What Is The Point Of The Football Association?

Following England’s dismal exit from the World Cup, the Football Association (FA) has reacted with its customary alacrity and promised that Fabio Capello’s position as manager will be subject to a two weeks “review”. Although it makes sense to have a period of reflection to prevent a knee-jerk reaction to England’s desperately poor performances, this lack of decisive action is symptomatic of the FA’s inability to lead the national game. Any confidence we might have felt that the various committee men, suits and consultants that comprise the FA could reach a sensible decision surely faded away when we discovered that the assessment will be lead by Sir Dave Richards, jack of all trades and most certainly master of none.

The latest chapter in England’s never-ending story of failing to live up to expectations at major tournaments should not deflect football fans from a rather more fundamental question for the Football Association: in this media age dominated by the Premier League what exactly is it for? According to the FA itself, there are three core elements in its role: to lead the game in England with confidence; to build successful England national teams; and to protect football’s status as the nation’s favourite game. Leaving aside the last aim, which does not seem overly taxing, given that the alternatives of rugby, cricket and tennis are hardly going to set the spectators’ imagination alight, it could be interesting to see how the FA has performed against its own objectives.

However, David Davies, the former FA executive director, admits that the organisation’s focus is not completely clear, “You cannot tell me what the agreed priorities of English football are – nor can I. The problem is there are none. Everybody does their own thing.” In the absence of any decent guidance from the Football Association itself, I thought we could draw up our own list of areas where the FA plays a part and produce a sort of report card. As is the nature of these exercises, I have identified a top ten to examine:

"Captain Marvel"

1. National Team

Disappointing as the displays of England’s finest were in South Africa, it’s nothing new under the sun for the national team. In fact, since England won the World Cup way back in 1966, they’ve not even reached a major final. Compare that record to our closest rivals: in the same period, Germany have won five trophies (the World Cup twice and the Euros three times), while the song remains the same for other countries: Italy three trophies (two World Cups, one Euros), France three (one World Cup, two Euros) and Spain, frequently labeled as “chokers” by the British media, two (one World Cup, one Euros). Hell, even countries like Netherlands, Denmark, Greece and the Czech Republic have won the Euros since Alf Ramsey’s boys did the business. Not to forget the major South American nations, who have won five World Cups between them in that time: Brazil three, Argentina two. Given that barrage of statistics, it’s difficult to argue that England is a footballing powerhouse – very far from it.

The ease with which Fabio Capello’s team qualified for the World Cup may have proved all too illusory, but the fact remains that the national team is not very good – and rarely has been. This is a problem for the Football Association, as they candidly admit in their annual report that “a successful England team is fundamental to the well-being of the game at all levels.” Oh dear. More specifically, the national team is the engine that powers the FA’s finances, enabling higher broadcast and commercial deals and filling the white elephant known as Wembley. This is why the FA pushed the boat out in South Africa, spending huge sums on the management team, a purpose-built training complex and even some natty three-piece suits for the players. Seriously, this was an expensive gamble, designed to give the England team every chance of bringing home the World Cup, which would have sent their commercial value through the roof. Unfortunately, it’s clearly not paid off.

"Unclear future for the FA"

2. FA Cup

The Football Association’s flagship trophy is obviously the FA Cup, but this has lost its lustre over the years. No matter how many times ITV scream about the “romance of the Cup”, most fans seem to have tired of this relationship. Certainly, most of the Premier League clubs pay lip service to this competition, invariably not fielding their best eleven players. Even though the prize fund and broadcast payments increased in 2008/09 to £28 million, the winning team only received £3.8 million. That might be a reasonable sum for a Championship team, but it’s chicken feed for a club like Manchester United, which in the same season earned £51.5 million from the Premier League and £32.6 million from the Champions League.

This lack of interest and uncertainty over the televising prompted E.ON, the competition’s main sponsor for the last four years, to announce in 2009 that it would not be renewing its deal after this year’s final, though it recently changed its mind and decided to extend its sponsorship for one year for £10 million.

3. Generate Revenue

Exactly like their big brothers at FIFA, most of the revenue comes from selling their rights to broadcasting partners and commercial sponsors, in the FA’s case mainly for England’s matches and the FA Cup.

"Watmore do you want?"

(a) TV Rights

The last deal, covering the four seasons from 2008 to 2012, was a record for the Football Association, securing £425 million from ITV (£275 million) and Setanta (£150 million) for domestic rights (up 40%) and £145 million for overseas rights (up 270%). Given the paucity of the product on offer, this might have seemed too good to be true – and it was. Setanta went bust last year and its collapse has left a significant hole in the FA’s accounts. Although a replacement deal was signed with ESPN, this was only for £60 million. As “here today, gone tomorrow” former chief executive Ian Watmore said, “Losing the Setanta deal was a big blow for us. It was a deal at the peak of the market.”

And that’s the key point. It’s extremely unlikely that the FA will get the same amount of money for the next TV deal. ITV have effectively admitted that they over-paid last time by writing-down the value of the rights in their accounts, while they have already asked the FA to delay the phasing of their payments, as their own advertising revenue slumps. The BBC is under pressure to reduce its expenditure and has allocated much of its sports budget to Formula One, while politics mean that Sky may not be allowed to bid. It is possible that ESPN might see this as an opportunity to broaden their access to the UK market, but they might prefer to focus on the Premier League’s golden goose. On the other hand, live football is still very popular on television with England’s lamentable displays at the World Cup still pulling in massive viewing figures, so the FA may yet pull the proverbial rabbit out of the hat.

"Wayne's World"

(b) Sponsorship

The FA’s decision to delay signing a main sponsorship deal until after the World Cup always looked to be very risky and England’s early elimination will definitely weaken their bargaining position. They turned down a £20 million offer from loyal partners Nationwide for four more years and it is unclear whether that is still on the table. They had hoped to secure a significant increase from other potential partners, but the brand has been severely tarnished and some skilful negotiation will now be required. Tim Crow of sponsorship consultancy Synergy said, “The reality is they will take a price for the England team sponsorship rather than set the price.”

In contrast, Karen Earl, chairman of the European Sponsorship Association argued, “People have short memories and will want to get behind the team and show unity and national pride. Sponsors want to tap into that and are in it for the long-term.” Nigel Currie of Brand Rapport concurred, “As long as England qualify, the level of interest they get in a World Cup period is massive. Everybody wants to be part of it.”

Indeed, a number of important second-tier sponsorship renewals and new deals were signed on the back of England’s impressive World Cup qualifying campaign, including Carlsberg (£12 million a year for four years) and kit supplier Umbro. They have also signed deals related to grass roots development with McDonalds, Mars and Tesco. The McDonalds deal is worth £10 million over four years and will provide financial support to more than 200,000 coaches; Mars will help drive the FA’s “Get into Football” campaign; while Tesco will sponsor the FA’s skills programme.

However, National Express sent a blast of cold air in the FA’s direction when they pulled out of their multi-million sponsorship deal with Dean Finch, the new chief executive, complaining, “I am not compelled by the impact of that sponsorship. We will not be renewing it. We are better focused elsewhere.”

"It's been so long"

(c) Other Revenue

Despite their old-fashioned reputation, the FA has been exploring new revenue streams, especially in the world of digital media, having launched FA TV with “official 24-7 access to Fabio Capello’s team” at the World Cup. Although this may strike some as particularly undesirable content, especially as it is presented by the incredibly annoying Tim Lovejoy, it can still be sold to broadcasters. The FA has further ventured into the modern world by screening some FA Cup matches live on the internet.

