Between the Lines

"Of all unimportant subjects, football is the most important" – Pope John Paul II

Exchange rates and the art of running a football club

Posted by hakanrylander on January 5, 2009

The global economic downturn is likely to hit football as well as most other businesses, perhaps more severly than is apparent at the moment. But today I’ll concentrate on one particular aspect of the changing world economy; the fall of the pound. In the past month the pound has dropped 18 percent against the euro and in the past six months it has dropped 30 percent. This has severly weakend the clout of English clubs in the transfer market. And if the pound remains weak, or indeed drops further, it could signal a significant shift in the balance of power away from England and towards Italy and Spain.

The main reason behind the plunging pound is that the recession is steeper in Britain than in most other countries. This has lead to low interest rates, which in turn make the pound less attractive to investors. Furthermore, the shaky situation in the US means that the euro is now by many considered the world’s safest currency, and seemingly growing stronger by the day.

All PL-clubs are highly dependent on the pound as virtually all their income is paid in pounds, e.g. gate receipts, television, sponsoring and other commercial activities such as merchandise stores. The only significant exception is the income from taking part in the Champions League that is paid in Swiss francs. This could be huge sums, particularly for teams reaching the final as United and Chelsea did last season, but still small compared to other revenue for these clubs.

 The changing exchange rates have important consequenses in the transfer market. A German/Italian/Spanish/Dutch club selling a star player is not interested in how many pounds they receive. They want a certain amount of euros. In a few weeks European players have become 20 percent more expensive to English clubs.

The same logic applies to the salaries of players. To offer salaries on par with e.g. Real we now have to offer 20 percent more than only a month ago.

The grim conclusion is that United will find it a lot more difficult to compete with Real Madrid, Barcelona, Inter, Milan et al for the big stars (and for smaller stars, too). Unfortunately this is true also for the stars already at United who are more likely to be tempted by the pay packages waved at them from abroad.

Thanks to Bubbleview for bringning this trend to my attention.

3 Responses to “Exchange rates and the art of running a football club”

  1. manutd24 said

    Now i think that this will be the last season when a footy club will spend big.
    Thanks very interesting read!
    Actually, i have a similiar article to this which i’ll publish this week!

  2. Wish I had your clarity in my writing…

  3. […] tax-hike comes on top of the fall of the pound that has already weakend the clout of English clubs in the transfer market, and is a more severe […]

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