The curious phenomenon of the financially resilient football club
by Ed Owen
You might be inclined to savage the title; after all, what makes this business different? If the answer is nostalgia and loyalty, it is very easy to suggest that these things do not belong in the business world. Indeed, they may even act as millstones slowing the ascent and continued progress of companies. And you’d be right. Yet, in some places, nostalgia and loyalty continue unabashed, undimmed by such pesky notions of financial reality.
Take the example of one of football’s most well known clubs: Manchester United. It has lurched between wind-up orders (saved at the death in 1902 and 1927 by local businessmen often sourced by the captain) and tragedy (in the 1958 Munich air disaster the club lost several senior administrators along with its playing staff), as well as internal disputes and prospective coups (an argument over the ownership of a racehorse begat an attempt by then-majority shareholders J.P McManus and John Magnier to have manager Sir Alex Ferguson deposed). This of course says nothing of the hugely unpopular Glazer-led leveraged buy-out of the club in 2005, saddling it with £660 million’s worth of debt. Note that however chequered, this is the history of the most successful club in British football.
When viewed on a larger historical scale, we can see that a football club can survive almost anything- if we look at the clubs that made up the football league in 1923 and compare them to their counterparts in 2008, eighty-five percent of these clubs still exist, and a majority of them (48 clubs) operate at a similar level. In comparison, when economic historian Les Hannah looked at what had become of the top 100 companies from 1912 in 1995, he found that 49 of those companies no longer existed; 5 of them had gone bankrupt, 6 had been nationalised and the rest had become victims of mergers. Of those companies that still existed, many of them were no longer of the same stature, or had moved into different sectors.
Why is this? The answer is simple: brand loyalty, from the top down. In the footballing boardrooms, the concept of the moral hazard is alive, kicking and unashamedly acknowledged. No football club actively folds; the debt tends to be saddled on the investor, and there will always be somebody willing to bail them out, resize and move on. The greatest example of this is Leeds United, where Peter Ridsdale saddled the club with huge debts in a pyrrhic quest for Champion’s League football. Despite the inevitable catastrophe, Leeds United still consistently fill their 40,000-seater stadium for second-tier football. Leeds fans were willing to go and watch a lower quality players produce a lower-quality product, even after having been spoiled by the empyreal heights of European football years before. In no other business is this possible. If Ford started making lower-quality cars to save on costs, we would all simply flock elsewhere for our automobiles. If your electricity company decided to only give you power for half the day, you’d switch provider.
Indeed, in all other businesses there is the omnipresent threat of a better product, and so there is a strong ethos of innovate or die. Football is the only exception to this rule, where degradation doesn’t mean disaster, simply because of this loyal consumer; some will always come back, no matter how bad the product. To call this loyalty is an understatement, and to understand this psyche one need look no further than Rogan Taylor, Liverpool fan and Liverpool University lecturer; ‘Nobody has their ashes scattered in Tesco’. You can’t help but feel he’s right.