Football’s Inevitable Financial Trainsmash

Financial Illiteracy Makes Stars Magnets for Unscrupulous Leeches

When I was a kid all I wanted to be was a Premiership footballer. Money was perhaps not my motivating factor at that stage but it was almost taken for granted that unimaginable wealth would follow should my dream come true. The reality for many who attained my childhood goal is sobering almost beyond belief.

  • Over 30% of professional footballers get divorced within one year of retirement.
  • Over 60% of professional footballers file for bankruptcy within 5 years of retirement.
  • Depression & addiction disorders are at epidemic proportions in former professional players.
  • Former professional footballers are 8 to 12 times more likely to be in prison than members of the general population.

Keith Gillespie (gambling addict); Colin Hendry (gambling addict); David James (declared bankruptcy in 2014, nine years after a costly divorce); Neil Webb; Chris Sutton (Ponzi Scheme victim); John Arne Riise (failed business ventures/poor financial advice that saw him declare bankruptcy in his 20s); Brad Friedel (failed business ventures); Diego Maradona (owed Italian tax authorities £31m in unpaid taxes, charges, penalties and interest in 2009 & managed to pay just £34,000, a necklace and some earrings back); Celestine Babayaro (declared bankrupt in 2011); Lee Hendrie (declared bankruptcy in 2012) & Eric Djemba-Djemba (declared bankruptcy in 2007) are just the tip of the ice berg when it comes to football’s financial disasters.

Djemba-Djemba’s former agent Christophe Mongai said “Eric is on a different planet. He simply has no notion of money. At one point, he had 30 different bank accounts. He was juggling between credits. There was a time when he owned 10 4x4s –TEN. I kept telling him to watch out. When he arrived at Man United, I decided to take over the running of his accounts. It took me four hours a day. At United he was earning about £75,000 basic a month but every penny was going straight to loan repayments. He was having to live on bonuses and extras.”

Behaviour & practices that precede their commercial downfall often include buying depreciating assets (like jewellery or cars); gambling; giving money away to family & friends; poor tax compliance during peak earning periods and attracting the council of untrustworthy agents, advisers & assorted hangers on. Divorce rates soar in retirement. This means ex-players can lose 50% of their net worth whilst having relatively little earning power left.

Kenny Samson – who played 86 times for England – is penniless, homeless & an alcoholic. He made all of the classic mistakes that characterize football’s financial horror story.

English Football’s Financial Bubble Has Its Roots in the Globalization of Talent

When Kevin Keegan joined Liverpool in May 1971 he was offered £45 per week in wages. Keegan’s basic wage at Scunthorpe had been £30 a week, with an £8 win bonus and a £4 draw bonus. Keegan settled on a starting wage of £50 a week at Liverpool. Appearance money and bonuses added £80 a week to that basic wage, for £130 a week. That’s around £1,797.60 in today’s terms.

The ‘new wave’ of foreign players from the 1978-79 season brought with it accelerating wage inflation. In 1961 the average wage in England’s top division was £20. Because the UK only adopted the minimum wage in the late 1990s I’ll use the American minimum wage of the time for comparison purposes. £20 in 1961 was about $56.10 which was 48.78 hours working at the minimum wage of the time of $1.15. Thus, essentially, the average top flight footballer in 1961 was working for (more or less) minimum wage (by the US standard of the term at the time anyway).

By 1971 it had grown to £77 or $184.29 at the time. That’s 115.18 hours working at the minimum wage of the time of $1.60. So life was becoming less subsistence level & more comfortable if far from ultra-lucrative by the dawn of the 1970s.

By 1981 (after the ‘new wave’ of post 1978 imports) it had jumped to £660 or $1,576.05. That’s 470.46 hours working at the minimum wage of the time of $3.35. That’s around 12 times the rate of pay of a minimum wage worker who worked 40 hours per week. Had the relative earning power of top flight English footballers froze at that 1981 level they’d be on around £3,152.08 per week today. Good money, very good money – but not banging Brazilian cocktail waitresses 4 at a time money yet either. Average Premiership wages today are over 13 times more than what that 1981 relative level model would have predicted. The most recent known figures (from 2013-2014) show that the average Premiership footballer’s wage is £43,717-a-week. That’s 6,524.92 hours working at the UK minimum wage for person’s over 21 (which footballer’s aren’t always) of £6.70. Assuming a 40 hour work week the average Premiership player thus makes around 163 times more than a minimum wage worker does.

Foreign professionals were essentially barred from English football between 1931 and 1978. The only foreigners allowed were either amateurs, students, those with Commonwealth ties, POWs or those who arrived in Britain for other reasons and got resident status. The European Community lobbied for & achieved in getting this effective ban lifted in 1978. Ossie Ardiles & Ricky Villa were among the very first of many more foreign imports to follow. Trevor Francis became England’s first £1m transfer on 9 February 1979 when he joined Nottingham Forest. The previous record transfer fee of £500,000 was paid by West Bromwich Albion to Middlesbrough in December 1978 for David Mills.

