Although the acute problems relating to the finances of football clubs are not unique to Yorkshire, our region appears to have been particularly badly hit. John Givens reports
WHERE DID IT ALL GO WRONG?
Although the acute problems relating to the finances of football clubs are not unique to Yorkshire, our region appears to have been particularly badly hit. John Givens reports
If the saying "what a difference a year can make" carries any significance in the rollercoaster industry that is British football, it can be no better used than to reflect the sentiment that must be swirling around the Leeds United boardroom like a Yorkshire Moors gale.
Just 12 months ago Leeds, under the highly respected guidance of manager David O'Leary and chairman Peter Ridsdale, were playing Champions League football and still in with a genuine shout of honours at the top end of the Premier League.
The already strong and expensively assembled playing squad had been further boosted by the arrival of England striker Robbie Fowler in an £311m move from Liverpool and everything pointed to a bright, trophy-filled future for the Elland Road club.
But an unexpected close-season parting of the ways between Leeds and O'Leary, following a falling out with his previously fiercely loyal chairman, and the controversial but profitable sale of England defender Rio Ferdinand to bitter rivals Manchester United for £330m, set the club off in a new direction which has resulted in it being forced by its bankers to offload some of its best players in an attempt to reduce a debt estimated at £385m.
Republic of Ireland striker Robbie Keane was the first player to leave Elland Road as new boss Terry Venables quickly realised the extent of the club's financial plight.
The World Cup star was offloaded to Tottenham Hotspur in a £35m summer deal, just weeks after Leeds had accepted a £37m offer for the player from Sunderland, which Keane himself turned down. But the return represented a massive loss on the £312m Leeds paid Inter Milan for the Irishman's services in 2000.
And then, with the transfer window reopened for the month of January, Venables was happy to see the back of Olivier Dacourt - with whom he had a rocky relationship - who was shipped off on loan to Italian club Roma, with the view to a permanent deal being struck in the summer.
But former England, Spurs and Barcelona boss Venables was not so happy that he had to wave goodbye to Fowler, who left the club for Manchester City for a fee said to be around £36m - representing a £35m loss on a player signed just months before.
And worse was to come for Leeds fans, with the sale on the last day of the January transfer deadline of gifted centre-back Jonathan Woodgate to Newcastle for £310m. The sale represented good business for Leeds, since Woodgate came through the Elland Road club's youth ranks, and effectively cost nothing.
But while the club's bankers breathed a sigh of relief as another £310m was wiped off its debt, the supporters protested furiously at the loss of the England player, calling for Ridsdale's head, and Venables publicly stated that he was considering his position after his pleas to keep Woodgate in West Yorkshire went unheard.
It is widely accepted in the British game that events on and off the pitch at Elland Road are the highest profile example of the new challenges facing football and a clear indication that the big-spending days of the last five years have come to an abrupt end.
But although extortionate transfer fees, spiralling player wage demands and ever-rising agents' commission are blamed for the financial crisis facing clubs, some experts say that the problems are short term, and that the revenue streams at the top end of the game - namely among the Premier League clubs - are as healthy as ever.
Paul Rawnsley, a sports business consultant with Deloitte & Touche in Manchester, is the co-author of the firm's annual report on the state of football in Britain. He says that, while the general view is that the game is in financial crisis at the moment, there is no reason why that should be the case among the country's leading clubs.
Rawnsley says: "There is a lot of doom and gloom about the game of football being written and broadcast at the moment, but that is not a picture I subscribe to. "While there is a need to be sympathetic with the problems being faced by Nationwide League sides after the collapse of the ITV Digital deal last year, Premiership football is still in a very healthy state.
"If you look at occupancy rates at the Premiership grounds, they are running at between 95 and 100 per cent and any industry that is pulling in those sort of figures must be in good shape."
Rawnsley says that the negative press is largely the result of the growing spotlight on players' earnings. "Players' wages continue to make the headlines and generate publicity day in, day out, but if clubs can afford to pay the sort of salaries that they are, then that shouldn't be an issue.
"I think sentiment also plays a big part in the image of the game and the collapse of ITV Digital hasn't helped on that front.
"But, when you look at turnover and profitability of most of the teams in the Premiership, the story is a very positive one, and the Premier League continues to be widely viewed as the financial champion of European football and fares better than all the other leagues."
