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A lesson in economics Premiership clubs aren't able to spend like others
It seems that every few weeks the wire services pump out a new story about Manchester United and how it's the biggest, richest, most profitable club in the world. On Tuesday the club opened yet another megastore and sooner or later they'll be as much of a suburban fixture as those Golden Arches. New Chief Executive Peter Kenyon, former head of Umbro, is universally hailed as a savvy businessman and every indication is that the hefty profits (more than US$50 million last year) will continue rolling in. So why has United been playing the wallflower in the summer's high price transfer waltzes?
Indeed, why does it seem that Premiership clubs are unable or unwilling to compete with their counterparts in Spain, Italy and even France? Real Madrid shells out US$55 million on Luis Figo. Lazio coughs up US$53 million on Hernan Crespo, plus another US$18 million on Angelo Peruzzi. Milan is ready to offer US$60 million for Rivaldo. The list goes on and on but Premiership clubs are sitting on the sidelines. We're not just talking megadeals. There are plenty of stars in the US$20 to $25 million range who are readily available but are drawing little interest from England. The three biggest English signings this summer were Jimmy Floyd Hasselbaink (Atletico Madrid to Chelsea for US$25 million), Serhii Rebrov (Dinamo Kyiv to Tottenham Hotspur for US$18 million) and Fabien Barthez (Monaco to Manchester United for US$12.5). Add it all up and it's marginally more than what Real paid for Figo. Which begs the question: why is the Premiership lagging behind? The answer is simple: money. Premiership clubs simply have less of it. Or, when they do have cash in the coffers (i.e. Manchester United and, to a lesser degree, Arsenal) they choose not to spend it. The disparity in terms of wages and transfer fees is staggering. Roy Keane is far and away the highest paid player in the Premiership, earning around US$4 million a year. To the English press this is an insane amount of money. Maybe so, but not when compared to the rest of Europe. On a continental level, Keane's salary doesn't even make the top 60. As for transfer fees, the English record is still US$25 million, a figure long eclipsed not just in Italy and Spain, but in France as well. To understand the reasons behind this you need to look at the structures of clubs in England, Spain and Italy. Apart from Lazio, which floated on the Italian stock exchange last year, most Serie A clubs are bankrolled either by uberwealthy fans masquerading as chairmen (Massimo Moratti at Inter, Vittorio Cecchi Gori at Fiorentina, Franco Sensi at Roma) or linked to a huge multinational corporation which often figures that the return in terms of image and prestige outweighs the cash expenditure (AC Milan and Mediaset, Juventus and FIAT, Parma and Parmalat). This means that making a profit is subordinate to winning, which allows clubs to spend huge and take massive gambles. In some ways, Italian clubs are PR vehicles for their owners, which is why their chairmen seem to always be in the public eye. The set-up in Spain's two biggest clubs, Barcelona and Real Madrid, is different, but the outcome is similar. Barca and Real are clubs in the truest sense. They have members who elect presidents and they are not run for a profit. Nobody pockets the extra change in the register, it just gets plowed back into the club. Nobody owns them which means that when the clubs lose money no individual actually loses out. This is why a club like Real can be some US$260 million in debt and still throw money around. It's a little bit like the U.S. government deficit: there may be a lot of debt, but it doesn't directly affect most citizens and so the spending continues. Of course, in theory the club could go bankrupt (and, I suppose, in theory the United States could go bankrupt as well), but that is seen as a remote possibility and nobody wants to spoil the party. Contrast that with England, where many of the top Premiership clubs are listed on the stock exchange. They have institutional investors who expect an annual return. In short, while they would like their clubs to do well, they like it even more when they make money. Ask a Manchester United investor if he would rather win the Champions League but receive no dividends and watch the share price slide or make a tidy profit but win nothing at all and it will be no contest. They will go for the money every time. After all, that's their job: that's why they're institutional investors and not fans with money to burn. That's why United's wage structure is out of touch with reality. That's why Sir Alex Ferguson had to huff and puff and just about threaten to resign to get the board to cough up to US$30 million to sign Ruud Van Nistelrooy last April. And that's why, unless something changes, United and other Premiership clubs won't be able to compete in the most extreme bidding wars. Putting money first makes sense for the Old Trafford club, at least for now. The club still sells out every game, it still racks up mindboggling viewing figures, it still manages to win the Premiership just about every year. And it's still good enough to have a decent shot at winning the Champions League. The club benefits tremendously from the fact that its core group of players -- David Beckham, Paul Scholes, Ryan Giggs -- all came up through the youth system and, for now, have remained fiercely loyal to United. Scholes could go up to Chief Executive Peter Kenyon and say: "Listen, bud, I make $2 million a year and we both know that teams in Italy or Spain will gladly give me three or four times that amount, so pay up!" But he doesn't, either because he is loyal or because he hasn't thought of it or because he figures $2 million bucks is plenty or because he is afraid that he will fail away from Old Trafford. Ferguson's charisma has kept the club together so far, but how long can it last? How can the club be sure that another gaggle of talent like the one that produced Beckham and Scholes is in the pipeline? At some point, fiscal prudence and the need to win major silverware will clash. When that happens, United and the rest of the Premiership will either slide back towards mediocrity or ditch this "soccer-is-a-profitable-business" approach once and for all. London-based Gabriele Marcotti writes a weekly column on international soccer for CNNSI.com.
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