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ОглавлениеTHE WORST BUSINESS IN THE WORLD: WHY FOOTBALL CLUBS HAVEN’T MADE MONEY
A man we know once tried to do business with a revered institution of English football. ‘I can do business with stupid people,’ he said afterwards, ‘and I can do business with crooks. But I can’t do business with stupid people who want to be crooks.’
It was a decent summary of the football business, if you can call football a business. People often do. William McGregor, the Scottish draper who founded the English Football League in 1888, was probably the first person to describe football as ‘big business’, but the phrase has since become one of the game’s great clichés. In fact, McGregor was wrong. For almost all the game’s history, football was neither big business nor good business. It arguably wasn’t even business at all. But that may now be changing. For the first time ever, the world’s biggest clubs are starting to turn into decent-sized and reasonably well-run businesses.
‘BIG BUSINESS’
Few people have heard of a British company called BBA Aviation. It started out in 1879 making conveyor belts in Dundee, but over time it morphed into a supplier to the aeroplane industry. Mostly it now helps fuel, clean, repair and maintain planes. This is pretty unglamorous work, and BBA is an unglamorous company. It’s in the FTSE 250, meaning that it ranks as one of the 250 biggest companies on the London stock market. In 2016 it had revenues of £1.59 billion, and operating profits of £123 million. But BBA, whose headquarters are on a quiet street in Mayfair, is not big business. For comparison: in 2016 the biggest company on the London market, Royal Dutch Shell, had revenues that were 106 times larger.
But compared with any football club, BBA is a behemoth. Manchester United’s revenues in 2015/2016 were £581.2 million. That’s a tidy sum, the highest any English club has ever achieved. However, it’s just over a third of BBA’s revenues, and 0.3 per cent of Shell’s. To put it very starkly: in terms of revenue, Manchester United would still only be the 74th largest company in Finland. (Just ahead of them on the Finnish list is something called Raha-automaattiyhdistys.)
Because hardly any clubs are quoted on the stock market anymore, it is hard to work out their value. But we can certainly say that not even Real Madrid or Barcelona would get anywhere near the S&P 500.
And if we ranked clubs by their profits, the results would be embarrassing. Most clubs make losses or meagre profits, and fail to pay any dividends to their shareholders. They are chasing glory, not riches.
Whichever way you measure it, no football club is a big business. Even the world’s biggest clubs are dwarfed by BBA. As for all the rest, the author Alex Fynn noted in the 1990s that the average English Premier League club had about the same revenue as a British supermarket – not a chain of supermarkets, but one single large Tesco store. True, Premier League clubs have grown a lot since then. However, Fynn’s comparison still remains relevant. UEFA’s Club Licensing Benchmarking Report for the financial year 2016 stated that there were 48 clubs in Europe that had annual revenues above €100 million. Well, Tesco’s 45 superstores in the UK have average annual sales of around the €100 million mark. Europe’s ten biggest clubs probably have about the same revenues as the world’s ten largest hypermarkets, but below that clubs are typically much smaller than supermarkets.
A good way to visualize the size of the football industry is to visit the headquarters of UEFA, the European football association, in the Swiss town of Nyon. The building has a lovely view of Lake Geneva, but it looks like the offices of a small insurance company. Football is small business.
This feels like a contradiction. We all know that football is huge. Some of the most famous people on earth are footballers, and the most watched television programme in history is generally the most recent World Cup final. Nonetheless, football clubs are puny businesses. This is partly a problem of what economists call appropriability: so far football clubs haven’t been able to make money out of (haven’t appropriated) more than a tiny share of our love of football.
It may be that season tickets are expensive and replica shirts overpriced, but buying these things once a year represents the extravagant extreme of football fanaticism. Most football is watched not from £1,500 seats in the stadium but on TV – sometimes at the price of a subscription, often at the price of watching a few commercials, or for the price of a couple of beers in a bar. Compare the cost of watching a game in a bar with the cost of eating out or watching a movie, let alone going on vacation.
Worse still, football generates little income from reruns of matches. And watching football (even on TV) is only a tiny part of the fan’s engagement with the game. There are internet sites to be trawled and a growing array of video games to keep up with. Then there is the football banter that passes time at the dinner table, the bus stop and above all on social media. All this entertainment is made possible by football clubs, but they cannot appropriate a penny of the value we attach to it. Chelsea cannot charge us for talking or reading or thinking about Chelsea. As the former Dutch international Demy de Zeeuw said, ‘There are complaints that we [players] earn too much, but the whole world earns money from your success as a player: newspapers, television, companies.’ In fact, the world earns more from football than the football industry itself does.
BAD BUSINESS
Football is not merely a small business. It has also historically been a bad one. Until very recently, and to some degree still today, anyone who spent any time inside football soon discovered that just as oil was part of the oil business, stupidity was part of the football business.
