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A rich man’s game: the problem with sport’s ‘white knights’ and private ownership

Last week, with a certain depressing predictability, the Australian Tax Office applied to wind up the Newcastle Knights rugby league and Jets football teams over unpaid tax liabilities approaching $3 million…

The reliance on wealthy benefactors to run sports teams is a poor business model. AAP

Last week, with a certain depressing predictability, the Australian Tax Office applied to wind up the Newcastle Knights rugby league and Jets football teams over unpaid tax liabilities approaching $3 million.

Owner Nathan Tinkler, once Australia’s youngest billionaire, bought the Jets in 2010 from another businessman who couldn’t pay his bills, Con Constantine, and the Knights in 2011. He signed league’s most successful coach, Wayne Bennett, offering Bennett his private jet for return trips home to Queensland. The jet was recently re-possessed.

The Tinkler story has a classic ring: rich sport fan wants to give something back to club(s) and city. The cost is high, but there are other financial fish to fry – in this case, Hunter Ports’ proposed $2.5 billion coal-loader on the old BHP Steelworks site. Tinkler is the chairman of Hunter Ports, the shirt sponsor of both clubs.

In early 2012, the New South Wales government rejected the proposal. Within months, Tinkler left Newcastle for Singapore and Hunter Ports relocated to Queensland. Newcastle was no longer “Tinklertown” and his Hunter Sports Group, also the subject of an ATO wind-up application, blacklisted the Newcastle Herald for engaging in “tall poppy syndrome”, “personal attacks” and “a negative local press campaign”. The catalyst was a news story about an unpaid tax bill.

Tinkler’s tale may end in bitter tears or a song of redemption for Newcastle. Both clubs have built up substantial memberships, and it is unlikely that the National Rugby League and Football Federation Australia would allow such abject heartland demise. But what does the drama tell us about such heavy reliance on the patronage of wealthy benefactors?

This is not a specifically Australian or recent problem. Its origins lie in that period of European (specifically British) modernity when casual, community-based physical pastimes transmuted into regular, rule-based sporting contests performed by paid athletes before paying audiences of mainly working-class men in densely populated cities.

Association football (soccer) established the pattern in the late nineteenth century. Clubs, often based on works teams (railway and munitions in the cases of, respectively, Manchester United and Arsenal) were formed with dues-paying members. Entrepreneurs provided ancillary goods and services, such as food, alcohol and gambling. As leagues became national and expenses rose, this cottage industry arrangement broke down.

So, in the early 20th century, a series of financial crises beset football clubs, with several threatened with Newcastle-style wind-up orders. The solution lay in rescue consortia of local businessmen (gender used advisedly), “white knights” who were usually solid civic burghers buying prestige and influence, and sometimes doing property deals on the side.

However, these arrangements were also generally unstable. As sport became bigger business, it needed more capital than could be provided by owners and customers of relatively modest means. Massive capital infusion then arrived from a source destined to make sport in its own image: television. As the major economic force in sport, television constantly primed sport’s spiralling financial stakes – more money was washing around, but intense competition encouraged risky debt financing. In cultural terms, television turned ‘meat and potato’ players into David Beckham-style ‘golden balls’ celebrities – with remuneration to match.

The English Premier League is the flashiest exemplar of football’s detachment from its humble terrace house origins. Formed after the 1988 Hillsborough Stadium disaster exposed a malign combination of creaking venues and caged-fan policing, it extinguished the last vestiges of proletarian masculinity by substituting it for high-end, family-friendly leisure consumption. Bankrolled by the Rupert Murdoch-controlled BSkyB’s seizure of its telepresence via expensive subscription, some EPL clubs flirted disastrously with public listing, while others sought major private investors. The richest of these is Manchester City’s owner, the UAE’s Sheikh Mansour bin Zayed bin Sultan Al Nahyan, but the most conspicuous is Chelsea’s Russian owner Roman Abramovich, whose sacking of managers puts Donald Trump to shame. Both clubs incurred staggering losses in the last financial year – over $250 million combined.

With over 50% of European football clubs trading at a loss, its governing body, UEFA, has introduced Financial Fair Play Regulations to curb endemic financial excess. The key point is that the wealthy benefactor sport model is inherently unsustainable because it is not reliant on profitable or even break-even trading, thereby inflating the cost of doing business across the entire sport industry. Dependent on corporate ego and image positioning, it places clubs at the mercy of volatile owners and boardroom shenanigans.

When New South Wales Premier Barry O’Farrell welcomes Manchester United to Sydney in July next year, he might reflect on the fact that, prior to a recent initial public offering, the club had accumulated a debt of $670 million under its American owners Glazer brothers, the renowned debt-leveraging specialists.

Nathan Tinkler thought he was Australia’s Abramovich, but now looks more like its Geoffrey Edelsten. Sport clubs should be wary of becoming rich men’s playthings.