Manchester City are the favourites to lift the Premier League trophy in May for the first time in their history, looking strong to turn their financial backing into further success after last year’s FA Cup triumph.
The future may be looking rosy for the Citizens on the pitch but financial regulations will be enforced by UEFA in 2014-2015 that could scupper the fairytale story at the Etihad Stadium.
Last week City published their record-breaking losses of £194.9 million, fuelled by a massive annual wage bill of £174 million ending May 2011. Abu Dhabi owner Sheikh Mansour bin Zayed Al Nahyan and his behind the scenes team have three years to reduce their debt dramatically otherwise suffer horrific consequences that could end their reign of power in England before it has even begun. One-off signings that will not need to be replaced for years to come, such as David Silva, Mario Balotelli and Yaya Toure make up a large quantity of the debt however, unwanted players will fetch some much needed income with the likes of Carlos Tevez leaving to remove of chunk of financial loss.
According to UEFA’s Financial Fair Play regulations, a club can post losses of no more than £38.5 million in 2014 otherwise face exclusion from playing in European competition; which makes up a large percentage of income. City claim however, that this is a one-off annual debt and that this figure will be nothing like future results due to their rapid acceleration investment strategy.
The published figure does not however take into account the summer signings of Sergio Aguero, Samir Nasri and Gael Clichy along with their added wages and so it is tough to see how the figure will decline substantially. The reports also do not take into account their recent deal with Etihad that could produce up to £50million a year with naming and kit rights, along with the much needed Champions League media money that could bring in almost £30million.
With work needing to be done on the sustainability of City to enable them to fulfil their ambitions, it begs the question, what is the true cost of success?
Unstable owners and reckless spending have been the downfall of many a club in English football over the past 10-15 years, with Premier League clubs creating a loss of half a billion pounds last year altogether, despite record income.
The Glazer family’s ownership of Manchester United has cost the club around £350m in interest, fees and loans to the family themselves since 2005, and they have never put money into the club. In 2010, United paid £42m interest on the £500m loans the Glazer family originally took out to buy the club in the first place, and just refinancing that debt, replacing the loans with a bond, cost United a staggering £65m.
You can begin to see why a large portion of United fans protested against the Glazer’s ownership a few years back as they could see the possibility of this financial slump occurring. However the past six months have been refreshing for all parties interested in United’s finances as they felt the benefits of their £40 million deal with training kit sponsors DHL and increased media revenue in winning the Premier League and reaching the Champions League final. The finalisation of the Old Trafford quadrants also enabled them to see a rise in match-day income that has grown 9.6% in 12 months.
It is unlikely that the Red Devils will see another rise in profit in the near future with hefty transfer dealings in the summer and the possibility of not winning any silverware this season with rivals Manchester City dominating the Premier League. But their debt is now not along the lines of City’s and it will be a lot easier for the Champions to reduce debt in order to please UEFA.
Roman Abramovich is owed £726million by Chelsea, a debt that he claimed was written off, but it is now thought that the Russian may want that money back one day and with a £25million interest according to the Guardian.
The club is debt free but the parent company is not. While the loan is interest free, it is repayable should Abramovich choose to give 18 month’s notice. The Russian billionaire can still opt to get his money back if he decides to sell his shares or when the club is proving profitable.
Courtesy of FootballFanCast.com
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