Debt is a fact of life for football clubs, but how damaging will it become?

“We obviously can’t compete with the money Manchester City have so there’s no point trying. We’ve got to succeed some other way.” So said a Premier League chairman in late September. But this wasn’t a pragmatic view from someone at a club that would be happy with a mid-table finish. It was Arsenal’s Peter Hill-Wood, whose comments were reported on the day that his team went top after a win at Bolton. The Arsenal board are bucking the current trend by actively discouraging interest from outside investors, in their case Alisher Usmanov from Uzbekistan, who owns a 24 per cent stake in the club.

Not that Arsenal are exactly spendthrifts; while their wage bill is a long way behind Chelsea’s, it is close to Man Utd’s. But with City able to dip into Sheik Mansour’s billions in January, Hill-Wood will come under more pressure to find alternative sources of finance if Arsenal do not have a comfortable advantage over Mark Hughes’s side in the table. This would mean a bigger role for Stan Kroenke, the US entrepreneur who recently became a director.

Arsenal’s spending is hamstrung by interest payments, but the debt has been caused by the loans taken out to finance the Emirates Stadium. The £375 ­million that ground cost may be inhibiting their transfer spending, but the club have a facility with a wide range of uses that will pay its way in the long term and gives them a healthy operating profit, with a massive increase in matchday income over Highbury.

Thirty years ago, clubs that invested in new stands could cripple themselves: Wolves and Chelsea are the obvious examples, with poorly designed structures subject to massive overruns. But football attendances generally were in a spiralling decline, corporate hospitality was in its infancy and worth a fraction of current values, and clubs were not able to construct the kind of long-term, low-interest loans Arsenal have. At a time when sub-prime loans have caused chaos in the world’s financial markets, to describe anything as “safe as houses” seems to be damning with faint praise, but a deal such as Arsenal’s makes as much sense as the mortgages that millions successfully pay off.

The problems come when debt is built up to fund the team. Last year Portsmouth announced that work on a ground in the city’s dockside would be under way by the summer of 2008. It was slated to cost around £130m; with a capacity of 36,000, it would be nearly 50 per cent bigger than dilapidated Fratton Park and of course come with far more high-earning corporate facilities than the old ground, which until recently lacked a single ­executive box.

Building work has been delayed, however, and now it has been suggested that it may not happen at all, with the club edging towards a financial precipice. The club firmly restated in September that they are owned by Alexandre Gaydamak, a French citizen who passed the “fit and proper person” test before taking over in 2006. Pompey felt the need to say this because Sacha’s father Arcadi, a Russian businessman based in Israel who is wanted for questioning by Interpol in relation to arms dealing, listed Ports­mouth FC among his assets. Gaydamak junior is now said to be seeking a buyer – at what sounds like a knockdown price of just £20m. Recent press investigations show that the club are hugely in debt, with a massive 90 per of their turnover being spent on players’ wages. More like getting into debt putting expensive furniture in a bedsit than buying your own home.

Portsmouth’s owner could seek to blame the general economic downturn, in that he funded lavish spending on players over the past couple of years by borrowing at rates that are no longer available. Football patrons haven’t worried about such things because it has been assumed that their clubs’ value will go up for as long as revenue continues to increase from TV and other media. But the wanton piling up of debt in the service of team-­building is almost guaranteed to bring about a meltdown. Clubs have been rescued from such predicaments, as happened at Chelsea, although they can never hope to repay the £500m that Roman Abramovich has pumped in. Colossal debts are never written off, just passed on to a new creditor – even Abramovich, it emerges, has merely loaned the club the money.

Debt is a fact of life for football clubs as for the rest of us and can be a boon. But it is a temptation, too. There’s a world of difference between going into Nationwide for a mortgage and ringing up some company that asks on TV: “Rejected for a loan elsewhere?” (Funny how those adverts have all but vanished from our screens.) Those clubs that have been ringing “Yes Player Credit” are running out of options.

From WSC 261 November 2008

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