Football Management

Commentary on the management of over 160 English football clubs by Dr John Beech, winner of the FSF Writer of the Year Award 2009/10 Twitter: @JohnBeech Curator of! Football Finance

Whelan and Wigan

Posted by John Beech on May 4, 2010

With reform of football being part of the current zeitgeist, and political parties showing some interest in the topic at least until Thursday evening (see The Times They Are A-Changin’ 3, it does not come as a complete surprise that the Premier League, in the form of certain of its club Chairmen, should begin to stick their heads above the parapet and start using the R word – that’s as in Reform, rather than Relegation.  Wigan Athletic’s Dave Whelan has made the early running.

He is reported by as saying on the subject of debt “People say the Premier League has got to be curtailed in what it can do and what it can’t do but it’s no use just saying ‘Don’t interfere’….As a league, you just can’t have clubs going into administration. Let’s get a figure, 20 or 25 per cent, and say that you can’t borrow any more than that percentage of your turnover.” (1).  For the clubs that fail to comply he suggests “If you do that you get penalty points. That would clamp on everything. That gives the bigger clubs greater scope to borrow money and it puts a restriction on smaller clubs like us, Hull and Portsmouth“.

Not only has he failed to spot that Portsmouth’s nine point deduction did not actually punish them by condemning them to relegation – they are relegated already even if the nine points were to be magically restored – but he fails to appreciate that points deduction is essentially dysfunctional as a sanction (see my research on this here if you have any lingering doubts).

He also seems to have conveniently forgotten how Wigan, a Northern Premier league club until 1978, comes to be in the Premier League.  Whelan bought he club in 1995 when they were in the old Division 3, then the fourth tier.  The club’s accounts give an interesting picture of how they have climbed to the top.  The club managed to grow its turnover slowly but steadily, reaching a level of just over £4m in 2004/05, the season in which they won the Championship.  Since then, turnover, having made the obvious initial leap with greatly enhanced broadcasting revenues through PL membership, has continued to rise steadily, reaching £46m for 2008/09. the most recent season for which financial data is currently available.

Has the meteoric rise been financed from revenues, without the acquisition of large debts?  In Whellan’s words “The club owe me something like £50m to £60m and I’m turning that into shares so that if I sell them it doesn’t affect the football club. I’ll never get all my money back” (2).  I’m sure it’s his natural modesty that stops him mentioning in this statement of his own largesse, putting him in the same mold as, well, if not quite Abramovich then almost in the league of Middlesbrough’s Steve Gibson, that it comes entirely coincidentally with his appearance at No.1 in the new Sunday Times Sport Rich List (3).

But what of Wigan’s debts?  Their accounts make no mention of any directors’ loans, suggesting that a more accurate statement would have been that the club owes Whelan’s companies £50m to £60m.

Wigan’s long-term liabilities were £8m in 1999/00, and have grown steadily since, standing at £47m in 2008/09, together with current liabilities of £42m.  With a turnover of £46m for the same period, it’s rather hard to see where he has plucked this figure of 25% of turnover being the upper limit of debt that he is so strongly advocating.

Wigan Athletic is then perhaps not a model of best practice for others to follow.  Neither is it with respect to the other plank of UEFA’s Financial Fair Play Protocol – keeping wages to within 60% of revenues.  For 2008/09 Wigan’s ratio was 81.5%.  In 2004/05 when they won the Championship and gained promotion to the Premier League, they spent over £8m on wages and salaries against revenues of just over £4m – the ratio was actually 204.3%, which makes ‘cheating’ Portsmouth’s profligacy with money it ‘didn’t have’ and a ratio of 109% seem almost modest.

Not that any of this necessarily detracts from the argument Whelan is making; it merely raises questions about the advocate.  Debt is undoubtedly out of control in the majority of Premier League clubs, and some means of reigning in that in, and preventing its recurrence, is sorely needed.

To me however the source of the problem lies not in the principle of debt per se – there is absolutely no sound argument that can be made, for example, against Arsenal borrowing money to finance the Emirates with a sound business model to sustain the debt – but in the source of the money borrowed.  When ‘benefactors’ ‘invest’ in clubs, there is no rigorous examination of whether the debt is sustainable, and the lender is in effect the guarantor of the loan!

A debt cap certainly has its attractions, but until clubs are only allowed to incur debt by borrowing from independent sources who will scrutinise whether there is an effective business model in place to ensure that the debt is repaid, we will continue to see wide-scale financial doping, and the occasional ‘victim’ of ‘benefactors’ who either can’t or won’t continue pouring money into their club.

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