Thursday, 11 February 2010

Premier League Banking

Premier League football is lot like banking.

Do I mean that all bankers have girlie hairstyles and fall over whenever someone passes them in the corridor clutching their leg as if they have been shot by a sniper? No, what I mean is that most Premier League clubs have unsustainable and high risk business models.

Portsmouth got a stay of execution yesterday and while that was good news on one level, it was bad news really. In just one week they have to get some point financing, i.e. a bank-style bailout, to help balance their books but in reality they have to find a new business model as this is only a short term fix - as with banks.

With banks, they just used the new cash to go ply their same business model and with all other banks participating this will work for a while until the next crisis on money supply. For Premier League teams they have a more acute problem as their income stream is actually not likely to change significantly in the short term no matter what they do. For Portsmouth, their regular income will not vary drastically as they have known and fixed TV money and a fairly constant income stream from fans, more likely to go down rather than up.

It means that unless they drastically cut costs, they are still going to have problems. And therein lies the problem - cut your costs and you simply cannot compete in the modern Premier League as you need to pay unsustainably high wages and fees to get ahead. The more you do that, the more money you need and that can only come from outside finance - usually rich owners who have no connection spiritually with the club who think they can make a fast buck on the TV money or just lose it like Abramovich.

Portsmouth are a dead team walking - they are likely to get wound up, then they lose points which means they can only be relegated which means no Premier League, therefore no more new money. Like Leeds Utd, they gambled and lost and the decline can be massive.

The Bundesliga in Germany has a far more sustainable model - with personal tax regimes far better for the players, it is likely over the next couple of seasons that stars will migrate as Spain, Italy and the UK economies will become high tax zones.

If that's the case - it's bye, bye Premier League. Like banking and the British economy, it became greedy with an unsustainable model. You always pay the price in business for such thinking.

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