By John ST

Soccer Net Live

Money has changed the face of football, allowing Premier League clubs to attract world class talent and gain a pre-eminent position in Europe as well as increasing TV viewership around the world.

Nevertheless, as seen on the laissez-faire Wall Street where frothy assets are created and distributed at will, too much of a good thing can be self-defeating and money’s perverse influences have to be kept in check by an effective regulator. As they say, money is the root of all evil.

UEFA President Michel Platini has clearly taken this inconvenient truth to heart and is determined to eradicate football’s biggest scrooges - corruption and match-fixing. In a long overdue but nonetheless dramatic move, UEFA will launch a gambling investigating unit next season featuring experts who will review suspected irregularities in 27,000 matches in the first and second division of 53 UEFA members.

Michel Platini is prone to fatuous outbursts like his personal attack on Arsene Wenger but this time, he chose his battleground wisely by calling match fixing “a serious risk to football.” He said, “I’ll be extremely firm with those who cheat. I don’t accept players who cheat and will suspend them from any activity in football.”

UEFA has started the ball rolling by cutting its regulatory teeth on two obscure football clubs. President of Macedonian football club Pobeda Prilep, Alexander Zabrcanec and former team captain Nikolche Zdraveski - were accused of manipulating the final score of a Champions League qualification match against Armenian side Pyunik Yerevan, on July 13 2004 for their own benefit.

To be sure, match-fixing is an old story being rehashed. The image of English football was devastated in 1965 when 10 players, including the Sheffield Wednesday stars Tony Kay, Peter Swan and David Layne, were imprisoned for match-fixing.

In recent times, Italian football was severely shaken by a corruption scandal, known as Calciopoli, in Serie A and Serie B. The corruption was exposed when Italian police intercepted telephone calls which revealed an intricate network between team managers and referee organizations. Juventus (Serie A champions at that time), Milan, Fiorentina, Lazio, and Reggina were subsequently charged with rigging games by selecting favourable referees.

The onerous effects of match-fixing are obvious. In fact, I rate illegal gambling and match-fixing as bigger threats to football than doping or violence. It destroys the integrity of the beautiful game because of the perception it leaves in the minds of the public, not to mention hurting the wallets of punters.

People will be less enthusiastic for the sport when they realized the web of deceit. It is no longer justifiable to pay money to watch 11 men on each team fighting over a ball for 90 minutes, since the results have long been decided. Neither is it acceptable to learn that referees have received kickbacks for making “honest mistakes.”

I believe a concerted clampdown by UEFA will go a long way towards establishing a clean and fair sport. Since greed knows no boundaries, drafting a specific cross-border match-fixing law in Europe will provide investigators the muscles to bring criminals to justice.

The regulation divisions within each UEFA member also needs to be beefed up. Usually, match-fixing is handled by the same thinly staffed department which are also swamped with other concerns; including discipline, drug testing, illegal transfer dealings and contracts.

Besides match-fixing, we cannot ignore excessive debts in the messy relationship between football and money. Last week, the Guardian reported that senior debts of £425m secured on Old Trafford, the Carrington training ground, the gilded players, season tickets, commercial contracts, etc. have been sold in the City of London at discounted prices of 70p in the pound.

A further £90m of unsecured loans are being sold for 50p in the pound, while the rest of the £667m – £152m “payment in kind” debt, loaned originally by hedge funds at an attractive 14.25%.

I believe the credit crunch may have forced banks, hedge funds and private equity speculators in accepting a haircut on their investments. Deprived of capital and battered by redemptions, they have little choice but to discard prime assets to shore up their balance sheets.

Manchester United’s debts do not qualify as “distressed” unless they are being traded at less than 20% of face value. Lenders will have already given up hopes of payments, a-la toxic subprime mortgage based securities. At 70%, this is in line with marked-to-market valuation of most leveraged buyout debts.

Since the lenders are just replenishing their capital base, raising alarm bells on Manchester United’s impending financial crisis seems premature. Notwithstanding the harshest economic crisis since the Great Depression, it makes no difference who is the debt-holder, as long as United can service their interest payments.

If the past year is any indication, Manchester United remain a solid franchise. The money raked in from winning last season’s Premier and Champions Leagues, gate receipts from a 75 000-seater in Old Trafford, and sales of merchandise (replica kits, caps, scarfs, posters, etc) ensured record turnover and profits.

However, turning a blind eye to the fact that debts are shaking the foundations of the club’s profitability structure is dangerous. Manchester United’s 2007 net earnings was decimated by an interest payment of £81m (surpassing its operating expenses of £74m which should be the main outflow in most football clubs) and this year, they can expect higher interest with more debts piled up from the acquisition of players, including the £30m signing of Dimitar Berbatov.

Currently, the Red Devils are surviving by meeting their debt obligations, but if they have to start amortizing their debts without viable refinancing options, I wonder where they are going to get the extra money. Something has to give, either the Glazers top up the shortfall (highly unlikely) or capital expenditures to improve branding and buying of players to win competitions are sacrificed.

