Following a summer when financial realities hit home, the Premiership season is finally kicking off, with investors continuing to shy away from the game, writes David McKechnie

By 3 p.m. tomorrow, the last few seats will be filled in seven English Premiership football grounds, from Ewood Park in Blackburn in the north to St Mary's Stadium in Southampton on the south coast.

Parents and their children will sport sparkling new football kits, the pitches will be perfectly manicured and, up in the corporate boxes, executives will merrily clink champagne glasses to toast the kick-off of another Premiership season.

Just about the only people who will not be carried away by the fervour and hype will be sitting in the directors' boxes. Perhaps, every now and then, their thoughts will turn to their counterparts in the three divisions of the Football League below them, where many of the clubs are crippled by debt and struggling to pay their players' wages. They will be aware that, despite the image of boom time, the Premiership itself is facing its biggest financial challenge since its inception.

As investors continue to shy away from the game in their droves, this was the summer that saw financial realities finally bite on what is normally a buoyant Premiership transfer market. Traditional big spenders like Chelsea, Leeds United, Newcastle United and Tottenham have been squeezing their belts tighter, so much so that of those four, Newcastle is the only club to have made a loss on recent transfer dealings, and that was a relatively paltry £5 million sterling (€7.8 million) for a single player.

The slowdown can partly be attributed to football's unpopularity in the City. Clubs are seen as poor investments because, in a business sense, they are run hopelessly. When other clubs took Manchester United's lead and went public, they saw it as an opportunity to raise money for players and stadium development. Investors initially latched onto a fashionable product that was being beamed to millions around the world, only to quickly realise that, unlike other businesses, clubs were interested in winning trophies, not making profits. One may follow the other but only for a select few.

The result is that, since flotation, shares of clubs of all sizes have generally plummeted.

This week for example, Newcastle United's stood at 22p, down from 135p when they were floated. Similarly, other larger clubs like Aston Villa, Leeds United and Tottenham have taken a hammering, while smaller quoted clubs like Southampton and Charlton have gained nothing from going public. Even Manchester United has suffered. Shares at Old Trafford, which peaked at 412.5p when BSkyB were attempting a takeover in 1998, were this week worth just 107p.

"I was talking to a broker in the City once about football shares," says Mr David Conn, journalist and author of The Football Business. "He said that most of them are regarded as 'a P45 investment' for a broker."

While Man United supporters were delighted at the club's signing of Leeds United defender Rio Ferdinand for £30 million this summer, the City was displeased. Breaking a transfer record for a defender at a time when the transfer market is in recession was not considered shrewd business.

The share price fell but at least United can take heart from the fact that it spent only 50 per cent of its turnover on salaries, the lowest proportion in the Premier League. In March, it announced a record half-year profit of £30.9 million. United, therefore, remains a massive success story, which is more than can be said for some of its rivals.

In recent years, many clubs have spent an increasing amount of their income on salaries in an effort to attract the best players, keep them in the Premiership and, for some, help them challenge for the title. Chelsea, for example, which has one of the highest wage bills in the division, spends up to 85 per cent of its turnover on salaries, which is partly to blame for the fact that it is £97 million in debt.

Like Leeds United, Chelsea gambled on huge transfer fees and salaries in the hope that it would at least deliver them a Champions League place. Unfortunately for both, neither has made it this season.

Mr Philip French, a Premier League spokesman, insists this situation is changing.

"The Deloitte & Touche Annual Report of Football Finances comes out every year and every year it has been painting a pretty bleak picture of English football," he says. "This season's report actually painted a very rosy picture of the Premier League.

"They have shown that the rate of increase in wages is coming down and the rate of increase in wages in proportion to turnover is falling.

"Yes, clubs have been spending perhaps a little bit over what they can afford in the past, but the signs are that that's coming under control and that clubs are being more prudent."

This enlightenment has not come about by accident. Premiership clubs have witnessed a virtual collapse of the transfer market on the continent, as well the dire situation of clubs in the English Football League. Television, the thing that has done most to make football so popular in the past decade, is now being blamed for its troubles.

The collapse of ITV Digital, which had a four-year £315 million deal to screen matches in The Football League, has had a sobering effect on chairmen in the Premier League too.

Football League clubs, which were expecting to receive a total of £178.5 million over the next two years as part of that deal, will get nothing. By way of consolation, the League controversially agreed a £90 million four-year deal with Sky instead. But the damage was done and many clubs, tied into costly long-term contracts with players, have no way of paying them.

Leicester City, which made around £10 million from the Premiership's deal with Sky last season, found that, when it was relegated, it had no way to pay either salaries or the repayments on its new stadium. At the moment, two of its players, Nicky Summerbee and Billy McKinlay, are playing for free.

At Bury in the Third Division, meanwhile, the players have volunteered to buy their own football boots. There are similar stories everywhere. This at a time when, perversely, the game has never been more popular and attendances are rocketing.

If the lesson is that TV deals are not to be relied upon, the signs are that some Premier clubs are beginning to heed it. The current deal with Sky and ITV is worth a staggering £1.274 billion and ends in 2003/04.

Few analysts believe that the next deal, which will be negotiated next year, will match that figure, and many think it will fall short. The Premier League has hinted it may retain the rights to live games if Sky doesn't come up with an acceptable deal, but that would surely be a last resort.

This more than anything is the reason Premiership chairmen are now wary of paying transfer fees or committing players to expensive long-term contracts.

If the next TV deal is less than the last one, they won't be able to afford to keep going as they are. Salaries, especially for average players, are likely to at least stall and possibly fall.

"Manchester United have expanded Old Trafford largely through issuing new shares, but because they can't do that any more, because institutions won't take shares in football clubs, that's why clubs like Leeds, Chelsea and Newcastle have had to borrow really heavily," says Mr Conn. "What they're doing is effectively mortgaging future television income and future ticket sales."

Mr Oliver Butler, editor of the bulletin Soccer Investor, says the size of the next TV deal is difficult to predict.

"It's going to be cut up in a different way to before," he says. "Even if Sky get the same number of live games as before, they may not have the same level of exclusivity as before and, for that reason, that would devalue those rights.

"On the other hand, you'll probably see more money coming in from non-traditional media rights. The other question is how much will go to the clubsindividually and how much will go directly to the League and then the clubs. We reckon the deal may even be in excess of the total for the last three-year deal, but certain elements could be less because it may be divided up in a different way."

Inevitably, however it is divided, it will pander to the Premier League's elite clubs, making the divide between them and the rest even greater.

The current deal is divided in three ways: half equally to all clubs, a quarter according to where they finish, and a quarter according to how often each club appears live on Sky.

"Last season's champions, Arsenal, received a bonus of £8.8 million and the team appeared on television more than any other club, earning them another £7.15 million. Between its finishing bonus and live match bonus, bottom-placed Leicester made just £2 million.

Add to that the fact that Arsenal made £14.9 million for reaching the Champions League quarter finals, an achievement also matched by its main Premiership rivals, Manchester United and Liverpool, and it's easy to see why this season's championship is already widely regarded as a three-horse race.

When the next TV deal is being negotiated, many analysts also expect those leading clubs to insist on selling their international rights individually, rather than as part of a collective. Given the popularity of those clubs in Premiership hot-beds like the Far East, this will only increase the financial gap between them and the clubs behind them.

For others like Leeds, Chelsea and Newcastle, who are desperately trying to break into the top three, there is the considerable consolation that England now has been given an extra Champions League place, presenting them with a chance to join the gravy train. Even if the championship battle doesn't live up to expectations this season, the scrap for fourth place should be something else.