Financial meltdown

Football is paying the price for living beyond its means

By Gavin Hamilton, World Soccer Magazine

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The financial crisis at Leeds -- debts of £100million, with interest payments rising by the day -- remains unresolved.

The downfall of the club -- from Champions League semifinalists to bottom of the Premiership and the brink of administration in less than three years ? will be told and retold as a cautionary tale of the excesses of football's TV-fueled boom of the late 1990s.

It is does not take a financial genius to work out how Leeds got themselves into their current predicament. They borrowed millions to finance the "dream" of Champions League football but tried to run before they could walk.

The scale of Leeds' debts may be greater than any other club in Britain, but in many respects, they got what they deserved.

They were not caught short by the collapse of ITV Digital, like so many Football League clubs. Nor were they victims of financial mismanagement at their parent company, like Lazio and Parma.

Leeds simply spent more money than they could repay. They gambled on qualifying for the Champions League every year, simply on the basis of one successful season in that competition.

Their problems were compounded by the nature of the loans taken to finance their spending spree -- much of the borrowing was guaranteed against future gate receipts. Leeds were not the only club to use such a high-risk tactic to borrow money.

But other clubs, such as Newcastle, have used the money gained to finance stadium expansion, and have been able to meet repayments through the extra gate receipts. Leeds, having blown the borrowed money on players, had no extra revenue to fall back on.

So Leeds could become the first Premiership club to be declared bankrupt. The amazing thing is that such a collapse has not happened earlier.

But a far more worrying trend is taking place in Scotland, where three Premier League clubs are in administration, and many others are laboring under huge debts.

Livingston were the latest club to be forced to call in the administrators, joining Motherwell and Dundee. Even champions Rangers have huge debts, having been declared £68m in the red last summer.

The Scottish Football Association is now warning that clubs could be threatened with relegation unless they put their finances in order.

"Our role is to ensure the good governance of the game and we don't want clubs falling off the edge of a cliff," said the SFA's David Taylor.

That's easier said than done. An explanation for the financial mess engulfing many Scottish clubs can be found in any training ground car park. The rows of brand new, top-of-the-range Mercedes and BMWs are a reminder of where the money has gone in recent seasons.

The players have been the main beneficiaries, but six- and seven-figure salaries can't be sustained by clubs whose attendances rarely reach five figures.

Last month UEFA announced that its club license scheme will start next season. Eventually, it is envisaged that the scheme will require clubs to be solvent and have proper financial controls in place.

Although the scheme will only cover clubs competing in the European club competitions, it is the strongest indication yet that the game's governing authorities feel that regulation is needed to prevent clubs from going over the edge.

Ultimately, clubs must rid themselves of the backbreaking contracts that many of their players are still on. That requires players (and their agents) to recognize the severity of the situation.

And that, as Leeds have discovered to their cost, is the toughest challenge of all.