Bernard Mnzava, “Financial plight in English Premiership football: An impact of recent global recession”, “Pecunia – Revista de la Facultad de Ciencias Económicas y Empresariales”, 2011, Monográfico 2011, pp. 179-189
This paper describes the impact of the recent global recession in English Premiership football clubs. It also explains the main sources of revenues and how these sources were affected by the changing environment. In addition, the paper reviews the major expenditures incurred by clubs and the main reasons for incurring the expenditure.
We should all comprehend that, football clubs have long had difficulty borrowing. Why all this come about regularly? The answer to this question is speculation to win trophies. We heard scandal of Leeds United the way things went wrong. In reality, most premiership clubs spend too much in playing talent hoping to achieve success in trophies that brings sturdy financial situation in their accounts. However, not all clubs speculating will win titles, some yes and some no. Speculation itself is not a bad thing but poor acquisition strategy is. It is anecdotal to identify when a player is at his peak, but it is objective to identify when a player is at his best. In actual fact, buying a player at his best is a bad thing because is similar as buying a stock when there is a run of good news. Players bought at their best performance are too expensive and demand high wages that brings more costs to the club. This is the main oversight done by clubs.Another problem that seems to bring burdens to clubs is leveraged takeover strategy. Leveraged buyouts are legally accepted but had a number of drawbacks. The assets of acquired company are used as collateral for the borrowed funds and if not satisfactory, the assets of the acquiring company too. Manchester United and Liverpool are relevant examples of leveraged buyouts where most of their revenues are paid out as interest expense to service the loans taken during acquisitions. In fact, debt costs money and the more you have the more it costs. Fans who are customers of the football business are sceptical with leveraged buyouts. In plain terms, they associate high ticket prices with high interest payments rather than the credit crunch. It is too early to argue that leveraged buyouts are unsustainable in the football sector but the actual situation will soon be known.