The English Premier League (EPL) clubs achieved record revenues and profits in 2013-14, as a combination of incremental revenue from the new TV deals and the effect of EUFA’s financial fair play kicked in.
The league itself made a profit of £187 million, the first since 1999.
Mr. Dan Jones, head of Deloittes Sport’s business group stated that the cost control measures of the financial fair play programme “could be the most significant development in the football business since the Bosman ruling.”
“Indeed the change in club profitability was more profound than anything we could have forecast”, he added.
For nigh on 20 years, the EPL has been doing commercial rights deals every 3-5 years, which sees the doubling of the income clubs receive. Each time the clubs received more money, they merely spent more on players and salaries and continued to borrow beyond their means and accumulate debt.
However, since the latest deal in 2013, something has changed.
At one point Manchester United was the most indebted club in the world, with over $1 billion in debt, and this despite them having the biggest commercial revenues of any of the EPL clubs.
At one point, United were paying close to $150m per annum in interest alone.
Clearly it is not just the smaller teams who have lived beyond their means, but the big teams in fact do this in a much more spectacular fashion.
UEAF’s financial fair play scheme has been implemented to drive cost control. Teams spending more than the limit risk heavy fines and for the top teams, this includes exclusion from the premiere annual event – The Champions’ League.
Manchester City who won the EPL in 2014 were sanctioned by UEFA for breaching the cost control regulations and given a $75m fine and a transfer embargo on new players.
In football it is as easy to hide expenditure as it is in Formula One. Players can be paid in person by rich sheiks with gazillions to spend. This keeps the spend on the football clubs books down.
Fake sponsorship arrangements have been arranged whereby a stadium takes the name of a sponsor for a fee of many multiples of the going commercial rate.
UEFA has refused to be swayed by such antics and simply rules the clubs behaving in such a manner are in breach of their cost control measures.
UEFA members are from diverse nationalities, where financial reporting standards are most diverse. However, the governing body of European football refuses to be deterred by this and an international standard for reporting has in effect been agreed.
The distribution of income in the EPL sees the team in last place get 80% of the distributed revenue that the team winning the league receives.
This is a model so far removed from the one utilised in F1, it may as well be as far as the east is from the west.
So why can’t F1 impose cost control?
The first reason is the current governance structure allows those who would suffer under such proposals to veto the regulations.
Yet if Formula One really pursued the path of cost control, there are enforceable cost reductions that could be brought to bear and huge punitive sanctions for those who breach these regulations.
Bernie Ecclestone is on record as saying the teams spend too much. He has also issued an invitation to Jean Todt to vote with him on matters the teams refuse to sanction.
Now is the time to emulate the EPL and bring in cost control and to do so in a punitive manner, so that the bigger teams must comply and also agree to renegotiate the share of the pie they get.
Cost control works – and it means the participants can make a profit. Something Ferrari and McLaren never achieve in their Formula One operations.