Monday, December 18, 2006

Better than the Gray Twilight


"Far better it is to dare mighty things, to win glorious triumphs even though checkered by failure, than to rank with those poor spirits who neither enjoy nor suffer much because they live in the gray twilight that knows neither victory nor defeat. " [Theodore Roosevelt]

I often wonder just why footballers should earn so much? More relevantly, why should Charlton players earn anything?

For me it just presents more evidence that the world has gone mad, following on from the shocking news that my mother-in-law is currently at Matt Lucas' gay wedding dressed as the Fairy Godmother (the Wicked Witch might have been more appropriate - Ed.) More worryingly the thought of my mother-in-law dressed as the Fairy Godmother gave me inspiration for a new post about Charlton.

Footballer incomes are something fans tend to take for granted, as they part with their hard-earned cash to watch perhaps the world's least competitive League. Earnings are understandably correlated to the value of TV rights, but that value increasingly just flows from the TV companies (mainly Sky) straight to the players, leaving the clubs as purveyors of the product, but retaining virtually none of the earnings.

If you want to get rich as a salaried employee (as opposed to an entrepreneur), it's vital to work in an industry that benefits from 'economies of scale'. Economies of scale refer to the reductions in average cost resulting from increased production.

Investment bankers have economies of scale (the amount of work required to complete a $10bn deal is not 10 times the work required to complete a $1bn deal). Likewise, footballers enjoy economies of scale because they do not need to exert any extra effort to have their skills beamed to 500 million homes as opposed to 50 million homes. Then again, Jimmy Floyd Hasselbaink doesn't have to exert any effort at all.

At the other end of the scale, the minimum wages earned from office cleaners to supermarket workers can directly be linked to their own lack of economies of scale (cleaning three offices takes exactly three times as much time as cleaning just one). So in that sense, footballers do clearly have an obvious bargaining position created by increased television coverage.

It has been fairly well-documented recently that workers at Goldman Sachs, will be enjoying a better Christmas than say savers with Farepak. However whilst Goldman employees enjoy their average pay of $622,000 each (arguably more than the average Premiership footballer), Goldman Sachs shareholders are unlikely to complain because the company's stock price was up 22.8% in 2005, 5.4% in 2004, 45.0% in 2003 and is up 56.5% year-to-date. This stock price appreciation is justified however by the increase in earnings-per-share from $1.29 in early-2003 to £6.59 today. Whilst we might baulk at their incomes, the Goldman workers have earned their windfall.

Conversely, although shareholders in most English football clubs have enjoyed stock price gains in recent years, most of this gain is being driven by speculation about foreign takeovers (see my recent Petrodollars post) rather than genuine earnings growth. Indeed, most clubs don't make any operating profit at all and therein lies the mystery, particularly when compared to the likes of Goldman Sachs.

Although Richard Murray and his fellow directors are currently receiving plenty of criticism from frustrated Charlton fans right now, one aspect of club stewardship which I will never pass judgment on is their willingness (or unwillingness) to invest their personal capital into the club. There is nothing more certain to make me chuckle with disbelief than a caller to BBC's 6-0-6 demanding that the Chairman of some godforsaken club 'explain where the money's gone.' This point of view usually implies that the Chairman should be putting his hand in his own pocket to provide more equity or debt to fund the club's ongoing cashflow shortfalls. In which other sectors are public companies expected to be run on this basis?

Their vitriol should really be saved for the salary packages that their beloved players have secured (because that's 'where the money's gone'), but more pertinently for the perverse system that allows those packages to persist. The key trait of that 'system' in my view is the peculiar fascination that the world's multi-millionaires and billionaires have with football, but more importantly the ripples that their presence causes. As someone entranced by the history of economics and markets, I have every confidence that this cycle will end as badly as every other cycle which, at the time, was described as a 'new paradigm.' However until then the pigs are at the Premiership trough.

Take Charlton for example. Despite our well-earned reputation as a friendly community club, we do not offer the quick-fix that the Randy Lerners or Eggert Magnussons demand because their millions cannot be levered against certain cashflows from ticket sales and merchandising (thanks to our smaller stadium and fanbase). However, we are required to compete with them on a level playing field, and it is perhaps in this very context that one can trace our own Board's recent panicky mistakes from the signings of misfits from Jeffers to Faye, and from Dowie's sacking to Reed's rushed appointment. We should perhaps see ourselves like the one-screen charismatic cinema trying to compete with the charmless multiplexes. It's a battle we'll never win fully, the real question is, do we really want to?

I admire the Board's attempts to move the club on from being 'plucky battlers' to genuine Premiership contenders, but it was maybe always a flawed ambition to begin with because, thanks to these moneymen, it was never likely to be a level playing field at all. We are required to pay the likes of Ambrose and Rommedahl their grotesque wages because, so the thinking goes, if we don't then someone else will. But whilst the likes of Villa and now West Ham can afford such expensive mistakes, we simply cannot, and sadly for us in the absence of our own fairy godmother they are now costing us dearly.

Perhaps today we are just victims of an accident of timing, and perhaps our prior six years of relative success (and current problems) should be understood in terms of having generated unrealistic expectations. Our promotion in May 2000 almost exactly coincided with the peak of the global technology-led technology boom, and which then preceded two years of sub-trend economic growth and fears of deflation. Equity markets bottomed in October 2002, and the explosion of liquidity-driven global growth (as explained in the aforementioned Petrodollars piece) has been breathtaking ever since.

In this context, the timing of Abramovich's purchase of Chelsea in July 2003 seems as explicable those that have followed, from Man United to Portsmouth. What were Charlton to do? Accept our fate, seek a newly-minted buyer of our own, or just acknowledge the unfairness of the competition, but try to compete anyway?

It hasn't worked and our current sorry position is the result of too many policy mistakes which cost us any chance we might have had. Perhaps we shouldn't blame the Board though, because despite the obviously comical element of recent decisions, we probably never stood much chance anyhow and they gave it their best shot.

And you know what, if I'm brutally honest, you just know where you can stick your Premiership Plus-showing, £40 ticket-asking, foreign mercenary-dominating, Fanzone-shouting, all-seating, David Dein-directing, so-called 'Greatest League in the World'.

2 Comments:

At 8:52 AM, Anonymous marco se7 said...

Fantastic piece.Thoroughly enjoyed it, (and I only struggled to an A level in Economics).

 
At 3:00 PM, Anonymous Anonymous said...

The wicked witch is thinking hard about a suitable christmas present!!

 

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