One of many possible reasons: see it as buying a house. You pay a certain sum of money. Along the way you spend money to improve some things or maybe just to maintain the house in the way you bought it. So you’re operating with yearly losses. After so many years, as the house market keeps increasing, you can sell your house with a neat profit, even if you count in the money spent on maintenance/improvements.

Of course, with the credit crunch and all we can see that the house-market isn’t as stable as it once looked. For football, the same applies and investors are far from certain to earn a profit. But at least they’re trying.

Another logic: a team in the championship can be bought relatively cheap, let’s say for 30 mil. With an investment of another 30 mil you could get promoted to the Premiership. We all know what lies there: endless pots of TVmoney. You can give yourself a return-payment of 30 mil and still spend a lot of money on new players. Maybe you’ll manage to stay up for a year or two and reap the rewards, otherwise you get relegated, but thanks to the parachute-payments you’ll be a contender for promotion automatically. Say you spend four years in the Premiership in ten years time, you could get 120 mil back from an investment of 60 mil in ten years time.

Of course both logics can be combined. If you can show that you made yourself 120 mil profit in ten years time, investors will be knocking on your door to buy the club for a decent sum. Say 120 mil. Then you’ll end up with an initial investment of 60 mil becoming a whopping 240 mil!

I agree immediately that the figures have no real background and are made-up totally so never mind the amounts mentioned but you get the catch. And I admit that a lot of investment has been done in teams already in the premiership or indeed already in the Champions League, so they won’t make ’unexpected’ extra profits that the investor can put in his own pocket. But the same logic applies: these investors are expecting to make a nice profit in the long term.

What they don’t seem to understand is that sheer economic theory and the fact that nearly every team has an investor right now demands that they keep investing or they’ll lose ground and miss qualification for the Champions league/get relegated and get in serious financial troubles. But since they’re rich and I’m not I’m probably the one that doesn’t understand something...

OK, to try to summarise:

Ignoring the big 4, Premier League clubs have an income of £35m to £100m. They also have expenditure, before transfer fees, which is mostly wages and partly day to day expenditure/ground maintenance/police etc.

A team can spend on transfers whatever excess it has left over after expenses. The main thing that football fans forget is this. Clubs wage bills vary massively, and anything that a club saves on wages can be spent on transfers.

The effect of this is that small clubs can spend a lot of money IN ANY ONE YEAR. i.e. they have a tiny wage bill (because they have a poor team), so they can afford to spend a lot of money on a player. However, this increases the wage bill, so you don’t have as much to spend the following year.

To put numbers on it, say you make £12m profit every year. You spend £12m on 4 players, so your books balance. However, these players want decent money, say £30k a week, so your wage bill is £6m a year higher. The following year, you only have £6m to spend.

Further, when you give existing players new contracts, this has to come off the transfer budget too. Football fans generally do not consider the big contracts given to hold onto their current top players when asking where they money has gone.

This brings us to loans. 15 years ago, football clubs were low income, low asset businesses. Banks did not lend much money to them; some clubs. With the increases in the Sky TV money, players values have increased and hence banks were suddenly willing to lend huge sums of money against the future revenues and assets of the clubs, which most clubs greedily borrowed as quickly as they could. Most Premier League clubs have spent money they "didn’t have" in this way - i.e. money not generated by excess income.

There is of course a limit on how much banks will lend you. Everton seem to have roughly reached this limit, due to their large spending the previous 2 years (when we spent money we didn’t have). Similarly, clubs like Portsmouth, Blackburn and West Ham have had to sell to buy this summer, in spite of their top half finishes.

Clubs who have not spent every year for the past few years, and have very low wage bills, have spent money this summer. The likes of Fulham and Sunderland.

Now, your question: why would anybody invest in a Premier League football club that is making a loss.

Well, the question is, which Premier league teams have been invested in? Abramovich is an exception, a sugar daddy.

Glazier at Man Utd and Hicks/Gillette have both taken money out of the club - these are the only 2 consistantly profitable clubs in the league. They have not invested at all.

Shinawatra is apparently a sugar daddy, and yet the club has run up £103m in debts - they borrowed another £30m yesterday.
Villa have debts of £63m, compared with zero debts when Lerner bought the club. West Ham have run up £142m in debts.

As far as I can tell, Mike Ashley is the only new owner who has actually put money into his club - and one might suggest that has more to do with him being a fan rather than being a profitable business decision for him.

Cracking answer, Simon.

Simons post should be put on the front page of ToffeeWeb and everyone who visits the site should be made to read it before coming on here!

Seriously.

So it seems that the club being skint is more of a reflection on the unsustainable way in which Premier League clubs are competing with each other than poor running of the club?

