27th November 2016
Football’s Instant Replay
Welcome to the vysyble blog.
It’s been a very eventful period with the launch of our examination of football finance –We’re So Rich It’s Unbelievable – The Illusion of Wealth in Football. Following the pre-launch coverage in the Sunday Telegraph, we’ve had several media enquiries which we are currently following up. We are very hopeful that you will see/hear/read more about us in the mainstream media over the coming weeks although you will be able to get the full benefit of our analysis and findings by purchasing the report.
When the authors took their initial steps in looking at football back in July 2016, they analysed 56 separate balance sheets ie 8 clubs, 7 reported accounts statements per club. A lot of man-hours and spreadsheet crunching goes into the process of disassembling the individual statements and then bringing them back together with an Economic Profit and value creation perspective. It became evident quite early on in this process that the clubs in question were struggling to create value and as the authors reached the end-point in terms of numerical processing, they were all quite surprised at the scale of the issue. It is fair to say that there has always been a niggling and common perception that football is profligate with its money but it was never quite quantifiable.
Football is a big industry that is still growing. How it negotiates the path to further growth depends on how it can finance itself. Given the findings, the degree of risk in the current finance model is concerning and this is the feature that the media has picked up on. The common line of questioning that we have had is ‘how bad is it?’ followed by ‘what do you think will happen next?’ What has been observed are several factors in and around football that will exert increasing influence in the shape of the game’s distribution and consumption in the coming years. It makes for an interesting story but it also demonstrates that the game’s financial foundations are not as safe as first thought.
Football is also a different type of ‘industry’ compared to others on our radar and those that we have analysed previously. Two of the three co-authors of the report have spent many years on the strategic and finance side of large plc businesses where the production and provision of goods and services are then sold on to the end-user with a margin that generates both a net operating profit after tax and ultimately an economic profit. In football’s case, the revenue does not primarily emanate from the production line end-product but from the observation of it in action. It has been an interesting project in this sense as it challenges traditional economic views about supply and demand. It is a unique financial model in many respects.
The Economic Profit evidence shows that the financial dynamic in football is already out of balance. If it moves further in the same direction, this shifting dynamic will force change in how the game is structured. No matter how many different viewpoints were discussed, argued over and dismissed, the authors always arrived at the same conclusion because in this case the data is overwhelmingly transparent in its direction of travel. Data in isolation requires context to add value and to deliver meaningful insight. In this particular report, we were able to give a lot of context as the game’s nuances and politics are reported so widely in the media.
Next week we release our second report which looks at a major UK retailer that has lost its way (haven’t they all?) and is currently moving through a transitional process to regain some of its lost ground. We are going to use a very different approach from the one used in the football report in terms of how we present the case but we’ve gone through 20 years of financial performance, public statements and balance sheets to reach our conclusions. Who said determining Economic Profit and value creation was easy…..