In other attempts to generate revenue, the FA is considering previously unthinkable initiatives, so the previous chief executive, Ian Watmore, said he wouldn’t “rule in or out” the idea of signing a betting partner. They would also not be averse to a sponsorship deal for Wembley, although they would baulk at renaming the stadium as a whole, instead offering the possibility of naming specific stands.

4. Protect The Finances

Although the FA’s last annual report announced with quiet confidence, “we ended the financial year well placed, in an uncertain economic environment, to handle the challenges our game faces”, there’s no doubt that their finances have been hard hit by Setanta’s demise (not their fault) and the unholy mess that is Wembley (entirely their fault). To be fair, they have reacted to these challenges by reducing their cost base by 10%, including the relocation of their offices from the plush Soho Square to Wembley, though it is unclear whether a tenant has yet been found to pay the £2.4 million annual rent on their former offices. Nevertheless, Ian Watmore warned that the next four years were a “critical period” for the FA’s finances.

Many would point to the removal just before the World Cup of the break clause in Fabio Capello’s contract that would have permitted a parting of the ways without penalty, as evidence that the FA is not overly competent in the finance arena. It would now cost up to £12 million to terminate the Italian’s contract, though a negotiated settlement would probably be less than the remaining two years of his contract. I just don’t understand the FA’s rationale here. If a top club wanted Capello and he wanted to go, would the FA really hold him to this contract against his will? There has been precious little evidence of such a strong approach elsewhere in football.

Of course, the FA has previous here, the most recent accounts revealing that Brian Barwick, just one of the numerous former chief executives, received almost £2 million in his last year, including a hefty £1.5 million pay-off, which represented three years salary. Nice work if you can get it.

Although the FA produced a profit before tax of £14.6 million on turnover of £183.7 million, the group as a whole registered a loss of £15.3 million, dragged down by the £31.1 million loss contributed by Wembley Stadium, almost all of that due to interest payments on the construction loans.

"We're going to Wem-ber-lee"

5. Wembley Stadium

As the financials amply demonstrate, far from being England’s crowning glory, Wembley is a gigantic millstone round the association’s neck. The stadium cost £757 million to build, going £300 million over budget, and has been a disaster from every perspective. To put it plainly, without this vanity box, the FA would have another £20-30 million a year to invest into football.

In fairness, thanks to money paid upfront by the Club Wembley bondholders, the outstanding bank loan is down to £341 million and the net debt is “only” £204 million after taking into account £133 million of cash. Furthermore, the FA has also managed to refinance the loan, so that the interest rate has been reduced from 7.8% to 6.8%, but the loan still has to be repaid over the next 15 years (until 2023).

Last year’s interest payments of £39 million were inflated by a £10 million write-off in respect of bank signing fees (relating to the original financing), but Ian Watmore estimated that the FA would have to subsidise Wembley to the tune of £20 million a year until 2014, when the business plan predicts break-even. Even that seems optimistic, given that it must rely on revenue growth, which largely depends on customers renewing their expensive Club Wembley boxes and premium seats (60% of revenue), which is by no means a fait accompli. Indeed, it has been reported that a many of those ticket holders have not renewed before this week’s deadline. The annual report described this as the “principal risk” facing Wembley, so much so that a significant reduction in renewals could put the company in default of its banking covenants.

In addition, the FA has to pimp Wembley out for a plethora of other activities, including rock concerts and American Football, in order to pay off the loans. This obviously damages the pitch, which then has to be relaid at a cost of £100,000 a time, and produces a dangerous playing surface that is hardly conducive to playing good football (though this may be a blessing in disguise for the England team).

The saddest thing about this saga is that it is totally unnecessary. Almost all other countries get along fine without such a monument to their ego, sorry, national stadium. There are many other stadiums that could comfortably host England matches, such as The Emirates, Old Trafford and St. James' Park, which would have the added benefit of allowing fans all around the country to watch the national team. It makes you want to find the blazer responsible at the FA and bash his head repeatedly into a table while yelling in his ear, “What were you thinking? You utter moron.” If they could find someone willing to take this awful stadium off their hands, they should get rid of it and focus on their core competences.

"Jack Wilshere - the future boy"

6. World Cup Bid

It’s come to something when England appear more concerned about winning the bid to stage a World Cup, rather than actually winning one, but there would be one huge advantage if we were awarded the 2018 tournament. It would allow us to make a radical transformation in our football set-up, safe in the knowledge that we would already have “qualified” for 2018, so the worst-case scenario from making wholesale changes would be failing to qualify for just one World Cup (Brazil 2014).

However, the bid is placing an additional burden on the FA’s resources of up to £15 million, not to mention the need to grovel to the likes of Jack Warner in order to stand any chance of winning. Having said that, this is a case of speculating to accumulate, as hosting the tournament could earn the FA serious money. Germany’s 2006 event earned their football federation around €150 million and the FA would expect to make even more, as there is less need to improve infrastructure in England.

What does go against the grain is that members of the FA appear to be enriching themselves during the bid process. Former chairman Lord Triesman was entitled to £100,000 a year for his commitment to the bid (two days a week) on top of his normal salary, while the other six members of the bid board were awarded an additional £35,000 a year for the duration of the campaign. Are we getting value for money here? Yes, if you consider the entertainment Triesman provided as he allowed his ego to get the better of him during dinner dates with a woman 30 years his junior, when he foolishly accused Spain and Russia of planning to bribe referees. It remains to be seen whether his resignation will save the bid.

"Sir Trev - puts the football in the FA"

7. Development

An important step in the development of players and coaches is the National Football Centre, which is planned to be England’s equivalent of France’s Clairefontaine and Coverciano in Italy. The key word in the last sentence is “planned”, as the FA has owned the site at Burton since 2001, thus wasting nearly ten years. This facility must now be fast-tracked, allowing the association to bring together the best players from each club, building a playing philosophy and continuity for all age groups. Although the FA has already put £25 million into the project, £70 million is still needed to complete the centre, which will require assistance from private funding. Ironically, a solution may have been provided by the Germans, or at least BMW, whose training facility, which was financed by a residential development (hotel and houses), could be the template for Burton.

The FA’s failure to develop coaches is implicit in the decision to hire an Italian to manage the England team, but is most evident in the number of coaches in England holding UEFA’s top qualification, which is less than 3,000. In stark contrast, Germany has 13 times more coaches, Italy 11 times more, Spain 9 times more and France 6 times more. Can you see a trend here? This is a truly shocking statistic, an abject failure by the FA that signals a complete indictment of its priorities. The lack of expert coaches is felt most strongly among the youngsters, which is the most important period for a player’s development. As the great Dennis Bergkamp said, “8 to 12 are the golden years of learning.”

However, it’s not all doom and gloom and there has been some success at youth level this year: the Under-17 team beat Spain 2-1 to win the European Championship, while both the U-21 and U-19 teams were runners-up in their age groups. These days, there is a greater emphasis on technical skills and possession, as laid out in the FA’s radical new coaching programme for young players, “The Future Game”.

