It’s time for English football to face its own financial crisis

Mark is Vice-Chairman of the All Party Parliamentary Group on Football. A keen follower of lower league professional football, he has visited several Football League clubs during the last few months to investigate problems in the game. The following is the full version of an article he has written about the state of our national game. An abridged version featured this morning on the Guardian’s blog. Click here:

Football clearly didn’t come home this summer. At least not in the way many of us watching the World Cup might have hoped. Yet one positive outcome to come from the England national team’s dismal performance on the pitch should be a renewed focus on the health and governance of our national game.

Unlike much of the domestic economy, English football’s finances seem superficially rosy. It is an industry performing at its peak in terms of revenue growth and commercial appeal. There has been a healthy growth in fans watching the game on television and in our much improved stadia over the last two decades.

The Premier League is a fantastic global export, not just in terms of business, but for goodwill towards our country, giving towns like Wigan, Bolton and soon even Blackpool worldwide fame.

Meanwhile on the pitch we have some of the world’s best players competing in a fast and dynamic Premier League, backed up by a highly competitive Football League that is far in advance of any second tier competition anywhere in the world.

Yet it is too simplistic to take that success at face value. The football industry is at risk of making the same mistake our banks did. They rode blindly on top of a crest, became too powerful and unwilling to fix internal problems at a time when it would have been relatively easy financially to do so. As a result, that industry will soon be forced to change irreversibly and its business models transformed by governmental and public pressure.

For all its success, football is becoming just as dismissive of siren voices warning for the future and insistent that self-regulation will do the trick. Clubs are receiving record levels of revenue from the Premier League and Football League, but are, in the words of more than one senior official I have spoken to: “pissing it up the wall on players wages instead of investing in the future of the game”. When an industry is at its peak it should be planning for the long-term. Football isn’t doing that. Every fan of the game, in Parliament and on the terraces, should be asking football to change its ways, and fast.

In fairness there has been internal pressure from some clubs for football to change its ways. The last government spent many years engaged in a battle with football to remodel radically the game’s governance and create a more independent and united structure. While wrong on some of the detail, their instincts were right. But football is a formidable opponent and is extremely able at resisting change.

The new coalition government has approached the problem from a different angle, with an aim of seeking more cooperative ownership of clubs by fans. Superficially this seems a lovely notion, but in reality is naive, as well as virtually impossible to impose without having to rip up company law and in effect nationalise what are privately owned businesses. Some of those who push this idealistic view are often misguided, citing Barcelona or Real Madrid as the model clubs. Yet these clubs have a massive advantage over any potential competitors in Spain as they sell television rights in that market individually, not collectively. Both clubs also suffer from high levels of debt and the reality of rich benefactors pumping in their millions to gain the status of ‘President’ is not very different in practice to an ‘owner’ in England.

Back on these shores, to date, no one has really put pressure on the football authorities on the three major issues that could actually make our game better for the long term – debt, cost control and sustainable investment in the game. It is time for that to change.

Debt in itself is not a problem, but unmanageable levels of debt in a low inflation environment are. Football clubs are part of their communities (all bear the names of their localities). They are not franchises and we must protect their heritage by dealing with debt that threatens clubs’ existence. I have nothing against rich owners pumping their money into their club – it is theirs to spend as they wish. What is not acceptable is that owners simply provide loans to their club rather than taking equity and thus leaving the club at risk if they walk away. I also have a problem with the global brand tied up in some of our most successful football clubs (Manchester United and Liverpool being the two most glaring examples) being used to leverage huge debt that was never before on the balance sheet. Like it or not, football clubs are not normal businesses and shouldn’t be treated as such.

So the football governing bodies must act on debt. I reckon it is high time that the FA and the leagues work together to do what is right. I should like to see plans to restrict clubs being lumbered with debts and I should like to see club directors’ loans restricted so they are forced to accept equity instead. That is a much more sustainable approach that protects our clubs for the long-term.

Perhaps unusually for a free-market Conservative politician, I also want to see urgent cost controls brought in by the game’s governing bodies. Such measures – be it a hard wage cap or restricting the overall club wage bill to a percentage of turnover – are the only answer to the majority of the game’s financial travails. It is clear that most clubs are trading at serious losses and that in the main is down to the spiralling cost of talent – i.e. players’ wages. There must be a meaningful market for players in football, but the fact that virtually every Championship (second tier) club spends more on its wage bill than its total income is the economics of the madhouse. The huge rewards of getting into the money-spinning Premiership are largely responsible for this state of affairs. From next season, Deloitte estimate that even the bottom club in the top tier will receive at least £40m in basic distributions whilst in the Premiership, with up to an additional £48m guaranteed to each relegated club as parachute payments over the following four seasons. This is a perverse incentive that threatens to ruin the finances of the game. Only when we fix this problem, can we fix the game for the long term by enabling funds to be properly invested back in the grassroots game.

I am a pragmatist on cost controls. I understand the impact they would have on the Premier League’s competitiveness if other leagues in Europe did not follow suit. As a result, I shall work hard to lobby UEFA to develop a European model that can be brought in across the continent. I urge my colleagues and the football bodies to join me in doing so. We can no longer sit by and watch things get worse.

I shall also work hard to see the Football League take immediate action with their 72 clubs. These clubs are at the heart of what is great about community football in this country and without something happening soon, I fear for the future.

Attendances at Football League games last season exceeded 17 million and the League clubs’ community teams work locally with more than 1.5 million people in their vicinity. We cannot let these professional clubs die, they are key operators working at the heart of their communities. Cost controls presently exist in League 2 (the fourth tier of the English professional game), where clubs cannot spend more than sixty per cent of turnover on player wages. This has been effective, but can clearly be improved going forward to achieve greater success. It is imperative that League 1 and the Championship follow suit. I would reiterate – the Championship in particular is seriously overstretched financially, with clubs making huge losses as they gamble on promotion and the riches of the Premier League. A failure to convince these clubs of the immediate need for cost controls will result in an ever greater clamour for stricter regulation to the detriment of the supporters.

If we can find the right way forward on cost controls and debt, it would allow our clubs to focus on facilities and youth development and invest in the future of the game. Only then can we seriously talk about our national team bringing home the World Cup for a game we invented.

Too few English players are progressing from youth to first team squads in the top division. Whilst I welcome the new rules that will set a limit on overseas players in squads in the Premier League, it is a reality that because of European employment legislation that ‘home-grown players’ include foreign nationals who have been signed by the club before their 21st birthday. In this regard, the international success of our Premiership does have a detrimental impact on the England team.

I have seen myself on visits to academies the work Football League clubs are doing to train and develop youngsters from their local communities – but it is clear they need more dedicated funds and qualified coaches to do more. Those funds will not be forthcoming without cost controls. It is a vicious cycle that must be broken – urgently.

Football is the national game and it inspires millions of our fellow countrymen on a daily basis. We all have a duty to protect our game and make it more sustainable. I urge the football authorities to deliver real change and fast.