He acknowledges that the scenario is very different outside the top flight, where many of Yorkshire's Nationwide League clubs - among them Bradford, Barnsley and York - have had to go into administration to deal with their worsening financial plight.
He says: "Premier League clubs have generally got the income and expenditure equation right, but further down the balance is not being maintained since the collapse of ITV Digital and the growing number of clubs either going into administration, or threatening to, proves that.
"With many first, second and third division clubs, restructuring is taking place to bring spending into line with revenues, and things like salary caps are being introduced, which is to be welcomed."
Rawnsley also says that the business managers of struggling Premier League clubs and those teams striving for promotion at the top end of Division One are right to be aware of the huge financial implications of relegation and promotion.
He says: "At the end of the 2002 season, the estimated worth to the three teams promoted from the First Division - West Brom, Birmingham City and Manchester City - in terms of extra revenue was £317m.
"Ipswich, Leicester and Derby, the three teams relegated from the Premier League, saw their revenues fall by at least £310m, and it would be £35m or £36m more if it wasn't for the parachute TV payment which is given to clubs for the first two seasons after they drop out of the top league."
Rawnsley's observations are backed up by a report from the credit reporting company checkSURE, which shows that First Division clubs are 13 times more likely to suffer a "potentially terminal financial crisis" than teams in the Premiership.
While First Division clubs have a one in 10 chance of collapse, Premiership clubs have just a one in a hundred chance of going to the wall - the same risk that faces most of the firms in the FTSE 100 index.
Oliver Butler, editor of Soccer Investor, the football finance publication, says that the collapse of ITV Digital has had a knock-on effect on the top clubs' finances, and that, in conjunction with the introduction of the controversial transfer window, is why the game is in the doldrums.
"The loss of the ITV Digital revenue was a big blow for the game generally and has helped to spread uncertainty, and the transfer window has effectively restricted clubs' trading opportunities and forced clubs to be more circumspect in their transfer activities," he says.
But he predicts a gradual return to financial health for most of the clubs that make up the English leagues. "Clubs will be more sensible when handing out contracts and the likelihood is that players will have to get used to earning less as a basic salary,and having a larger percentage of their earnings based on success."
The views of an ex-pro
Former Leeds and England star Tony Dorigo says the situation facing his old club is "very concerning" but that pointing a finger at individuals is not the right way to go about solving the Elland Road club's problems.
The Australian-born full back, who clocked up more than 650 appearances in a career that also saw him play for Chelsea, Aston Villa, Derby, Stoke and Torino in Italy, says that everyone was happy to back Peter Ridsdale and the Leeds United board when everything was going well just over 12 months ago.
"None of us were complaining when Leeds were bringing in the likes of Rio Ferdinand, Robbie Fowler and Robbie Keane, and European football and challenging for silverware was taken as read.
"At that time everyone seemed happy to back the people in control of the club and I think that everyone should now focus on solving the current problems and coming out the other end as a stronger club."
Dorigo, who now runs a lifestyle management company called The 1 Club, says that football needs to control costs. "Expenses in the game - particularly in the Premiership have gone through the roof and these need to be curbed," he says.
"While I do not agree with trying to renegotiate players' wages mid-contract, I do see the need for wages to drop once a player is out of contract. A system of salary capping - where players earn more of their income through success on the pitch - is inevitable."
Post-mortem time
Former Scotland, Newcastle, Bradford and Barnsley star John Hendrie has strong views as to why football in the UK is facing up to its biggest financial challenge for decades.
Now working as a consultant to Leeds-based sports law firm Nelson & Co, he is - in conjunction with the company's sports lawyer, Stephen Lownsborough - the author of a report which highlights the historic growth of football in Britain and the root causes of the game's current plight.
Hendrie and Lownsborough claim that the balance of power has shifted remarkably in the last 40 to 50 years, from a time when club owners were all-powerful and running profitable ventures, to the current day when highly-paid players, overly-ambitious clubs and expensive agents rule the roost.
The report says: "With the commercialism in the game came player representatives and agents, who increased the power of the players and created their own niche."
