Friday, 21 November 2014

No Moral High Ground

Just in case there’s a danger of too great an outbreak of pro-Roland sentiment …. What to make of the club’s response to the “bitterly disappointing” (according to CFO David Joyes) Financial Fair Play regulations changes, outlined in a statement on the club site and subsequently repeated in a radio interview reported on the BBC site (and apparently to be elaborated upon in tomorrow’s programme)?
It does of course depend on your starting point. If you regard the size of losses being run up by some Championship (and other) clubs as unsustainable and consequently seriously destabilising, or if you’ve bought a network of clubs across Europe with a view to using a consortium model to potentially exploit the FFP changes – if they were implemented as envisaged – I would imagine that ‘bitterly disappointing’ is a fair response. Alternatively if you believe that FFP changes are unnecessary and unwanted, or that a pan-European consortium model is at best the exploiting of a loophole that should be closed sooner or later and at worst nothing more than cheating, the reaction would be somewhat different. And if I were writing the headline for a piece on the vote in favour of the FFP changes, it might have been along the lines of ‘shock, horror, Championship clubs vote in their own best interests’.

So let’s not go claiming that there’s any moral high ground to be claimed, whichever side of the argument you’re on. The idea that football clubs ‘should’ be run at a profit, or at breakeven, or at modest losses can’t be grounded in the idea that all successful businesses follow those guidelines. They don’t, neither ‘should’ they. There is no virtue involved (OK, I had neither a Catholic nor a Calvinist upbringing). Of course for investment in any business to be justified on purely commercial grounds there has to be reason to believe that the investment will show an attractive enough return in an acceptable (for the investor) timeframe (and if for other reasons an individual/group wishes to pour money into a football club good luck to them). Given that running a Premiership club at a profit is no small challenge, that potential return has to come in the form of the value of the asset, ie the value of your club in the Premiership against that in the Championship. As long as there are owners – and potential purchasers who would pass the ‘fit and proper person’ test (which seems to encompass just about everyone who ever lived) – prepared to fund losses of whatever size (and for whatever reason) to pursue the Premiership goal, where does unsustainability and/or unfairness, let alone morality, come into it?

It can only be on the grounds that either football clubs should be run in a fashion that retains at least the appearance of a level playing field, much as there are rules governing the design/speed of a Formula One car, or that football is a special industry, given its importance in the community (ie the supporters). The former seems at best a pipe dream as long as the Premiership lure is there, at worse unnecessary interference. The latter may have more merit, with football clubs in that sense having more in common with banks, given the consequences of failure. Only problem then is that if football has shown itself to be adept at anything in my lifetime it’s been ensuring that clubs very, very seldom actually go out of existence (and even more rarely relocated to another part of the country). Supporters may suffer from owners’ excesses in the form of relegation after administration and points deductions, but at least in all but a few cases the next week they still have a team to support. Also, in my opinion, FFP is about as misguided in its thinking and as likely to prove ultimately useless and current bank regulation reform.

I have no problems whatsoever in the footballing authorities having the powers to investigate a club’s finances in order to assess if there is excessive risk being taken, with the powers to take punitative action if the conclusion is that there is (not without problems admittedly as docking points from/fining clubs in an exposed position would have obvious consequences; these can be circumvented by a warnings procedure to give the owners time to correct the situation, like bank stress tests if you like). This is after all the job of any company’s auditors. But if the owner of Bolton Wanderers wishes to pour money into his club and to end up with a large amount of debt to himself on the books, what exactly is the problem as in no way is this unsustainable? It’s just a figure in the books. Perhaps clubs in that situation could be asked to provide something akin to the banks’ ‘living wills’, to outline how the club would survive in the event of their demise/they run out of money/they run out of enthusiasm.

I would see such things as desirable. I actually also favour phasing out parachute payments, which encourage distortions. As a short-term fix to allow clubs time to adjust to the widening of the financial gulf between the Premiership and the Championship they had a time and a place. Now all clubs are aware of the risks and have had the time to incorporate changes in players’ contracts to alter remuneration in the event of relegation (parachute payments have worked against this). Of course that means that it would be more difficult for Premiership teams, especially the newly promoted, to sign some players. So what? Instead oblige clubs in the Premiership (and the Championship) to outline how they would cope in the event of relegation.

What is not desirable (in my opinion) is some poorly drafted, stupidly rigid, and easily circumvented formula for what is and what is not sustainable. And that’s to overlook the possibility that FFP ends up getting challenged in the courts. As with the banks I actually favour regulation that is geared around ensuring that risk-takers end up personally carrying the can if those risks end badly, ie convergence of interest. How on earth can an individual involved with a club that goes into administration be later considered a fit and proper person to get involved with another? (Of course the answer comes in the form of a chequebook.)

So back to Joyes’ statement and comments. He outlined that the clubs which voted in favour of the easing of FFP rules fell into three main groups. If I was one of the clubs in one of those groups, I would have voted for the changes. Doesn’t make them (or me, I hope) ‘immoral’. Perhaps the clue came in the radio interview. He said (reportedly) that “one of the reasons why our owner bought the club in January was because FFP was in place” and that “we do have an advantage as we are in a network of clubs around Europe …” To have viewed view FFP as a done deal as written can be considered somewhat naïve, or more kindly that a business plan based on an assumption that it was should have been seen as involving an element of risk, which may not pay off.

Let’s take another line. To date, no Championship club has benefited to the extent of securing promotion to the Premiership from a consortium model. So the issue is not on the radar. What could happen if and when one does, or for some reason a club/authority brings the issue to the fore? Could other clubs call for the current restrictions on ownership of more than one club in England be applied at a European level, on the grounds that an ability to move players around between clubs – and potentially to buy players for the consortium with that in mind – constitutes an unfair advantage and the exploitation of a loophole not yet closed? Clearly doing this is within the rules as they stand, but as we’ve seen rules can change. Whether or not a consortium approach is fine, the future of football, questionable but within the rules, or ’immoral’ is another matter of opinion. Just let’s not try to pretend that the stance of our club is anything more than promoting its best interests, to try to defend a perceived advantage, just as others have done by the way they voted.


Anonymous said...

Excellent analysis, to make a virtue of frugality may sound good but does not make business sense in football just as it does not in any business. RD is saying that he is going to buck the market by making long term investment decisions(in the Academy) at the expense of medium term ones.Unfortunately there is no evidence thus works,unless you are Crewe and your objective is to stay alive in the fourth division..

Anonymous said...

Great piece and from independent perspective would be agreeing with you but from a Charlton fan perspective the one thing that always keeps you going is hope that you could progress and achieve greater success, in last twenty years ambition of clubs keeps getting eroded due to hedgemony at top and a few billionaires... anything that gives greatest amount of hope to greatest amount of clubs must surely be good for the game and greatest number of supporters... purely accepting our lot until we get a billionaire owner is not something i buy into... maybe i should have given up when parker forced his transfer to polish lamps boots

Blackheath Addicted said...

Thanks for the comments guys. I did actually try to write another paragraph or two, along the lines of we have absolutely no right to expect someone to buy our club and pour in money, plus something more positive along the lines of Duchatelet has every right to feel proud about the improvements to the ground and the competitive team/squad that has been put together (in direct contrast to the January moves). Just didn't end as neatly.