Portsmouth v Coventry City - npower Football League One

Today, the president of Bayern Munich Uli Hoeness was sentenced to three and a half years in prison for tax evasion in Germany. That’s a big boy crime in a big boy business: football. I mean, of course it’s big, right? Look at all the money those clubs take in and spend!

Adam Bate though brilliantly put the so-called ‘business of football’ into perspective today for Football365:

Like the Wizard of Oz with his smoke and mirrors, this is the truth that the football hype machine is happy to cover up. For while football itself is big business and the total market for the game is vast, having expanded exponentially, in terms of individual clubs, it remains small time.

For example, in the 2011/12 Championship season, only Leeds and West Ham had a turnover in excess of £25million. To put that into context, the average Sainsbury’s superstore was turning over more than that well over a decade ago. Your average football chairman is effectively taking on a similar financial responsibility to that of a supermarket boss in charge of a solitary Tesco shop – and the football chairman has fewer employees to deal with.

I would only add too that unlike most business which profit from selling a particular product or service, football clubs—particularly those in the Premier League—make the vast majority of their comparatively paltry sums of money simply by being in the league. Of course, they ‘earned’ this privilege through promotion, but the clubs don’t sell rights themselves; the league does on their behalf.

And the amounts they receive, while chump change in the business world, are—relative to things like ticket sales and commercial sponsorships—very, very big. To quote myself:

Here’s a sobering statistic I like to use at dinner parties (I’m very popular): in the 2011/12 Premier League season, of the 18 clubs that reported their revenue breakdown, 14 clubs earned more from TV rights money than any other source, and 12 clubs earned more from TV rights money than all other sources combined.

So Premier League clubs start the year with a big fat cheque, which will either be larger or smaller depending on a) where they finish in the league and b) how many times their team appeared on television.

Now, there’s nothing at all wrong with that, but it does mean there is no incentive for clubs to be particularly savvy in how they run their operation. Since they need only remain in the league to earn the bulk of their revenues, clubs tend to be concerned only with buying whichever player and whichever manager to keep them there.

Yet because at least three clubs have to be relegated each season, and because there are more football clubs than there are elite footballers, footballer wages and transfer fees are very high. For a long time, they were higher than most clubs could afford. Some teams were forced to borrow money or take equity payments from their owners to cover losses. This led to financial chaos for teams like Portsmouth and Leeds United.

Of course businesses go out of business all the time in the real world, but the difference is that business people work in a market that is constantly changing and subject to sometimes devastating and unforeseeable events. Football, while unpredictable in its own way, offers very static outcomes. Your team loses and is relegated. Your team wins and is promoted. You finish here you get this amount of money, you finish there you don’t. Theoretically, there should be no reason for owners to fail to see and prepare for potentially devastating outcomes ahead of time. And yet they do, over and over again, leading to instability and shifting ownership.

Again, it shouldn’t be this way because it is very easy to calculate risk in football. It shouldn’t take too much effort to figure out the potential financial danger or gain from every possible outcome, no matter how unlikely. Once you’ve done that, you can begin to spend money in a much smarter, more daring way, and prepare contingencies for disaster. You might focus on finding ways to identify good players well below peak market value, or ways to transform merely good players into elite players, or establish a financial strategy in case your team is relegated.

Until now, no clubs had the incentive to spend responsibly because they simply waltzed into a giant pile of money by just avoiding being overly crappy. Now, with break-even provisions like UEFA’s Financial Fair Play forcing clubs to spend only what they earn if they want to compete in Europe, team financiers find themselves suddenly forced to seek novel ways to build competitive sides.

Is it unfair that some teams already have a built in revenue advantage from being massive, globally popular entities? Sure. But even if Southampton qualifies the Champions League, they’re probably never going to match Man United, Arsenal or Liverpool in that game. You’re far more likely to win by playing smart. Until clubs are willing to think beyond ‘spend more, win more,’ we shouldn’t take their complaints about Financial Fair Play too seriously.