Players' wages in perspective. Image: FourFourTwo Magazine
Just over a week ago, I read this short article by Ros Coward on The Guardian’s comment is free, asking why the furore over bankers' bonuses is not also directed at footballers such as Wayne Rooney, who apparently earns £18m a year. I read this with disdain: she considered high earning only as a moral issue and completely missed the fact that remuneration in banks spurred the risk-taking that caused the credit crunch. But, on reflection, I realise that she has only made the same mistake that the great formless voice of public opinion has been making on footballers’ wages for some time, and on bank bonuses more recently. This analogy deserves further investigation.
As conservative commentators have rightly pointed out, the public only started to complain about bank bonuses after the crash (duh). The controversy over wages in football has been around much longer. Every time the England team inevitably fails to make any mark on an international tournament, the same clichéd gripe about modern footballers being “overpaid celebrities” lacking in passion resurface. We are often then treated to suggestions for wages at clubs to be capped, as if that will get us to a semi-final.
The usual defence of high wages in football, and it is on the surface an entirely reasonable one, is that those players have been deemed worth that level of remuneration as assets to their businesses. Their earnings reflect their “market value” which includes their contribution to on-pitch performance as well as their ability to attract fans, sponsors and sell merchandise.
But something has gone horribly wrong with money in football. Figures in The Times today show that half of the Premier League’s clubs lose money. Although the revenue of the 92 professional clubs in England and Wales is a hefty £2.7 billion, the total debt as of 2009-10 stood at £3.5bn. The amount we pay to enjoy football at a stadium or on television, or to support our club through purchasing merchandise, continues to go up, yet the clubs are not making money. The main culprit for this is, predictably, high wages.
Footballers in England take home 68% of the total income of all the football clubs, and their pay continues to inflate even as clubs are losing money. Even in La Liga, where TV rights are sold by each club independently—making the Premier League look like a bunch of Communists—Barcelona have struggled with debt for years, whilst Real Madrid has political forces at work helping it to acquire cheap loans.
If football is used as evidence of how good the market is at determining value and generating wider prosperity, then maybe it is time to try more regulation.
The argument over banking bonuses, a bit like footballers’ wages, has got everyone very miffed—but the point has mostly been missed. Like in football, earnings in banks should not be judged on a moral basis and, I am afraid to say, should not be dictated by the righteous indignation of the many. There is a better and more important argument to make: high remuneration has proven to be directly harmful to the banks’ shareholders and to the wider economy and requires a new regulatory approach.
There was an unfortunate cocktail of factors that caused the credit crunch, in which the upside-down relationship between pay and risk was a prime ingredient. This does not just include the Fred Goodwins, but also the thousands of investment bankers who are collectively paid billions. In the run up to the crash, riskier loans and investments, with a greater forecast return due to the high interest rates that could be charged, were made often and recklessly in the City. The more risk that bankers took on, and the greater the forecast returns, the higher their personal remuneration became. This vicious circle of escalating wages, high risk and general dick-measuring over bonus sizes is inseparable from the economic meltdown.
Why didn’t they care about risk? Because only the shareholders—and, as it turned out, the taxpayers—would get the bill when it all went wrong; those making the gambles would be paid exorbitantly in the meantime regardless. Clearly the best way to prevent this happening again, and sort out pay in a way that is fair, is to either legislate or get shareholders to wake up and self-regulate, so that remuneration at all levels is not misaligned with the interests and exposure to risk of the companies involved.
The mechanics may be totally different, but really we could learn a bit by comparing the two murky worlds of football and finance. A lack of regulation has allowed the high wages of the star players in both sectors to damage both their shareholders and those of us with an indirect stake in maintaining stability. With regards to banking, if we keep directing our complaints at the wrong targets we are deflecting attention and making real improvements less likely. The occasional concession to popular anger at executive bonuses is not a worthy substitute for more considered and even-handed reform where it counts.