This became obvious when people in football encountered people in other industries. Generally the football people got exploited because people in other industries understood business better. In 1997 Peter Kenyon, then chief executive of the sportswear company Umbro, invited a few guests to watch a European game at Chelsea, the club he would end up running a few years later. After the game, Kenyon took his guests out for dinner. Over curry he reminisced about how the sportswear industry used to treat football clubs. Before the 1980s, he said, big English clubs paid companies like Umbro to supply their clothing. It was obviously great advertising for the gear makers to have some of England’s best players running around in their clothes, but the clubs had not yet figured that out. And so sportswear companies used to get paid to advertise themselves.
In fact, when England hosted the World Cup in 1966, it hoped merely that its usual supplier would give it a discount on shoes and shirts, ‘particularly in the opening ceremony … with the Queen present,’ writes Mihir Bose in The Spirit of the Game. As it happened, the English did even better: Umbro offered to supply the team for free. The company must have been pleased when England won the tournament.
Ricky George saw the ignorance of football in those days from point-blank range. In 1972, when George scored the famous goal for little semi-professional Hereford that knocked Newcastle out of the FA Cup, he was working for Adidas as a ‘football PR’. His job was to represent Adidas to England players, former world champions like Bobby Moore, Bobby Charlton and Gordon Banks. There was little need to persuade them to choose Adidas. Most of them wore the three stripes for free anyway. George says, ‘It is quite a fascinating thing if you compare it with today. There were no great sponsorship deals going on. All that happened is that you would give the players boots. But even then, at the beginning of every season the clubs would go to their local sports retailer and just buy twenty, thirty pairs of boots and hand them out. For a company like Adidas, it was the cheapest type of PR you could imagine.’
Only on special occasions did George have to pay players. ‘When it came to a big international, and the game was going to be televised, my job was to go to the team hotel, hang around there, make myself known, and a couple of hours before the game I would go into the players’ rooms and paint the white stripes on their boots with luminous paint so it was more visible. My bosses used to be keenly watching the television to make sure the stripes were visible, and if they weren’t I would be in for bollocking.’
For this service, an England player would receive £75 per match – not a princely sum even in 1972. George recalls, ‘Bobby [Moore], the most charming of people, didn’t take the money on the day of the game. He just used to say to me, “Let it build up for a few games, and I’ll ring you when I need it.” And that’s what he did.’ Then the most famous defender of the era would pocket a cumulative few hundred pounds for having advertised an international brand to a cumulative audience of tens of millions.
Only in the late 1980s did English football clubs discover that people were willing to buy replicas of their team shirts. That made it plain even to them that their gear must have some value. They had already stopped paying sportswear companies for the stuff; now they started to charge them.
Over time, football clubs have found new ways of making money. However, the ideas almost never came from the clubs themselves. Whether it was branded clothing, or the gambling pools, or television, it was usually people in other industries who first saw there might be profits to be made. It was Rupert Murdoch who went to English clubs and suggested putting them on satellite TV; the clubs would never have thought of going to him. In fact, the clubs often fought against new moneymaking schemes. Until 1982 they refused to allow any league games to be shown live on TV, fearing that it might deter fans from coming to the stadium. Clubs couldn’t grasp that games on television meant both free money and free advertising. There is now a good deal of research into the question of how many fans are lost when a game is shown on TV. Almost all the evidence shows that the number is tiny, and that the gate revenue that would be lost is usually well below the amount that would be made from selling extra matches for television coverage.
It took clubs a long time to realize just how much football was worth to television. When Greg Dyke was chairman of the UK’s ITV Sport in the 1980s, he offered five big clubs £1 million each for the TV rights for English football. In 2013, when Dyke was chairman of the FA, he fondly recalled: ‘It’s funny now, when you look at the money that’s involved: these chairmen had eyes bulging. They couldn’t believe it.’ In total, Dyke bought the entire TV rights for English professional football for £12 million a year. Soon afterwards, he went up to Nottingham to try to talk Brian Clough, Forest’s then manager, into coming back on TV as a pundit. When Dyke arrived at the club, Clough came up to him and said: ‘Thank you. I want to shake your hand, Mr Dyke, because you’re the first person that’s given football what it’s due: twelve million quid.’
In 1992 Murdoch began paying about £60 million a season for the television rights to the new Premier League. As of 2018 the league is getting more than 25 times as much a season from British TV companies alone. ‘I’ve been screwed by television,’ admitted Sir John Hall, the then Newcastle chairman, one rowdy night at Trinity College Dublin in 1995. ‘But I’ll tell you one thing: I won’t be screwed again.’
Or take the renovation of English stadiums in the early 1990s. It was an obvious business idea. Supermarkets don’t receive customers in sheds built in the Victorian era and gone to seed since. They are forever renovating their stores. Yet football clubs never seem to have thought of spending money on their grounds until the Taylor Report of 1990 forced them to. They did up their stadiums, and bingo: more customers came.
All this proves how much like consumers football fans are. It’s not just that they come running when a team does well (although they do). But in addition, it seems that football can quickly become popular across a whole country. All teams then benefit, but particularly those that build nice new stadiums where spectators feel comfortable and safe. That would explain why the three English clubs whose crowds grew fastest over the 1990s were Manchester United, Sunderland and Newcastle. Later, when Arsenal moved from Highbury to the much larger Emirates, the new stadium filled up despite the fact that the club stopped winning trophies. In other leagues, clubs such as Juventus, Ajax and Celtic have also drawn big new crowds to their new grounds. There is such a close link between building a nice stadium and drawing more spectators that the traditional fans’ chant of ‘Where were you when you were shit?’ should be revised to ‘Where were you when your stadium was shit?’
