State of the Game: Soccer Clubs in Financial Crisis?

by : Patrick Omari

Michel Platini, the UEFA president, has already made quite an impression since his appointment. He has already reached an agreement over disputed matters, which resulted in the G14 group disbanding, so withdrawing the threat that it would form a breakaway European league.

A European Club Association (ECA) is being established in its place and the planned make-up means that a majority of its members will almost certainly be supportive of Platini's plans. The chairmain of the ECA, Karl-Heinz Rummenigge, has stated "Football is sick". The former Germany striker told Kicker magazine "I read a statistic which says 85% of all professional football clubs are running at a loss".

I have had a look at the main problems that seem to be affecting world football and how we could begin to solve them, including inflated transfer fees, sky-high player wages, clubs heavily in debt and proposed rules on player quotas.

Transfer fees
Is Cristiano Ronaldo or Kaka worth 80 million pounds? If a player wants to leave a club then the minimum that the player should leave for is the value of the remainder of his contract. For example, if Joe Cole is on 75,000 pounds a week, that equates to 3.6 million pounds a year. If he has 4 years remaining, his minimum value is 14.4 million pounds yet if he has two years remaining he is worth just 7.2 million pounds. These are quite realistic values that are often paid for players of this calibre. But, this minimum valuation ensures that clubs are not held to ransom.

Yet, should there be a maximum limit? For example, maybe if twice the value of the remaining contract is offered then it has to be accepted. A realistic way of implementing this would be setting a release clause in every players contract, which would be reviewed yearly. So, if players sign an extension then their release value could rise, whereas if they continue to work out their current contract then their release value would drop.

Release clause value = 2 x remaining contract value

So, relating to the previous example, if Joe Cole had a four year contract and Real Madrid offered 28.8 million pounds then the offer would have to be accepted. Whereas, if he only had two years remaining the release clause would be activated at 14.4 million pounds. Although at first glance it may seem that bigger clubs could take advantage of the smaller clubs. The smaller clubs would be able to re-invest any money from players sold into similar players as they won't be held to ransom, as players will always be available for between one and two times their remaining contract.

Spiraling wages
It would not be possible to 'fairly' implement these regulation without getting to grips with the financial issues in football, particularly rising wages. Deloitte, a top business advisory firm, recommends a 55 per cent wages to turnover ratio to ensure financial stability. Only three Premiership clubs currently meet that criteria; Arsenal, Manchester United and Tottenham. I believe Chelsea's ratio is around 70 per cent, 133 million pounds on wages, out of 190 million pounds turnover.

UEFA president Michel Platini has set his sights on reforming the finances of Europe's top clubs. He has warned that Europe's governing body is going to "fight very seriously" to restrict entry into the Champions League and Uefa Cup for clubs that are in debt. I believe it wouldn't be right not to allow clubs entry due to debt. I will look at this in more detail later. I think that clubs should be allowed to participate as long as they demonstrate sustainability. Platini should look at implementing the 55 percent turnover ratio.

This could be phased in to ensure clubs have time to reassess their spending. I.e Season 1, no criteria for wages to turnover ratio; Season 2, maximum 65 per cent wages to turnover ratio; Season 3, 60 per cent wages to turnover ratio; Season 4, 55 per cent wages to turnover ratio. Any club that defies these regulations could be banned from playing in European competitions until they meet the criteria.

The regulations on transfer fees and wages would have to be introduced together and implemented throughout Europe by UEFA. To ensure global competitiveness, i think it would be vital that FIFA also adopted the regulations to ensure they were administered worldwide. As if European teams were restricted in terms of the wages they offer, etc, then a different league could take advantage. For example, if the Premier League, Serie A, and all European leagues restrict the amounts players can earn, then maybe the MLS could offer 'mega-deals' to players in order to create a super-league in America.

