Research Paper Sample: Financial Crisis in the Clubs Under the Premier League

Introduction

Soccer is currently one of the most popular sports worldwide. The sport was first introduced by the Chinese's during the 2nd and 3rd Centuries BC. During the rain of China's Han Dynasty individuals used to compete in kicking leather balls into small nets. The game was introduced to the Kyoto of Japan then to Romans and Greeks who played for fun and frolic. In time the sport became popular all over Europe during the medieval era. According to Giulianotti (2012), the game was very violent during that time since practices like kicking, biting, and punching was allowed. The main aim of the players was only to ensure the ball reached a specified spot. The sport was fascinating since it attracted large crowds of spectators who spend the whole day watching the game.

The violent nature of the game captivated many soldiers who even missed archery practices to watch it. King Edward III banned the game in 1365 due to the increased cases of violence caused by the sport and the attraction of the military to the sport (Fournier, 2013). King James I of Scotland due to the same reasons also banned the game in 1424. The initiation of the modern day soccer started in 1815 when football was popularised in Universities, Colleges, and other educational institutions in Europe. The renowned English School and Eton College formed set of rules referred to as the Cambridge Rules that were used in governing the game. However, there were still no set rules for the game since some institutions employed Rugby rules which allowed tripping and carrying the ball.

In October 1863, eleven representatives from London clubs and schools convened a meeting at the Freemason's Tavern to set the rules that would govern the football matches they held. The meeting led to the formation of the Football Association and later in December of the same year Rugby Football Association was formed after some members of the association saw it best for them to create a sport that would incorporate all the practices they supported. In 1869 the Football Association officially banned all forms of ball handling (Giulianotti, 2012). The sport's popularity rapidly spread to different parts of the world by British soldiers, sailors, and traders in the late 1800's. The game spread from England to other European regions such as Italy, Germany and France. South American areas such as Uruguay, Brazil, and Argentina also adopted the sport. In the year 1904, the Federation of International Football Association (FIFA) was established. The organization in the year 1930 organized the first world cup which was held in Uruguay. By that time there were different football leagues which were independently held in the various countries where the sport was majorly played.

The English Premier is currently one of the most popular men soccer league participated by some of England's top football clubs. According to Olson et. al (2016), the league was started in 27th May of the year 1992 after a group of clubs left the Football League to form the FA Premier League which was a limited company under the Football Association whose headquarters was in Lancaster Gate. This marked the breaking of 104 years old Football League that at that time had four divisions. The league's first season was held from 1992 to 1993 and composed of 22 different clubs. The league's first goal was scored by Brian Deane of Sheffield United in a match they won 2 to 1 against Manchester United. Manchester United, however, won the first season. A total of 49 clubs have participated in the Premier League, but only six of them have managed to win the title, the six teams are Manchester City, Manchester United, Leicester City, Blackburn Rovers, Chelsea, and Arsenal. Manchester United with 13 wins has won most of the seasons, and Chelsea Football with five wins is the team that won the latest season.

Some of the other popular clubs that participate in the league are such as Newcastle, West Ham United, Tottenham Hotspur, Queens Park Rangers, and Everton. The league is currently contested between 20 clubs and takes place every year from August to May. The clubs play against each other twice at their home stadium and the opponent's home stadium. The team gets three points when they win a match, one point when they draw and no point when they lose. At the end of the league, the three lowest teams are usually relegated to the English Football League Championship (EFL). The top two teams from the EFL Championship and the winner of the playoff between the teams in the third to the sixth position are then promoted taking the places of the teams relegated. The top four teams in the Premier League qualify for the Union of European Football Association (UEFA) League which is usually a competition contested by the top teams from the different European Leagues.

Problem Formulation

The Premier League title since its inception in the year 1993 has been sponsored by only two companies, Carling Breweries and Barclays Bank. During its first season from 1992 to 1993 the league had no sponsor. From 1993 to 2001 it was sponsored by Carling Breweries. Barclays bank then sponsored it from 2001 to the year 2016. The league under Barclay sponsorship was initially sponsored by the banks brand Barclay card for three years from 2001 to 2004 before the primary bank took over (Cleland, 2017). The Premier League management on 4th June 2015 announced that they intended not to seek any other sponsorship and after their contract with Barclay ended in 2016 the league funded itself. The management decision was instigated by their intent of building an unbiased competitive environment like those of major professional sports league in Canada and United States. For example the National Hockey League (NHL), the National Basketball Association (NBA), the Canadian Football League (CFL), and the National Football League (NFL). The League also partners with numerous suppliers, for instance, Nike, Inc. which has provided the balls used in the league since 2000 to date.

