You'd be football crazy to invest in this game

Football's income divide; Veni, vidi, vinci?; Pension headache
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The Independent Online

This is an industry worth £1bn a year. It has pay television companies eating out of its hand and its star performers are capable of earning more in a week than those who turn up to watch them get paid in a year. It is also an industry whose losses more than doubled to £145m last year and where the number of profitable businesses is outnumbered by those that are technically bankrupt. Welcome to the wacky world of football.

This is an industry worth £1bn a year. It has pay-television companies eating out of its hand and its star performers are capable of earning more in a week than those who turn up to watch them get paid in a year. It is also an industry whose losses more than doubled to £145m last year and where the number of profitable businesses is outnumbered by those that are technically bankrupt. Welcome to the wacky world of football.

The annual Deloitte & Touche Review of Football Finance has lost none of its capacity to draw gasps and the latest tome, published just as this season's Premier League championship is about to kick off, contains enough jaw-dropping facts and figures to make even the most match-hardened fan sit up and take notice.

One of the most startling is the gulf between the rich and the poor, which gets ever wider as Rupert Murdoch pours more and more BSkyB money into the coffers of the Premiership teams. Last year the income gap between the Premier clubs and the rest of the football league was £466m. By the time the 2002 season gets under way, Deloitte's reckons it will be nearer £1bn.

Despite the huge amounts of money sloshing around the game, it remains an endemically unprofitable business for all but a handful of huge clubs with international followings. At the heart of football's financial malaise are players' wages, which are slowly but surely draining the lifeblood out of the sport as quickly as BSkyB provides another transfusion.

And nowhere is the malaise more acute than among the Division One clubs, who are being forced to pay Premiership-style wages without the television and gate money to fund them if they want to have any chance of making it into the top flight. Scant surprise, then, that the biggest match of the season, at least in financial terms, is no longer the FA Cup Final but the First Division play-off for promotion to the Premiership.

Sixteen clubs, clustered predominantly in Division One, have wage bills that exceed their total turnover. But the painful effects of player power are being felt throughout the league and 26 of the 92 clubs have liabilities which are greater than their assets. Europe's competition commissioner Mario Monti, may have burst the bubble of ever higher transfer fees but in a free market there is little or nothing he or anyone else can do about players' wages.

In the good old days, when Jimmy Hill was a still a player and not a pundit and even the stars of the game retired penniless as well as arthritic, clubs were kept afloat by local businessmen. But these days the financial demands are such that football is beyond the means of all but the wealthiest benefactors. Even Mohammed Al Fayed is having to mortgage Harrods to fund Fulham's vaunting ambition.

The banks spotted long ago what a bottomless pit the sport had become and cut their exposure accordingly. Plunging media share prices, meanwhile, have left the TV companies less keen to increase their stakes in clubs. That only leaves the equity markets. Save for those shareholders who are also avid supporters, private investors should avoid the sport like Old Trafford on a match day.

Veni, vidi, vinci?

Normally, it is the French who do not comprehend the Anglo-Saxon etiquette which surrounds takeover bids in the UK. Shareholder rights? Sacre bleu! What do you think we are? Fou? But in the case of Vinci's approach to the owner of Luton airport TBI, it is the target company which has some explaining to do.

The Listing Rules are written down in black and white by the Stock Exchange but interpretation of them is inevitably subjective. One of the rules states that directors must not buy shares in their own company if they are in receipt of unpublished price-sensitive information. Bid approaches clearly fall into this category. However, if the bid has been formally rejected then the company is under no obligation to make it public.

On the basis that this is exactly what happened to Vinci's approach to TBI in late July, the company deemed all dialogue to have ended and the non-executive directors free to buy shares. In between the bid approach and the subsequent share buying TBI issued a profits warning which knocked 18 per cent off the price. It was just the luck of Charles Scott and Timothy Simon at TBI therefore that, less than a week after they had bought 77,000 shares at the bargain price of 60.5p, along comes an offer to buy them out at a 50 per cent premium.

TBI and its advisers, ABN Amro, maintain that the purchase of shares by the two directors so soon after TBI's profits warning was a sign of their confidence in the company and that the two directors followed the proper procedure. A less charitable judgement is that it was foolhardy in the extreme for TBI to allow the two deals to go ahead so soon after the board had rebuffed an approach from Vinci, which is known to be desperate to expand its airport business.

Still, the share dealings are unlikely to alter the course of the bid and, at 90p, Vinci stands a fair chance of succeeding. The only downside for the French is that if they do wrest control, then they will have the dubious pleasure of negotiating a new set of landing charges with Luton's biggest operator, Stelios Haji Iannou's easyJet, who has already had the better of Barclays.

Pension headache

Blame it on Equitable, lower interest rates, people living longer or just plain government stinginess, but Britain's pension arrangements appear to be in disarray.

The actuaries Bacon & Woodrow have found that one in six of the country's biggest companies have been caught out by longevity and falling stock markets, leaving their occupational pension schemes underfunded. And a survey by the Association of British Insurers indicates that, while nearly 90,000 employers have already designated a stakeholder pension scheme for their employees, only a trickle of people have actually taken out stakeholder policies.

Both Bacon & Woodrow and the insurance companies belonging to the ABI have a vested interest in raising the alarm as they may encourage companies to turn to these advisers for help.

The B&W analysis is a snapshot of schemes designed to pay a proportion of employees' final salaries after they retire. These schemes are notoriously affected by the stock market, delivering huge surpluses to employers in good times and deficits in tougher times as now. Most companies will adjust, and many will be relieved that they have shifted the burden of risk by gearing future pensions to their employees' contributions.

And the apparently slow take-up of stakeholder, while worrying, may just reflect the prudent tendency of many savers to take their time over putting money into something new. More will sign up for stakeholder as more companies comply with the deadline to offer stakeholder.

The acres of coverage of the Equitable scandal has done nothing to improve confidence in pensions, however, and a government stakeholder publicity campaign would raise awareness at a time when advertising is in the doldrums.

But if take-up does not improve, Gordon Brown will have to act. One fear is that he may force employers to contribute 10 per cent of salaries to pensions, rather than the present going rate of 3 or 4 per cent. Ahead of the next election, that could be a vote-winner.