Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Could Foreign Ownership Ruin the English Premier League Forever?

Soccer is the world’s most popular sport and the English Premier League (EPL) is the top soccer league in the world. It comes as no surprise that owning a team can be profitable but what might be surprising is how many these teams, which are the pride of England, have owners that aren’t actually English at all. 

Currently, half of the 20 teams in the EPL have foreign ownership and all of the traditionally dominant big four teams -- Arsenal, Chelsea, Liverpool and Manchester United -- are owned by foreigners.

Some critics believe that these foreign owners are changing the landscape of the league in a negative way.

They are concerned that some owners are much more interested in their bottom line than the history and tradition of the soccer club -- which holds deep seated psychological significance to local club fans. 

Others are concerned that wealthy owners can pay players as if they are using Monopoly money, jacking up salaries, expected transfer fees and putting pressure on other owners to spend beyond their means.

Foreign ownership has the potential to further transform the league financially and to upend longstanding traditions of the English Premier League. Here's how.

1) An End to Relegation?

The desire for a profitable investment makes one of the traditions of the EPL a problem. One such tradition is the relegation and promotion system.

At the end of each season, the bottom three teams in the EPL are dropped down into the lower-tier English soccer division, called the Championship Division, and the top three Championship teams move up to the EPL. 

For someone looking at their team as an investment that needs to make money, the risk of having one bad season and being sent to the Championship Division is a real concern.

Television revenues, ticket sales and other income all decrease dramatically if a club is relegated, so in an effort to protect their investments, many foreign owners have been pushing to remove the relegation system altogether. 

A franchise system, similar to professional sports leagues in the United States, ensures a more stable investment for owners with less risk than the current system.  

Some are concerned that if four or five more teams change hands to foreign owners, they may attempt to vote the relegation system out of the EPL. All changes to league rules require support from only 14 of 20 clubs. Critics want the English Football Association to proactively implement rules that would eliminate the ability for owners to vote to overturn relegation.

These critics like relegation because it maintains a competitive landscape in the EPL. If a team doesn’t perform, they move to a lower division. This longstanding tradition of the EPL is one most supporters don’t want to see disappear.

2) "Monopoly" Money

The second big change to the EPL is all about the cash. Mega-rich foreign owners -- who spend money at a rate that no one else can keep up with -- are skewing salaries and putting pressure on other owners to take out debt to compete. 

This angers traditionalists who prefer the EPL to have English owners and players. However, these international owners with deep pockets want the biggest names in the world and they have the bank account to bring them to the league. 

#-ad_banner_2-#One owner who finances his team completely out of pocket is Mansour bin Zayed Al Nahvan, the 41-year-old owner of Manchester City and member of the ruling family of Abu Dhabi in the United Arab Emirates. 

Since purchasing Manchester City in 2008, Mansour has spent more than £1 billion to bring high-profile players to the club, including: Robinho (currently with Serie A Milan), Carlos Tevez, David Silva, Mario Balotelli, Sergio Aguero and Samir Nasri, just to name a few.

However, the team expenses have amounted to much of what the team brought in, causing Mansour to lose £194.9 million last year

Team Chelsea owner Roman Abramovich’s free-spending ways resulted in record losses of £140 million in 2005, £80.2 million in 2006. Like Mansour, Abramovich has spent close to £1 billion in transfer fees since buying Chelsea in 2003.

Since there are no salary caps or restrictions on transfer fees, teams have previously been free to spend as they see fit. As a result, in 2010, the 20 teams of the EPL had an estimated £3.4 billion in debt.

Perhaps in response to these free spenders, UEFA, the governing body of European soccer, approved new regulations that would prohibit teams from spending more than they earn over a three-year period. 

These regulations, which are set to come into effect for the 2013-2014 season, are in place to protect teams’ financial stability by preventing the lavish overspending that could hurt the league overall. 

However, as a side effect, it limits the amount these free-spending owners can spend on player salaries to the amount of revenue that the team makes.  

The Investing Answer: As the opportunities for profitable investment in the EPL continue, and the league's international popularity grows, more and more foreign-born investors are looking to purchase teams.

Without intervention from the EFA and UEFA, major financial and structural changes could come to the league from the influence of these owners.




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