SPORT/NOT BORN YESTERDAY
Will Murdoch turn out to be soccer’s Hank Paulson?
Three endemic business problems pervade top-flight professional soccer: over-dependence on individual wealth, expansionist profligacy, and consequent very high levels of debt. Wigan (£130M) West Ham (£40M), Chelsea (£670) have borrowed heavily from their patrons; Manchester United (£670m) and Liverpool (£375M) have been saddled with mega-debt by their newer owners; and Arsenal face a £406M debt on the Emirates Stadium. West Ham and Man United have sponsors effectively in receivership. And the relentless pursuit of success has kept both transfer fees and wage bills ludicrously high.
To top it all, the FA must renegotiate the deal with its Golden Goose Sky before the start of 2010 season. But who is the golden goose and who the egg? Premiership clubs may be fragile shells, but equally Murdoch could ill-afford to lose his UK soccer income: he paid £2.7 billion for the transmission rights last time – out of total revenue globally last year of £24 billion. Murdoch knows the core businesses need his focus – and UK soccer is one of them.
Rupert Murdoch himself faces a triple whammy of falling ad revenues, rapid media change, and increased competition for Newscorp. The company has sold peripheral businesses and taken the plunge into online sport video (OSV), but the more subscription-based Sky Sports satellite operation faces low-entry price nibbling from Setanta, and subscribers (like club season ticket holders) likely to be tightening budgets and perhaps looking for work.
What was always going to be a poker game during 2010 may well be more of an emergency response to chain reaction events long before then – and persuade Murdoch to become the Premiership’s Federal Reserve. But just as with bailing out banks, the risks for anyone investing in UK soccer would be enormous.
Overall attendances are an average of 10,000 down – and badly so at Newcastle, Aston Villa, Sunderland, and Fulham. Even the men at Old Trafford have failed to sell out recent matches.
Other sponsors are likely to pull out or go belly-up. West Ham’s holding company Hansa is in administration. Oligarchs are having a hard time: Abramovitch has lost £11.8 billion, Gudmundsson (West Ham’s saviour) is a Landsbanki loser who wants out, and Arsenal’s 23% shareholder Usmanov is £6.7 billion down.
The question of what investing institutions might do - as the stock markets continue heading south and toxic debt remains uncleared – is key. Manchester United are sponsored by a bailed out bank, owned by a family facing spiralling debt repayments, and (like Arsenal) paying off a debt at extraordinarily high Libor rates. If Wigan were to be football’s Northern Rock, then United would be its Lehman Brothers. UEFA director David Taylor recently said that over-indebted English clubs would be banned from European competition: given the crucial role UEFA income plays for the top clubs, this would seal the Old Trafford club’s fate.
Ulmanov at Arsenal (he owns 253% of the club) and Abramovitch at Chelsea may soon not be able to meet their commitments. The Russian RTS index is neurotically unstable, and the price of oil has collapsed. The time will come when Kremlin bailouts aren’t available. And without the Russian, there is no business model at Stamford Bridge.
But if at some point he chose to rescue the Premiership, Rupert Murdoch might at a stroke make himself indispensable. The price for doing this would, I suspect, be twofold: exclusivity - plus a vastly reduced rights payment to the FA.
With clubs forced to get real, a competitor knocked out, and guaranteed low-cost income in a recessionary world, this investment could well suit the Australian admirably.