How it works: the football business

The Gateway explores the business behind the beautiful game
Commercial awareness
Business analysis

British football hit its lowest point on 15 April 1989. With English clubs banned from competing in European competitions following the 1985 Heysel stadium disaster, 96 Liverpool fans were crushed to death at an FA Cup semi-final at Sheffield Wednesday's Hillsborough ground. Club football, the preserve of white, working-class men and played in creaking, half-empty stadiums had never been more unfashionable. The English game was dogged by a violent hooligan culture and its best players often left for Spain, Italy or France.

What followed must be considered one of the most remarkable turnarounds in any industry in recent times. English football became the world's number one sporting attraction, now worth over £1 billion, and watched by fans across the globe. How did this happen?

In the aftermath of the Hillsborough tragedy, clubs were forced to redevelop their stadiums, introducing all-seater areas for spectators in place of terraces. Three years later, England's top teams, now in a position to attract a wider, family-based audience, broke away from other clubs to form an elite competition known as the Premier League.

This new, cleaner brand of football was interesting to broadcasters. The newly formed British Sky Broadcasting bid a record £304 million for exclusive broadcasting rights for the UK and Ireland for a five-year period. The sudden influx of TV revenues gave clubs money to spend on foreign players. Rather than the UK's best heading abroad, exotic talents such as the French international Eric Cantona and Holland's Dennis Bergkamp were brought in, attracting a new audience of middle-class viewers to the game.

To cash in on football's soaring commercial appeal, many football clubs declared themselves public companies, the only major European league to take this approach. Foreign benefactors, among them Russian oil tycoon Roman Abramovich and various American billionaires, were quick to recognise English football's huge potential and snapped up controlling stakes in the country's elite teams, including Chelsea and Aston Villa.

Paradoxically, however, football's increasing wealth has brought financial problems to many of England's leading clubs. In their search for glory, and greater revenues, clubs have been pushed beyond their means, spending big on transfer fees and wages. The prospect of Premier League bankruptcies, unthinkable until a few years ago, has become a reality with Leeds United, Portsmouth and now Liverpool among the clubs to have faced financial ruin in recent seasons. And yet there is little sign of things slowing down. Manchester City, recently bought out by United Arab Emirates-based Abu Dhabi United Group for Investment and Development Limited, announced after-tax losses of £121 million for the last financial year. It is unlikely to stop spending, however, as it chases Champions League qualification. The madness continues.

The Club

*Liverpool, the joint most successful club in English football, now sits at the bottom of the Premier League with reported debts of £350 million. What's going on? *

The back story

February 2007 and the club is bought by US sports tycoons George Gillett and Tom Hicks in a deal worth $218.9 million. Rather than buying the club with their own money, however, the majority of the money for the purchase comes from a loan from the Royal Bank of Scotland (RBS).

One year into their ownership, Gillett and Hicks are struggling to meet the loan repayments on the club and need to refinance. Dubai International Capital, a sovereign wealth fund, is reported to be ready to take Liverpool off their hands, but the owners are not willing to let go for the money on the table. Liverpool is having little success on the pitch and needs investment in new players, and fans turn on Gillett and Hicks and demand that they step down.

*What's happened recently? *

Gillett and Hick's difficult relationship with Liverpool's supporters came to a head in October 2010. With several hundred million pounds of debt outstanding, the club was heading towards administration with creditors clamouring for repayment. With plenty of interest in the team from potential investors, the easiest solution would have been for the Americans to cut their losses and sell up, releasing themselves from their financial liability. However, with the club facing a repayment deadline of October 15 or risking going into administration and forfeiting nine league points, Gillett and Hicks refused to sell, claiming the offers put forward didn't match their valuation. In an unprecedented move, the club's creditors, with the support of its board, took the owners to court to force the sale of the club. On October 15, the High Court ruled in favour of the sale, and the Americans were forced to accept the £300 million offer of US sports investment firm New England Sports Ventures (NESV). Gillett and Hicks are reported to be planning to sue the Liverpool board for $1.6 billion in damages.

Why buy Liverpool?

Many would see debt-laden and underperforming Liverpool as a poisoned chalice. Yet for all its faults, Liverpool remains attractive to investors. The club is one of the most recognised football brands in the world, with millions of fans across the globe. With investors barred from buying most European teams outright (strict rules regarding ownership apply in Spain, Italy and Germany), a major English club for sale is an unusual opportunity to get a slice of the football market. For football is arguably a business like any other, and NESV knows that the club has the potential to produce a solid financial return over the next few years.

The businessman

*Niall Coen, co-founder of a sports website empire and Spurs devotee, explains how he has built a business around passion for the beautiful game. *

My dad had a Spurs season ticket, and one of my first memories is of him slipping the guy on the turnstile a fiver, and then sitting on his lap and watching the game. Now I've got my own season ticket, and have been going to matches for 25 years.

I always knew from a very young age that I wanted to run my own business. I thought that if I was going to start one, it should be in something that I'm passionate about. When I met my business partner, we noticed a gap in the market for a football website with content generated by fans. We did a test show about Spurs, put it out and, within a month, had 500 people listening.

Now we have two main websites: FootballFanCast, for articulate debate about the game, and Transfer Tavern, where fans and journalists can interact in a more humorous way. We also have about seven or eight other satellite sites which are team specific.

Our business is all about football fans. We provide content for them, give them the opportunity to contribute, and then make our money by getting them to engage with advertisers. When we first looked at football, we realised that there was a huge customer base there for us. It's a global sport and the turnover of the Premier League from when it started to now has increased by thousands of percent.

But the gap between football and its fans has never been so wide. We're in a global recession with people being made redundant and struggling to find the money to go out for a drink at the weekend, and then you've got footballers spending thousands of pounds on flashy cars. However, I think that a lot of clubs will go under in the next four to five years, particularly in the lower leagues. A gap will develop between the likes of Chelsea and Manchester City with foreign investors and the other clubs.

I think a lot of these investors intending to make money out of English football have had a real shock. A lot of the fans are very protective of their club, and if they think that new owners are coming in just to make a profit, there's often a backlash. What fans want is for a owner to come in and spend all their money on the best players available. They don't really care if the owners aren't making a huge profit - fans don't see their club as a business.

But fans do want to feel a part of their team, so they will buy the shirt, the Arsenal pizzas or the Tottenham dog bowls! And at FootballFanCast that's the service we provide and the basis of our business - a platform for involvement. We produce content of interest to fans, and hope that they'll go on to book their hotel for an away game through us, or go to one of our advertisers' sites.

If I bump into another Tottenham fan, we have a common language, which is what's special to me about football. It's why people will keep discussing the game on websites like FootballFanCast and Transfer Tavern. It's about forming a community. That's what the fans love, and it's what they'll continue to do as long as there's football.

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