bigger one.

Mike Ashley
GettyImages / AlexLiveseyMike Ashley's reign at Newcastle has been disastrous

It is especially apparent at a time of year when clubs tend to announce their financial results. It becomes clear that a game that has never brought in more money has never owed more.

There are some high-profile culprits. From profiteer owners who have lumped debt on to the club to those who have simply made a series of catastrophic choices, such as Mike Ashley, there are ways of rendering a financial position far more perilous than it was before.

There are ways and means to record a sizeable shortfall, whatever the fortunes on the field. Where transfer market policy can be symbolised by a revolving door or clubs see managers exit on an annual basis, normally accompanied by a hefty pay-off, that much is obvious.

Among the more shady figures in boardrooms, however, there are far more reputable folk involved. And among clubs that are - usually rightly - regarded as being well-run, there are some disturbing announcements.

Separated by a few miles and, now, the gulf that divides the Premier League from the Championship, Burnley and Preston are united in a sense of overachievement - with the 15th and 20th highest attendances in their division, both finished in the top six last season - and their losses. At Turf Moor, they recorded an operating loss of £8.9 million and a pre-tax loss of £11.7 million in the 2008-09 campaign. At Deepdale, the corresponding figures are £5.94 million and £9.17 million respectively.

These are not isolated cases. Bristol City recorded a £6.5 million loss, Ipswich Town one of over £10 million. Both clubs, like Burnley and Preston, were placed in the upper half of the Championship. None of that quartet experienced the plunge towards administration that relegation can entail, but none balanced the books either.

In one respect, Burnley are victims of their own success in the year they were promoted to the Premier League. In his annual report to shareholders, chairman Barry Kilby wrote: "To achieve success, we invested in the playing squad, which increased squad and amortisation costs substantially and, once success was gained, very significant success-related bonuses were triggered which have further inflated payroll costs and interest charges."

Yet Burnley's three biggest signings - Chris Eagles, Martin Paterson and Kevin McDonald - were effectively funded by the sale of Kyle Lafferty to Rangers for £3 million. Moreover, each of the arrivals, as manager Owen Coyle stressed, was a young player whose resale value ought to rise (in each case, he is probably right).

Burnley's losses came despite a crowded schedule. Playing 61 matches - including home cup ties against four Premier League teams in Fulham, Arsenal, Tottenham and West Brom - accounted for a 47% rise in what they termed "match-related income". Yet it prompts the question of how great the deficit would have been had they been knocked out of each cup competition at the first hurdle.

They, at least, can anticipate a more prosperous future in the Premier League. "I expect to report a significant profit for this financial year to bring our balance sheet back into a healthy position," Kilby said. To use Peter Ridsdale's phrase, they have lived the dream, speculating to accumulate and reaching their interpretation of the promised land.

Preston, serial play-off losers, have not. In many respects, they are the epitome of a level-headed club. They have only sacked two managers in the past 11 years while manager Alan Irvine would rather operate with a small squad rather than pay players to sit in the stands.

Their figures for the last season included compensation to Everton for Irvine and, unlike the previous year when the £6 million sale of David Nugent bolstered funds, they did not make a significant sale to finance other activity. But a slender profit in the transfer market was more than outweighed by other costs. Chairman Derek Shaw said: "It is extremely expensive running football clubs." The major expense is players. Total staff costs rose 25% and Shaw added: "When Preston were first promoted to this level in 2000-01, the salaries were about £4.3 million and now they are in excess of £11 million."

David Nugent, Burnley
GettyImagesPreston cashed in on David Nugent

That will be dwarfed by the wage bills at several other clubs in the division. Birmingham's was thought to be around twice as high last season, when they only took nine more points than Preston but won promotion; Newcastle's was £73 million when they were demoted from the Premier League.

And Shaw's words should serve as a warning for many of the Championship's ambitious clubs: "The competition from relegated Premier League clubs and their financial resources makes it extremely difficult."

Preston are effectively subsidised by the billionaire Trevor Hemmings through his company Guild Ventures Limited. "Without this, we certainly could not continue to compete with the cost of the squad we have maintained," Shaw said. Long-serving captain Paul McKenna was sold to Nottingham Forest in the summer and Preston's greatest financial asset on the field, Sean St Ledger, has already left, initially on loan to Middlesbrough, but with the likelihood of a permanent transfer.

In a bleak financial climate, it makes sense. Even breaking even would be an achievement for much of the division, with the inflated wages of Premier League players benefiting their Championship counterparts. In what seems an unsustainable situation, even the eminently sensible are endangered.