"England U-17 - land of hope & glory"

8. Grass Roots Investment

The FA is understandably proud of the amount it invests in the game – over £80 million in 2008. Approximately half of this was invested into grass roots football through the Football Foundation £15m, county football associations £10m, the FA Cup £5m, the FA’s investment programmes £8m and other grants £3m. The remainder was invested by the professional game including the FA Cup prize fund £20m, grants to the Football League £9m and the Professional Footballers’ Association £2m.

However, given the FA’s financial difficulties, this level of investment is by no means guaranteed. Indeed, the annual report makes this fear explicit, “At a time of considerable economic and financial uncertainty, the support of our commercial sponsors and broadcast partners is central to our ability to fund our investment in the management and development of the game and to support football at all levels.” Indeed, it goes further, describing such investment as “discretionary expenditure” that can be “reduced without breaching legal commitments.” Pleasing to the accountants, but not exactly encouraging for the football family.

"Triesman makes his point"

9. Governance

The FA’s own Vision document contains the goal of being “Trusted to Lead”, which focuses on the importance of leading and governing with confidence. This is apparently vital if the FA is to be seen as an influential and respected voice in the international world. Even though it is abundantly clear that they have dismally failed to regulate the Premier League, who only recognise self-regulation (a bit like investment banks), they still appear to have UEFA’s support: “The national association should retain overall control in order to ensure balanced development of the sport in question. UEFA is of the view that there is (and should be) a single governing body responsible for English football and that is the Football Association.”

10. Leadership

It must be difficult for the FA to provide strong leadership when it has gone through so many chief executives itself, six in the last 12 years: Graham Kelly, David Davies, Adam Crozier, Mark Palios, Brain Barwick and Ian Watmore. To get round this problem, Alex Horne, the latest incumbent, has been given the title General Secretary, in line with his counterparts at FIFA and UEFA. However, given that both the chairman and chief executive have resigned in the last four months, there is still a power vacuum at the organisation’s centre, which is why Capello is being left hanging in the wind, as nobody is capable of making a decision - though there is a school of thought that he should only be informed two hours before England’s next match. At least the FA proved that it has not lost its sense of humour, when it said that Horne’s appointment would provide “strong leadership and stability.”

"It's been nice knowing you, Fabio"

Even the government has implored the FA to grow a pair. Former sports minister, Gerry Sutcliffe, said, “The FA must put their house in order. If that doesn’t happen, the influence of the FA will diminish and football as a sport will suffer.” He encouraged the FA to establish itself as the main decision-making, governing body for the game. However, the velvet glove masked an iron fist with a threat to reduce funding if the FA failed to deliver, starting with the implementation of the 2005 Burns report – though this in itself is so insipid that even the Premier League supports it. Similarly, Hugh Robertson, the new sports minister, has given football until autumn to sort itself out before examining whether a new structure should be imposed.

It is true that the structure of the FA Board does them no favours, containing an independent chairman, the chief executive and ten members: five representing the professional game (three from the Premier League, two from the Football League) and five representing the grass roots. This has been ridiculed as men in suits meeting men in blazers (they’re always men) with UEFA expressing concern at the lack of representation for managers, coaches, players, supporters, agents and referees. In contrast, the Spanish FA appointed the former Real Madrid player, Fernando Hierro, as technical director shortly after he retired in 2005.

The origins of the FA’s loss of control over the game can be traced back to 1992 when they sanctioned the establishment of the Premier League. Incredibly, the break-away was sold to the FA on the basis that it would benefit the national side, as the number of teams in the top league would be reduced to 18, thus reducing fixture congestion, but this never happened. Instead, the Premier League has been run in the interest of the top 20 clubs, most blatantly in their attempts to keep the vast majority of the enormous TV money for themselves. Even Graham Kelly, the FA’s chief executive at the time of the split, now admits the decision was wrong, describing it as a “tremendous collective lack of vision.” As UEFA put it, “break-away leagues do not help the development of sport as a whole (although they may benefit a small interest group).”

"What's going on?"

The reality is that football is suffering from a major constitutional crisis. Outgoing Football League chairman, Lord Mawhinney, baldly stated, “There is no doubt that there is a structural problem in the relationship between the FA and the two professional leagues.” The former executive director, David Davies, agreed, “The structure builds in conflict, which is hardly surprising, given it is riven with conflicts of interest and people’s roles and responsibilities are either blurred, or not defined at all, or worse still set up in competition with each other.”

And this week, former culture secretary, Andy Burnham, also put the boot in, “The governing body is a hung parliament and it isn’t able to take a view, as the interests of the Premier League, sadly, predominate at the FA.” He was probably thinking back to the time when he asked the football authorities to comment on the state of the game, only for the FA’s response to simply refer to those delivered by the professional leagues. This was widely interpreted as a cry for help from the FA, saying that it lacked independence and could not hope to govern football when members of its own board had vested interests.

The problem is epitomised by Sir Dave Richards, who is chairman of the Premier League and a prominent member of the FA’s Board at the same time. Despite his own appalling track record, which has involved saddling his former club, Sheffield Wednesday, with huge debts and taking a number of companies into administration, apparently he is the right man to decide Fabio Capello’s future. Let’s not forget that this is the mastermind who once said, “Does the Premier League hurt the national side? I think the answer has to be yes.”

"You can call me Dave"

Frustration at the lack of desire for change provoked Ian Watmore into resigning from his role after just nine months, complaining that he was “neither chief, nor executive.” Rather than leading English football, the chief executive at the FA appears to be little more than an administrator. When Watmore attempted to introduce some reforms, his proposal went down “like a bucket of sick”, as it dared to address areas like club ownership and reckless spending. It didn’t take long for the Premier League to circle the wagons. Similarly, Lord Triesman had been a dead man walking ever since he dared to point out that the Premier League was a wild west of debt and unsustainable player wages.

So why don’t we just let the Premier League run the game? That’s certainly the opinion of Wigan chairman, Dave Whelan, who harrumphed, “The FA is an amateur organisation running the world's biggest professional game. They haven't a clue how to run the England side, so let's get professionals in there.” That’s pretty rich when the Premier League clubs have managed to run up more than £3 billion of debt. Leaving that aside, can you imagine what would happen if the Premier League ran the national team? No friendlies, players not released for matches, clubs richly rewarded if they deigned to release players. Alternatively, they would leave the FA with all the boring governance, while concentrating on what the Premier League does best, namely making money. I’m sure they think they could do better with the television and sponsorship rights.

"Scudamore - you wouldn't like me when I'm angry"

If the Premier League really wanted to help the national team, they could easily forge a better relationship with the FA. That might sound naïve, but it seems to work OK in Germany, where the FA's counterpart, the DFB, has a far more balanced relationship with the Bundesliga and is able to weigh what is best for the league against what is best for the game as a whole. In particular, the Premier League could agree to: a winter break, fewer clubs, no participation in the Carling Cup and more home-grown players. Can you see that happening? No, me neither.

Even if the FA is a self-elected elite, it’s still really all we have to keep the barbarians at the gate. A recent Times survey confirmed that the FA is overwhelmingly the most trusted organisation in football. However, as The Stranglers once sang, “Something Better Change” or England will continue to win sweet FA. After Watmore’s departure, the FA claimed that it was “stable, working normally and geared for success.” Yeah, right.

When Will The Premier League Bubble Burst?

