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Is Foreign Ownership Good for English Soccer?

September 09, 2008 11:26 AM
by Denis Cummings
As Manchester City becomes the latest English soccer club to be purchased by a foreign multibillionaire, some wonder if the large influx of money is good for the league.

Foreign Coffers Driving Salaries Up

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On September 1, Abu Dhabi billionaire Sulaiman al-Fahim purchased English soccer club Manchester City. Funded by the Crown Prince of Abu Dhabi, al-Fahim has promised to invest hundreds of millions of dollars in the team, with little concern for making a profit.

The Barclays Premier League was already the most profitable soccer league and one of the most profitable sports leagues in the world, with revenue expected to reach $3.6 billion this year. The arrival of al-Fahim, and the possible purchase of Liverpool by Dubai’s Sheik Mohammad, further raises the league’s profile and earning potential.

However, the influx of foreign money may ultimately be detrimental to the league. Manchester City, like Russian oligarch Roman Abramovich’s Chelsea FC, will have a virtually unlimited budget for buying players. Already player salaries have risen faster than revenues, and only eight of the 20 BPL clubs made a profit last year.

Opinion & Analysis: ‘I would like it if clubs were actually allowed to make money’

“[Wages] have gone beyond the realms of reality,” said John Madejski, owner of small club Reading. “I would like it if clubs were actually allowed to make money, which you can depending on how interested you are in maintaining the status.”

Reading kept its player salaries low, but paid the price on the pitch. The team finished in 17th place last year and was relegated to a lower league after just two years in the Premiership. Reading’s relegation illustrates the dilemma faced by league owners; they must either spend more than they make to compete at the top, or keep salaries low and risk relegation. Many are left hoping for a mid-table finish.

For the larger clubs, owners hope that they can make up their losses in the future by tapping into global markets. “If it continues to grow in Asia, and especially in China, then it could become the biggest sporting series in the world,” says Stefan Szymanski, a sports finance expert at London's Imperial College. “These investors think the globalisation of football will mean much bigger opportunities to make money.”

They also know that they can make a large profit selling their clubs, which justifies their yearly losses. “It requires some suspension of your normal economic belief, but football is not unique,” says Dan Jones of Deloitte consultants. “People buy wine, paintings, restaurants and hotels. They don’t make them a lot of money but, should they want to sell them, they make their money back and more.”

This business model may eventually backfire on the league, says Forbes’s Paul Maidment, who believes that there is a “bubble in the making.” He writes, “Transfer fees and wages are being driven up by the weight of money chasing the best, not intrinsic values. Human assets can be mispriced when money is effectively free, just as easily as subprime mortgages or Internet stocks.”

Related Topic: Foreign investment in hockey and basketball

Other sports in Europe and the Middle East have received similar investment from multibillionaire owners. In Russia, state-controlled gas company Gazprom funded the creation of a new hockey league and made lucrative offers to NHL stars. Like Abramovich, the backers of the Continental Hockey League are energy oligarchs who are willing to spend millions without the expectation of making it back.

In Dubai, a neighboring emirate of Abu Dhabi, billionaire Sheik Mohammad is funding Dubai Sports City, a complex with four world-class stadiums. Dubai leaders have expressed their desire to one day host the Olympics, or even attract foreign professional teams, hoping to make Dubai a center of world sports.

European basketball teams have not attracted the same level of investment, but they have nonetheless increased their offers to top European and American players. With the NBA operating under a salary cap, American Josh Childress found that he could make more money in Europe and accepted a three-year, $32.5-million contract from Greek club Olympiakos.
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