Yet like almost all good business ideas in football, the Taylor Report was imposed on the game from outside. Football clubs are classic late adopters of new ideas. Several years after the internet emerged, Liverpool, a club with millions of fans around the world, still did not have a website. As we’ll see in Chapter 6, clubs were equally late onto social media. It’s no wonder that from 1992 to May 2008, even before the financial crisis struck, forty of England’s ninety-two professional clubs had been involved in insolvency proceedings, some of them more than once. The proportions have been even higher in Spanish football in recent years.
HOW THE TRIBE CHOOSES ITS CHIEFS
Rather than stack up endless examples of the historical dimness of football clubs, let’s take one contemporary case study: how clubs have traditionally hired the person they believe to be their key employee, the manager. Fans are still asking themselves how Steve McClaren ever got to be appointed England manager in 2006, but in fact it is unfair to single him out. The profusion of fantasy football leagues, in which office workers masquerade as coaches, indicates the widely held suspicion that any fool could do as well as the people who actually get the jobs. The incompetence of football managers may have something to do with the nonsensical and illegal methods by which they are typically recruited.
Football ‘is a sad business’, says Bjørn Johansson, who runs a headhunting firm in Zurich. Like his colleagues in headhunting, Johansson is never consulted by clubs seeking managers. Instead a club typically chooses its man using the following methods.
The New Manager Is Hired in a Mad Rush
In a panel at the International Football Arena conference in Zurich in 2006, Johansson said that in ‘normal’ business, ‘an average search process takes four to five months.’ In football, a club usually finds a coach within a couple of days of sacking his predecessor. ‘Hesitation is regarded as weak leadership,’ explained another panellist in Zurich, Ilja Kaenzig, then general manager of the German club Hannover 96. Brian Barwick, the English Football Association’s former chief executive, has noted that McClaren’s recruitment ‘took from beginning to end nine weeks’, yet the media accused the FA of being ‘sluggish’. If only it had been more sluggish. Succession planning, common in business, is almost unheard of in football.
One rare slow hire became perhaps the most inspired choice in the game’s modern history: Arsenal’s appointment of Arsène Wenger in 1996. The Frenchman, working in Japan, was not free immediately. Arsenal waited for him, operating under caretaker managers for weeks, and was inevitably accused of being sluggish. Similarly, in 1990 Manchester United’s chairman, Martin Edwards, was derided as sluggish when he refused to sack his losing manager, Alex Ferguson. Edwards thought that in the long term, Ferguson might improve.
The New Manager Is Interviewed Only Very Cursorily
In ‘normal’ business, a wannabe chief executive writes a business plan, gives a presentation and undergoes several interviews. In football, a club rings an agent and offers the job.
The New Manager Is Always a Man
For over a century, it was unthinkable that the manager be a woman, as stupid fans and players would object. Only in 2014 did Clermont in France’s Ligue 2 finally break that taboo, appointing Corinne Diacre. ‘Hiring a woman as a coach has not changed my daily life,’ Clermont’s president Claude Michy told Ben Lyttleton years later. ‘The sun still rises in the east. I don’t feel like I’m an innovator, just because I hired someone with the competence and the skills to do a job.’ In 2015 France Football magazine voted Diacre best coach in Ligue 2. In her first three seasons the team always finished higher in the table than its budget would have predicted. In August 2017 she was named coach of France’s women’s team.
But that was partly because no other team in male football – which, after all, is where the money is – seemed to want her. Almost all the world’s men’s football clubs still discriminate illegally against women.
In these clubs, the new manager is not only invariably male, but also almost always white, with a conservative haircut, aged between thirty-five and sixty, and a former professional player. Clubs know that if they choose someone with that profile, then even if the appointment turns out to be terrible they won’t be blamed too much, because at least they will have failed in the traditional way. As the old business saying went, ‘Nobody ever got fired for buying IBM.’
The idea is that there is something mystical about managing a team, something that only former players can truly understand. Naturally, former players like this idea. Once in the 1980s, when Kenny Dalglish was in his first spell managing Liverpool, a journalist at a press conference questioned one of his tactical decisions. Dalglish deadpanned, in his almost impenetrable Scots accent, ‘Who did you play for, then?’ The whole room laughed. Dalglish had come up with the killer retort: if you didn’t play, you couldn’t know.
A former chairman of a Premier League club told us that the managers he employed would often make that argument. The chairman (a rich businessman who hadn’t played) never knew how to respond. He hadn’t played, so if there really was some kind of mystical knowledge you gained from playing, he wouldn’t know. Usually he would back down.
‘Who did you play for, then?’ is best understood as a job protection scheme. Ex-players have used it to corner the market in managerial jobs.
