Lord Sugar says football needs a 'dose of reality'
England's Premier League football clubs have enjoyed a massive increase in revenue over the past 20 years, especially from TV rights. Yet between them they have debts of over £3bn and most struggle to turn a profit.
Back in 1992, businessman Lord Sugar was one of 22 football club chairmen who decided their teams should break away from the rest of English football.
The new Premier League sold its TV rights directly to Sky in a deal that revolutionised football finances overnight. "There was elation that somehow each club would receive approximately what the whole league received previously," former Tottenham Hotspur chairman Lord Sugar said. "I don't think any thought was given at the time to what we should do with it."
Since then the Premier League has changed beyond recognition. The wealth has attracted many of the world's top players to England. On the first weekend of the new break-away league, only 11 overseas players were involved. Today there are 300 from more than 60 countries. In 1991-92, the final season before the start of the Premier League era, total annual revenue for all the clubs was £170m.
Now the Premier League generates more than £2bn a year, almost double its closest European rival, La Liga in Spain. "What we have seen over the lifetime of the Premier League is incredible success in generating revenue," commented Dan Jones, lead partner in the Sports Business Group at Deloitte. "But every bit as fast as the revenue has come in, the wages have gone up as well and that is the primary cost in football.
"The net result of all of that is that the profits really haven't gone up very much at all over the lifetime of the Premier League."
Ten years ago Lord Sugar sold his interest in Tottenham. He secured a healthy profit, but said that the money he made did not justify his time and effort nor the damage done by taking his "eye off the ball" of his core businesses.
And making money out of football has not got any easier. As a businessman, Lord Sugar said that he is shocked by the state of Premier League finances today.
"The collective debt of all the clubs is £3.3bn. Most of the clubs are in the red. They are spending more than they are actually receiving. It's incredible, it's certainly not a business," Lord Sugar stated. He put the point to Premier League chief executive Richard Scudamore that despite football being an amazing business, "nobody makes any money".
"We attract the world's best talent," commented Scudamore, who also said the game has benefited from stadium improvements in the past 20 years at clubs including Manchester United, Arsenal and Sunderland with many more in the pipeline.
The competition, Scuadamore added, creates the "virtuous circle" that makes the game so attractive worldwide. But the competition is so intense that it has created a "thirst for almost unattainable success", according to David Pleat, former director of football at Tottenham.
"They tend to spend it all on salaries and unless they keep some back for the development of the game, for the infrastructure, for the academies, so many aspects of football are ignored because of all the money that is going into salaries," Pleat reflected.
Europe's governing body Uefa is bringing in new rules from the 2011-12 season designed to curb excessive wages for players. "A club has to break even over a three-year period," said Uefa general secretary Gianni Infantino, with expenditure limited to "revenue the club generates from sporting activities".
Uefa believes that the clubs will support the change, but as it is phased in over three years, it will take some time to take effect. In the meantime, the risk-taking continues. Last season two Premier League clubs flirted with bankruptcy. David Sullivan said after completing his takeover of West Ham with David Gold that the east Londoners had debts of £110m and had "walked a very close line" to administration.
The Hammers were rescued by their new owners, who were shocked to find the players' wage bill was equivalent to 90% of revenue, leaving no prospect of the club being profitable. And Portsmouth became the first Premier League club to enter administration in February 2010 but were allowed to play all their remaining fixtures.
"Why hasn't someone rung some very, very loud bells and put a stop to all this?" Lord Sugar asked. "What fascinates me about this football business is that a club goes bust on a Tuesday and they are still playing on a Saturday. Football needs a dose of hard business reality. You go bust - You're gone, you're finished. And until an example of that happens, the penny is not going to drop."
But the Premier League has disagreed and Scudamore added: "My prime responsibility is to keep the clubs alive, because they are bigger than the current owners. If there has been mismanagement and the club is threatened, in my view, we should do all that we can… to keep that club alive for its fan base, for its community links."