So England have crashed out of the World Cup, the so-called “golden generation” once again failing to perform on the grand stage. Although England might have found a little form when beating Slovenia, it’s fair to say that the national team has been struggling for almost the entire length of its miserable stay in South Africa with the woeful display against Algeria being one of the worst in living memory and the defeat against Germany the worst-ever at the World Cup.

Never mind, at least English fans can comfort themselves with the thought that they will soon be watching the Premier League again – and that’s the “best league in the world” (copyright Sky Sports’ imbecilic front man Richard Keys). Or is it?

While this is a debate that can never be won on football grounds, it should be rather more straightforward from a financial perspective and, happily for us, the Deloitte Annual Review of Football Finance provides the comparatives. Even though Germany’s Bundesliga is now more profitable than the Premier League with operating profits of €172 million against €93 million, this is partly due to Sterling’s deterioration against the Euro. Moreover, the combined revenue of the clubs in the Premier League of €2,326 million is still miles higher than all other football leagues: Bundesliga €1,575 million, La Liga €1,501 million and Serie A €1,494 million.

"The lion-hearted Premier League"

Despite these apparent riches, there is a growing feeling that the good times in the Premier League are coming to an end. The concern is that football is not immune to market forces, where every boom market is inevitably followed by a bust. However, despite operating in the harshest economic climate, the Premier League bubble defiantly refuses to burst. The reason that football has not been as badly affected as other industries is down to its enduring appeal. The reality is that people love football and will spend considerable sums to follow their team, be that through attending matches, watching them on television or buying the club’s merchandise. Live football continues to attract large audiences on television and this is especially true of Premier League football, whose frenetic style appeals in this media age of low attention span.

The Premier League’s business model is simple, but highly effective. According to their own annual report, they aim to “monetise the global interest in the Premier League and distribute revenue equitably and responsibly”, which essentially means exploiting their broadcasting rights. In order to achieve this aim, the 20 member clubs formed a company called The Football Association Premier League Limited, so when we talk about Premier League financials we have to be careful to distinguish between the clubs’ aggregate revenue (the Deloitte analysis above) and the revenue of the Premier League company, which excludes streams like match day revenue, clubs’ commercial revenue and TV money from the Champions League.

Looking at the accounts of the FA Premier League Limited, there is no sign of the gravy train slowing down. Far from it, as the company’s turnover exceeded £1 billion for the first time in its 17-season history. The 2009 accounts cover the second year of a three-year cycle of broadcasting and other commercial rights and the 6% rise in income is in line with the underlying agreements. Indeed, the turnover has grown by a very impressive 70% in the last four years, which has helped drive the Premier League’s winning cycle: revenue growth, recruitment of the best players (though La Liga might take exception to that), top quality football and further revenue growth.

Of course, one thing, and one thing alone, has driven the Premier League’s success: television - or, more specifically, television money. You might almost say that the Sky’s the limit. Right off the bat, television played a significant role in the Premier League, as money from TV rights was behind its creation in 1992 when the top clubs broke away from the Football League and it continues to be the driving force in its growth (and priorities). Broadcasting revenue is now the biggest element of revenue at Premier League clubs, contributing almost half of their turnover (49%). This is much needed when you consider that match day revenue growth has effectively stalled (up only 2% in 2009), while commercial revenue is also starting to feel the effects of the recession and actually fell 1% last year.

The Premier League’s chief executive, Richard Scudamore, emphasised television’s importance, “The continued investment in playing talent and facilities made by the clubs is largely down to the revenue generated through the sale of our broadcast rights.” There’s that virtuous circle again, even though the figures show that most of that lovely TV money actually goes straight into the players’ bank accounts.

OK, Scudamore might be an arrogant blowhard, but boy does he know how to secure a great TV rights deal. The growth in payments secured for the Premier League TV rights has been nothing short of astonishing from the initial £304 million 5-year deal in 1992 to the £3.6 billion total payments (according to Deloitte) that commence next season. To make that spectacular progress even clearer: on a season basis, the original deal was worth £60 million, while the latest brings in £1.2 billion.

Even when the European Commission tried to loosen Sky’s grip in 2006, the Premier League still managed to secure a 67% increase in the domestic deal to £1.7 billion. And recently, in the midst of the worst recession for decades, the latest deal still produced a 5% increase to £1.8 billion, though this may be due to Sky outbidding Setanta in a desire to put them in their place, ensuring they were only allocated one package, which effectively drove them out of business.

This really is an impressive performance for the Premier League’s wheeler-dealers, but there is a growing awareness that the home market is nearing saturation, hence the mounting focus on overseas rights.

If you think that the increase in the price paid for domestic rights is striking, get a load of the growth in the overseas market. Every time the rights are re-negotiated, the fees more or less double with the latest agreement generating £1.4 billion compared to £625 million in the previous three-year cycle and £325 million the time before that. That deserves some kind of award and Her Majesty duly obliged by giving the Premier League the Queen’s Award for Enterprise.

"Scudamore - I have in my hand a piece of paper"

In fact, the extraordinary globalisation of the Premier League could make English football the first world sport to earn more money from supporters abroad than at home. Foreign rights already account for 44% of the total and it would be no surprise if they overtook domestic rights in the future. Scudamore boasted, “By focusing on the quality of the game, their players and their grounds, the clubs have produced a competition that people want to watch – both at matches and at home.” You can say that again: the Premier League is currently broadcast over 211 territories to more than 500 million homes. As Scudamore says, “Ask people anywhere in the world what they know about Britain and they’ll name the Queen, the BBC and Premier League football.” OK, the Scots and the Welsh might quibble about the reference to Britain, but we get the point.

The overseas rights are marketed to a balanced combination of long-term relationships, such as Fox, ESPN, Canal+ and Sky (in Germany and Italy), and an array of new partners. Revenue increases have been remarkable in the Middle East and Asia, where interest has been bolstered by teams taking part in pre-season tours, including the Premier League Asia Trophy, which has been hosted in Malaysia, Thailand, Hong Kong and China.

However, there are a couple of downsides to this expansion overseas. First, it makes it more likely that kick-off times will be changed to suit fans abroad, so we can expect more lunchtime matches that can be screened during the evening in the Far East. It doesn’t just hurt the UK market either, as local football in many countries around the world has suffered, due to fans preferring to watch the Premier League on television.

"Richard Keys - the unacceptable face of television"

In addition to the main TV rights, there are other sources of revenue. The BBC pays £172 million for the right to show highlights on that hoary old stalwart, Match of the Day, while Sky and BT pay £84 million for the “near live” rights (matches broadcast in full, but delayed). There is also some diversified revenue from new media, though in truth the surface has barely been scratched with only a few million received for screening highlights online (Yahoo!, previously Virgin Media) and mobile phones (ESPN, previously Sky).

It is easy to understand why television is important to the Premier League, but why is football good business for television? Intuitively we understand that football attracts viewers, but if you look at Sky’s subscriber figures, it becomes very evident why football is central to their business model. Of the satellite company’s nine million customers, around five million of them pay for the sports package, earning Sky some £2.5 billion a year. On top of that, pubs pay Sky huge sums for licences to show matches, bringing in a total of nearly £3 billion a season. Admittedly, the sports package contains more than just football, but the Premier League is the jewel in the crown, so must be responsible for most of that business. The latest Premier League rights cost Sky £541 million a season, but there is clearly still a lot of profit margin there.

