David Gold on football club profits [Video]

David Gold talks about adjusting the business plan for football clubs to ensure profits stay the same

Speaking exclusively to Startups in this video, former Birmingham City owner David Gold offers a fascinating insight into the business side of football, explaining how a club puts the foundations in place to deal with relegation.

In the 2007-08 season, Gold’s Birmingham City marked promotion to the English top-flight, only to experience the heartbreak of relegation back to the Championship at the end of the season. Gold says relegation cost the club a whopping £30m in turnover – and he concedes that had his retail business Ann Summers lost £30m in the same fashion, it would “clearly reflect on the profits”.

However, as Gold explains, football clubs are a different beast to retail companies, and with careful planning the Birmingham board were able to ensure that profits remained roughly the same. “You get relegated, you lose the turnover – and you immediately adjust your outgoings,” he explains. “If it all goes to plan – which it should do, because we are astute businessmen – you adjust your salaries, the amount that you’re spending, you receive parachute payments. We adjusted our business to ensure that whilst the turnover dropped by £30m, the profits remained the same.”

Gold explains that very few football clubs turn a “true, real” profit able to be distributed to the board and shareholders – the majority of clubs re-invest the profit in improving the squad right away. “Your profits – crudely – are zero,” Gold says. “You might make a profit one season, and a loss the next season, but look at it over 30, 50 or 100 years and you’ll find that football clubs, in the main, break even.”

Of course, an exception for this is the situation in which a club goes for broke, buying all the best players in the division and living beyond its means in the hope of glory on the pitch. “They say we’re going to ‘give it a go’,” says Gold. “What they mean when they say we’re going to give it a go is they’re going to borrow money from the banks or any source that they can… but if they fail, they go bust. And there is the dilemma.”

As Gold explains, there was no clearer example of this approach than that of Leeds United – “the classic of all classics” – in the early 2000’s, which had taken out loans of £80m against the prospect of Champions League TV money, only to fail to qualify in two successive seasons and run into serious financial trouble as a result.

Gold recalls that chairman Peter Ridsdale’s hubris in the promising early years of the Leeds project was to come back and haunt him later. “I recall being at a chairman’s meeting and Ridsdale was there, and there was a vote to be taken on whether we should increase the parachute payments for those clubs that were going to get relegated,” recalls Gold. “My hand went straight up – because I believed I was going to be one of the clubs that might be relegated. Peter Ridsdale didn’t even look up. Peter Ridsdale was bored by the whole thing – after all, I am the mighty Leeds, we’re in the Champions League this year! And of course, the following year, Leeds were relegated.”

Gold says Ridsdale would have looked back and “wished” he had put his hand up at that time, as it would have meant an extra £4.5m in parachute payments to soften the blow of relegation and avoid eventual administration. “But he was so arrogant in his belief that Leeds could never be relegated that he didn’t put his hand up,” argues Gold.

The current West Ham co-owner believes the Leeds experience can serve as a valuable lesson for business owners, whatever their sector. “It’s a lesson to all of us – ‘we can never go bust, we can never fall from this mighty position which we find ourselves’ – wherever it might be, we can,” concludes Gold. “Leeds was a classic example – beware of that banana skin.”

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