London: Manchester United may be receiving a world-record fee of £80 million (Rs628 crore) for the sale of Cristiano Ronaldo, but the amount is dwarfed by the club’s huge debt.
“It’s no wonder they’re getting this sort of money” from Real Madrid for arguably the world’s best player, said Philip Long, football industry specialist at British accountancy firm PKF, recalling that United’s parent company spent almost £69 million on interest repayments in 2007-08.
Debt has become an increasing problem in recent years for England’s elite football clubs, while the situation has worsened as the global economy suffers the worst downturn since the 1930s.
Heavy price: Cristiano Ronaldo in action. The debt of Red Football, Manchester United’s parent firm, stands at around £650 million. Phil Noble / Reuters
“Manchester United, Liverpool and Chelsea are all in massive debt and the rest of the Premier League is in debt,” Wigan chairman Dave Whelan said on Thursday as United looked to seal the sale of Ronaldo to Real Madrid.
“There is only one (Premier League) club that is debt-free and that is Birmingham. Everyone else is carrying too much debt,” added Whelan, whose club is a small player in the top tier of English football.
Manchester United’s parent firm, Red Football Joint Venture, made a pre-tax loss of £44.8 million during the 2007-08 season, largely owing to interest payments on its debt.
According to latest accounts, Red Football’s debt stands at just under £650 million after US tycoon Malcolm Glazerborrowed heavily to buy Manchester United in 2005.
Meanwhile, fans of football titan Liverpool are extremely worried about the club’s future after auditors recently claimed that its parent company was in danger of collapse because of unsustainable loan-repayments.
Liverpool’s American owners, Tom Hicks and George Gillett, face a 24 July deadline to refinance £350 million of debt which they have been servicing at punitive rates of interest, according to company accounts.
“The recession has an impact and we’ve seen it at clubs like Liverpool where the owners can’t refinance,” said Geoff Walters, an expert in football finance at the Birkbeck Sport Business Centre consultancy in London. “But by and large football is a different industry to a conventional industry. You’ve got the fan loyalty,” he said. Fans of Premier League side West Ham United have no doubt been buoyed by the sale of the London outfit last week to an asset management group for a reported £100 million.
The sale came after previous owner Bjorgolfur Gudmundsson saw much of his personal fortune wiped out as a result of the Icelandic banking crisis caused by the global credit crunch.
Last Thursday, meanwhile, a Singapore-based group confirmed interest in buying Newcastle United following the club’s surprise relegation from the Premier League, whose live games are partly screened by troubled broadcaster Setanta.
The Irish satellite station is attempting to secure an emergency cash injection to prevent it defaulting on payments it owes to the English Premier League.
“The (20) clubs in the Premier League are a bit more recession-proof given the huge TV deal and the guaranteed TV money they get” from British pay-TV operator BSkyB, which shows the bulk of live matches, said football finance analyst Walters.
The survival of England’s top-tier clubs is also being aided by the financial backing of wealthy tycoons—Roman Abramovich at Chelsea and Abu Dhabi-based owners at big-spending Manchester City.
Abu Dhabi-based property billionaire Sulaiman al-Fahim is meanwhile reportedly close to a takeover of Portsmouth.
According to the annual review of football finances from accountancy group Deloitte, published earlier this month, England’s top-flight clubs will buck the global economic downturn by continuing to increase revenues next season.
However this does not mean all is well and good for the country’s elite sides, which also include Arsenal, Aston Villa, Everton and Tottenham.
The accountancy group’s report—based on figures from the 2007-08 season—shows that total debt among the 20 Premier League clubs hit £3.1 billion in 2007-8 while wage costs surged 23% to reach £1.2 billion.
Deloitte’s Alan Switzer warned that clubs could not afford to be complacent about the long-term sustainability of their debt levels given the possibility of failure on the pitch, an issue highlighted by Newcastle’s relegation.