In these days of multimedia with countless entertainment possibilities, television viewing figures are declining across the board, but average audiences for live football matches have remained consistent. This is particularly important for companies struggling to push their brand through traditional advertising, especially in the core market of males aged 18-34. Dominic Coles, the BBC’s director of sports rights and finance, confirmed its worth, “The Premier League is the world’s most successful domestic tournament and their rights are the most significant sports rights in the UK.”

"Remind me again - who's the sponsor?"

This popularity has also helped the Premier League grow its sponsorship revenue. Barclays recently paid £82 million (up from £66 million) to extend their global title sponsor deal for three years with their president, Bob Diamond, claiming that it “provides a cost effective method to market our organisation.” To nobody’s surprise, Richard Scudamore agreed, “The Premier League must be considered one of sport’s top sponsorship properties. Its great strength is that it is an essentially English competition which has gained a huge international following.”

Partners such as Nike, Budweiser, Lucozade Sport and Wrigleys further highlight the competition’s marketing appeal. Sponsorship has come a long way since the Premier League’s inception. There was no sponsor at all in the first season and Carling paid just £3 million a season for the period 1993-97. This makes perfect commercial sense to any organisation. As experienced football agent Jon Smith explained, “If you are a serious brand player, it’s the only thing on the planet that gives you a quarter of the world’s population every week.”

So the Premier League continues to coin it from selling rights, but it essentially distributes all the money it generates, meaning that it retains no profit. The vast majority of this distribution is given to the Premier League clubs. Half of the money from domestic rights is split equally between the 20 clubs; 25% is paid in facility fees, based on how often a club is shown on TV (with each club guaranteed a minimum of ten appearances, maximum of 24); and 25% is paid in merit payments, determined by the club’s final league position. In addition, each club receives an equal share of overseas rights.

For the last season 2009/10, £905 million of central funds were distributed, including £74 million of parachute payments to those clubs relegated to the Championship. Each club got equal shares of £14.6 million from UK TV income and £10.1 million from overseas TV income. Manchester United ended up receiving more money (£53 million) than the Premier League winners Chelsea (£52.8 million), as they were shown on television more often, so received the highest facility fees (£13.0 million), while Chelsea obviously got the highest merit payment of £16 million, compared to bottom club Portsmouth’s £0.8 million. In fact, each place in the league is worth and additional £800,000, so mid-table teams do have something to play for at the end of the season.

This all means that the top earning club (Manchester United) received £53 million, while the bottom earning club Portsmouth still received a very healthy £31.8 million. The Premier League make great play of the fact that their distribution formula is the most equitable of all Europe’s major football leagues, due to the collective selling of the rights, citing the ratio between bottom and top clubs of just 1:1.67. This is considerably lower than La Liga’s 1:14, as TV rights are sold on an individual basis in Spain.

In particular, the Premier League suggests that equal allocation of the growing overseas rights will make the tournament more competitive. However, others disagree, arguing that this merely begs the question of whether this egalitarian approach should not also apply to the domestic rights. The current UK system is weighted in favour of clubs whose games are broadcast live more often, which naturally means the bigger clubs. This gap is widened further when Champions League television money is taken into consideration, so in 2008/09 Manchester United earned a total of £84.1 million, nearly three times Portsmouth’s money. The financials also explain why clubs don’t really take the FA Cup seriously these days, as the winners only receive a paltry £3.8 million.

On the other hand, clubs with a major global fan base like Manchester United and Liverpool might start agitating for a higher share of the overseas rights, as it is difficult to see how much interest a match between, say, Burnley and Bolton Wanderers would hold in Asia. So far, everyone has followed the party line. As Scudamore said, with more than a hint of complacency, “So long as the overall amount is going up, we don’t get too many complaints.” Not so much the beautiful game as the bountiful game then.

Indeed, the central payments will rise again next year by about a third, as the new TV deals take effect, which means that even the club finishing last will receive an incredible £40 million. No wonder clubs stretch themselves to the financial limit to get into the Premier League, as the size of the prize is so enormous. In fact, the winners of the Championship play-off final should gain at least £95 million, even if they are immediately relegated the following season. First, £40 million for coming last, then £48 million parachute payments spread over four years (£16 million in each of the first two years and £8 million in years three and four) plus at least £7 million additional income from ticket sales, sponsorship deals and other commercial earnings.

"Good times"

To be fair, the Premier League also distributes a fair bit of money down through the football pyramid, including £43 million allocated to grass-roots facilities (Professional Footballer’s Association £17 million, Football Foundation £15 million, Creating Chances programme £8 million, Professional Game Match Officials £2.5 million and League Managers’ Association £0.5 million) and £18 million for developmental support to the Football League, though this only represents 6% of turnover.

In contrast, the Premier League should be praised for their very low administrative expenses, which represent less than 1.5% of turnover, but even here I cannot help noticing that the highest paid director, presumably Scudamore, has not done too badly, receiving over £1.5 million last year, including a £750,000 bonus in respect of broadcasting agreements.

As we have seen, one of the largest “external” payments made by the Premier League is for the parachute payments to those clubs relegated to the Football League, amounting to £74 million. The rationale for these payments is to soften the financial impact of relegation, when the clubs’ television money drastically reduces, on the assumption that the clubs cannot immediately reduce their operating expenses. France’s Ligue 1 is the only other league with such a system and it does seem strange, as it essentially rewards failure and potentially distorts competition in the Championship. If the Premier League is so concerned about the viability of clubs in the lower divisions, why not give the money directly to the Football League instead of the clubs? It smacks a little of “once you’re in our club, we will do everything we can to keep you in (and the others out).”

"Everybody's happy nowadays - not"

However, not everything is rosy in the Premier League’s garden and there are flaws in the business model. Even Deloitte has dared to bite the hand that feeds and pointed out the “imbalance between revenue and costs”. In fact, 14 of the 20 clubs in the Premier League are running at a loss and combined operating profits fell to £79 million last year, the lowest since 2000, mainly due to rampant wage inflation with the crucial wages to turnover increasing to 67% - a record high. Despite the booming television revenue, the combined net debt has also climbed to an unwanted record of £3.3 billion. It’s as if clubs have treated the TV money as some sort of interest-free loan. The other worrying factor is that attendances have fallen two seasons in a row, even though grounds are still more than 90% full.

As a result, there are those who believe that the Premier League should play a stronger role in the sphere of financial sustainability, especially after the high-profile going concern issues at the likes of Portsmouth, Hull City and Liverpool, but Richard Scudamore has distanced himself from these problems (“see no evil, hear no evil”). Actually, when you consider the enormous guaranteed sums, he does have a point, “Given the amount of central income that is generated by the Premier League, it would be down to absolutely rank bad management if a club was actually to go into administration.”

"Happy days"

Nevertheless, the Premier League has not completely stuck its head in the sand and launched a strategic review of its business model back in November 2008, though it will only provide recommendations in December 2010, which may just be “more of the same”. Proposals to date include the infamous 39th game, which would have meant ten additional games played around the world, but this was soon shot down as a blatant money-making attempt, which would have destroyed the competition’s integrity and denied local supporters the possibility of seeing the game live (at least at the stadium).

