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Rediff News  All News  » Sports » Easy money at an end as crisis bites in European sport

Easy money at an end as crisis bites in European sport

October 21, 2008 18:41 IST

The heady days of easy credit and sky-high wages are ending in Europe with the global financial crisis driving sports clubs and authorities to change course.

"The full extent of the credit crisis is difficult to predict at present, but I am sure football, and other sports, will be affected greatly," said Paul Blakey, senior lecturer in sports management at Northumbria University.

"It may mean that alternative business practises are needed to ensure the game continues to exist in its current format."

Already saddled with debts, many European soccer clubs will now find it increasingly difficult to have access to credit.

"There are companies which have not been very careful in borrowing money and for those there could be signs of trouble. Easy credit has come to an end," said Luca Rigotti of the Fuqua School of Business at Duke University, North Carolina.

English soccer alone is about 3 billion pounds (US $5.2 billion) in debt and UEFA, European soccer's governing body, is considering banning clubs with excessive debt from taking part in its competitions.

"Figures were recently mentioned that no clubs will be allowed to have more than 30 or 40 percent of their turnover in debt. That would cause them huge problems," said Chris Gratton, sports economics professor at Sheffield Hallam University.

Dave Whelan, owner of English Premier League side Wigan Athletic, is among those to suggest a salary cap to avoid top clubs going into receivership.

AC Milan chief executive Adriano Galliani has played down risks to Italian soccer, where rich families retain a powerful influence and "losses are always covered by the shareholders".

In Germany, the main worry centres on a lack of agreement over a new television deal with the current Bundesliga contract expiring at the end of this season.

In Spain, where Barcelona and Real Madrid are owned by their fans, "there is a real estate crisis, meaning that money from this important source no longer flows into soccer," said Giorgio Brambilla, marketing and sales director Italy at Sport+Markt consultancy firm.


The rush of foreign investors into English soccer has also cut the number of clubs on the stock market and the crisis means the whole idea could be a thing of the past.

"The public shareholding model of owning soccer clubs has failed," said Simon Chadwick, professor of sport business strategy at Coventry University.

"Sooner or later they will all delist."

England's Manchester City were recently bought by the Abu Dhabi United Group but a raft of further investments in soccer by rich Arab funds is unlikely in the current climate.

"I would be surprised if there were more than three or four major Middle East investors," said Tom Cannon, professor of strategic development at the University of Liverpool.

Liverpool's plans for a new 60,000 stadium have been delayed by the crisis but Italy's Juventus still hope to complete the redevelopment of the Stadio Delle Alpi by 2011-12.

The Turin side, one of the few European soccer clubs still listed on the market, are fortunate in having to borrow less than half of the 105 million euros needed for the overhaul.

"We are not worried, but it could cost us more due to higher rates", Michele Bergero, Juve's finance director, said.


The impact of the crisis on sponsorship has also been felt.

Lazio, traditionally Italy's sixth-biggest soccer side, are one of a number of big clubs who can not find a main sponsor.

Media reported that English Premier League club West Ham United could face a five million pounds shortfall following the collapse of shirt sponsor XL Holidays.

The travel firm's logo was removed and replica shirt sales were stopped -- another key revenue tool for clubs.

The news came as West Ham suffered an even bigger blow with chairman Bjorgolfur Gudmundsson losing millions from being a major shareholder in struggling Icelandic bank Landsbanki.

It is not just soccer in Europe that is feeling the pinch.

London's 2012 Olympics bosses have warned the crisis could result in a 250 million pound shortfall for the Games and the British government has released 95 million pounds of contingency funds to keep work on the athletes' village on track.

The slump in housing prices, which could damage the chances of recouping money from the village after the Olympics, has also seen the number of planned post-Games apartments reduced.

Formula One, famed for its exuberance, is suffering too.

Organisers said on Wednesday that the 2009 French Grand Prix had been cancelled for financial reasons.

The announcement came on the same day as news emerged that Formula One's governing body was proposing radical cost-cutting measures to help teams survive the global financial storm.

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