Edmond Warner: Let the sugar daddies provide the lifeboat

The fracas between the Football League and the owners of ITV Digital highlights once again the shaky financial scaffolding propping up Britain's greatest cultural treasure. The stock market has, in the past, proved a source of funding for the expansion of some football clubs. Now, it is unlikely to constitute the lifeboat that many desperately require.

The parlous state of, it would appear, most of the balance sheets of England's professional football clubs bears testimony to the on-the-field ambitions of their owners. Some have been driven by their enthusiasm as supporters, others by the belief that their franchise had money-spinning potential that footballing success would unlock.

The very biggest club has demonstrated that a virtuous circle of sporting and financial success can be created in which merchandising and sponsorship revenues allow both the recruitment and retention of the most expensive players and dividends to shareholders. Aspirant clubs, however, seem to have overlooked the fact that the plateau at the top of the mountain has space for very few such teams.

As one descends towards the foothills of the footballing landscape, the potential to generate revenue is severely curtailed. But the cost of employing the best players remains unchanged. It is no surprise to find that some clubs with an unrealistic view of their potential - Wimbledon springs to mind - spend a substantial part of their income on wages.

This, of course, is no way to run a business. Neither is committing future income to pay today's bills, which is a practice that is now causing immense pain with the implosion of ITV Digital.

Spending next year's season ticket income on receipt - up to six months before the season begins - is forgivable, if brave. Signing employment and other contracts in anticipation of future income from an also-ran television broadcaster is imprudent in the extreme. No-one knows the outcome of the dispute between Carlton and Granada and the clubs. While there are grounds for much public lamentation as footballing businesses tumble, one after the other, into administration, there are surely no grounds for any form of government support.

Much good might come from the laws of economic nature having their full effect. The better managed clubs would secure a competitive advantage that their relative prudence deserves. Poor businessmen would find themselves out of the boardroom, making way for newcomers able to pick up franchises from administrators, unencumbered by past debts. Player salaries outside the inner sanctum at the top of the Premier League would adjust towards levels more in keeping with the revenue potential of their employers. If more part-timers are required, then that's what the market will dictate.

One of the barriers to this cleansing process is the footballing rulebook, which dictates that football-related creditors (particularly players and other clubs) must be paid in full if a club in administration is to maintain its position in the hierarchy. In recent years clubs in this position have managed to find backers to discharge these obligations and retain their status.

More widespread collapses, however, might create a financial salvation gap that proves too wide to bridge, forcing teams out of the league.

In these circumstances, it might be necessary for the Football League and the Professional Footballers Association to agree a formula circumventing the usual requirements so as to maintain the basic fabric of England's game. Too much intransigence, and both might get what they most fear.

The possibility of a lifeboat is receiving attention in part because there are indications that the German government will provide interim financial assistance to its teams, which azre beset by the demise of the Kirch media group. These suggestions are raising a storm in Germany: why should taxpayers' money bail out foolish businessmen and overpaid soccer stars?

It would take a brave government indeed, or a deeply undemocratic one, to attribute a substantial monetary value to the societal benefits of maintaining existing football infrastructures. They would be braver still to risk being seen to endorse business practices that often strain against the boundaries of acceptability.

In the absence of state aid, it is hard to see where the funding required to refloat English football could come from. The world-weary might claim that there are always sufficient sugar daddies prepared to take their hobbies and egos to the financial extreme. Indeed, if running costs come down, then such dreams may be within the reach of many more wannabe chairmen.

Conventional institutional investors are highly unlikely to risk their clients' portfolios on football in the near future. Their past experience, a very few clubs excepted, has just been too painful.

The answer might, in time, lie in corporate rather than individual vanity. In the US, major sporting franchises are often extensions of the marketing ambitions of big businesses. Often there is a media angle, sometimes a local one - your employer enriching your downtime by funding your favourite baseball team.

In Britain the barriers to such a transfer of ownership are high. Shareholders in, say, mmO2 might bridle at it owning Middlesbrough rather than merely sponsoring its new stadium. Nevertheless, one can imagine constructing a case in favour. Certainly, City investors are much more likely to be well disposed towards football as a marketing tool than as a self-standing investment.

Edmond Warner is chief executive of Old Mutual Financial Services