The report says the introduction of the controversial Bosman ruling - which allows a player to move to another club at the end of his contract without a fee being paid to his old club - has had a major effect on the game as it is today:
"Following the Bosman ruling decision in the mid-1990s, freedom of contract gave the players more power and placed the clubs in a weaker position in terms of salaries and salary demands from players' agents and other external sources. With the advent of commercialism and the substantial investment of BSkyB into football, significant amounts of revenue came into the game and particularly to the premiership clubs, therefore creating an artificial financial status and power which escalated transfer fees and players' salaries to unprecedented levels.
"In addition players' agents and other intermediaries sought financial gain in the market of buying, selling and transferring players across the globe. Greed became the name of the game at the expense of the clubs who were under pressure to pay high transfer fees and salaries to attract the best players. As a consequence wages spiralled out of control."
Hendrie and Lownsborough see this as a key influence on the game, giving the top clubs a boost and forcing others to try to compete.
"Consequently, clubs such as Leeds United, Newcastle United and Chelsea gambled with their future by funding transfer fees by relying on huge bank loans and anticipated income from TV and other commercial avenues or on secured long-term loans based on projected income and valuations - a classic case of spending money before it was in the bank."
The report argues that it was the inability of club chairmen to foresee that the gravy train could come off the rails that is causing the financial problems facing many clubs today.
"As a consequence of the income to the Premiership clubs and the significant role played by Sky TV in the Premiership, ITV Digital became substantial investors in the Nationwide League in respect of television rights and control.
"The ITV Digital package was found to be substantially higher than the true market value, the result of which was commercial misjudgement as to the value of the game from a TV commercial point of view and the change in public attitude to saturation viewing of football on TV."
And the problems are not just in the boardrooms of Premiership clubs
"The Nationwide League clubs and their chairmen anticipated incomes which did not materialise, paying players significant salaries and forking out for substantial transfer fees.
"Before the collapse of ITV, clubs in the lower reaches of the league were already having difficulty balancing the books which consequently meant that several went into administration or receivership as a result of bad management and financial exposure, before the collapse of ITV Digital.
"Many club chairmen have a background of success in business but proved to be uncommercial and poor administrators of football clubs and financial control, due to the pressures in the game to be successful. Upon the collapse of ITV Digital those clubs that had over spent and mis-managed the business and financial position became immediately exposed with the result that clubs such as Bradford City, Barnsley, York City, Lincoln City and Halifax Town went into administration and others - such as Huddersfield Town - got into serious financial difficulty."
The problem was simply spending money that wasn't there.
"The demise of the game and the football business was as a pure result of spending more money than the income received - a cardinal sin for any business, no matter how large or how small.
"The problems were compounded by the revision of the transfer system - only two transfer windows per year - and the collapse of player values in the transfer market, wiping off millions of pounds of investment values overnight."
The report says the current plight of British football could be solved in a number of ways. These include investing in youth academies as an alternative to expensive foreign players, reducing some players to part-time status, and establishing a north/south division split which would mean savings on travel and other costs for clubs
Barnsley blues
Matt Dunham and Charles Escott, partners in Leeds-based accountancy firm RSM Robson Rhodes, were called in last September to sort out the financial affairs at Barnsley FC after its directors recognised the need for urgent help in stablilising the sinking South Yorkshire outfit.
Dunham says: "The club already owed the previous month's PAYE and VAT liabilities, and couldn't afford the players' wages, so some urgent action was needed.
It was a difficult job, continues Denham. "Around £3650,000 was owed to the Inland Revenue and the Customs & Excise, and another £3200,000 to £3300,000 to other creditors.
"However, the wage bill was running at between £3400,000 and £3420,000 a month - mainly players' wages - but the monthly income at Barnsley was only about £3200,000."
He adds: "The PFA loaned the club £3200,000 on an interest-free basis and the directors put in another loan of £390,000, which combined helped to prop the club up.
"We tried to sell players, but because no-one had any money in the Nationwide League after the collapse of ITV Digital, we didn't have a single serious enquiry. But we did manage to negotiate a pay deferral with the players."
Barnsley was sold in December to the local mayor and businessman Peter Doyle for £32.85m, who also took on board some of the liabilities, including the pay deferral and the two loans made by the PFA and the previous directors.
Dunham expects the new club - Barnsley 2002 Limited - to survive, although he also expects that it will take "two or three seasons and as much as £37m to turn the club around."
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