Monday, August 06, 2007

Mind the rug

What’s the risk of Sky and Setanta pulling the rug from under the Premier League clubs, a la ITV Digital? Can £1.3bn for the UK TV rights be sustainable, even for the deep pockets of Sky? Can Setanta possibly get enough subscribers to afford £400m? Personally, I doubt it.

The TV money makes up the lion’s share of the clubs’ revenue. Borrowing money from millionaire billionaire owners is unsustainable in the long run – unless they’re really fans of the club (and few are) they eventually want a return on their investment. Of course appreciation of the asset is one way to get a return, but it’s risky – I’d say investing in a football club is far more risky than penny shares!

With all the money floating around, why have Reading not spent enormous amounts like their counterparts? After all, if the TV companies pay up, there should be a minimum of £50m available.

This club’s management has been here before. In May 2002, when ITV Digital went belly-up, Reading were in Division 2 (now called ‘League 1’).

Of the 20 current Premier League clubs, 15 were in the Premier League in 2001/2. The five that weren’t are Birmingham City, Manchester City, Portsmouth, ourselves, and Wigan Athletic. Of those Birmingham and Man City went up that year (and City were already receiving parachute payments). Only Portsmouth, ourselves and Wigan experienced the sudden unexpected hardship of not receiving expected TV rights payments. Of those three clubs, ourselves and Wigan are the only ones with the same club management.

I think Reading’s relative lack of spending can be attributed to several causes: an unwillingness to spend unearned income (prize money is only awarded at the end of the season), an unwillingness to spend money earmarked for the stadium development (the stadium already has two loans secured on it, one from HSBC and one from Scottish & Newcastle, i.e. Courage brewery) and simply that the current club management don’t think they’re getting value for money.

We’ll have the last laugh if someone tugs on the rug.