Is the global economy finally catching up to the Football economy?

As an Arsenal fan I am always amused by the recent rite of passage where my fellow Gooners proclaim that Manchester United will have a very hard time competing as they no longer have the funds to purchase quality players. And without fail they continue to do so and continue to contend for the title.  The same is said about Chelsea’s aging squad and Roman Abramovich’s desire to be compliant with UEFA’s new Financial Fair Play (FFP) requirements.

This summer I watched the transfer window and waited for the inevitable largess that has been typical of the last few years. And to my surprise restraint actually seemed to be in order across the globe.

We did not see mega deals like the £50 million deal for Fernando Torres two Januarys ago. Nor did we see many clubs venture above £25 million for any player. The obvious caveat to that is Paris Saint Germain, who seemed hell bent on buying anyone after they failed to win the Ligue 1 title last season. (There’s always one.)

For the most part, however, restraint seemed to be in order. Even from the likes of Manchester City who have invested a reported £1 billion pounds in to creating a footballing giant in the span of three seasons. There was the deadline day deal for Javi Garcia but that was for a paltry (in City terms) £17 million. They almost seemed Wengeresque in their buys this summer and it did seem that overall City wanted to comply by FFP and get their financial house in order.

And why not? It’s a financial house they, along with the likes of Chelsea, Barcelona and Real Madrid, previously ignored (Barca and Madrid doing it long before City and even Chelsea substantially bloated the market).

But was the overall downward trend a reaction to FFP or have the clubs started to feel the pinch of economic reality? We may never know. The clubs are never truthful about their financial dealings but there are some clues and smart people can make some educated guesses based on those clues.

For starters, let’s look at the big five English Premier League clubs and their net spend in summer 2012 vs. summer 2011/winter 2012:

1. This chart is based off of the chart found in Forbes article – “Why Premier League Transfer Excesses Are Greatly Exaggerated” – by Bobby McMahon.
2. The Arsenal figures are actually profits in the time periods referenced. Though decrease in profits for Arsenal imply decrease in transfer activity

Each of these clubs has had a significant decrease after a year of hyper-activity. We’re sure that many of these clubs want to be compliant with FFP. But since leagues across Europe had similar reductions in transfer activity it might be time to look at other extenuating circumstances.

No one needs reminding that the global economy, and particularly Europe, is in the tank. Countries are struggling to stay afloat. In Europe there’s hardly a day that goes by that the papers don’t run a story about the collapse of the Euro, bailouts, Greece possibly defaulting on its debt and austerity measures enacted by governments to bring the financial crisis into check.

Football, Futbol, or Soccer depending on where you are from has remained understandably resistant to the fluctuations of the global economy. Why? Because sports offers a team’s supporters an escape from the harsh realities of the everyday world. We go and participate in an atmosphere of shared experience. We are in tandem with the ebb and flow of our fellow supporters, our team and the outcome on the pitch. It is why even at Arsenal where tickets cost up to about £96 per match, the stadium, and others in Europe, continue to see traffic.

But will this last forever? Will supporters continue to help their teams resist the economic downturn? Transfer fees and total spending have been affected, but so far except in isolated cases (Wayne Bridge, Emmanuel Adebayor) wages remain as high – or higher – than ever. FFP might curb the biggest spenders, but for the rest it’s debt that’s the problem, and falling attendances will quickly make that worse. If we do see real pressure on footballers’ wages for the first time ever, then we’ll know the whole sport is just a house of cards waiting for a strong wind to blow it over.

And there is precedent. Especially in the Premier League and its forebarers.  This season we’ve already heard that at least 14 of the Premier League clubs are worried about the state of the finances and would welcome some financial constraints or guidance for all teams.

They can go back all the way to 1905 and see the first time they did it. Concerned about some early transfer monies to the tune of £1000 the FA enacted a maximum wage structure.  It was a structure that was in place until 1961 when they abolished it.

Without contraint player’s wages rose (sound familiar?) and attendance began to teeter off in the 80s. In 1982 a report published found that 92 league clubs in England were generating a £6 million pound loss. It seems small to the £150+ million loss Manchester City is said to be reporting in this age.

Prior to the formation of the Premier League in the 90’s hearing that a club would enter administration not something we heard of too often. However, that stigmatism was removed in 90’s and 2000s when it was reported that 30 clubs went through administration.

But now the Premier League is reaching heights few saw early on.  This year the reported domestic TV rights with were increased by 71% when BT took a huge chunk of the deal and ballooned the total package to £3 bn.  Money is coming in and teams are spending it trying to maintain their competitive advantage and stay in lucrative Premier League.

Something is going to have to give. Fans across the league are restless at the cost of attending a match. They are also incredulous at the fees and wages being paid players who have yet to prove themselves. Clubs are acting with financial abandon. With the current state of the economy sooner RATHER than later this will all come down. It will be a big a club. It’s already happened in Scotland.

Sure, its a smaller league when compared to the Premier League. But Rangers blinded by their own ambition and desire to compete with rival Celtic broke rules, over spent and now with the whole house of cards collapsed find themselves in the lowest tier of Scottish Football.

Who the big club in England will be remains to be seen. But ask a Pompey fan how they feel what is going on with their club. Manchester United supporters groups have a right to be worried. Not that they likely will crash to League 3 (their commercial revenue is too good) but with about £500 million in debt from the Glazer’s leveraged purchase of the club and a failed IPO on the NYSE money is becoming more and more tight.

In the run up to their IPO, reports showed that United expected to have £40 million available for transfers this past summer and about £20-£25 million for the next few years. United won’t go sinking but the economy and their poor financial behavior is catching up to them.

We are getting to critical mass. Economies are experiencing double dip recessions. Some even triple dip. People’s hard earned money will start staying in their pockets. And formulas similar to the 80s of decreased attendance and ballooned player wages aren’t likely too far off unless something is done soon.

FFP is starting to get into effect. My fears are that it will only protect those big clubs able to land large commercial deals. But at the very least it has forced those clubs who use ‘financial doping’ to reign it in.

But is it enough?