But in truth, their argument never made sense. There is no evidence that having been a good player (or being white and of conservative appearance) is an advantage for a football manager. Way back in 1995 Stefan did a study of 209 managers in English football from 1974 to 1994, looking at which ones consistently finished higher in the league than their teams’ wage bills predicted. He reported:
I looked at each manager’s football career, first as a player (including number of games played, goals scored, position on the field, international appearances, number of clubs played for) and then as a manager (years of experience, number of clubs played for, and age while in management). Playing history provides almost no guide, except that defenders and goalkeepers in particular do not do well (most managers were midfielders, forwards are slightly more successful than average).
Dalglish finished at the top of Stefan’s sample of 209 managers, just ahead of John Duncan, Bob Paisley, George Curtis, Ken Furphy and Bill Shankly. (Clough wasn’t in the sample because no good financial data existed for his clubs, Derby County and Nottingham Forest, or else he’d have surely won. Stefan recently updated his study, and we’ll say more about his new findings in Chapter 8.)
Dalglish was a great player and an overperforming manager. However, Bobby Moore, another great player, was 193rd on the managers’ list. Taken overall, a good career as a player predicted neither success nor failure as a manager. The two jobs just didn’t seem to have much to do with each other. As Arrigo Sacchi, a terrible player turned great manager of Milan, phrased it, ‘You don’t need to have been a horse to be a jockey.’
A horse’s knowledge doesn’t help a jockey. Here is one player-turned-manager testifying anonymously in Football Management, an insightful book by Sue Bridgewater of Warwick Business School:
I got the job and on the first day I showed up and the secretary let me into my office, the manager’s office with a phone in, and I didn’t know where I was supposed to start. I knew about football, I could do the on-pitch things, but I had never worked in an office and I just sat there and I waited for something to happen but no one came in, so after a while I picked up the phone and rang my mum.
Even this man’s claim that ‘I knew about football, I could do the on-pitch things’ is dubious. Does Diego Maradona know more about the game than José Mourinho? Did Roy Keane’s knack for geeing up teammates on the field translate once he had become a jockey?
Playing and coaching are different skill sets. Mourinho, who barely ever kicked a ball for money, is match for match among the most successful coaches in football’s history. When Milan’s then coach Carlo Ancelotti noted his almost non-existent record as a player, the Portuguese replied, ‘I don’t see the connection. My dentist is the best in the world, and yet he’s never had a particularly bad toothache.’ Asked why failed players often become good coaches, Mourinho said, ‘More time to study.’ They also have to have provided some evidence that they are good coaches, because nobody is going to hire them based on their playing careers.
The problem with ex-pros may be precisely their experience. Having been steeped in the game for decades, they just know what to do: how to train, who to buy, how to talk to their players. They don’t need to investigate whether these inherited prejudices are in fact correct. Rare is the ex-pro who realizes, like Billy Beane at the Oakland A’s, that he needs to jettison what he learned along the way. Michael Lewis writes in Moneyball, ‘Billy had played pro ball, and regarded it as an experience he needed to overcome if he wanted to do his job well. “A reformed alcoholic,” is how he described himself.’ Even Ancelotti seems to have changed his mind about the usefulness of a playing career. Once a canny midfielder with Milan, and now a longstanding A-list coach, he told us in 2013: ‘Experience as a player can help you just in one situation: I can understand what the players are thinking. But the job is different. You have to study to be a manager.’
In the world’s most innovative football country, Germany, ex-players have now lost their monopoly on managerial jobs. On the German football federation’s annual training course to certify professional coaches, an average of 16 of the 24 places are reserved for people who didn’t play professionally. The head of the course, Frank Wormuth, told the Dutch online newspaper De Correspondent that although it helps to know ‘the smell of the stables’ in professional football, ‘that’s only one aspect of being a coach. How are you pedagogically, analytically, communicatively? Ex-pros often have less of an eye for that.’
Successful German coaches of recent times include Thomas Tuchel, who played eight games in the Second Bundesliga, Roger Schmidt, who was a manager in a car factory, and Julian Nagelsmann, who didn’t play a single professional game before becoming the successful coach of Hoffenheim aged twenty-eight. Nagelsmann’s career would have been unthinkable in all other major football countries. It’s their loss.
But even outside Germany, former great players like Roy Keane, Ruud Gullit, Marco van Basten, Tony Adams and Diego Maradona are no longer in demand as managers of serious clubs. This looks like another indication that football is becoming less stupid.
Immediate Availability
The new manager is appointed either because he is able to start work immediately (often as a result of having just been sacked), or because he has achieved good results over his career, or, failing that, because he achieved good results in the weeks preceding the appointment. McClaren became England manager only because his team, Middlesbrough, reached the UEFA Cup final in 2006 and avoided relegation just as the English Football Association was deciding who to pick. By the time Middlesbrough were thumped 4–0 by Sevilla in the final, McClaren already had the job.
