Portuguese forward Cristiano Ronaldo.
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The global reach of European, and particularly English, soccer has attracted two types of investors — entrepreneurs such as the Americans Malcolm Glazer (who owns Manchester United), Tom Hicks and George Gillet (who jointly own Liverpool) and Randy Lerner (Aston Villa); and billionaire prestige investors such as the Russian oligarch Roman Abramovich, who has invested more than $1 billion in Chelsea, and former Thai Prime Minister Thaksin Shinawatra, who last year acquired Manchester City. Chelsea, with its 42,000-seat stadium, might be considered an underperforming asset from a strictly business point of view; its revenues in the years since Abramovich took over are far lower than what he has invested. But owning the club may be less a business venture than a vanity investment for the Russian billionaire.
Whatever their motives, the growing legion of foreign owners of English clubs has pumped hundreds of millions of dollars into the transfer markets as teams compete to gain an edge. It's a cutthroat game, precisely because revenues are closely related to a team's performance: only the top four teams of the 20 in the English Premier League qualify for the European Champion's League, and United, Chelsea, Arsenal and Liverpool have in recent years established a lock on those four slots. But they have to win consistently to get there, and failure to do so can be financially disastrous. Things are as treacherous at the lower end of the league, from which the bottom three clubs are relegated to the second-tier league each season, losing their $50 million share of TV revenues to the three clubs who are promoted out of that league.
Staying within reach of the top teams requires spending more money each season to keep pace with their efforts to concentrate the world's best talent in their team. And if a club is unable to attract a prestige investor, it becomes essential to expand revenue — most importantly by increasing stadium capacity. Arsenal two years ago moved from the 38,000-seat Highbury to the 60,000-capacity Emirates Stadium, which helped the club double its annual revenues to $180 million. The problem, of course, is that building a new stadium takes massive capital investment, and Arsenal recently admitted that the annual interest payment on its new stadium is $48 million — meaning the club's competitiveness may hinge on coach Arsene Wenger's genius for buying unproven but talented youngsters and turning them into world-class players who can be sold for a huge profit after a few years' service.
For now, however, in a system in which money builds success and success brings in more money, Europe's richest soccer clubs are probably going to get richer while the rest will struggle to keep pace.
Soccer's inflationary economics is simply good business in the current market — the real estate experience reminds us that bubble-economy behavior is perfectly rational until the bubble bursts. But there are certainly risks. The current combined debt load of the English Premiership clubs is about $12 billion ($3 billion owed by Chelsea and Manchester United alone). Figures for the 2006–2007 season put the league's annual wage bill at about $3 billion and its total revenues a little over $3.8 billion, with only eight of the Premiership's 20 clubs reporting an operating profit. Revenues have increased, thanks to a new TV deal, but so too have wages. If the global economic slowdown eats into ticket and merchandising sales and the credit crunch suddenly trims the money available even to top clubs, the transfer market may see something of a correction — a development that could make middling leagues more competitive. And heaven help clubs boosted by vanity investment if their benefactors were to suddenly walk away. Even before this summer's spending is added, Chelsea would have just 18 months to repay Abramovich more than $1 billion if the Russian moved on to a different hobby.
The cautionary tale for today's Premiership highflyers is the fate of Leeds United, once among them. The northern English powerhouse overstretched its credit lines in order to sign players that would keep it in contention for English and European honors, and then disaster struck as a run of disastrous form saw the club miss out on Champion's League qualification. The resulting loss of projected revenues forced an emergency sell-off of star players, but that failed to avert a financial collapse, and the once mighty Leeds United now languishes in England's third-tier league. Just as wealth and success on the field go hand in hand in today's pro soccer, so can disaster on the field bring disaster at the bank.
Still, despite the risks, there's scarcely a bear in sight in the bullish market of English and European football. Which is why, when the Premier League kicks off three weeks from now, returning fans — who routinely cheer on their favorite players in song — will find themselves forced to retire some of last season's tunes and hastily pen some new ones. And nobody ought to be singing louder than the teams' accountants.