Written Tony Mckenna.
It started with player transfer fees rocketing. As one record was set, it was to be broken just a year later. Then I heard about the amount a football agent earned from the first of those deals. Not to mention that some players’ weekly salaries were now hitting the £300 grand barrier, and even heading north of that milestone. Would TV revenues always be there to sustain this? Were football clubs even thinking of any potential Black Swan events? I had thought about this for a long time.
Chris Rowland emailed me in the middle of January, 2020. I told him that I was thinking about writing an article entitled “Blowing Bubbles On Football’s Wall Street”. I had probably thought about it for too long.
That is the problem with writing, or the thinking that informs it; and the research that informs the thinking. Events can overtake you. And they did. TV revenues did not just reduce. They actually stopped altogether. I had to re-write a little bit. New material needed to be addressed. The original article became two.
Forever Blowing Bubbles or Balloons
Rick Parry, the first Chief Executive of the Premier League, seemed assured that football’s financial bubble would never burst. In fact, he did not see it as a bubble at all. Preferring to use another metaphor, envisaging a more measured and manageable scenario, he even predicted that a renewed plateau would follow. But, drilling down into the narrative, he fell far short of cast iron guarantee:
“I get asked a lot, is football’s bubble going to burst? It won’t be a bubble that bursts. It might be a balloon that deflates a bit. But then it will find a new level. It won’t be catastrophic.”
The two key words are might be. An optimist, reliant on mere gut emotion as a tool of prescience, and even qualifying his own positivity, is hardly a tipster with pedigree. To be fair, many have since warned of the bubble bursting, their pessimism seemingly misplaced. Parry may have started to see himself as vindicated. Should he have done so? An old adage offering a cautious caveat should apply: markets can stay irrational longer than you can stay solvent. Betting against a market trend can be a costly affair. Similarly, betting that the good times will keep on rolling also carries unquantifiable risk. Now we are at the worse of times. And Parry knows it.
Currently posited as Chairman of the English Football League, (EFL), he wrote to clubs, during the second week of April, suggesting that there will be no advance TV revenue payments to football clubs. That is, until there was clarity on “other financial matters, particularly in respect to players’ wages”.
This clarity, however, is seemingly shrouded in uncertainty and not a little controversy. Meanwhile, football’s cash crisis threatens to escalate, with no immediate signs of the virus pandemic abating. The potential of clubs returning over three quarters of a billion TV revenue, should the season never recommence, would be financially catastrophic from a football perspective.
Of course, Parry cannot be blamed for a failure to predict the Black Swan that has been Covid-19. Specifically speaking, that is. But generally, Black Swan events should be factored in as unknown unknowns as part of your investment strategy. Taleb, who coined the Black Swan metaphor for his book of the same name, advised that you can position yourself for random events even if they are beyond prediction.
Yet football clubs, carrying players’ wages as a considerable percentage of turnover, have never been best placed for the unknown. Possibly, the concept of saving for a rainy day is far too simplistic and too unfashionable for these very modern times.
The Revolution Will Not Be Televised
Parry’s mistake, as with many others, was to singly focus on the fact that consumer appetite for football would never wane. Naturally, TV revenues would always flow into the game. Linear thinking can offer indisputable logic.
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