The problem is that there is a lot randomness in results in the short term. The underlying patterns can only be identified once you let the law of large numbers do its work. Match results (like daily movements in share prices) are a random walk, and only after many observations can you start to see the trend. Consider the main candidates to manage England in 1996: Bryan Robson, Frank Clark, Gerry Francis and the eventual choice, Glenn Hoddle. Today none of them works as a manager, none had his last job in the Premier League and none will probably work that high again. They were in the frame in 1996 because they had had good results recently, had been good players and were English – another illegal consideration in hiring. Or think of the Football Association’s back-to-back appointments of the immediately available Englishmen Sam Allardyce and Gareth Southgate in 2016.
Star Power
The new manager is traditionally chosen not for his alleged managerial skills but because his name, appearance and skills at public relations are expected to impress the club’s fans, its players and the media. It was brave of Milan to appoint the unknown Sacchi, and Arsenal the unknown Wenger. Tony Adams, Arsenal’s then captain, doubted the obscure foreigner on first sight. In his autobiography, Addicted, the player recalls thinking, ‘What does this Frenchman know about football? He wears glasses and looks more like a schoolteacher. He’s not going to be as good as George. Does he even speak English properly?’
A manager must above all look like a manager. Clubs would rather use traditional methods to appoint incompetents than risk doing anything that looks odd.
Bad Staff
The most obvious reason football was such an incompetent business for so long is that football clubs tended to hire incompetent staff. The manager is only the start of it. Years ago one of us requested an interview with the chairman of an English club quoted on the stock market. The press officer asked me to send a fax (a 1980s technology revered by football clubs well into the twenty-first century). I sent it. She said she never got it. On request I sent three more faxes to different officials. She said none arrived. This is quite a common experience for football journalists. Because football clubs are the only businesses that get daily publicity without trying to, they treat journalists as humble supplicants instead of as unpaid marketers of the clubs’ brands. The media often retaliate by being mean. This is not very clever of the clubs, because almost all their fans follow them through the media rather than by going to the stadiums.
A month after all the faxes, I was granted permission to send my request by email. When I arrived at the club for the interview, I met the press officer. She was beautiful. Of course she was. Traditionally, football clubs recruited the women on their office staff for their looks, and the men because they played professional football or were somebody’s friend.
When Mino Raiola entered football as an agent in his early twenties, straight out of his family’s restaurant business, he ‘was not impressed at all’, he told us. ‘It’s a closed world, with a gigantic potential, and where a lot of money circulates, but it’s often managed by people of whom I think, “What the fuck?” It’s hard to understand that on the field there are people who have made it through sweat and tears, through a certain natural selection – but not at the top, in the boardroom. That’s very strange.
‘You have to have done something in the football world to get another job in the football world. The average level in the football world is low, and why is it low? Because we don’t want outsiders to influence and change or improve our football world.’
A clever person who has never played professional football can (after rigorous study) become a brain surgeon, but however long that person studies, he can never become coach of Ajax Amsterdam, marvels Raiola. ‘That’s ridiculous, isn’t it?’ When a football director’s job opens up, he notes, it’s rarely advertised publicly. Nor do many clubs or federations scour the world for the best possible candidate. ‘No,’ scoffs Raiola, ‘we’ll take someone from within our own ranks. Incest makes this world weak.’
This is all the more bizarre because it would be easy for football clubs and federations to recruit excellent executives. Professors at business schools report that many of their MBA students (who in the UK in 2017 paid between £16,000 and £73,000 a year in tuition fees) dream of working in football for a pitiful salary. Often the students beg clubs to let them work for free as summer interns. Clubs seldom want them (though here again, as the football business gradually gets clever, more MBAs are creeping in). If you work for a football club, your goal is generally to keep working there, not to be shown up by some overeducated young thing who has actually learned something about business.
In part this is because much of the traditionally working-class football industry distrusted education. In part, says Emmanuel Hembert of A. T. Kearney, it is because many clubs are dominated by a vain owner-manager: ‘Lots of them invested for ego reasons, which is never a good thing in business. They prefer not to have strong people around them, except the coach. They really pay low salaries.’ If you work for a football club as anything but a player or manager, you typically get paid in stardust.
Historically, only Manchester United recruited respected executives from normal industries (such as Peter Kenyon from Umbro). Only after about 2010 did most of the other biggest European clubs start to do so, too.
Baseball for a long time was just as incompetent. In Moneyball Lewis asked why, among baseball executives and scouts, ‘there really is no level of incompetence that won’t be tolerated’. He thought the main reason was ‘that baseball has structured itself less as a business than as a social club. … There are many ways to embarrass the Club, but being bad at your job isn’t one of them. The greatest offense a Club member can commit is not ineptitude but disloyalty.’ Club members – and this applies in football as much as in baseball – are selected for clubbability. Clever outsiders are not clubbable, because they talk funny, and go around pointing out the things that people inside the Club are doing wrong. ‘It wasn’t as simple as the unease of jocks in the presence of nerds,’ wrote Lewis – but that unease does have a lot to do with it.
The staff of football clubs traditionally tend not merely to be incompetent. They are also often novices. This is because staff turnover is rapid. Whenever a new owner arrives, he generally brings in his cronies. The departing staff rarely join a new club, because that is considered disloyal (Kenyon, an exception, was persecuted for moving from United to Chelsea), even though players change clubs all the time. So football executives are always having to reinvent the wheel.
