Economic Theory explained by Football 19 – Giving before receiving

The term “fallen giant” seems to be one exclusively used by the Footballing world. Our top four divisions are littered with them.  Leeds United, Newcastle United, Portsmouth, Blackburn Rovers, Fulham, Wolves, Aston Villa, Nottingham Forest, Bolton Wanderers, Charlton Athletic.  At points in the last couple of decades you could have included Manchester City, Chelsea, and even Premier League champions Leicester City on the list.

The definition of fallen giant seems to be any club that’s ever won a major honour, has a decent fan base and big stadium, that has through chronic MIS-management found themselves sliding down the leagues.  The Championship is so full of fallen giants that it’s hard not to have at least one game a weekend without the media referring to one side as such.

How much sympathy should we have for them though?  In his book Money and Football, Stefan Szymanaki examines the failure of ITV Digital at the turn of the century and the impact that had on Football League clubs.

The original deal, signed by OnDigital in June 2000 would see £315 million flow into the pockets of the 72 Football League clubs over a three year period from June 2001.  Despite the fact they didn’t have any of the cash yet, during the summer of 2000, spending on players by the Championship clubs was up by 36% year on year.  Twelve months later just before the first payments were due to kick in, they had increased that amount by a further 24%.  Eight months into the TV deal, ITV Digital went bust.

Many clubs then threw their hands up claiming financial distress because of the collapse of ITV Digital but in reality they had spent their pocket money increase before they’d received it.  In other walks of life we’d be more prudent – we’d not agree to buy a book before it was written, buy a car before we’d at least seen a review (I will conveniently ignore property at this point) or buy a ticket to see a film before production has even started.  Football, it seems, is the home of financial imprudence.

That being said, football does have a Teflon coating.  In 1923 the Football League consisted of 88 teams. Ninety years later 85 of those teams were still in existence, albeit it some had changed name.  Compare that to an average High Street over the same period.  How many businesses that existed back in 1923 still exist today?  Think about industry verticals such as airlines.  Twenty years ago the sky was dominated by Pan-Am, Danair and Pacific South-West.  All three have gone to that great airplane graveyard in Arizona (yes, that is a real place). Banking – how about Lehman’s, Barings, Northern Rock?  Even the British High Street has not been immune with Woolworths, Blockbuster, Jessops, Tie Rack and now British Home Stores disappearing. These are businesses that have failed, yet a little-old football club, like Lewes, that ducks and dives for over a century seems to be made of Teflon.

Why? Because we’ve learnt to adapt, we’ve learnt to cut our cloth according to our needs and we’ve learnt the painful lesson of spending that pocket money before we had it and vowed never to do it again.  There’s also more emotional engagement with a football club than a High Street brand.  When Woolworth disappeared we may have lamented the fact that we bought our first record there or we could always sneak a few extra sweets in the pick and mix, but we found other shops to satisfy our musical and sweet tooth needs.  Football clubs represent communities and have emotional attachments.  People have far more invested than simply money.  So individuals will often throw bad money after good (and vice versa) to keep a club alive.

The community-ownership model is slowly becoming the model of choice for clubs who have suffered the financial distress of administration or winding up orders.  I cannot guarantee a successful future but it does mean more of a stress-free one.

 

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