Wednesday 4 February 2009

The Weekly Chunter

Afternoon all. So, we've signed a midget Russian for £15m who played quite well in the Russian league and put in a couple of good performances in Euro 2008.

Now, whilst I suspect Arshavin is going to turn out to be a good signing, and not the new John Jensen, we must not expect too much him this season. If he hits the ground running, then great. But lets not wobble like Rafa's belly if he takes some time to adjust.

Speaking of Rafa the Kebab-King, Robbie Keane's transfers to-and-from Liverpool within 6 months has got to be one of the weirdest episodes of all time. I wonder how much Liverpool's dire financial situation has to do with this?

Anyway, whilst we bask in the glory of Arsene actually dusting down the cheque book and signing a player, its sneaked out in the press that the first round of negotiations for the Premier League's TV contract have concluded, apparently with Sky paying £1bn for a 92 game per season deal. Sounds good doesn't it? Lots of lovely new money for the clubs to spend. Well I am not so sure.

Football finance is a popular hobby horse on this blog, and whilst we know virtually nothing about it, lets not let any minor details like that get in the way. So here is what we know so far. The Premier League TV rights deal is apparently split into 6 "packages" of coverage rights for live games, which are each sold to the highest bidder, so long as no single company has more than 5 packages in order to comply with EU competition law prohibitions.

Sky have apparently secured 4 "packages" in the first round of bidding, leaving another 2 up for grabs, with Setanta and ESPN rumoured to be interested. Now, the point is that the Premier League trousered £1.7 bn for the six packages during the last round of negotiations in 2006. Sky paid £1.3bn for their 4 packages in 2006.

Therefore, on a simplistic view, Sky's contribution to the pot is already down by over 23%, and unless a bidding war starts between Setanta and ESPN, the overall figure will be much worse.

Again, "who cares" I hear you cry, "its tons of money". Well, the point is that for those few clubs who actually run themselves as a genuine business, such as Arsenal, there will be at least 20% less income next year compared to this year in relation to the money feeding down from the Premier league deal. If that is reflective of what will happen elsewhere in terms of clubs' projected income, then on a current turnover of £250m that means there will be £50m less going through the books next year.

For me, that is a scary thought and this says two things loud and clear:

1. Those clubs that do not run themselves as a business need to really watch out. That is most of the league.

2. This is why we didn't just pay the £20m that Zenit wanted for Arshavin on 1 January. People who do not regulate their spending will go bust.

Lets hope Spurs are the first against the wall. I wonder if Ladbrokes offer odds on this sort of thing....


Obsinho said...

I am surprised at the reduction in Sky's spending, given that their profits were up around 30% last year. Haven't seen any analysts views on their 2009 figures though.

That is a hefty reduction in TV money. Does all the £1bn trickle down to the clubs, or is this pocketed by the FA/Premier League first and then distributed - just wondering if the impact on clubs could be worse than 20%.

We do live within our means (Gazidis has some excellent comments in the Times today) so SHOULD be in a secure position. However, this may not be the best year to also drop out of the CHampions League and lose out on that money.

Joe Lewis will surely only bankroll SPurs for so long, Abramovich has put a temporary embargo on spending at the Chavs. I'd imagine they have spent this time to avoid relegation, which would have severe impact. If they STILL mange to go down (heavily doubt that will happen), then I think it would be catatstrophic for them.

The Scousers are still the ones to watch for car-crash collapse this summer.

1979gooner said...

as we predicted a few weeks back (aren't we clever) this sky deal ws always going to be interesting and so it has been proven,

noticed obs' comments on palacios and his 'ban', this will be an interesting one to watch!

Si said...

Great post Ted.Very interesting. I'm what's known as fiscally challenged, so I read articles and the like like these in glee. Safe in the fcat I know nothing of what they are about and therefore can only be pleasantly surprised by the outcome.
It is good to know that because of our recent frugal ways and shrewdness in the market that we will be safe(r) next year.
Surely though, all investors are using the credit crunch as an excuse to keep current contracts open but with a reduction in cash injection?
There will always be an Arsenal.

Obsinho said...

The issue many clubs will have is that the money investors used to purchase the clubs were provided by large loans from various Financial institutions. The cash to repay these loans was to come from footballing profits (heavily relying on TV money)and the notion was to keep roling over the principal debt, and simply sell the club and debt on at a profit.

However, as Financial Instituions are now finally showing some sense of risk appraisal, large loans to football clubs aren't so safe. Hence the Scousers trying to find a way of dealing with £350m of debt that matures in June.

Supposedly the Arsenal stadium debt has been ringfenced such that it is only repayable from the funds achieved in the sales of the various properties we have developed. So the drop in TV money has no impact on this. However, any reduction in the final sale prices of the properties will see a shortfall which we will need to finance through other means - i.e. footballing profits.

We will suffer, though not as much as Scousers, Utd, Geordies, Chelsea (under their statement that they will operate at a profit by 2010 - obviously not including the £500m of interest free loans Abramovich has made to the club!).

Arshavin may be the last signing we make for a while. The spend across most other European leagues this January was less than Spurs spent alone. I think that puts into proportion the level of risks they are taking.

Ted said...

Good point obs.
According to Reuters, £160m was spent in England in January, whereas only £29m was spent in Italy and £16m in Germany.
They don't give the total for Spain, but Real Madrid spent £40m on Huntelaar and Diarra, but otherwise I don't know of any big money deals outside the UK.

Anonymous said...

From a fans point of view, hoping that either sultana or ESPN get the other two packages and not split, its bad enough paying out for two subscriptions, let alone three!

Obsinho said...

Apparetly PLatini is on the war path again, wanting a level playing field financially.

Obviously this was prompted by the behaviour of British teams (Real, Barca, Milan never did anything wrong in their day!), but as a Gooner it would be nice to see some level of legislation brought in.

It will never work, and Platini is a tit, but we can always hope.