Worse, the media and fans often make it impossible for clubs to take sensible decisions. They are always hassling the club to do something immediately. If the team loses three games, fans start chanting for the club to sack the coach or buy a new player, in short tear up the plans it might have made a month ago. Tony Fernandes, the Malaysian businessman who had run a tight ship at his airline AirAsia, couldn’t do the same after taking over QPR in 2011. ‘Two things are different from AirAsia,’ he told us in 2013. ‘One is I can control almost everything in AirAsia. You can do whatever you want in football, but it’s up to the eleven guys on the pitch at the end of the day, right? The second thing is, you have a very vocal bunch of shareholders – called fans. Everyone has an opinion. The plans get thrown out of the window when you start losing. The excitement you get when you win a football game is unbelievable. The downside is that when you lose you want to kill yourself.’
‘Consumer activism in this industry is extreme,’ agreed A. T. Kearney in its report ‘Playing for Profits’. Hembert says, ‘The business plan – as soon as you sign a player for £10 million, you blow up your business plan. Commercial employees have to fight for £100,000 of spending here or there, but then suddenly the club spends £10 million.’
Or more. Sven-Göran Eriksson once flew into Zurich to tell the International Football Arena a ‘good story’ about his time managing Lazio. ‘The chairman I had was very good,’ Eriksson recalled for an audience of mostly Swiss businessmen. ‘If I wanted a player, he would try to get that player. One day I phoned him up and I said: “Vieri.”’
Christian Vieri was then playing for Atlético Madrid. Eriksson and Lazio’s chairman, Sergio Cragnotti, flew to Spain to bid for him. Atlético told them Vieri would cost 50 billion Italian lire. At the time, in 1998, that was about £17 million. Eriksson reminisced, ‘That was the biggest sum in the world. No player had been involved for that.’ He said the talks then went more or less as follows:
Cragnotti: That’s a lot of money.
Eriksson: I know.
At this point Atlético mentioned that it might accept some Lazio players in partial payment for Vieri.
Cragnotti: Can we do that?
Eriksson: No, we can’t give away these players.
Cragnotti: What shall we do then?
Eriksson: Buy him.
Cragnotti: Okay.
Eriksson recalled in Zurich: ‘He didn’t even try to pay 49. He just paid 50.’
Nine months after Vieri joined Lazio, Inter Milan wanted to buy him. Once again, Eriksson reported the conversation:
Cragnotti: What shall I ask for him?
Eriksson: Ask for double. Ask 100.
Cragnotti: I can’t do that.
Eriksson recalled: ‘So he asked 90. And he got 90. That’s good business.’ (Or the ultimate example of the greater-fool principle.)
Someone in the audience in Zurich asked Eriksson whether such behaviour was healthy. After all, Lazio ran out of money in 2002 when Cragnotti’s food company, Cirio, went belly-up. Cragnotti later spent time in prison, which even by the standards of Italian football was going a bit far.
Eriksson replied, ‘It’s not healthy. And if you see Lazio, it was not healthy. But we won the league. And we won the Cup Winners’ Cup. We won everything.’
The point is that football clubs, prompted by media and fans, have a tendency to make financially irrational decisions in an instant. They would like to think long term, but because they are in the news every day they have ended up fixating on the short term. As the British writer Arthur Hopcraft wrote in his book The Football Man in 1968, ‘It is the first characteristic of football that it is always urgent.’ Ferran Soriano, chief executive of Manchester City, advises, ‘Do not take decisions on a Monday’ (i.e. based on the weekend’s result). However, taking decisions on a Monday is the nature of professional football.
An executive with an American entertainment corporation tells a story about his long-arranged business meeting with Real Madrid. His company was hoping to build a relationship with the club. But on the day of the meeting, Madrid ritually sacked its manager. The usual chaos ensued. Two of the club officials scheduled to attend the meeting with the American executive did not show up.
Chris Anderson entered football specifically with the aim of making the game more thoughtful. Once a semi-professional goalkeeper in Germany, he became a professor of political science at Cornell University in the US, but his life changed in 2009 when his wife gave him a copy of Moneyball. Anderson read it open-mouthed. He began blogging about football data. Soon he was being asked to consult clubs. He wrote his book The Numbers Game, and in 2015 gave up his tenured job at Cornell in order to become managing director of Coventry City in League One. He lasted only eleven months at Coventry, but he came away with some insights into why clubs don’t think very hard. Anderson told the world-class Dutch sportswriter Michiel de Hoog that he hadn’t come across a single truly innovative club anywhere in football. A club could potentially use all the new knowledge from physiology, psychology, sports data, organizational science and so on, and come up with a completely different way of doing things, but, said Anderson, ‘No one has really taken it and run with it.’
Why not? Anderson identified various reasons:
1 ‘Time is the great luxury in football,’ he told De Hoog. Coventry often played two matches a week. The constant pressure dissuades clubs from trying anything new.
