Premiership Sheikh Up

The events of the last couple of days have once again proved what a ridiculous circus the Premiership has become.

However lest one conclude that the stories concerning Manchester City and Newcastle are independent of each other, they are potentially hugely interesting in light of their concurrence.

When I was in Abu Dhabi in April 2008, I stumbled across a Premiership chairman in the lobby of my hotel. Given that it's not typically a place one would choose for a holiday, it was fairly apparent to me what might have brought him there, because the wealth being generated in the emirate is unprecedented.

If the club in question was for sale then unfortunately for their fans, they appear to have been trumped by Manchester City. It would be inappropriate to name the Chairman, although I would hint that he represents a London club, a little peeved by the actions of one of its (now former) players.

The financial position of Abu Dhabi and its ruling families is mind-boggling as I will attempt to elucidate upon, and thus indirectly those Premiership clubs presently owned by less deep-pocketed (and often leveraged) investors are potentially at deep risk in ways that are not yet fully understood.

Abu Dhabi is the largest and by far the richest of the seven states that comprise the United Arab Emirates (UAE). It comprises the bulk of the land area of the UAE, as well as the eponymous capital city sitting on a surprisingly attractive sliver of land in the Persian Gulf.

Like much of the Gulf region, it was dirt poor until oil was discovered in the late 1950s. Today, with oil production of nearly 3million barrels per day, and with approximately 100 years of proven reserves still in the ground, the wealth being transferred every single day from oil importers is extraordinary (approx $300m per day at $100 per barrel).

With just half a million citizens to keep educated, housed and healthy, there is plenty left that can be saved and invested around the globe to ensure future prosperity. As a result, the emirate is today somewhat misunderstood if seen simply as one-way bet on the oil price, and thus we unfortunately cannot affect City's chances simply by driving a smaller car.

The Abu Dhabi Investment Authority (ADIA) and other related entities exist to invest the state's oil surpluses, and are believed to have as much as $1,000billion under management. Thus even if the oil price was to fall much further, the negative impact is likely to be materially outweighed by their returns on investments. Today it is truly an 'asset-based' economy.

As a Charlton fan, it is a shame so far that one of those related entities, the Abu Dhabi Investment Company (or ADIC for short) has not seen the obvious synergies with its South East London-based namesake. Now I don't know about you, but I'd be willing to tolerate a slight misspelling of our nickname in return for a enormous cash injection.

During the current credit crisis various sovereign wealth funds have been amongst the 'investors of last resort' for capital-constrained banks around the globe, for example Abu Dhabi invested $7.5bn in troubled Citigroup in November 2007. Ironically it was a Saudi prince (Al-Waleed bin Talal) who had made billions out of a similarly distressed investment in the bank in the 1990s.

Abu Dhabi has also been accumulating 'trophy assets' around the globe, such as New York's iconic Chrysler Building. It is in this context that the purchase of Manchester City ought to be viewed, notwithstanding any jokes about how they may inadvertently have confused City with United.

It is not clear how (or even if) they intend to make money out of such trophy investments. However with the aforementioned surpluses being added to at such rapid rates, they simply have to reinvest some of the capital in 'hard assets' somewhere, because simply owning financial assets such as government bonds or foreign-denominated cash have clear inflation and currency risks.

Thus in the same way that land and prime property in unique locations holds such appeal to them in this context, football clubs hold an appeal simply because simplistically, 'they're not making them anymore'.

In the particular case of Abu Dhabi, they are also keen to be seen as a true 'global city', and thus to put both its government-owned and local privately-run businesses firmly on the map, as they seek to slowly diversify their economy.

It is certainly possible that their desire to be seen as investors that the West can trust, will outweigh the profit motive, particularly for their higher-profile (and frankly immaterial) 'feel good' investments like Manchester City.

One need only look across the coast to Dubai to see an example of the model at work, although Dubai is considerably less wealthy than Abu Dhabi, which explains their own more frantic attempts to build a regional tourism, finance and trade hub virtually from scratch.

Abu Dhabi can thus afford to take its time and learn from some of Dubai's mistakes; the traffic and public transportation options for example are both dire. Where Dubai has gone for the spectacular, or spectacularly crass depending on your point of view, Abu Dhabi will instead build the first offshoot of the Louvre museum outside of France.

Abu Dhabi meanwhile has now secured a Grand Prix, a nice reposte to Dubai's lucrative horse racing tradition, whilst to further emphasise its more sophisticated goals, there is now an annex of Paris-Sorbonne university situated there. Its national airline (Etihad) meanwhile has just ordered more than 200 brand new planes, one of the largest orders in aviation history.

Like its neighbour, Abu Dhabi too has a liking for offshore developments, its answers to the better-known 'Palms' in Dubai including Reem Island and Saadiyat. And unlike those Western commerical developments being postponed due to funding difficulties, these developments will be completed come what may.

