Red and Black Blues

Baseball, Football, Hockey, Major Sports, Soccer

Posted by Obiora, July 27, 2008 - 6:38 pm

As we wade through this summer’s transfer market, I am reminded that financial structure is one of the most glaring contrasts between the sports leagues of the USA and the domestic soccer leagues of the ‘rest of the world’. By and large, the big American sports franchises (with some exceptions like the NY Yankees) try to stay within their operating budgets whereas the big European futbol clubs, notably in England, spend outside their operating means by going into the red and taking out huge loans or relying on deep-pocketed owners such as Roman Abramovich, Eggert Magnússon or Thaksin Shinawatra. Obviously this creates a huge disparity between the have’s and have-not’s in world futbol.

The willingness of major clubs to take on added mountains of debt in order to buy new players, which results in restructuring loans of sometimes hundreds of millions of dollars, or simply not to operate in the black blows my mind. According to Forbes.com, Manchester United’s debt load stands at 60% of the team’s estimated value of US$1.8 billion. Yet the club recently restructured their loans (again) so as to free up the resources for boss Sir Alex Ferguson to make additions in the summer transfer market.

Chelsea FC, which have no debt but have posted a profit only once in owner Roman Abramovich’s tenure, will be dipping into the Russian oligarch’s personal fortune once again to fund acquisitions. Chelsea don’t even forecast moving into the black consistently until after the 2009 season, an estimate regarded as optimistic at best.

Liverpool FC boss Rafa Benitez has been told by the club’s American owners that there is no money forthcoming and he will have to finance player acquisitions mostly by selling. The Reds do have a debt load of 65% of team value, mostly from loans incurred by Tom Hicks’ & George Gillett’s purchase of the team, but recent loan re-financing did not free up monies for a big transfer fund. Needless to say that this lack of cash has LFC supporters dreaming of a Dubai International Capital takeover on Merseyside. Arsene Wenger at Arsenal will also have to finance any transfer deals by selling players due to the team’s debt load from the building of Emirates Stadium.

In the NFL, the three highest debt loads (NY Giants & Jets at 67% and Dallas Cowboys at 42% of team value) are almost entirely due to the construction of new stadia. The debt loads of American teams are rarely built up and/or restructured simply to pay for new players and teams with such debt loads sometimes operate on the cheap while paying it off. After Mario Lemieux led an investment group to buy the Pittsburgh Penguins, he kept the organization on tight purse strings (resulting in many years of horrible showings) until it had paid off all its debt. Now that the Penguins play in a newly salary-capped NHL with comprehensive revenue sharing and have a new arena deal, the team can stay in the black (or close to it) and be competitive on the ice as well.

Lord knows, I wish LFC had a big transfer fund to go after the likes of Robbie Keane with impunity but all these loans make me wonder about the long-term financial stability of major world futbol club play. The case of Leeds United, in particular, must give us pause. This is a club which finished in the top 5 of the First Division/Premiership nine times from 1990-2004, won a domestic title in 1991-1992 and reached the semi-finals of the Champions League as recently as 2001. This is now a club languishing in League 2, the third tier of English futbol.

One word best describes such a precipitous fall - loans.

In anticipation of further Champions League windfalls, Leeds took out major loans which they were unable to pay when they did not, in fact, re-qualify for the UCL. The Whites fell on dire financial straits, which eventually led to the sale of the club’s assets as well as prospects and major players, such as Rio Ferdinand to Manchester United. This was followed by relegation to the Championship (2nd tier) in 2004 and the sale of the club for £10 million followed by entry into Administration in 2007 and further relegation down to League 2 in the same year.

Manchester United and Chelsea FC partisans have come to expect that their clubs will go after the best players available, virtually regardless of cost. Though I would not anticipate a Leeds-style fall from grace for either squad, fans may have to prepare for a day when the clubs’ owners will have to go frugal in order to pay down debt and/or start operating in the black. Futbol fans often view their clubs as community trusts wherein winning is the sole goal. If a team must take on debt to win or an owner must spend of his personal fortune, then so be it. Even at the expense of going into the Red.

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