A season of abject disappointment for West Ham fans was summed up by Eggert Magnusson during the side’s morale-crushing defeat to Tottenham in March.

The Icelandic businessman, who bought the Hammers for £85 million last November, looked a broken man after watching West Ham lose 3-4 at home, despite leading 3-2 with six minutes remaining. The result left the club 10 points adrift at the bottom of the Premiership and a despondent Magnusson burying his head in his hands.

Since his arrival, biscuit manufacturer Magnusson has spent heavily to keep the Hammers in English football’s top flight. During January’s transfer window, six nw players were brought in, including Matthew Upson for £6 million and Lucas Neill who reportedly earns about £60,000 a week. To reverse the club’s fortunes, Magnusson also replaced the manager. Nevertheless, managerial changes and new players have made little difference, with the club continuing to struggle at the foot of the table.

Moreover, relegation would cost the club millions of pounds in merchandising and ticket sales and the club would may miss out on a lucrative TV deal for overseas rights to Premiership matches, which sees next season’s bottom club netting about £26 million.

Commentators may question Magnusson’s judgement following the West Ham takeover, but Deloitte’s Dan Jones understands why the Icelandic businessman and several other foreign investors have bought into the Premiership.

Jones, partner in the sports business group at accountancy firm Deloitte, contributes to the firm’s Annual Review of Football Finance that reports on the financial state of European football. The latest research for the 2004/05 season reveals that the Premiership generated some £1.35 billion in revenue, while average attendances have climbed to 33,887 from 21,159 since the league was established in 1992. The findings also show that 11 clubs reported positive net bank balances.

For Jones, these factors, coupled with rising TV revenues, have helped attract overseas investors to the Premiership. “What you have is a very successful, thriving league in terms of generating revenue,” he says. “You also have a loyal customer base and well established contracts for your major [TV] rights.”

Risky business

Like Magnusson, other millionaire investors who made their fortunes outside the UK have gambled on Premiership clubs. In August 2006, US billionaire Randy Lerner bought Aston Villa for £63 million six months before compatriots George Gillett Jnr and Tom Hicks acquired Liverpool FC in a £218.9 million deal. Almost three years earlier, American sports tycoon Malcolm Glazer secured control of Manchester United for £790 million, despite vehement opposition from the club’s supporters.

Many were concerned about Glazer’s plan to part-finance the takeover by securing £265 million debt against the club’s assets. The remaining capital was generated from equity already owned by Glazer before the deal and through issuing securities. Some fans so incensed by the deal abandoned the club to form non-league side FC United. But on-field success seems to have quelled the initial unrest. Meanwhile, the club’s financial figures for the 2004/05 season remain healthy, despite a drop in operating profit to £33 million from £52 million the previous year.

Recent takeovers have also seen clubs delisted from the London Stock Exchange with Glazer, Lerner and Chelsea owner Roman Abramovich taking their football interests private. Like any publicly-traded business, the clubs’ directors had no choice but to publish financial results and annual reports, while providing transparency to shareholders. But since delisting, the new owners can now choose whether or not to issue this information.

Taking clubs private has aroused the suspicions of some supporters who consider delisting a ploy to secure complete control. Geoff Walters from the Football Governance Research Centre, which investigates governance and regulatory issues in football, says the fans are right in some respects, but fails to understand why they object when a new owner cements his position following a takeover. “Clubs that are listed on the stock market are technically for sale, which is ironic when all these United fans were marching around with ‘not for sale’ banners when Glazer came in,” he says.

Like Manchester United, current Premiership champions Chelsea were delisted from the stock exchange after Abramovich bought the West London club for £140 million in July 2003. But the sides are miles apart when it comes to finances, with Chelsea reporting huge debts since the takeover. Its most recent figures for the 2005/06 season show a pre-tax loss of £80.2 million. Abramovich, a Russian oil tycoon with a reported £9.29 billion fortune, has invested some £440 million to cover debts and bring in new players. But speculation in the British media suggests he is losing interest in the club.

For Walters, a parting of the ways would be devastating to Chelsea. “If Abramovich was to leave Chelsea at the end of the season they would have problems,” he says. “If they are making a loss this year of £80 million they are probably going to make a loss next year of £40 million-£50 million; if they haven’t got Abramovich’s wealth underwriting that, they will be in serious financial difficulty.”

Walters adds: “If he [Abramovich] decides at some point to walk away and he’s not interested anymore then what happens to the club? That’s why this business model is in some ways unsustainable long-term because if he is financing it out of his pocket and decides he doesn’t want to the do that anymore then what happens financially?”

Should I stay or should I go?

Whether Abramovich stays is unclear but speculation concerning his departure is unsettling for supporters, according to Walters. A common issue among fans of foreign-owned sides is whether the likes of Abramovich and Glazer are committed to the long-term future of their respective clubs. This also raises questions about the owner’s intentions, with some supporters concerned about their club’s traditions and heritage. “You wonder about the motives of these guys and why they would want to invest in these clubs?” Walters adds.