2 In Europe at least, football clubs can be relegated, which means financial disaster. Clubs in American sports leagues are free from that pressure, which is why you find innovators at some NBA teams such as the Houston Rockets and the Philadelphia 76ers.
3 If you do everything the same as all the other clubs, then you can’t be blamed or humiliated if things go wrong.
4 Most football clubs are packed with people who have always done things the old way. So everyone keeps doing the same things they have done for ever, even if those things have never worked particularly well.
5 A ‘masculine culture’ in the ‘working-class’ football industry encourages stubbornness and certainty, argues Anderson. He says that in recent years the game’s insiders, the gnarled old ex-players-turned-coaches, have recently become scared of losing their power to egg-headed data whizzes. That has made some of them even more stubborn.
Anderson concluded that the clubs with the most freedom to innovate were new clubs with no existing culture, such as RB Leipzig, which was founded in 2009, and eight years later finished second in the Bundesliga. But in the rest of the industry, he said, two basic rules applied: ‘When you’re doing well, why change? And when you’re doing badly, why change?’
NOT BUSINESSES AT ALL
When businesspeople looked at football, they were often astonished at how unbusinesslike the clubs were. Every now and then one of them would take over a club and promises to run it ‘like a business’. Alan Sugar, who made his money in computers, became chairman of Spurs in 1991. His brilliant wheeze was to make the club live within its means. Never would he fork out 50 billion lire for a Vieri. He was dismayed to discover that managers regularly stole from their clubs in the form of bungs (bribes, mostly paid by agents who wanted the manager to make a particular transfer). After Newcastle bought Alan Shearer for £15 million in 1996, Sugar remarked, ‘I’ve slapped myself around the face a couple of times, but I still can’t believe it.’
He more or less kept his word. In the ten years that he ran Spurs, the team lived within its means. But most of the fans hated it. The only thing Spurs won in that decade was a solitary League Cup. It spent most of its time in mid-table of the Premier League, falling far behind its neighbour Arsenal. Nor did it even make much money: about £2 million a year in profits in Sugar’s first six years, which was much less than Arsenal and not very good for a company its size. Sugar’s Spurs disappointed both on and off the field, and its experience also illustrated a paradox: when businesspeople try to run a football club as a business, not only does the football suffer, but so does the business.
Other businessmen have pursued a different strategy than Sugar’s. They assumed that if they could get their clubs to win trophies, profits would inevitably follow. But they too turned out to be wrong. Even the best teams seldom generated profits. We plotted the league positions and profits of all the clubs that played in the Premier League from 1997 to the 2015–2016 season, as shown opposite.
The graph shows how spectacularly unprofitable the football business has been. Each point on the chart represents the combination of profit and position for a club in a particular year. One obvious point to note is that most of the dots fall below zero on the profit axis: these clubs were making losses. But the graph also shows that there was barely any connection between league position and making money. Although there is some suggestion that a few clubs at the top of the table made big profits, the graph also shows that some clubs in these positions made big losses. Manchester United’s consistent profitability is clearly the exception. In the thirty years before being taken over by the Glazer family in 2005, the club generated more than £250 million in pre-tax profits while also winning eight league titles. Indeed, other American owners might never have bothered buying into English football without United’s example.
Pre-tax profit/loss of Premier League clubs by league position, 1997–2016
For most English clubs, our graph shows that there was not even a connection between changing league position and changing profits. In 45 per cent of all cases, when a club changed its league position, its profits moved in the opposite direction: higher position, lower profits, or lower position, higher profits. Only 55 per cent of the time did profits and position move in the same direction. Had there been no correlation at all between winning and making profits, that figure would have been much the same, namely, 50 per cent. Clearly, winning games was not the route to making money. As Francisco Pérez Cutiño noted in an MBA thesis at Judge Business School in Cambridge, it’s not that winning matches can help a club make profits. Rather, the effect works the other way around: if a club finds new revenues, that can help it win matches.
For almost all of football’s history, it proved almost impossible to run a club like a solid, profit-making business. This is because there were always rival owners – the Cragnottis, the Abramoviches, or the long-time ruling family of Libya, the Gaddafis, who owned a chunk of Juventus – who didn’t care about profits and were free to spend whatever it took in the hope of winning trophies. All other club owners were forced to keep up with them. If one owner refused to pay large transfer fees and salaries, somebody else would, and that somebody else would get the best players and win trophies. The consequence is that the biggest slice of money that football makes has hitherto been handed over to the best players. As A. T. Kearney said, you could even argue that football clubs are nothing more than vessels for transporting football’s income to players. ‘The players are completely free to move [although as we will explain later, this is not quite true],’ explained Hembert. ‘They are a key factor in winning, and also in the ego, in pleasing the fans. And they all have pretty savvy agents who are able to maximize their bargaining power.’
This meant that even the cautious Sugar types could not make decent profits in football. In fact, because his team won fewer matches than its free-spending rivals, some fans deserted him. That ate further into his profits. From 1991 to 1998 average attendance in the Premier League rose 29 per cent, but Tottenham’s crowds fell 5 per cent.