Either way, if other clubs are going to hit this wall (as Simon?s comments suggest they will do) whereby no more ?money they don?t have? will be available for transfer funds, then we will have done well to have spent a year or two developing boys from the academy at cheaper costs.

In a very backwards way then, is this not prudent management?

Obviously, I?m thinking about this in purely business terms. On a football pitch I?d love to see the likes of Moutinho linking up with our current crop, but just trying to get a handle on what?s going on behind the scenes as much as possible?

Graham Halliday wrote :

So it seems that the club being skint is more of a reflection on the unsustainable way in which Premier League clubs are competing with each other than poor running of the club?


Yes & No Graham. These problems / constraints affect all clubs BUT some owners / boards work more effectivly within them than others. A club where the owner says : ’Don’t ask me I’m only a fan’
( as opposed to offering leadership & direction ), lets other clubs off the money they owe us on contracts ( £250,000 on the Oster deal etc ) and fails completely to either market itself & maximise its revenue is NOT well run.

On the latter point given EFC’s contacts & investors I’m amazed at how inept we have been in recent years. Surely with Philip Green’s money invested ( & at risk ) & Terry Leahy’s relationship with our chairman, I’m astounded that they havn’t pointed Kenwright in the right direction as this is their field !

Simon great post....

It’s got me thinking on. I fear for the future of the Premier league as surely there will be a point were the majority of clubs (say 14) will be "Maxed" out on loans related to future earning’s.

What would happen if this is came true..

Would this lead to an overall reduction in incoming transfer’s? surely yes..

Would the lack off incoming foreign players reduce the appeal of the premiership abroad? I think so.

Lower interest equals lower incoming cash from TV deals thus clubs will not be able to service these long term loans.

This would lead to even lower future transfer budget which in turn less foreign stars and there the circle starts..

Just a thought like...

The chickens will all come home to roost eventually,

Another thought ... it seems that investors are often compelled to keep investing, to keep borrowing just to keep pace with the thought of losing (relegation etc..being far too dreadful to contemplate) . I guess the analogy here is that "last bet" in the bookies to try and win back your losses... Hopefully this is the case with Mr Earl, but you have to suspect that he is seeking to cut his losses - right now, and that it is Mr Kenwright who is desparately looking for a last few pennies...

Everton are simply too far overdrawn and money is simply too tight .. I just get the horrible feeling, given that our starting position is far worse than many of our peers that this could be one of the first clubs to hit the wall in terms of spending... In fact I think we have already.

I don’t want to scaremonger but I do worry about the club falling into administration .. even receivership .. are they a possibility for a club of our size and stature? At the moment we certainly look to be asset-stripping our playing staff ?

Correct me if i’m wrong but isn’t the most indebted club in fact Man Utd?

"On the latter point given EFC?s contacts & investors I?m amazed at how inept we have been in recent years. Surely with Philip Green?s money invested (& at risk) & Terry Leahy?s relationship with our chairman, I?m astounded that they havn?t pointed Kenwright in the right direction as this is their field" ? So said Marc Williams...

I beg to differ: the 2 men you talk about have steered Everton into a chance of buying a stadium for a third of its price with the chance to increase capacity/corporate giving the club the chance to earn more money... and a new stadium raises the club profile.. I have a feeling the penny will soon begin to drop with those who would stifle the opportunity being given to our club to get itself out of the mire!

Correct Paul, Manchester United are in front. The Glazer family refinanced borrowings of £660 million in 2006 to help pay for the club in their £800 million takeover in May 2005. According to figures released in January, United?s pretax profits for the 12 months to June 30, 2007, were £42.28 million, only slightly more than their £42 million interest payments.

At Liverpool, the refinancing by Hicks and Gillett has left the club and parent company, Kop Football Holdings, with £350 million of debt and annual interest payments of £30 million. This is before they have even started building their stadium.

Arsenals net debt was £307 million by the end of November 2007.

Chelsea had a net borrowing of £620 million, with a personal loan of £90 million from Roman Abramovich, which brought his total investment in the club to £575 million and offset the clubs losses after tax of £76 milliion.

Fulham owe £182 million and West Ham £142 million.

As most, if not all of the clubs are losing money year after year you wonder how long it will be before the bubble bursts and the banks stop playing ball.

Graham Holliday
If you would like to research further go to the official website, highlight club, then click on shareholders and on the right you can download financial statements for 2007, 2006, 2005, 2004 and 2003. Only if you fancy further research though

Graham - do you have a son called Paul?

Phillip - thanks, I’ll be sure to take a look. I was struggling to find them although was sure they’d be on the OS somewhere.

Matt - no.