But Deloitte’s Jones believes making judgements about investors based on their nationality is unfair. Like Chelsea, many clubs rely on benefactors such as Dave Whelan at Wigan Athletic, Sir Jack Hayward at Wolverhampton Wanderers and Middlesbrough FC’s Steve Gibson. Jones says the only difference between the clubs is that Chelsea are owned by a foreign investor and not a local self-made businessman.

Indeed, all four have spent big to improve their clubs, having contemplated a dilemma that every football financier faces: whether to base the investment on emotions or economics. Jones says investors are sometimes driven by both, but believes new owners, whether they are foreign or not, have to budget accordingly before pumping cash into the club.

Jones: “If it’s an emotional investment then you still need to think about the economics and say, ‘OK, I would like to invest in this football club and I want to be all about winning trophies. To win trophies it’s going to cost this much money and that means I have to [finance it] out of my own pocket’.”

Others may take a more pragmatic view and limit outgoings by providing low transfer budgets, increasing match-day ticket prices and forcing managers to sell players. Jones believes both methods work, providing the owner develops a solid business plan. “It’s like investing in any business; you need to have thought it through properly and understand the exact business you’re getting,” he says.

Despite the Premiership providing the biggest returns, some foreign businessmen have invested or shown interest in lower league clubs. Last year, Valeri Belokon reportedly paid £5 million for an undisclosed stake in Blackpool FC. The Latvian entrepreneur completed the deal through Belokon Holdings, which has interests in the media, food, finance and geology sectors.

Belokon met Blackpool chairman Karl Oyston while looking for acquisition targets in the UK. Talks between the two started early last year, with Belokon on board as President in June. His passion for English football and Blackpool’s seaside location – a familiar backdrop for the Latvian, who grew up near the ocean in his homeland – were key reasons behind the investment. The challenge of getting the League One side promoted was also a factor.

Belokon’s short-term vision is to get Blackpool into the Championship and eventually the Premiership. To that end, he has backed manager Simon Grayson by opening his cheque book and bringing in new players. He has also increased bonuses for the current squad. The cash injection has helped but Belokon says the club will continue to lose money, an issue that he is unwilling to discuss further. Nevertheless, despite his reluctance to talk figures, Belokon emphasises his desire to improve the club’s finances within the next three to five years.

Unsurprisingly, Belokon has received little financial reward for his investment, but insists the ‘moral satisfaction of belonging to something great’ is more than enough. He also believes taking risks that may not pay off is par for the course. “One of my basic rules as an investor is you have to be ready to lose in order to progress,” he says.

As an overseas investor, Belokon is surprisingly critical of foreign businessmen that buy into Premiership clubs. He believes some investors with unlimited spending power increase the pressure on players and management by demanding instant success. “Surely, for these investors a football club, even in England, is not a safe investment,” he says. “Money is an important argument for achieving results, but it doesn’t solve everything.”

But Belokon also recognises that some foreign investors value long-term planning to achieve success. “Such investors have enough time to develop football clubs in their own way and wait for results,” he says. “Serious investors not only count money in a club but also evaluate the financial situation, taking into account their total investments portfolio.”

Size doesn’t matter

Belokon isn’t the only foreign businessman to target lower league clubs. In February, former Portsmouth owner Milan Mandaric bought Championship side Leicester City for a reported £25 million. Some analysts considered it a risky investment, with the club carrying £30 million debts when it went into administration in October 2002.

Relegation from the Premiership that year and the collapse of ITV Digital, which spent millions to secure TV rights for lower league matches, hit Leicester’s finances hard. Players’ wages and the £37 million bill for a new stadium also didn’t help. But the club has since acclimatized to life outside the Premiership, with Leicester more financially secure. The supporters now hope that Mandaric’s experience with lower league sides will be repeated at Leicester. In recent years, the Serbian-born American helped transform Portsmouth into a mid-table Premiership side from a club struggling in the Championship.

Coventry City have also attracted interest from overseas buyers, with American investment vehicle Manhatten Sports Capital Partners launching a takeover bid. Meanwhile, Championship side Sheffield Wednesday is generating interest among foreign investors, according to Owls chairman Dave Allen. Talks with four potential bidders, including a group of Chinese casino owners, have taken place.

Further down the football hierarchy, League One side Millwall secured £5 million from US consortium Chestnut Hill Ventures in March. The board reportedly hopes to generate further funds by attracting other investors.

According to some analysts, clubs like Sheffield Wednesday and Coventry are considered better investments that offer more value for money than struggling Premiership clubs. Both are thought to have good management teams in place – enhancing their promotion prospects – strong support and excellent stadiums. But the Premiership is still the place to be for most overseas investors, if recent reports are accurate.

Manchester City announced to the Stock Exchange in February that they were in preliminary discussions with potential investors. It’s unclear whether any of the interested parties are from overseas, although American businessman and Millennium Dome owner Philip Anschutz was linked to the club. Newcastle United is also a target for investors, with Jersey-based consortium Belgravia Group believed to be interested.

For Deloitte’s Jones, the Premiership will continue to attract foreign businessmen. “The Gillet and Hicks takeover of Liverpool is not the end; there will be other investors who are interested,” he says. “And I don’t think that’s a bad thing.”

See also: Five facts that show football remains big business