In comparison to other football leagues in the world, Premier League is the one that has the highest revenue. In the 2009 to 2010 seasons, the clubs in the league accumulatively had revenue of 2.48 billion Euros (Cleland, 2017). In the 2013 to 2014 season, the league incurred an additional net profit of 78 million Euros. This increase was caused by the rise in its viewings and cost-effective strategies implemented by the league managers. The league performance has enabled it to be awarded numerous awards. In 2010, for instance, the league got the Queen's Award for Enterprise under the International Trade Category due to its significant contribution in promoting International trade and the United Kingdom's broadcasting industry. In the 2016 to 2017 season, Premier League paid about 2.4 billion Euros to the 20 clubs that participated. All the teams received 35.3 million Euros for participating in the league. Slightly above one million Euros as payment for the games highlights broadcasted by UK media houses, 1.1 million Euros for each match televised live by the UK stations and 39 million Euros for all matches aired by overseas media companies. The clubs were paid 4.8 million Euros for the commercial rights and the rest of the money was divided in a ratio determined by the position of the clubs at the end of the season.

Despite the fact that the club under the Premier League receives a lot of money for participating in the league, most of them are running on debts. For example, Manchester United which is arguably one of the most prosperous clubs in the league is an excellent example of a team that has incurred a lot of debts through the years. Manchester United debt increased by 25 percent in one year, in 2016 it had a debt of 464 million Euros, and currently, its debt is 536 million Euros. The club is now the team with the highest debt in comparison to the other clubs under all the European soccer leagues. The club has this massive debt despite the fact that its annual revenue is almost equal to its debt and the debt only makes up 80 percent of its assets. According to the club's manager Jose Mourinho, the increase in the clubs debt was mainly caused by effects of Brexit which caused the exchange rates of United States dollar to decrease by 18 cents from 1.43 dollars to 1.25 dollars (De Menezes, 2016).

Queens Park Rangers is the second club in the Premier League with the highest debt. The club currently has a debt of 279 million Euros. The clubs management team has implemented a series of unsuccessful strategies that have made the teams debt to accumulate through time. From 2010 to 2012 the club registered losses that amounted to about 135 million dollars. In the 2013 to 2014 season, the club managed to bounce back from the Championship League. The management then doubled its wage bill in attempts of ensuring the team performed better in the league. The team did not register better performance despite the fact that their wage bill was twice as massive as that of Leicester City which won the 2014 to 2015 Premier League title.

The teams increased debt has also been caused by the 40 million Euros fine they incurred for breaking Financial Fair Play (FFP) regulations. Sunderland is another club that has had a high debt. In the 2014 to 2015 season the club had incurred a debt of 139 million Euros. The club owned by American businessman Ellis Short invested a lot of its resources in ensuring they are not relegated this has paid off for the team even though it has led their debt margin to increase as the seasons pass. Chelsea Fc which is also arguably one of the strongest teams in the Premier League in the 2014 to 2015 season had a debt of 1.1 billion Euros (Cox, 2016). This debt is higher than that of Manchester United. However, it is not considered as a debt since it is an interest-free loan offered to the club by its owner Roman Abramovich who is currently worth 5.85 billion Euros.

Premier League is one of the biggest soccer leagues that have numerous teams with some of the best players, coaches, and countless spectators who follow the games from different parts of the world. The fact that clubs in the league get paid a lot of money yet they have enormous debts is puzzling. Telegraph shows that the as per the end of the 2016 to 2017 seasons the clubs have acquired a combined debt that is slightly above 5 billion Euros. By focusing on the leagues clubs such as Manchester United, this paper describes how Premier League clubs make money, how they utilize their financial resources, and what makes the clubs acquire massive debts. In researching on the presented questions, the paper has enabled me to answer the question;

What are the factors contributing to the failure of these clubs and what can management do to reduce the debt within the clubs?'

The methodology section below explains the various steps that I have taken in answering the question.

Methodology

According to Mackey & Gass (2015), a research methodology describes the methods the researcher intends to use while conducting his study. In this section I have specifically address the studies research design which includes the sources of my data and how I will utilize the data. In doing the research, I will mostly source my information from the internet and the notes from our previous classes in conducting this study. My lecturer, friends, and classm...