Next up was the idea of introducing a play-off for England’s fourth Champions League place, featuring the teams finishing in fourth to seventh positions. Although you could argue that this would increase the chances of a team outside the “Sky Four” qualifying for the Champions League, this has again been put on the back-burner, mainly due to the fixture congestion that would arise, but also because it might “damage the product”, the last from David Gold, West Ham’s joint chairman (and full-time rent-a-quote).

Finally, another chairman, Bolton’s Phil Gartside, proposed a two-tier Premier League structure, consisting of 18 clubs in each, in an attempt to protect his club from relegation, sorry, to increase competition, but this has also been parked to one side. In any case, you could argue that the increased parachute payments are effectively creating this format by stealth. Big Phil’s other great idea of inviting Scotland’s Celtic and Rangers to join a reformed Premier League has been flatly rejected.

"Any more bright ideas, Phil?"

Does this flurry of initiatives to increase money mean that there are threats to the Premier League’s dominance? Oh, yes. I can think of at least four:

(a) Customers. TV channels are not immune from the recession and Setanta went bankrupt last year. Although this in itself has not proved problematic, as ESPN snapped up the TV rights relinquished by Setanta, if Sky were to hit financial difficulties this would be extremely serious. This may not seem likely, but it is not out of the realms of possibility. For example, Mediapro, the company that owns the TV rights in Spain for La Liga, last week applied for bankruptcy protection.

(b) Competition. Although the Premier League is the undisputed leader in terms of global popularity, that could change if more of football’s top stars decide to move to another league like La Liga, e.g. Cristiano Ronaldo to Real Madrid, when the “product” would be devalued. There is some evidence that fans in emerging markets attach themselves more to individual players than teams.

(c) Regulatory. Media watchdog Ofcom has already ordered Sky, the Premier League’s main television partner, to give rival broadcasters cheaper access to its exclusive rights (maybe by up to a third), which may in turn lead to Sky paying lower prices for those rights. Although one Premier League insider initially dismissed the ruling, “It’s true that sport has benefited from Sky’s investment, but we are not shy of taking other people’s money either”, this has serious implications for their business model, which is why they have decided to take legal action in order to overturn Ofcom’s decision. Did you get that? The Premier League, not Sky, is launching proceedings – they truly are “partners in crime”. As usual, they dressed this up as a noble gesture, “the consequences for UK sport and UK sports fans are too serious and fundamental for us to ignore”, but their motives are fairly transparent.

"Not even Des could save Setanta"

(d) Technology. Illegal streams of football matches have become very widespread on the internet, so much so that a report compiled for sports rights owners last year concluded that “digital piracy is one of the most important threats today.” However, instead of thinking outside the box (in both senses of the word) and embracing the new technology, the Premier League has responded to this danger in the same way as the music industry – by employing a company to protect their rights online and issuing lawsuits. Broadband is not yet universally available and the quality of the streams is patchy, but younger fans’ viewing habits are definitely changing, so the Premier League should adopt a more progressive attitude to this profound change, instead of throwing all its eggs into television’s basket.

So what would happen if the TV money were to fall? Obviously the funds distributed to Premier League clubs would also be reduced, which would impact all teams, but those at the lower end of the league table would suffer the most, as a far larger proportion of their total revenue is dependent on broadcasting income, e.g. Blackburn Rovers “earn” 70% of their revenue from TV, compared to only 35% at Manchester United.

Deprived of this easy money, clubs would have to cut their coat with the cloth available, i.e. reduce their costs. In practice, this means lowering wages, which seems unthinkable given current behaviour, but could be achieved if all clubs acted collectively (as they do on securing the TV rights). The Bundesliga chief executive, Christian Seifert, has argued, “The Bundesliga pays less then 50% of turnover in players' wages. I'm absolutely sure a league can reduce wages. If all the clubs said: 'OK, we reduce wages by 10%,' maybe you will have some players who would leave for Spain or Italy, but 99% will say: 'OK, still I make a hell of a lot of money’” Indeed, Football League Two has already demonstrated that this is possible in England by implementing a wage cap.

"Sky - even better in 3D"

Unfortunately, the other possibility is that clubs would strive to compensate any TV shortfall by increasing their revenue in other areas, which could mean asking fans to pay higher ticket prices. Alternatively, they could pull their finger out in the commercial area and build their revenues to the same level as their continental counterparts.

The Premier League’s chief executive, Richard Scudamore, remains supremely unbothered, “People said we were a bubble going to burst. They said it eight years ago, six years ago, four years ago. From all the indicators we've got, we don't think interest is lessening.” That may well be true, but the alarm bells are ringing and, as the song says, there may be trouble ahead.

Money Makes The World Cup Go Round

As the World Cup (excuse me, the 2010 FIFA World Cup) was officially declared open last week amid great colour and emotion, one man in particular beamed with pride. That man was Joseph “Sepp” Blatter, the long-standing President of FIFA, whose bold decision to award the most prestigious competition in world football to South Africa had paid off – in every sense of the term.

While Blatter somewhat unnecessarily reminded us that “the FIFA World Cup is in South Africa,” he could be forgiven for heaving a huge sigh of relief when it started on schedule. It’s not so long ago that experts confidently predicted that FIFA would make a loss on the 2010 World Cup in contrast to the large profits the 2006 tournament generated in Germany. The President had revealed his anxieties earlier this year in yet another of his bizarre outbursts when he accused the “Old World” of “anti-Africa prejudice” in response to the accusation that slow ticket sales were due to security concerns and high travel costs.

Although Blatter spoke movingly in Soccer City of “a dream coming true” and “the spirit of Mandela”, he had revealed his organisation’s priorities a few weeks earlier when he boasted that FIFA’s excellent 2009 financial report justified awarding the World Cup to South Africa as a “good financial and commercial decision.”

You can say that again. FIFA is now projecting record earnings of $2 billion, but this is in stark contrast to the losses that have been incurred by the host country. Financially, it’s a great deal for FIFA, as virtually all of its revenue is contracted in advance via the sale of television and marketing rights, while South Africa has to foot the enormous bill for infrastructure improvements. In fairness, FIFA has made a contribution of around $500 million to the Local Organising Committee and the South Africans retain the net income from ticket sales (the only risky revenue stream), but this is small change compared to the money needed to fund new stadiums, improved transport networks and better security. This financial imbalance has given the expression “a game of two halves” a whole new meaning in Johannesburg.

"You'll never walk alone"

So just how much cash does FIFA expect to pocket? It has budgeted truly impressive revenue of $3.2 billion with event-related costs of $1.2 billion, leading to a “surplus” (please don’t call it a profit) of a cool $2 billion for the 2010 World Cup. Some reports talk of a profit of “only” $1 billion, but that is after allocating half of the gross profit to the budget for development programmes, financial assistance to national associations and other events. In any case, it’s a shedload of money, but it was greeted with unusual understatement by Blatter, who said, “We are comfortable. I wouldn’t say we are rich. A good result has been achieved.” FIFA General Secretary, Jerome Valcke, toed the party line, “Yes, it’s a lot of money, but just to be clear, we are not sitting on profit. All the money is going back to be football.”

While this could be considered a feeble attempt to mask their discomfort at being thought of exploiting South Africa, actually they do have a point. Finance Director, Markus Kattner, said that 95 per cent of FIFA’s total revenue comes from the sale of rights relating to World Cup, leading to a “high exposure” and this was again confirmed by Jerome Valcke, “We are not rich. We are making quite good money thanks to the World Cup, but that’s the only money we have.”

