The EPL proves cost control works

BUDAPEST, HUNGARY - JULY 27:  (L-R) Bernie Ecclestone the President and CEO of the Formula One Group and Jean Todt the President of the FIA sign a memorandum agreement setting out the framework for implementation of the 2013 Concorde Agreement prior to the qualifying session for the Hungarian Formula One Grand Prix at Hungaroring on July 27, 2013 in Budapest, Hungary.  (Photo by Vladimir Rys/Getty Images)

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.

They complied.

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.

19 responses to “The EPL proves cost control works

  1. This article has more holes in it than a piece of Swiss cheese. I’ll simply comment on a couple of points.

    “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.”

    And the reason for Man U. being $1B in debt? Paying players / managers too much? Hiring more staff than was needed? Building a new stadium they couldn’t afford? No. The reason that Man U ended up with a $1B in debt was that the club was bought through a leveraged buy-out. The Glazers effectively mortgaged the club so they could buy it. Interest payments ballooned to pay off the original loans. More debt was then added to pay off the interest. What the Glazers did isn’t uncommon in North American sports. They knew that a major sports teams value would double or triple in 10 or 15 years and they could then sell at the end of that time and make a huge profit. Cost controls would then and now have no effect on what occurred at Man U.

    “Cost control works – and it means the participants can make a profit. Something Ferrari and McLaren never achieve in their Formula One operations.”

    I won’t address McLaren – but Ferrari’s F1 operation is profitable.

    • And let’s not forget the favours Barcelona and real Madrid get every time. Their debt would be even bigger if it wasn’t for those favours. And yet eufa never ever does anything against them. Their cost control was something for the whole of Europe. But it seems they arent as strikt every where.

  2. “…but Ferrari’s F1 operation is profitable.”

    But isn’t that in part due to them getting a disproportionate share of the revenue… which is not based on their performance.

    Paet of the solution is to get rid of Todt and have some real leadership from the FIA.

      • And vice versa. (or at least less of a buzz around F1 without the red cars). That aside, I don’t get your point. There would still be a buzz around one of the world’s best supercar marques – Lambourghini and Porsche do pretty well in that department, considering their non-involvment in the sport.
        Mercedes, Renault, and Honda use the sport to enhance the marketability of their, mostly, utility vehicles – I’d wager that they’d suffer more of a kudos deficit if they weren’t constantly proving to potential customers that there was more to them than people-carriers and generators.
        Williams and McLaren use F1 as a shop front for their applied technology businesses.
        You can make your own mind up about what the other manufacturers get out of the exercise, but my point is that even if Ferrari et al were solely involved for the ‘buzz’, and associated business-related benefits, so what? I’m sure that the drivers all have different motivations for wanting to win, but it makes absolutely no difference me if a driver wins because of a promise to a dying grandparent, or because they simply see it as a job that they’re good at.
        Similarly, I enjoy watching a team put together all of the elements required to win a race or a championship, regardless of whether the motivations of whoever signed-off that company’s involvement in the competition were driven by the desire to shift more units of sports cars, vans, or flywheels.

        • And if I come across as a bit of a touchy Ferrari fan, it’s because I am! (at least, until I have another coffee ☺)

        • Yes, there would still be a buzz of course, but it would be less, and perhaps enough to stop Ferrari’s policy of always selling less than the demand for their cars, maybe selling them all and then slightly reducing prices to continue generating profit. Renault’s problem is that they don’t seem to be global in sales, even with F1 participation.

          I agree that participation is best for both sides – these manufacturers have historically been the backbone of GP racing. 100 years ago – it was Mercedes, FIAT (Alfa Romeo/Ferrari) and Renault racing each other! Peugeot has now been replaced by Honda, while in the 1930s it was Auto Union (Audi) taking on Mercedes, something that would be nice to see again..

  3. Instead of promoting a budget cap, why not promoting a stupidity cap ?
    It would be wiser to do what can be done instead of thinking of doing what is beyond they control.
    There is no way to stop a big corporation from performing some research work through one of their subsidiaries somewhere in the world and then passing the results down to their team engineers.
    How information and ideas can be capped ?
    Why arranging things in such a way to promote fraud ?
    An scenario with a budget cap would only benefit huge companies, not small teams.
    Besides, even a perfect budget cap would not guarantee even results. Take the example of Mercedes engines and their idea of splitting the turbo that put them on the top. Does anyone really think that this idea is directly related to them spending more than other teams ?

  4. 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.

    Bernie always meant the little teams with that. He still thinks he can extract more money from the sport by introducing customer cars. I think that’s what he was referring.

    And Jean only wants consensus.

    So, no. Ain’t gonna happen.

  5. I’m not sure cost control is the major issue here to be honest. The smaller teams in F1 don’t have any money to need cost controlling anyway. They’re already a pretty good job at it themselves.
    If bonus payments were made more equally to teams I’m still not sure the financial fairplay rules would change anything. Going back to the football comparison the bigger clubs can still massively outspend the lesser clubs and the gap between top to bottom remains unchanged.
    I see the point about it saving teams going bust but the gap in competitiveness won’t close at all. For that to happen the costs for competing and obtaining the necessary PU, and researching and developing the cars would need to be drastically lowered, which is why I don’t think the comparison with football works with F1. The operating costs of a football team are pence when compared to running an F1 team.

  6. What a load of rubbish. I’ve no interest in football, but I’m aware of the following –
    Premier League football teams are paying the bulk of their staff minimum wages and have done for years. Swansea City FC claim they are too poor to pay the rent on their council owned stadium.

  7. Ridiculous. This is the first year that the EPL as a whole has turned a profit. That’s not success. They just got a new tv deal that pays them a whole lot more. If the EPL can maintain a profit for 5 years then, you might be able to conclude that FFP works, but until then, the jury is still out.

    And as noted, there’s tons of fictitious sponsorship going on where the rich owners use their companies to sponsor the teams in order to get around FFP rules.

    Also, while there may be an operating profit this year, there’s a HUGE amount of debt that was accumulated before FFP that will never be paid down. In fact, teams seemed to run up debt in anticipation of FFP rules.

    While most won’t want to hear it, if you want to look at leagues that are profitable just look at the NFL.

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