Levels of Debt
Back to our current world super league, the English Permiership. There is no doubt that this is currently the world's top league, emphasised by the fact that two english teams competed in the final. UEFA president Michel Platini warned that "this success is often built on an unsustainable level of debt which, in all fairness, is distorting the level playing field in Europe".

That warning is pertinent to the two Premiership clubs that reached the Champions League Final in Moscow with their talented, highly paid squads, and staggering levels of debt. Manchester United and Chelsea have acquired almost equal shares of a combined 1.5 billion pounds owed to creditors in contrasting styles, illustrating the random nature of takeover. Chelsea's debt takes the form of an interest free loan from Roman Abramovich.

Whereas the Glazer family bought United in 2005 with huge borrowings, and loaded their own debts and swingeing interest payments on the club. United's most recent accounts showed the club, who had no debts before the Glazers arrived, with borrowings now of 666 million pounds, including 152 million pounds owed to hedge funds, and interest due last year of 81 million pounds. United Investigating the debt of the two clubs would be an article in itself, but surely if an investor's only investment in the club is debt then they shouldn't pass the fit and proper persons test.

6 + 5 = illegal
FIFA, well Sepp Blatter at least, has been widely publicising their/his "6 + 5" rule, aiming to ensure that at least six players in every clubs squad are from the club's own country. Vladimir Spidla, Europe's commissioner for equal opportunities, has 'given the red card to the 6 + 5 rule'. The 6 + 5 rule is directly discriminatory and therefore incompatible with the EU law.

It seems that it will be impossible to implement this rule [sigh of relief] due to the EU's trade laws regarding free movement of labour within member states. It also seems slightly odd that they are pushing for this in particular, considering the "home-grown players" rule that has been successfully proposed by UEFA. Maybe it's because these regulations have yet to be applied to the major domestic leagues, only the Champions League and some smaller domestic leagues.

UEFA defines "home-grown players" as those who, regardless of age or nationality, have been trained by their club or by another club in the national association for at least three years between the age of 15 and 21". The commission has approved the Uefa arrangement because it contains no player conditions based on nationality. "

Compared with the intentions announced by Fifa to impose the so-called 6 + 5 rule which is directly discriminatory and therefore incompatible with the EU law, the 'home-grown players' rule proposed by Uefa seems to be proportionate and to comply with the principle of free movement of workers".

An independent study has been carried out on the "home-grown player" rule under which clubs in the Champions League and the Uefa Cup would have to have a minimum number of "home-grown players" in their squads. The European Commission said the underlying objectives of the UEFA scheme, to promote training for young football players, were legitimate. UEFA have phased in this ruling, starting with a minimum of four home grown players, rising to six and now eight, out of the squad of twenty-five, must be home-grown players. Uefa have hit upon a formula that is practical, feasible, and effective, especially when compared to Blatter's doomed '6 + 5 rule'.

Aside the fact that it would be illegal, the 6+5 rule would result in the wealthiest clubs scooping up the best British talent. It would thereby defeat one of its own objectives, which is to increase competitiveness and give smaller clubs a chance. A case in point: Manchester United have been portrayed by many of Fifa's advocates as a shining example of how six plus five is the way to go. In the Champions League Final this year United operated with six home players. Yet a second glance revealed that four of these players (Wayne Rooney, Rio Ferdinand, Owen Hargreaves and Michael Carrick) were bought for colossal sums of money, partly due to the over-inflated price that normally accompanies homegrown players. Fifa's ruling would merely make these players even more highly valued commodities, and as such only affordable to the top clubs.

I would argue that a combination of these factors would make all players more widely available all the way through the football pyramid, increasing competitiveness. Firstly, i feel that it is vital to ensure that our football clubs are kept out of the hands of so-called investors, that end up saddling the clubs they have bought with huge amounts of debt. Secondly, introducing the wages to turnover ratio for clubs and having a set value for all players depending on their contracts (with the contracts offered being limited so as not to break the wages to turnover rule and risking major punishment). The continuation of UEFA's home-grown rule would ensure investment in youth is maintained by the top clubs.