These executives obviously have a vested interest in under-playing their large profits, but the independent analysts Sportcal have supported their views, “FIFA is quick to point out that its profits from the World Cup go towards funding its many other activities over the four-year cycle between World Cups, including less lucrative competitions such as junior and women's World Cups and the quadrennial Confederations Cup between continental national teams champions.”

These tournaments tend to make losses, which are only covered by the profits from FIFA’s premier competition. For example, in 2009 alone, FIFA incurred significant expenses for the Confederations Cup in South Africa ($44 million), the U-17 World Cup in Nigeria ($43 million), the Club World Cup in UAE ($30 million) and the U-20 World Cup in Egypt ($21 million). Not to mention $30 million for women’s competitions the year before.

If we take a look at FIFA’s complete profit and loss account, this is easier to understand. The budget for the four-year cycle leading up to this year has the $3.2 billion revenue from the 2010 World Cup, but the overall profit is only $0.2 billion after deducting costs for all events, football development and operational expenses. Of course, let’s not forget that these are very big numbers, so the profit is still a far from shabby $240 million, which every Premier League club would regard with envy. Having said that, this profit is actually considerably lower than the $0.7 billion recorded in the previous cycle, but then again the 2003-06 financial period was FIFA’s best-ever overall result.

Many of you might be wondering why I am presenting the financials for four years, but this is simply because this is how FIFA views its budget, given the total reliance on the World Cup for its revenue. It works with a four-year financial period, beginning on 1 January of the year following each World Cup. That’s why FIFA’s $2 billion profits from the 2010 World Cup are more than a little misleading, as they have to cover expenses for four years. Alles klar?

Revenue and expenses directly related to the 2010 World Cup are recognised in the income statement using the percentage-of-completion method, so 2009 marked the three-quarter stage in the 2007-10 cycle. Nevertheless, 2009 was notable for being the first time annual revenue reached the threshold of $1 billion, due to increased revenue from the sale of TV and marketing rights, which lead to a profit of $196 million last year.

Analysing the phased analysis above, I wouldn’t mind betting that FIFA’s revenue will be a good $0.5 billion higher than the budgeted $3.2 billion, but this may well be matched by a similar increase in costs, leaving the anticipated profit for 2007-10 unchanged.

Most of FIFA’s revenue is derived from the sale of broadcasting rights and this has increased by nearly 50 per cent for this World Cup to $2 billion, mainly due to improved contracts in the USA with the Walt Disney company (which owns ABC and ESPN) and Univision paying a combined $425 million for exclusive broadcasting rights for 2010 and 2014. The growth also reflects the success of FIFA’s decision to sell TV rights on a country-by-country basis for the largest European markets instead of the previous consolidated deal with the European Broadcasting Union.

These are considerable sums of money, but the television companies do get a lot of bang for their buck. According to FIFA, more than 26 billion viewers watched the 2006 World Cup. As Kevin Alavy of international analysts, Initiative Futures Sport + Entertainment, said, “No other media property delivers the same spikes in audience delivery, day after day, sustained over a month as the World Cup.” If I’ve understood that correctly, that’s a very good thing. The same agency believes that the final on 11 July could be the second-most watched live televised event in history – only behind the Beijing Olympics opening ceremony in 2008.

"Jerome Valcke in good company"

FIFA also earns $1.2 billion from the marketing of the World Cup rights, though there has been no growth since the previous event (unlike TV), as hospitality packages have been affected by the economic downturn and possibly fears of crime. Nevertheless, its new commercial strategy of classifying marketing partners into three categories (FIFA Partner, FIFA World Cup Sponsor and National Supporter) can be considered a success. In fact, some believe that it is likely to produce more money than budgeted with some estimates as high as $1.6 billion.

A Partner enjoys the highest level of association with FIFA, which means they own international rights to a broad range of FIFA activities as well as exclusive marketing assets. The six partners are Adidas (Jabulani!), Coca-Cola, Emirates, Hyundai-Kia, Sony and Visa, paying an annual fee of $24-44 million for the 2007-10 period. The eight Sponsors, including the likes of McDonald’s and Budweiser, pay $10-25 million a year over the same period, but their rights are limited to the World Cup. The lowest tier, National Supporters, pay $4.5-7.5 million a year, but their rights are only available in the host country.

Visa signed a $200 million sponsorship deal in 2006, leading to MasterCard suing FIFA for breaching their agreement, before this was settled out of court. As per usual, Blatter glossed over this minor inconvenience, “We also managed to end the contractual dispute with MasterCard, thus opening the doors to partnership with Visa and completing our pool of partners”, conveniently failing to mention that the settlement cost FIFA more than $90 million.

"Put your hands up for Cape Town"

Similarly, the collapse of FIFA’s former marketing partner ISL (International Sport & Leisure) in 2001, leading to losses of at least $42-46 million, was recently presented by Blatter as beneficial to the organisation, “It was for us, I would say, a very positive moment. We are masters of our own rights and we do not need any agency to work for FIFA. Our partners like the direct contact with us.” Right. You get the impression that he only just stopped himself from saying “masters of the universe” à la Bonfire of the Vanities, but he’s probably right to cut out the middle man, even though the circumstances were not the cleanest.

In fairness, FIFA needs to generate a lot of money to pay for its vast cost growth. Total expenses for the latest four-year cycle are budgeted at $3 billion, which represents a 58 per cent increase over the $1.9 billion in the previous period – more than double the 27 per cent revenue growth.

Almost half of the expenses are event-related at $1.4 billion. In terms of the 2010 World Cup, that includes a budget of $423 million for the Local Organising Committee, though this has been recently increased by $100 million following unforeseen costs on the teams’ training facilities. The other major expense is the prize money of $420 million, which is a 60 per cent increase from 2006’s total of $261 million and is almost three times as much as the $154 million paid in 2002. The winners will pocket a cheque for $30 million with $24 million going to the runners-up. Every team at the World Cup will receive at least $9 million: $1 million as a contribution to preparation costs plus $8 million even if they are eliminated at the group stage.

FIFA is keen to emphasise that the majority of its expenditure is on football, though it would be fairly surprising if it weren’t. In fact, their most recent financial report notes that 73 per cent of FIFA’s overall expenditure in 2009 was invested directly in football – defined as the World Cup, other events and development. This is entirely consistent with FIFA’s stated objective of “organising international competitions as well as constantly improving and promoting football.”

Of course, that’s not enough for President Blatter, who went much further in a recent magazine article, when he pompously wrote, “FIFA is no longer merely an institution that runs our sport. It has now taken on a social, cultural, political and sporting dimension in the struggle to educate children and defeat poverty.” Just in case, his doubters in England were unclear on his motivations, he also put the boot into the greedy Premier League, while extolling FIFA’s noble virtues, “Richard Scudamore is working to make money, while I’m working to have football as a social, cultural event around the world, being a school of life, bringing hope, bringing emotions. That’s the difference.”

So how well has FIFA done in its attempt to emulate Mother Theresa? To be fair, they have dedicated $700 million to the development of football in the latest four-year budget. Indeed, they take great pains to highlight the fact that spending on development programmes in 2007-10 was 50 times greater than the $14 million in 1995-98, while the revenue growth was “only” 12 times greater over the same timescale. Impressive stuff, but I can’t help noting that total expenses have risen by $1.1 billion since the 2003-06 period with only $0.2 billion of this increase attributed to development.

