Is Scudamore the Dick Fuld of the EPL?

Recently Lord Triesman spoke at a conference about the dangers of mounting debt that English clubs face and advocated a more forceful regulatory role for the FA.
Speaking at the same conference, Richard Scudamore, Premier League chief executive, gave Lord Triesman’s views short shrift, saying it would be mistaken to suggest all debt was untenable.
“Debt to a degree is healthy … What is important is that the level of indebtedness has got to be in proportion to your income,” he said. Debt, he added, was on a 1:1 ratio with overall revenues in the game.”
Dick Fuld on 6 June 2008.
Dick Fuld, Lehman’s long-standing chairman and chief executive, told staff it retains a “strong capital position” as he sought to play down continued rumours that the bank is in a liquidity crisis.
Three months later, Lehman Brothers declares bankruptcy. Barclays takes over part of the investment bank and a 158 year old Wall St institution comes to an end.
Lord Triesman and Michel Platini are being accused of being Nouriel Roubini by Richard Scudamore, the EPL chief who last created news for trying to implement a problematic 39th game in the Asian market. At this point does it pay to be cavalier to what is going on in the financial market and how it affects the sport? I do not agree that the UEFA should prematurely ban clubs and they need to give enough time and incentives to improve matters. In fact, some sort of debt reduction criteria should apply such as in countries that seek EU membership so that clubs are not punished but I do agree with their underlying concern that in these financial dire straits we need to assess risk responsibly and take measures. The government does not bail out clubs that go belly up. Like Wall Street’s investment banks that have morphed into commercial ventures or disappeared altogether we may not have enough viable clubs left.
Case in point. Man Utd’s total debt is a staggering $1.2 billion from a highly leveraged buyout by the Glazers. The owners of the Tamp Bay Bucs put a down of almost $450 million of their own money and then put up Man Utd’s assets to secure a little over $1.1billion in loans from different sources. The Glazers have continually looked for ways to restructure that debt which have included on and off flirtations with securitization of debt. RBS tapped by Man Utd to restructure the debt into a bond against future ticket sales now faces major liquidity problems of their own. It will be difficult to find a more favourable interest rate to bring down the huge $100+ million paid in annual interest. Government bailouts of banks which inject fresh capital into an ailing bank also look at toxic assets and weigh the risk of keeping them on the balance sheets, decisions which affect further loans, interest rates, and eventually solvency.
Arsenal are in a better shape to ride out the credit crunch as it has locked into a very favourable bank rate to payoff their stadium debt but that cost is offset to some extent by the EPL’s most expensive ticket prices. Another source of debt reduction was the Highbury Square development scheme that would build 680 apartments around Arsenal’s old stomping grounds. But in a sign of the times, the real estate slump led to investors backing off after initially putting a deposit. The club board cut back drastically from a projected 95% occupancy rate with anemic sales and future development is now on hold. Meanwhile Arsenal’s wage bill now is in the range of $160 to $200 million.
Debt has risen to over $5 billion with Man Utd, Chelsea, and Liverpool accounting for a third of it. Wages have increased sharply by 12% and so far revenues have kept up with healthy ticket sales, burgeoning TV payoffs, and a march deep into the CL finals. But these may reach a ceiling especially with a very weak economy, job losses and rising inflation. Some economists predict that this crisis could persist for more than two years. The landscape of the EPL might be very different from what it looks like already.
The worsening global crisis has led Gordon Brown to threaten legal action against Iceland’s failed banks which impacts thousands of English depositors who stand to lose billions of dollars. Some of them might be fans who might think twice about attending a game. It has affected West Ham who are looking to offload surplus players as their future looks uncertain with their owner Bjorglofur Gudmundsson resigning from his post as chairman of Landsbanki, the recently nationalized bank.
If we apply the UEFA standards then Man Utd and Arsenal would be banned right away which would be very harsh but if the club imposes restrictions on wages and transfers in a concerted and transparent effort in meeting an objective criteria of debt reduction then it should be allowed. Liverpool’s case is problematic because if the stadium financing has to go through it will add millions of dollars to an already overburdened club. In the context of these proposed UEFA penalties, would the club like to take such a risk?
Whatever the case maybe, I think Richard Scudamore’s trivialization of this real risk is troubling and very short sighted.

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