So I think it's fair to say that Manchester City are now comfortably the richest football club in the world. If their new owners want them to win every trophy on offer, then they will do so, timing to be determined. The more interesting question is what this means for the other clubs, the Premiership and English football in general.

As usual the biggest winners (other than City itself) will be the top players and their agents. The obvious losers will be those clubs lacking a similarly deep-pocketed backer and/or those that were sold before the credit crisis, and which now find themselves potentially both leveraged and now firmly outmuscled financially.

How would Arsenal's finances look if City steal 4th place this season or next? Is there anything worse for West Ham, than being owned by an Icelandic consortium after the Icelandic economy has virtually collapsed? How else do you explain the sudden sales of Anton Ferdinand and George McCartney, two of their most promising young players?

And shouldn't the shenanigans at Newcastle be viewed in terms of a pure money-maker suddenly realising he's not going to make any money? If you've visited the jumble sale currently masquerading as Lilywhites, you'll know that Mike Ashley has little room for sentiment. And if the self-proclaimed and barcode-wearing 'best fans in the world' had left 5,000 seats empty at the opening home game, I'd also be concerned.

The stakes for these types of clubs are now enormous and their very survival would be in question in the event of relegation, or in the case of Arsenal even a failure to qualify for the Champions League. Those flats at the old Highbury don't look quite so attractive in the teeth of a housing crash. Meanwhile just how committed are Liverpool's new owners? Not committed enough it seems to find an alternative way to finance the new stadium.

The future of well-run clubs with plenty of home-grown talent (Everton, Middlesbrough etc..) looks fairly secure however, even if they will struggle to compete for silverware at least in the near-term. The likes of Villa and Spurs meanwhile will seemingly muddle along just as they always have, their concurrent aims to develop the best English talents worthy, but challenged ultimately if any of them actually turn out to be any good.

The current structure of English football unlike its American sporting equivalents, is that the relegation system exists as an omnipresent threat of total wipeout, particularly for those clubs not quite in the financial super-league. The example of Leeds is real and also relevant, both domestic champions and Champions League semi-finalists in recent memory.

In this context, the answer seems obvious for those less well-endowed clubs. Simply cease seeking to compete on transfer fees and wages, and accept one's place in the new hierarchy, try to balance the books and hope for the occasional Cup success to appease the fans. Aren't Spurs seemingly already going down this route?

But of course the fans of these clubs won't allow it, and most owners don't have the nous to encourage patience and give managers time. The ridiculous treatment of Alan Curbishley by fans of West Ham, proves how poorly understood are the new realities. Perhaps only Everton supporters can presently compete for fickleness.

Meanwhile the lack of a salary cap and the crazy transfer system (to be discussed in a later post) ensure that clubs are structurally unable to be both successful and make profits on a consistent basis.

None of this appeared to matter during the boom times however, because there was always a Mike Ashley around the corner ready to pay sillier money for a club. As Martin Samuel of The Times puts it, "..the time to invest in English football was half a century ago, when there was a maximum wage and a 60,000 walk-up every week.."

Manchester City got lucky, but the Arabs don't want to own every club because that ruins the point. However they also know that they need the opposition to maintain some reasonable degree of ongoing parity, for therein lies the very essence of sport.

The very clear answer to both these dilemmas is that the biggest clubs will doubtless slowly push for a relegation-free top division, an outcome poetically described by Garry Cook (City's executive chairman) as a 'central entity'.

The very biggest clubs will surely push for a European 'super league' even though the stadia will be half-full. If you want to know why that one won't work, simply count the minimum number of clubs that each country would reasonably demand.

As Cook puts it, "Do Saudi Arabians want to buy - and no disrespect to these clubs - Stoke City or Derby County?.....The sport will change and the fans will find a way to get passionate about a piece of it."

Current fans will find a way to 'get passionate' about something else of course. Perhaps some new fans would take their place, but not at £50 per ticket they won't. Meanwhile the much-claimed uniqueness of the Premiership brand internationally is grossly overstated, benefiting just a handful of clubs (and only then at the margins).

I've travelled extensively and have never seen someone proudly wearing an Everton or even Manchester City shirt. When the mighty Manchester United played Portsmouth in a pre-season friendly in Nigeria in July, the 60,000 stadium was only half-full (and most of them didn't pay). There goes their chance of a 39th game then.

If the Premiership becomes a 14-club league with no relegation then Charlton would presumably go part-time and survive, albeit without it being clear what for? Then again, one wonders whether some of the problems already being experienced by the likes of Luton and Rotherham, are down to the fact that their ilk should have gone part-time years ago. How many commercial entities with their limited revenues seek to support such a lengthy full-time payroll?

Potentially it might even be highly positive for Charlton if our finances are now back in shape. It's easy to complain about the gap meanwhile, that now exists between us and the big clubs, but then again it's always been the case. After all, we last won a major trophy in 1947, fully eleven years before Abu Dhabi discovered its oil.