"Golden years"

It’s difficult to know how to react to this. On the one hand, there is no doubt that FIFA has spent a lot on development, but on the other hand, there is a feeling that it could have done a lot more with the funds available. Although there is no shortage of worthy-sounding projects, it does feel a little like this merely camouflages the relatively low investment and certainly not enough to support Blatter’s outlandish claims, “We resolved to instigate a range of projects designed to aid the entire African continent. Football is a force for change. For Africa, for the game, for the world.”

The snappily titled “Win in Africa with Africa” initiative is designed to leave the continent with a proper football legacy, including laying many artificial pitches, and has a hefty $70 million budget, but other projects seem less meaningful. For example, FIFA’s contribution to the Football for Hope centres in 2009 amounted to just $2 million, while the Goal programme, described as the “cornerstone of FIFA’s development work” has completed more than 400 projects in the ten years since its launch, but the expenditure averages out to only $17 million a year.

Blatter has frequently declared that FIFA can make a difference, but I would suggest that it could have an even stronger impact if it cut its own costs. After all, the organisation spends more on operational expenses ($0.8 billion) than football development ($0.7 billion), including $0.3 billion for “governance” (congress, committees and administration). That’s no surprise, if you have seen FIFA’s palatial new offices in Zurich, which cost around $200 million – or more than the $170 million spent on the Goal programme in its ten-year life. Of course, we cannot say whether FIFA’s 360 employees are over-paid, as they do not publish details of their salaries. Three years ago, Blatter confessed that his salary was “$1 million”, which admittedly does not seem that steep for a man in his position, but then again we only have his word for it.

"A load of ..."

FIFA is classified as a non-profit organisation in Switzerland, though, as we have seen, it has a highly commercial outlook, e.g. it has its own official range of FIFA branded merchandise. Its status allows it to enjoy a tax-free lifestyle, though this does oblige it to spend its profits on fulfilling its football objectives. This is probably why they say that the media should not describe the surplus from the World Cup as profit, but as a reserve to insulate the organisation from any unforeseen circumstances that may arise.

Fair enough, but do they have to sit on quite so many reserves? They budgeted an increase in equity to $800 million, but have already reached $1.1 billion. Furthermore, cash balances are an incredible $1.4 billion, up $0.7 billion in just one year. Franco Carraro, chairman of the internal audit committee, defended this amount, “While equity of over a billion dollars seems high, it is necessary as the financial risks exceed it many times over.”

The biggest risk to the financial position would clearly be the cancellation of the World Cup, as almost all contracts with commercial partners are related to this event, so FIFA has an insurance policy in place. However, since 9/11, it has been practically impossible to fully cover the revenue risk, so their $650 million policy now only covers the cost of postponement and/or relocation of the event in the case of natural disasters, war and acts of terrorism. The event’s cancellation is not fully covered by the insurance, so would have to be compensated by FIFA’s own reserves. The caution is therefore understandable, but I still think they could spare another $250 million on developing the game.

"Free Nelson Mandela"

Or they could give the poor host country some more cash. The South Africans do not share in the colossal television or marketing deals - the World Cup’s main money spinners – and their only direct funding comes from the net revenue from ticket sales and a predetermined contribution from FIFA. Although this could amount to $1 billion, it’s a drop in the ocean compared to the cost of hosting the event.

Around three million tickets were made available for the 64 matches of the World Cup and while FIFA’s eternally optimistic general secretary, Jerome Valcke, claimed that the tickets were at least 97 per cent sold out, many empty seats have been clearly visible in the sparkling new stadiums. This has been attributed to poor transport systems, but there is a suspicion that many tickets have been sold to international agencies who have been unable to shift them.

Even Valcke had to admit that FIFA had made mistakes in its ticketing procedures, most notably granting the Match agency the exclusive rights to sell tickets for the 2010 and 2014 tournaments. The high commission charged by Match to travel agents and hotels has been a spectacular failure, which should cause Sepp Blatter some discomfort, as the company is part owned by his nephew, Philippe Blatter.

At least FIFA have stepped in to boost the amount they will pay to the host country from $423 million to $523 million with the additional $100 million funding being used to help improve some of the training facilities, following complaints by some of the participating teams. Interestingly, only $40 million of that had been spent by May, leaving the remainder to be retained by the South African Football Association for the “development of the game”.

"Smile like you mean it"

As a popular supermarket’s advertising would say, every little helps, but the South African government has spent considerably more preparing its country for this footballing extravaganza. They have incurred major costs on building five new stadiums and refurbishing the same number, while every aspect of their transport network has been upgraded, including a new international airport in Durban and a high-speed train link between Johannesburg airport and the city centre. Estimates of the total cost vary, but the BBC calculated $5 billion, while some think it could be as high as $8.6 billion. In any case, it has clearly been one of the most expensive World Cups to stage.

Even though FIFA has thrown a few meaty scraps their way, there is understandable resentment in South Africa that FIFA will make so much money while their own country ends up with a huge debt. Furthermore, local street vendors have not appreciated FIFA’s strong-arm tactics in protecting their precious brand, while the limited availability of tickets for Africans is another source of anger, as the lack of internet access and credit card ownership prevented online purchases.

Stefan Szymanski, an economist who has been advising the South African government, complained, “It’s completely wrong and deeply improper that FIFA is making money out of this”, especially as South Africa has been forced to protect FIFA’s earning from tax. Meanwhile, a Sowetan journalist was even more outraged, “The World Cup is a colonial playground for the rich and for a few wannabes in the South African elite.”

"Two eyes good, four eyes better"

In contrast, former South African president Thabo Mbeki suggested that the 2010 World Cup would be the moment when the African continent “turned the tide on centuries of poverty and conflict.” The current president Jacob Zuma was rather more pragmatic, “we have an opportunity to promote foreign investment, tourism and trade”, as he focused on the boost to South Africa’s image worldwide, which would also be enhanced by the improvements in infrastructure.

In the past, host countries have relied on growth in tourism to help compensate the additional costs. The evidence from previous tournaments is that all the publicity adds at least 10 per cent to the number of tourists over the next 10 years. The accountants Grant Thornton initially estimated 483,000 visitors during the World Cup, but later revised that down to 373,000, largely because of the recession, while South Africa Tourism’s chief executive thought it might be as low as 250,000.

In fact, many now believe that the economic benefits of hosting major sports events are limited. Stefan Szymanski pointed out the opportunity costs to an economy, “The gain in sport is a loss on spending in cinemas.” While criticising FIFA’s excessive expenditure, he asserted, “There’s so much evidence that there’s not even an argument any more – mega events don’t deliver the financial extravaganza that is promised.”

However, FIFA’s gravy train shows no sign of being derailed with their provisional budget for 2011-14 increasing revenue to a staggering $3.8 billion, of which $3.2 billion is already contracted. Just in time for next year’s presidential election, Sepp Blatter promised to double the funding to national associations over the next four years. The healthy finances also allowed him to award each of the six confederations an extra $2.5 million, while every national association will be given a $250,000 bonus. Blatter smilingly explained, “It is a gift, if we can say this.” While others might find different words to describe these payments, Blatter was unperturbed, “The whole family of football is happy.” If you’re in FIFA, there’s absolutely no reason to disagree, though the South Africans might beg to differ.