Is The Premier League Bubble About To Burst?
How Covid-19 and high transfer fees could affect the Premier League's biggest clubs
Football finances have always been a little edgy. Clubs often live season to season on massive amounts of debt with their long term future in the hands of the footballing gods. It may seem like a crazy notion when you think of how much money the sport generates each year through sponsorships and astronomical TV deals. Unfortunately with every extra dollar that hits the Premier League coffers, there are always a hundred more ways to spend it, with the ever rising cost of players and their wages topping that list. Even the so called mega clubs like Manchester Utd, Manchester City, Chelsea and Tottenham are financed through massive debt structures that on paper seem ludicrous. Everybody knows that Chelsea for instance are financed by Russian billionaire, Roman Abramovich. Since the world oil tycoon took over at Stamford Bridge the club has achieved much envied success with Premier League titles and a Champions League trophy to boot. But, even with these trophies in the bag and a growing world wide brand reports from the likes of forbes.com and English newspaper, The Times, Chelsea still owe their owner a whopping 1.13 billion GBP. This is money that Abramovich has personally put in to the club through loans and an amount that the club will be paying back in instalments, with interest. Of course Chelsea are not the only club run this way. Manchester City are set up in a similar fashion with super rich owners putting their own money on the line to achieve success, while the likes of Tottenham and Manchester Utd are run with debt from the banking institutes.
Of course, as every finance expert will tell you, there is nothing wrong with debt. It can help you grow and in the long run, can even make your business more profitable and successful. However, this is only the case if you know that you can easily afford the debt repayments which means you have to make predictions about what money will be coming through the accounts in the months and years ahead.
This can be difficult at the best of times, but in an industry such as football where there are many factors totally outside your control it is near impossible. Injuries, poor form, bad refereeing, bad luck and giant egos can all scupper the best laid plans. They can all mean games lost and early exits from cup competitions that would have brought in more money, money that clubs may have been counting on.
Leeds Utd for example bankrolled a shot at the Premier League title on loans that they could only afford to pay back if their gamble paid off. When they failed to even qualify for the Champions League the club quickly dropped down the table and were relegated soon after. Liverpool are another club that nearly succumbed to crippling debt after the then owners bankrolled their purchase of the club with a high interest loan hoping that the size and worldwide reach of the LFC brand would be enough to seem them through. It wasn't and the reds were on the verge of going the same way as Leeds before they were sold on for a bargain price.
But now there is another issue that could cause long term damage to some of the biggest football clubs in the world, Covid-19 and the potential that a second wave could stop us all in our tracks once again. It seems thus far that football will continue as normal with the Champions League set to be finished in the next few weeks and Leagues all over the globe to start up again soon after. Even so, there is a dark cloud threatening to scupper everything and change the football landscape forever, the potential continued loss of long term finances. Fans still aren't allowed to attend fixtures meaning clubs are dropping massive amounts in matchday revenue. There is talk that crowds will return as soon as October, but with cities in the UK heading back into lockdown you have to wonder if this will be pushed back to later in the year if at all should the virus continue to spread. The issue here is that clubs simply can not predict their future earnings. Not only are they missing out on ticket sales but there could also be a significant drop in sponsorship money as other companies struggle to make ends meet. Despite these risks, clubs aren't slowing down. Manchester City have already spent 60 million GBP on two new players. Arsenal are in talks to tie down star striker Pierre Emerick Aubameyang on a deal worth 450 thousand GBP per week and Manchester Utd are looking to break the bank with a massive move for Borussia Dortmund midfielder Jadon Sancho, while Chelsea's spending looks like it might have no end.
With spending this large and debts already written into the clubs you have to be a little fearful as another six months to a year with significantly reduced incomes could put some of these clubs under more financial strain. I get it, to be a profitable business then football clubs have to be successful so it makes sense to strengthen. But from a business sense does it really make sense to invest in strength with the financial landscape being so uncertain? It's a hard question and one that all football fans should try to answer as their clubs go about their upcoming transfer business.