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Tuesday, December 09, 2008
 
The Economy Strikes Again (K-Rod not Worried)

While Francisco Rodriguez (and his new 3-year, $37 million deal) probably won’t be doing much complaining about a recession, the impact of the tough economic times continues to be felt by major sports entities in the U.S. Today, the NFL announced that it plans to cut more than 10 percent of its staff and that it has indefinitely suspended plans to play a preseason game in China. As espn.com reports, “[t]he NFL has been symbolic of the wealth surrounding professional sports, but it now joins the NBA, Major League Baseball and NASCAR in announcing layoffs.” The NHL doesn’t pain a much rosier picture, as Bill Daly, the NHL deputy commissioner, recently said: “In the short term, it’s pretty dark…It’s a credit crunch, not a lot of stable financing available, a lot of bad paper out there. So, it’s going to be tough sledding,” said Daly. Even the mighty Tiger Woods was not immune, as General Motors chose to end its lucrative endorsement deal with him.

Not surprisingly, the impact is also being felt across the pond. As the Guardian reported last week (h/t to J Hutcherson at usscoccerplayers.com), clubs in the Football League Championship (the “Championship”) have discussed the possibility of instituting a salary cap. For those of you who do not follow English soccer (and even for those of you who do), the Championship is the second highest division in the English football league system after the English Premier League. The bottom three teams from the Premier League get relegated down to the Championship each year, while the top 3 teams from the Championship (the top 2 based on standings, and then the winner of a playoff involving teams finishing 3-6) get promoted up to the Premier League. Likewise, the bottom three teams in the Championship get relegated to the next division, Football League One. Clubs in the Championship thus face a very different reality from clubs in US sports leagues. Championship Clubs are fighting to both gain promotion to the Premier League and to avoid relegation. Clubs relegated down one league typically suffer a huge drop in revenue (particularly from the Premier League to the Championship), as they lose revenue from tv deals, sponsors, attendance, etc. The pressure to win—and to sign high-priced players who can help them win—is thus tremendous.

And, as the Guardian notes,
[m]ost clubs in the [Championship] are losing significant money because they pay what one chairman described as ‘unsustainable’ wages on players they hope will win them promotion to the Premier League. Without the cushion of the multimillion-pound television deal enjoyed by the 20 Premier League clubs, Championship clubs are reporting tougher economic conditions, with away gate beginning to suffer and sponsorships and corporate hospitality harder to secure….

Many clubs are preparing to seek sponsorship for next season, a task one senior club source said is proving "difficult" because it is "grim out there". Second-tier sponsors especially, who do not have their name on team shirts but pay to advertise or sponsor matches or stands, tend to be more local businesses than the big companies attracted by the Premier League, and many of those are struggling so have less money to spend on football….

Adam Pearson, the chairman of football at Derby County, warned that football is inadequately prepared for the economic downturn. "The game is close to meltdown at all levels," he said. "Club boards are under pressure to gain success and that leads to them paying ridiculous wages. It cannot carry on or it will end in disaster. There is a growing feeling now that some sort of wage cap has to come in."

Club owners are thus considering a cap that would limit player salaries to a percentage of Championship revenues. Given the intense pressure to achieve promotion and avoid relegation, it is understandable why some owners would be resistant to the cap (and more so than in US leagues), even if it might achieve financial stability for some clubs and increased competitive balance in the Championship, as some Championship club owners at least want the ability financially to “outcompete” their rival teams to advance up to the Premier League where the economic situation is not quite as grim. More on this as the situation develops…





1 Comments:

Increased fiscal responsibility would do as much for Championship football clubs as a salary cap would. Fiscal responsibility on the part of club owners and management would allow them to withstand the budgetary swings caused by promotion and relegation. Another system the Football League may want to consider instead of a salary cap system is a revenue sharing system not that dissimilar from Major League Baseball's system. Through a revenue sharing system, the wealthy club owners would still be able to financially "outcompete" their rivals, while at the same time help prop up the lower teams.

On a related note, The Seton Hall Journal of Sports & Entertainment Law, the journal for which I am currently the Symposium Editor, has recently published Volume 18, Issue 1. My comment comparing sport organization bankruptcies in the United States and England is one of the pieces published in the issue. The citation for the comment is 18 Seton Hall J. Sports & Ent. L. 297, and it is available on Lexis and Westlaw. You can also access a copy via the Commentary section of my website, http://www.timcedrone.net.

Finally, Coventry University published a report on English football insolvencies this past summer. The report can be accessed via this site, http://www.coventry.ac.uk/latestnewsandevents/a/4754, and I have also posted on the report on my blog, http://sportsandbusinessblawg.blogspot.com/.

Blogger Tim Cedrone -- 12/13/2008 10:45 PM  


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