Having invested heavily on players over previous seasons, (the previous year's net loss was covered by French-Israeli businessman Alexandre Gaydamak), Portsmouth were runners-up of the 2009–10 FA Cup in 2010, but as the season wore on the financial situation deteriorated, leaving players unpaid and the club with an outstanding bill for income tax which in turn led to a winding-up petition from HM Revenue & Customs.
[13] The problem of debt was not confined to the top division, with a number of clubs in the second tier of English football, the Championship seemingly gambling their futures in an effort to gain promotion into the Premier League.
[16] Despite the most recent report showing 8% growth in La Liga revenues, the highest of any European league, the overwhelming majority of the extra money went to the two dominant clubs, Real Madrid and Barcelona, primarily due to their ability to negotiate separate TV deals.
Being the world's richest club according to the Forbes' List, heavy spending on two other players, Kaká and Karim Benzema, with their associated high wages, trebled Real's net financial debt from €130 million on 30 June 2008 to €326.7 million on 30 June 2009, as the signing of Raúl Albiol, Benzema, Kaká, Ronaldo, Álvaro Negredo and some minor players to the 2009–10 squad were included in the 2008–09 financial year.
In the summer of 2010, Villarreal failed to pay its players because the ceramics industry from which their owner Fernando Roig made his money was hit hard by the European credit crisis.
[24] In the lower Spanish leagues, at least six clubs, including former second-tier sides Real Sociedad, Celta de Vigo, and Levante, were in administration with more threatened as the recession worsened.
In July 2008, the Spanish government revealed that the clubs had a combined debt of £507 million to the tax authorities alone, with substantial amounts owed to a number of other state bodies.
[25] For a number of years, the clubs in the two other big European leagues, the French Ligue 1 and the German Bundesliga, had been subject to regulations not unlike the FFP rules.
In France, The Direction Nationale du Contrôle de Gestion (DNCG) is responsible for administering, monitoring and overseeing the accounts of all professional clubs to ensure that owners are being financially prudent.
[28] Having won the UEFA Champions League in 1997 and a number of Bundesliga titles, Dortmund had gambled to maintain their success with an expensive group of largely foreign players but failed, narrowly escaping liquidation in 2006.
Porto make use of third-party deals and an extremely effective scouting network, particularly in South America, to purchase promising young players to develop and play in the first team in the near future before eventually selling them for a large profit.
In recent years, however, their dominance has been challenged by the emergence of other clubs such as FC Twente, meaning they can no longer rely on annual infusions of Champions League cash.
[33] After enjoying 11 consecutive years of Champions League qualification and reaching the semi-final in 2005, PSV found its regular profits turning into losses and began selling top players, including Heurelho Gomes (Tottenham Hotspur), Mark van Bommel (Barcelona), Park Ji-sung (Manchester United), Johann Vogel (Milan), Alex (Chelsea) and Jan Vennegoor of Hesselink (Celtic).
[37] Following the global downturn, job insecurity and rising unemployment meant that a number of Scottish fans did not renew season tickets, leading to a 10% fall in attendance over one year.
[43] The leveraged buyout model is common for normal business ventures where – apart from the actual employees – the overall national impact of a firm collapsing is not particularly significant since other companies will fill the gap in the market.
LBOs have sometimes been defended by those using them as mechanisms to bring greater efficiency and financial discipline to target companies, although there are also examples where they have actually added to an existing problem of debt.
[citation needed] To football fans who find themselves paying significantly higher ticket prices (around 50% at Manchester United in the first five years of the Glazer takeover[44]), LBOs are anathema, perhaps representing the complete opposite of the wealthy benefactor model, taking money out of the club and providing few or no positive changes since no new players are purchased and no facilities are built or improved.
[citation needed] For these "emotional stakeholders", their club is not a "normal business" but rather an intrinsic part of their lives and often of great social and cultural importance to the local community.
LBOs are also believed to have played at least a part role in takeovers at Portsmouth, Hull City, Chesterfield, Notts County and Derby County, and perhaps unsurprisingly, the main supporters groups of Manchester United and Liverpool, MUST and Spirit of Shankly called on the British government to legislate against future LBOs of football clubs, calling for an outright ban or a limit on the amount which can be borrowed against acquisition – perhaps along the German model where no individual can own more than 49% of the club.
[citation needed] There have also been calls to restrict levels of dividend withdrawal and improvements in "proper person tests"’ introduced after the earlier takeover of Manchester City by Thaksin Shinawatra.
Such a practice adversely affects the market by creating wage and transfer inflation as well as encouraging other clubs to spend more than they can afford in an effort to remain competitive.
In the English Premier League, Chelsea's massive transfer spending since 2003 has been paid for by their owner, the Russian oil and gas billionaire Roman Abramovich, while Manchester City is owned by one of the world's richest men, UAE Deputy Prime Minister Sheikh Mansour.
[47][48] Referring to the intention to reduce the plutocratic influence of the "sugar daddies", UEFA President Michel Platini said, "If you buy a house, you have a debt but that doesn't mean someone is going to stop you from working.
"[4] Manchester United Chief Executive David Gill, also a member of the ECA board, said that his club would meet the new rules, despite their reported debts of £716.5 million.
[50] One major criticism of FFP is the possibility of further entrenching the positions of the largest clubs, which generate the most revenue and profits, and can consequently spend more money on transfers and player wages.
[6] Qualification and participation in the Champions League is a lucrative endeavor, paying out up to £60 million in prize money and television rights per season to clubs that reach the final.
Some forums have expressed concern at the potential risk that as clubs become ever desperate to raise "allowable" revenue which will positively affect their balance sheet, they will indulge in questionable U.S.-style advertising and sponsorship practices from multiple backers which may eventually compromise the ethical composition of football.
Following the problems caused by the sale of Carlos Tevez and Javier Mascherano to West Ham United in 2006, third party ownership was banned in the Premiership, although it is widely used in South America and Europe and is permissible under FFP.
Following the introduction of FFP, the Premiership unsuccessfully lobbied UEFA to review the situation to avoid English clubs being disadvantaged,[54] and in October 2011, sports lawyer Jean-Louis Dupont told the BBC that the Premier League's third-party ownership rules were not legitimate and that a legal challenge to overturn them would have a "very, very good chance of succeeding".
"[56] Another big issue for English clubs is the substantial payments made to the lower leagues in the football "pyramid" and to other charities out of their joint Sky TV deal.