Hello my fellow cocks,
It can no doubt be said that finances have been frustrating us recently. We have built a huge stadium which has been delayed to infinity and have had to sit through a summer of almost no activity. We watch as stingy wages cause discontent and drive out players. We have seen our best players sold on to more financially loose clubs.
But allow me to flip this on it's head. We should be very proud of how our finances our managed. Not just because we have the least spend of all the top clubs, and have become a big player in English football without a sugar daddy or huge inbuilt advantage (*cough*, united, *cough*). Not only is this impressive, but it could become very important, very quickly.
I have grown increasingly suspicious of how clubs have been spending over the past few seasons. I agree with Levy that it is unsustainable. Higher and higher spending has been engaged with on the basis that TV money will continue to rise. Much of this is debt based, in other words the most dangerous way to spend.
I am an econ/finance student in real life, so I'll give you a quick rundown on debt. It's great, until it isn't. Everything being equal, debt is great as it allows you to make more money than you would otherwise have been able to. The problem is things never remain equal, and when things take a downturn debt quickly becomes unmanageable.
You are all familiar with Leeds's collapse at the turn of the millennium. It happened because they borrowed and spent on the basis of achieving champions league football. Initially this worked great, until they finished 5th one season and, well, you know the rest.
Also around that time many football league clubs nearly went belly up after borrowing on the expectation of more money from ITV digital. When ITV digital collapsed they were unable to service their debt. The whole football league was nearly wiped out.
We like to imagine finance is a little different in football than in real life, but it isn't. The collapse of LTCM happened because they had models which didn't properly grasp risk. Lehman brothers took out huge debt to finance what they thought were risk free assets (CDOs). When it turned out they weren't risk free and they began to collapse, we were served up the largest corporate bankruptcy in history.
The risk for premier league clubs is their dependence on TV money and the expectation that it will continue to rise. I am not going to stand here and tell you that tv money is going to fall next year, or ever. All I am saying is that it is highly risky for clubs to be basing their model on TV money and debt. If there is a rare event, and the longer time goes on the more likely it becomes, they will be hit badly. On the other hand, clubs that have focused on managing debt, keeping their wage bill down, turning over profit and diversifying their revenue streams (like, say, building a new stadium to increase matchday revenue) will be able to resist such shocks.
Basically, when everything is good its hard to appreciate good financial management. This is true everywhere, including sports. It's only when things take a downturn that you see who was being smart and who was being reckless. In the words of Steve Eisman (the main character in the Big Short) people constantly '[mistake] leverage for genius'.
As I said, this is just a theory. I could be wrong about all this. But I hope I have given you a new perspective about our often frustrating thrifty ways.
Feel free to attack me below and discuss football finances in general.
It can no doubt be said that finances have been frustrating us recently. We have built a huge stadium which has been delayed to infinity and have had to sit through a summer of almost no activity. We watch as stingy wages cause discontent and drive out players. We have seen our best players sold on to more financially loose clubs.
But allow me to flip this on it's head. We should be very proud of how our finances our managed. Not just because we have the least spend of all the top clubs, and have become a big player in English football without a sugar daddy or huge inbuilt advantage (*cough*, united, *cough*). Not only is this impressive, but it could become very important, very quickly.
I have grown increasingly suspicious of how clubs have been spending over the past few seasons. I agree with Levy that it is unsustainable. Higher and higher spending has been engaged with on the basis that TV money will continue to rise. Much of this is debt based, in other words the most dangerous way to spend.
I am an econ/finance student in real life, so I'll give you a quick rundown on debt. It's great, until it isn't. Everything being equal, debt is great as it allows you to make more money than you would otherwise have been able to. The problem is things never remain equal, and when things take a downturn debt quickly becomes unmanageable.
You are all familiar with Leeds's collapse at the turn of the millennium. It happened because they borrowed and spent on the basis of achieving champions league football. Initially this worked great, until they finished 5th one season and, well, you know the rest.
Also around that time many football league clubs nearly went belly up after borrowing on the expectation of more money from ITV digital. When ITV digital collapsed they were unable to service their debt. The whole football league was nearly wiped out.
We like to imagine finance is a little different in football than in real life, but it isn't. The collapse of LTCM happened because they had models which didn't properly grasp risk. Lehman brothers took out huge debt to finance what they thought were risk free assets (CDOs). When it turned out they weren't risk free and they began to collapse, we were served up the largest corporate bankruptcy in history.
The risk for premier league clubs is their dependence on TV money and the expectation that it will continue to rise. I am not going to stand here and tell you that tv money is going to fall next year, or ever. All I am saying is that it is highly risky for clubs to be basing their model on TV money and debt. If there is a rare event, and the longer time goes on the more likely it becomes, they will be hit badly. On the other hand, clubs that have focused on managing debt, keeping their wage bill down, turning over profit and diversifying their revenue streams (like, say, building a new stadium to increase matchday revenue) will be able to resist such shocks.
Basically, when everything is good its hard to appreciate good financial management. This is true everywhere, including sports. It's only when things take a downturn that you see who was being smart and who was being reckless. In the words of Steve Eisman (the main character in the Big Short) people constantly '[mistake] leverage for genius'.
As I said, this is just a theory. I could be wrong about all this. But I hope I have given you a new perspective about our often frustrating thrifty ways.
Feel free to attack me below and discuss football finances in general.
