Finally the Cash Bubble bursts...

Lord Triesman, the chairman of the FA has sounded a stark warning to the Premier League and indicated that many are living beyond their means with all the risks that is entailed in that situation. He is concerned that in the storm that is the credit crunch, some football clubs will become casualties. 

“The owners break the debt up as a matter of policy into small packages,” he said. “They mix it with other debts, some of it fine, some of it toxic, and sell it on. I believe this poses us with a tangible danger. Not only is debt at high risk levels, but also in a period where transparency lies in an unmarked grave.
“There is no point in thinking that this affects everybody in the world except football. Indeed, further down the pyramid more and more clubs are in trouble and a number of owners leave abruptly and either seek repayment of debt owing to them as directors or they consider selling the ground.”

The table for the biggest debt holders starts like this…            

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 Manchester Utd £764 m
 Chelsea FC £736 m
 Liverpool FC £350 m
 Arsenal FC £318 m

The credit crunch will firstly hit Sponsors, AIG of Man U are yet to confirm whether it will reduce the £75 m due to the club. West Bromich Albion have no shirt sponsor, West Ham’s Iceland’s connection means that Zola will have no money to spend, and if the Icelandic fortune goes west, then West Ham could be the first club to go into administration. Liverpool’s plans for their new stadium are on hold.
But for the moment the Premier League is insulated from immediate crisis due to high revenues from the TV deals, the main risks to clubs lies with their bank. If you have an Icelandic Bank, you will feeling very nervous this morning despite the assurances from their government. Scottish Football clubs will be watching the fortunes of the Royal bank of Scotland.
Together a staggering £2.6 Billion is the debt of the current clubs in the Premier League. The Barclay’s Premier league might become the English Premier League if this bank decides to withdraw, but no-one really expects that Barclays Bank is likely to topple over, but it is certainly in trouble according to my financial sources. This morning the English Government have announced a rescue plan, and named Barclays as one of the banks in need of assistance.
The amount of interest payable on these huge loans exceeds the actual  revenues, so technically the Premier League is insolvent, however because of the way that player transfer fees are paid by instalments, and because season ticket sales have provided a short term cushion, the additional cash from TV coverage and supporter activity through merchandising and non season ticket receipts for attendance will enable clubs to sit on their hands.
If and this is a big IF, the world economy moves into deep recession, then the fragility of the banking system will start to affect our clubs ability to obtain overdrafts to provide the cash necessary to pay the enormous wages of the players. If the players don’t get paid, how will they react? One thing is certain, the present credit crunch will accelerate moves towards a pan European salary cap. This will be a welcome move.
What Arsenal fans can be pleased about, is that the exposure to risk as may be experienced by the likes of West Ham, Man U, Liverpool and Fulham will not apply to the Arsenal to the same extent because of the fixed rate interest deals negotiated by Keith Edelman. The fact that Arsenal Football Club have chosen to live within their means, allows them to survive the major turbulents in the financial markets.
It also means as commodities and stocks fall, the price of mining companies, oil and gas prices will fall in concert. This will help us also, as one Alisher Usmanov has much capital in these sectors. So despite the share price of Arsenal Football Club bucking the trend and reaching values of £9,200 up from £8,500 last week, Usmanov continues to buy up shares. The ArsenalInsider share watch reveals that Red and White Holdings currently hold 15,315 shares, some 240 shares shy of the blocking percentage. The chances of an aggressive takeover to coincide with this years AGM has receded.
The bubble has finally burst and next years negotiations for the TV rights of the Premier League will very interesting as the world’s financial fortunes will take at least 2 years to even see the signs of recovery. Salaries will have been extended beyond 2010, which could mean another financial crisis for some clubs. Arsenal’s increased turnover benefited from an approximate £25 million increase in Broadcasting revenues. Our transfer policy, despite my dislike of it has meant that even if the TV income is reduced, we not are dependent upon a reduction in those cash flows. So this morning, the Arsenal Board has earned the right to have a cautious wry smile, as some of the other clubs around us, start to sweat nervously.
Fabregas the King.

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