The difference between footballers of the 1960s, 1970s & 1980s & now is that in previous years they could earn enough money to cover their living expenses & perhaps invest in modest businesses – pubs, plumbers & the ilk – not so much that they lost all respect for the concept of money. Combine that with the lack of financial education almost universal among pro footballers who’ve dedicated all of their young lives to one thing – being good at football – and you create a climate where financial disaster is inevitable in a great many cases.

The percentage of revenue spent by Premiership clubs on wages currently sits at 59%, incredibly, its lowest level since the late 1990s. A figure of 65-67% has been more commonplace during the last decade. The rush to make it to the big table of the Premiership is proving to be a financially strapping one too with Championship clubs spending more than 100% of their revenue on wages in 2013-2014. In League One the ratio stands at 84% & in League Two it is 74%. If footballer’s who squander great fortunes are labelled idiots is it any wonder considering the business mind’s that surround them from an early & impressionable age onward?

Yet the sheer thirst for the sport from devoted fans means that 2013-2014 saw record revenues of £3.26 billion for Premiership football clubs as a whole. The Championship managed Championship £491m or 15.1% of what the league above it managed. Match day revenue now makes up less than 20% of total revenue. Well over 50% of Premier League club revenues comes from broadcasting rights – £1.76 billion per season. Indeed no club in the least last season earned less than £64,800,000 in direct payments from the Premier League alone.

The total net debt of all Championship sides is more than double what the whole league earned in 2013-2014. The only club in The Championship in a net funds position by mid-2014 was Blackpool who also have the lowest wages to revenue ratio in the league of ‘just’ 47%. If football as a whole in England were to face financial meltdown it is probable that The Championship could well the event’s Ground Zero. Incredibly, the second best league in England has the world’s 8th largest wage bill – over £500 million per season. Remember the entire second tier of English football only made £491 million in revenue in 2013-2014.

Promoted clubs who are relegated immediately from the Premier League back down to the Championship won’t get full parachute payments from 2016-17 onward. £64m per season will be split between relegated clubs over three years instead of four. Clubs who get relegated immediately will only get 2 years worth of payments, not 3.

Parachute payments, though, should increase in 2016-17 when the new TV rights deal takes effect. Relegated clubs will get 55% of the equal share of broadcast revenue paid to Premier League clubs in the first year after relegation, 45% in year two and 20% in year three. Clubs relegated immediately simply won’t get the third payment. Championship clubs currently get given £2.3m a season; League One clubs £360,000 a season and League Two clubs £240,000 in so-called Solidarity Payments from the Premier League. This means that out of that £491 million in total Championship revenue only £491m-£64m-£52.9m=£374.1m is actually earned – the other £116.9 million is merely accepted as a form of charity.

Could you imagine giving £116,900 every year to a company which makes £374,100 but spends over £500,000 on wages alone? That’s essentially what the Premier League is doing.

Wage hyper inflation has been allowed to run a muck in a climate of hyper competitiveness for the top talent – at any price. The competition, though, just to get to the big stage of the Premier League is probably the one that will lead to the next major insolvency in English football. On the face of it Chester City F.C.; Scarborough F.C. & Halifax Town A.F.C. type extinctions seem likely to increase not decrease over the next decade. I believe that the ‘parachute payment’ hikes have merely papered the cracks in the far more systemically disturbed phenomenon that is football finances in England in the 21st century. There were more clubs entering Administration in the first decade of the new Millennium (32) than than did so in the 1980s (4) & 1990s (15) combined.

Lost among the glitz & glamour of the Premier League are the real world consequences for creditors like the one’s Portsmouth owed £59,458,603 to & due to financial irresponsibility simply had no way of repaying.

Clubs Entering Administration By Decade

1980s – Charlton Athletic; Middlesbrough; Tranmere Rovers; Newport County
1990s – Walsall; Northampton Town; Kettering Town; Aldershot; Maidstone; Hartlepool United; Barnet; Exeter; Gillingham; Doncaster Rovers; Millwall; Bournemouth; Crystal Palace; Chester City; Portsmouth
2000s – Hull City; Queens Park Rangers; Halifax Town; Bradford City; Notts County; Barnsley; Leicester City;
Port Vale; York City; Derby County; Ipswich Town; Wimbledon; Darlington; Bradford City; Wrexham;
Cambridge United; Rotherham United; Crawley Town; Boston United; Leeds United; Luton Town; Bournemouth; Rotherham United; Halifax Town; Darlington;  Southampton; Stockport County; Chester City ; Northwich Victoria; Farsley Celtic; Salisbury City; Weymouth
2010s – Crystal Palace; Portsmouth; Plymouth Argyle; Rushden and Diamonds; Darlington; Portsmouth;
Port Vale; Coventry City; Aldershot Town (yes Portsmouth entered Administration on two separate occasions thus far this decade)

Money & football need not necessarily be a toxic mix. Lionel Messi used his status as a global icon to raise as much as $5,000,000 for Japanese tsunami relief by having a golden cast made of his foot & sold at charity auction. UEFA Financial Fair Play regulations are a move in the right direction – although vulnerable to sneaky accounting practices fueled by the core hyper-competitiveness that defines football in the 21st century.