Football clubs across the United Kingdom are at breaking point. Their financial problems are mounting and many clubs are finding it difficult to cope. The most recent football club to go out of business was Port Vale in February 2018; this is the seventh UK football club to collapse since 2010. There have been numerous others that have come close to collapsing, such as Portsmouth in 2013, Coventry City in 2014, and Leeds United a couple of times recently. Such problems are not isolated to one league or even the United Kingdom alone; there appears to be a global crisis in football financing. Clubs at every level of competition from amateur through to professional are struggling with expenses far exceeding income from ticket sales, sponsorship, broadcasting rights and other revenue streams. And this financial imbalance is having grave implications for both small and large clubs alike throughout the world.
The Problem with Football Finances
The financial problems of football clubs are nothing new, but they have become more acute over the last decade or so. The £5.14 billion price tag of hosting the 2018 World Cup in Russia, the increased wages and transfer fees, and the rise of the Premier League as a global brand all contributed to the problem. The Premier League has enjoyed an astonishing rise as a global brand, which has seen broadcasting rights grow significantly every year. However, this has not been matched by growth in ticket sales and other commercial revenue streams. Clubs have basically been spending more money than they are bringing in. The Premier League is not alone in this; football as a whole has experienced a significant increase in both operating and capital costs.
Rapid Escalation of Costs
The cost of player transfers has been rising steadily for years, but it has really accelerated since the Premier League began in 1992. Although there are many reasons for this, the main cause is the huge increase in wages paid to players and the related agents’ fees. The average wage of players in England’s top flight has risen by nearly 500% since the league began. This means that wages now account for the biggest cost for Premier League clubs. Clubs are spending more money on wages because they are having to compete for the best players. The World Cup is partly to blame for this, as players now see international football as a springboard for a huge pay rise. This can sometimes lead to a transfer fee being matched with a record-breaking wage.
Exorbitant Transfer Fees
Transfer fees have been going up for years, but the increase accelerated when the Premier League began. Because clubs could suddenly afford to pay large sums for players, the price for their services rocketed. This led to transfer fees rising by about 10% a year for the next 20 years. In 2013, the Football Association (FA) introduced Financial Fair Play rules. However, this failed to reduce the escalating cost of transfers. The FA hoped the rules would encourage more sustainable spending by clubs, but there were many ways around the regulations. Clubs could easily borrow money, sell assets, and use other profitable avenues to generate funds. The money received for transfer fees did not match the ever-increasing cost of transfers. Transfer fees are normally paid in installments over the length of the contract of the player being signed. This means clubs are often paying transfer fees years after they bought the player.
Uncovering the Real Reasons for the Financial Crisis
There are many reasons for the football finance crisis, but the biggest one is the increase in the cost of transfers. Transfers are now conducted by private agents and are hugely profitable for both the agents and the clubs. Clubs make huge profits on transfer sales and agents take up to 12% of the transfer fee. The rise in transfer spending is illustrated by the Premier League’s record transfer fee of £89 million for Brazil’s Neymar. This has been broken twice in recent years, first by the £200 million paid by PSG for another Brazilian, Philippe Coutinho, and then by the £300 million paid by Liverpool to sign another Brazilian, Roberto Firmino. The ever-increasing transfer fees are what is seriously hurting football’s finances.
Short Term Solutions to the Football Finance Problem
There are many short-term solutions that football clubs could adopt to overcome their financial issues. They could reduce the size of their squad, sell older players, and increase the number of promising youngsters on their books. Clubs could also manage their finances better by paying the bills on time, reducing travel expenses, and stabilizing their revenue streams. Clubs might also consider sharing the cost of facilities such as training grounds and stadiums with other clubs. Although these measures would help clubs overcome their current financial problems, they are not long-term solutions. Clubs should try to increase the number of younger fans and make their stadiums more family-friendly. Clubs could also think about introducing a small increase in ticket prices to make better use of the large crowds they have at home games.
Long Term Solutions to the Football Finance Problem
The long-term solution to football’s financial problems is to develop a more sustainable business model. Clubs need to find a way to bring down the cost of transfers, and they also need to increase their revenue streams. This could be achieved by introducing a central football transfer system. This would see FIFA, UEFA, and the FA control the transfer market. Clubs would then be able to buy and sell players only at certain times of the year. The Football Association also needs to consider introducing some form of salary cap. It is difficult to see how transfers could be controlled. Clubs also need to increase their revenue streams. They could increase ticket sales by selling naming rights to their stadiums and look toward other sports for inspiration. Football clubs could also make better use of their assets. They could sell the rights to their players’ images, introduce a football version of fantasy sports, and seek sponsorship from companies that have nothing to do with football.
The financial problems of football clubs are nothing new, but they have become more acute over the last decade or so. The £5.14 billion price tag of hosting World Cups, the increased wages and transfer fees, and the rise of the Premier League as a global brand all contributed to the problem. The rapid escalation of costs is what is seriously hurting football’s finances. There are many short-term solutions that clubs could adopt to overcome their financial issues, but these are not long-term solutions. Clubs need to find a way to bring down the cost of transfers and increase their revenue streams. They could introduce a central football transfer system, introduce a salary cap, increase the number of younger fans, and make better use of their assets.