This Glazer deal leaves Manchester United little room for failure - in fact, they have to capture more fans and post revenue growth every year. In this recession, achieving the same turnover with lesser cash-rich sponsors is a massive challenge. As unemployment rises,people will cancel their subscriptions causing TV revenue to stagnate. Ticket and merchandise sales are also expected to suffer from lesser discretionary income.

Coupled with the fact that things can spiral down slowly or all at once if United loses its winning touch or worse, flirts with relegation. Confidence crisis affects the best of teams, illustrated by Manchester United’s recent stumble in chasing a Quadruple. The money men may have little patience for a team rebuilding at the expense of missed payments.

United’s spokesman, Phil Townsend, must have imbibed some Kool-aid when he enthused about Manchester United’s financial prospects. With our turnover, we can meet the obligations on our loans and debts, and still buy world-class footballers and provide first-class facilities at Old Trafford and Carrington,” he said.

Phil has the hallmarks of a great investment banker. I don’t share his optimism. As a matter of fact, I don’t discount the possibility that United’s debts could end up in the hands of merciless sharks and vultures who would jump at the chance to strip the club of all assets at the slightest hint of trouble.

It will indeed be a sad day that Manchester United, one of England’s most prestigious, well-run and popular clubs, with generations of working class and footballing legends contributing selflessly to its rich history, may be brought to its knees by the fair-weathered credit market who has no affection for the sport except making money from money.

I dread to see the current winning formula of bright young talents, veterans and Alex Ferguson being off-loaded to pay down debts and relieve wage expenses. This will only cause Manchester United to slide further into anonymity as fans will be hard-pressed to support a team filled with fringe players as well as the youth team.

A lot of fans cannot comprehend why Manchester United were able to bankroll Alex Ferguson’s ambitions and rebuilt Old Trafford with cash, yet they loaded up £667m of debt, solely to pay for the Glazer family to take over the club.

To be sure, this arrangement contains murky details, and most will not come to light until financial catastrophe occurs. It begs the question of accountability and transparency. While “leveraged buyouts” are legal, do such financial wizardry make Premier League clubs stronger or even sustainable in the long run?

Another pertinent question is whether football should be treated as a business. If yes, the owners of football clubs should expect a return on their investment - not some kind of charitable donation. So long as the club achieves success, even in the short term, all members deserve to be richly rewarded.

As business entities, the end justifies the means. Leeds’ strategy of short term financing failed spectacularly as it was based on future consistent Champions League earnings which did not materialize. That is not to say other clubs cannot use this strategy if they want to have a brief fling with success.

Whether a club should adopt a shareholder’s business model or operate as a single owner loading the club with debts is a moot point though. A lender’s first consideration is to ensure that principal and interests are being paid. They are not interested in delayed gratification just to indulge your dreams of world dominance in the not so distant future. If you default on payments, they will liquidate your assets.

However, shareholders may not be superior as they can still take out dividends while neglecting club facilities and stadium. Having debtors rather than shareholders forces the management to be ultra-efficient as they are dealing with someone else’s money rather than their own.

Conversely, if football is not a business, regulators have a duty to scrutinize unhealthy levels of debt being ladled on to clubs to prevent their eventual failure to the detriment of heartbroken fans. Football clubs should not compromise the cultural identity by resorting to arcane financial deals promoted by foreign mercenaries.

Michel Platini’s agenda to recognize ‘the specificity of sport’ - that sport holds a special cultural and social significance and cannot be run along the same economic lines as other forms of business / employment is laudable. He has actively campaigned with the EU to issue a legally-binding directive recognizing sport’s special status.

Platini has also championed the idea of establishing a financial criteria which would qualify clubs and allow them to participate in the Champions League and UEFA Cup.

“We need to find the means, with the European Club Association, to help clubs to solve their problems. Defeat should not be a financial disaster. The goal is not to win titles but [to make] money to pay off debts. Look at the debts of Chelsea and Manchester United. FIFA and UEFA owe it to themselves to fight this,” Platini explained.

Platini continued, “We’re starting to work on it, but I am very concerned by clubs being bought by foreigners. I don’t see why Americans come to invest in these clubs, if not to turn them into products. It’s a never-ending gold rush.”

The focus of the revamped rules will be operational profitability, to tie transfer fees and wages to clubs’ turnover. This won’t necessarily cap high transfer fees but it could have a knock-on effect on controlling wages offered to players.

The Premier League is also planning to introduce a “going concern” test aimed at ensuring its clubs are not laden with dangerous levels of debt. The test will work out if debts are manageable by assessing a club’s financial health, including its turnover and cashflow.

Where time and the economy are kind, the number crunching, charts, financial ratios created by investment bankers worked out to a tee and everybody involved in the buyout deal are happy. If not, it is just a tragic story of another football club biting the dust. The banks earn their commission and move on to promote the next target of acquisition.

It is high time for football authorities to take a holistic assessment of its relationship with money. I support UEFA’s measures to force clubs to tighten their belts and be more financially prudent. However, all clubs must be subjected to the same rules, else it will simply result in an exodus of talents. That underlines the importance of getting the major European clubs involved.

I am apprehensive though about any plans to restrict the number of foreign players in each club and to regulate ticket prices that each club can charge.

What do you guys think of Michel Platini’s crusade against evils of money in football?