‘I thought we could make it [QPR] profitable, definitely,’ Fernandes admitted to us. ‘I haven’t yet,’ he added, laughing. Even in the 2011–2012 season, when the club survived in the Premier League, it lost £22.6 million. The next season, when it kept buying players but got relegated regardless, it lost a lot more. ‘On the pitch it was just a disaster,’ said Fernandes. He mused: ‘Football has survived on benefactors. Shareholders coming in and pumping money in, and then the next sucker comes in and pumps money in.’ Did he consider himself a sucker, a benefactor, or a businessman in football? ‘Now I would define myself as a sucker,’ he replied. ‘And benefactor. And I hope I will become a benefactor-stroke-businessman.’ He hasn’t. By 2016 QPR, still stuck in the Championship, had debts of nearly £200 million – the fifth-highest of all the clubs in Europe, according to UEFA.
In fact, very few club owners in history have even aspired to act like businessmen. Stefan and the Spanish economist Pedro Garcia del Barrio (of the Universidad Internacional de Cataluña) studied the behaviour of Spanish and English clubs between 1993 and 2005 to see whether the clubs were chiefly pursuing profits off the field or victories on it.
If a club wanted to make profits, clearly it would have to spend less than it earned. That would mean limiting its players’ wages. Any club that paid players less would suffer on the field, because as we have seen, paying high wages wins football matches. It’s a trade-off: if you want glory, you have to forget maximizing profits. If you want maximum profits, give up hope of glory. Stefan and Pedro estimated, for instance, that if Barcelona wanted to maximize profits, it would have to aim to finish fifteenth in the league, because it would need to slash its wages. A profit-driven Real Madrid should expect to finish a mere seventeenth, just above the relegation spots. Most other teams – such as Atlético Madrid, Athletic Bilbao, Sevilla or Villareal – would maximize their profit potential by playing in the second division. There they could save a lot of money on players’ wages.
On the other hand, if a club’s main aim was to win matches, it would have to spend every cent it earned (and borrow more besides). So what were clubs chasing, profits or wins?
Stefan and Pedro estimated how each club in the top two Spanish divisions would have behaved on average in the 1994–2005 period if it were pursuing profits, and how it would have behaved if it wanted wins. Then they looked at how clubs behaved in real life. Their unambiguous finding: clubs didn’t care about profits. They were spending what it took to win games. ‘On average,’ Stefan and Pedro concluded, looking at ten years of league tables, ‘the Spanish teams were twelve places above their profit-maximizing position over the sample period, but less than half a place below their win-maximizing position.’ In short, club presidents were spending way more than they would have done if they were hard-headed businessmen out to make profits. Though many of the presidents were in fact hard-headed businessmen in real life, they weren’t treating their football clubs as businesses. Nor was there any sign that any other actors – lending banks, say – were pressuring them to make profits.
Building magnates like Florentino Pérez and Jesús Gil y Gil seemed especially prone to blowing what looked like absurd sums of money on players. Possibly they were pursuing a business logic after all: they may have reasoned that making a name in local football would help them befriend bankers and get planning permission from local government for their construction projects. That would have boosted their non-football businesses. Fred Wilpon, the real estate developer who took over the New York Mets, discovered that a similar effect operated in baseball. To quote a profile of Wilpon in the New Yorker magazine:
He didn’t anticipate that owning the Mets would boost his seemingly unrelated business interests. ‘No one had heard of us before we bought the Mets, and afterward the change was dramatic,’ Wilpon told me. ‘I don’t think someone has not returned one of my telephone calls in thirty years. It’s a small club, owning a baseball team, and people want to be near it.’
Owning a football team might help the owner’s other businesses. But all Spanish football clubs tended to pursue wins rather than profits. In a sense, they had to. If your rivals are spending whatever it takes to win, then you must as well. Any team that pursued the highest possible profits would probably end up being relegated, because it wouldn’t be spending enough to hire good players. And if the club got relegated, it would lose much of its revenues. So Spanish football became an arms race: every club overspent for fear of the neighbours.
No matter how much money Spanish clubs got their hands on, they spent it. In the decade that Stefan and Pedro studied, the average revenues of a club in the Spanish first division (Primera División) rose nearly fourteenfold, from €4.3 million in 1994 to €59 million in 2004. (By 2015 the figure was €130 million.) Yet the share of revenue that clubs spent on player wages didn’t drop much throughout the period: in that decade, first-division clubs paid over an average of 62 per cent of their revenues to their players. In other words, the clubs weren’t able to save all the additional money or do much else with it, such as build new stadiums or cut ticket prices. Most of the money that came in just went straight out again into players’ bank accounts. In the second division, a whopping 93 per cent of clubs’ revenues went to the players. These clubs really were just vessels for transporting money to players. The clubs weren’t simply content with giving the players what money they had. They also gave them money they didn’t have, and some clubs ended up seriously in debt.
By the standards of a normal business, this sort of spending is nuts. But for football clubs, it made sense: the only way to win matches was to overspend. Historically, nobody ran a football club to turn a tidy annual profit. However, as we’ll explain in Chapter 6, at the very top end of the game at least, that is now changing. For the first time ever, big football seems to be turning into a good business.
