In the March edition of FS Focus (£), the ICAEW Financial Services Faculty's magazine, we interviewed former Chelsea FC CEO and current Duff & Phelps MD Trevor Birch. We couldn't fit all of his fascinating insights into our magazine article, so here's the follow up Q&A.
Q: Should football clubs be better aligned with financial services firms?
A: ‘There tends to be a breakdown at clubs between the ownership and management running the clubs. But it’s the owners’ money and they have a right to run it as they desire. It’s fine as long as it doesn’t end in tears and the ordinary creditors miss out when the owners turn off the tap, as happened at Portsmouth FC. That can happen given the false nature of the way clubs are funded. The funding available to them wouldn’t necessarily be available to them if it wasn’t for the owners.’
Q: What are the key lessons financial services firms can learn from football clubs and vice versa?
A: ‘Team-work is where football has great strengths. If you’re not pulling together you won’t achieve success. Managers need to find the magic formula where everyone feels they are working towards a common goal.’
Q: What do you make of the current financial situation in football? Crazy money paid for the likes of Neymar and Coutinho.
A: ‘It is crazy money being spent on the players, but there’s crazy money being pumped into the game as well through TV rights. As long as there’s the requirement by the TV companies for the killer content of the Premier League, then that money will continue to flow into the game. As long as they’re relatively balancing the books. There are some large outs, but also some large ins. Apart from Man City and Man United, the net transfer fees are reasonable. There’s a degree of responsibility in the way these clubs are being managed. But for the man on the street the transfer fees look obscene and unsustainable. They are if the TV money starts to deteriorate…’
Q: Does that filter down and affect pricing for the entire market?
A: ‘That was the problem when Abramovich arrived. The wages he was paying had a relative knock on effect for everyone else. So if John Terry is being paid £200,000 a week, you get the centre half at Stoke City saying ‘I must be worth at least half of that,’ but the club don’t have the money to pay such wages.
The league that’s really suffering is the Championship, where the losses are really quite horrific. They’re either being underpinned by benefactors, or parachute payments for clubs that have been relegated from the Premier League. But you would still say that their losses are unsustainable.’
Q: How do clubs factor in inflated agents fees when financing a players transfer?
A: ‘It’s part and parcel of a transfer that you have to add to get to the cost of the deal. Agents are effectively unregulated. Attention after this latest round of transfers has been focused on them in terms of the amounts of money they’re taking out of the game. Eye watering amounts based on eye watering transfer fees.’
Q: How are players accounted for? Are they employees or fixed/current assets?
A: ‘They’re employees. If they’re bought then they’re put on the balance sheet and amortised over the life of their contracts. That means the homegrown players don’t have a value (off balance sheet in terms of value).’
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The game of investing is a lot like football. You have to tackle your problems, block your fears and score your points when you get the opportunity. Tactical analysis and planning have become essential in football as well as investments. Managers and investors in both these fields need to be on top of their game to ensure that all their efforts yield substantial results. You must be wondering how tactics in football can be related to investment planning. Well it’s not too far-fetched an idea if you think about it. showbox not working