Something is rotten in the state of English football

As the World Cup has shown, there is an enormous chasm between the domestic game and the national side. Much of the blame can be put on the Premier League and its inability to nurture young talent. Ben Chu reports

The dust has settled after the England football team's ignominious ejection from the World Cup in South Africa. But the questions remain. How can what are supposedly some of the best players in the world, coached by one of the most successful managers in the game, fail so badly? How can England, home to the world's richest and most popular league, have such a dismal national side?

Explanations have abounded, from the poor managerial decisions and dictatorial style of Fabio Capello, to internal divisions in the squad, to player fatigue after a gruelling domestic club season. These arguments might be taken more seriously if England's failure was an aberration. But look at the record. England has failed at every major tournament since 1990. The best performance was a semi-final on home ground in the 1996 Euro championship. England has not beaten one of the world's elite teams in the knockout stages of a competition for 14 years. Some point out that France and Italy did even worse than Capello's men in South Africa. Indeed they did. But those countries have a much more successful record in the past 20 years. It is becoming harder to escape the conclusion that the English game has structural problems. And fingers are – quite reasonably – being pointed at the Premier League.

English football is rolling in money. The revenues of the top 20 clubs in England have exploded since the foundation of the elite group in 1992. Over the 2009-10 season, combined revenues reached almost £2bn. But these impressive cash flows have not been a great boon for English footballers. The money has been accompanied by a massive influx of foreign players. Today, only 40 per cent of Premier League squads are English. In the top teams, that proportion falls further. Some say this, in itself, provides one explanation of the rot. The English national side has little depth. And the best English players are often flattered by the brilliant foreign players around them. When the likes of Steven Gerrard and Frank Lampard play for the national side, without that support, they suddenly look very ordinary.

Perhaps. But it is the financial short-termism of the Premier League that is the fundamental structural problem. English clubs spend their vast revenues on buying players and paying their inflated wages, rather than developing home-grown youngsters. The owners of the top English clubs prefer to buy talent off the shelf rather than nurture it themselves. The contrast with the youth development of the German football system, whose national team thrashed England in South Africa, is stark. Their system works, quite simply, because German clubs invest more in the future. Bundesliga clubs spent €55m (£50m) on their youth academies in 2008-09. This works out as 3.3 per cent of gross revenues. Premier League clubs, by contrast, spend about £30m a year, just 1.5 per cent of revenues. England also has far fewer qualified coaches than Spain, Italy and Germany.

The Football Association has in effect ceded control of youth development to the Premier League. Attempts by the FA to reform the academy system have been blocked by clubs. And the needs of the senior national side are always subordinate to the needs of the clubs. To the extent that tiredness was a problem for England players in South Africa, it is because the bosses of the Premier League have always refused to countenance a winter break for players. Meanwhile, external controls on clubs to help national talent are anathema in England. The contrast with the German system is telling. Bundesliga academies must pick 12 players eligible to play for Germany in each intake. The Premier League has reluctantly agreed a quota for senior squads. But this will be for just eight home-grown players. And "home-grown" in England can mean anyone trained for three years under the age of 21 in England or Wales, including foreign nationals.

The results of all this short-termism and narrow self-interest for the England national team are deeply depressing. Trevor Brooking, the FA's director of development, has admitted that a promising crop of young English prospects is not coming through the ranks. The outlook for the national side after this generation of players retires is bleak indeed.

It is sometimes said that there is a trade-off between having a strong domestic league and a strong national team. But the Premier League is not as strong as its vast revenues suggest. Despite the money pouring in, the financial outlook for many smaller clubs is dire. Hull City's accountants say that the club, which was relegated from the top flight last season, needs to generate a financial surplus of £23m to avoid financial meltdown. West Ham United is £110m in debt. Blackburn Rovers spend 76 per cent of their revenues on player wages. Fourteen of the 20 Premier League clubs ran an operating loss in 2008-09.

Equal distribution of Premier League television revenues is fairer than Spanish and Italian models, where teams negotiate their own deals, giving the bigger clubs a much larger share of the total pot. But the vast spending of the top clubs in the English league – much of it financed by debt or soft loans from sugar daddy investors – means that it is still impossible for smaller teams to compete. This summer, Manchester City, funded by an Abu Dhabi oil sheikh, will spend more than £60m on signing players.

And it is lower down the football tree that the disastrous effect is most evident. Lower league teams take crazy financial risks to reach the top flight. Others must run the risk of bankruptcy simply to stay there, relying on benefactors to subsidise quite staggering losses. To describe this as a league is misleading: this is a free-for-all. And the result is an extreme competitive imbalance both within the Premier League and between the top flight and the lower leagues. Between 1957 and 1972, Derby County rose from the third division to win the old first division league title. Such a success story would be impossible today.

Andy Burnham, a Labour leadership candidate, has come to a stark conclusion. He told the BBC last week that "money has poisoned our national game.... We have put money before the sport and we are reaping the dividends of that". Not everyone agrees. A small cadre of pundits regularly tell us that all is rosy in the garden of English football. The economist Stefan Szymanski from London's Cass Business School is one of them. He argues that the imbalance between English clubs is one of the things that makes the Premier League so exciting for fans. If they didn't like it, they would stop coming to matches, he reasons. In Szymanski's view, the lack of regulation is fine since it is only owners like Chelsea's Roman Abramovich or Portsmouth's Sasha Gaydamak who lose money when clubs go under. And historically, he points out, when clubs go bust they always bounce back.

Dan Jones of the consultancy firm Deloitte, which compiles an annual report on top flight football finances, is another supporter of the status quo. In a contribution to the Premier League's most recent report, The Success of the Premier League Model, Jones salivates over "the history, tradition and style of English football" and describes "a virtuous circle throughout the Premier League of revenue growth, recruitment of the best players, top-quality football and further revenue growth". Youth development, the success of the national team and financial sustainability seem to matter little to the likes of Szymanski and Jones.

But they are losing the argument, these cheerleading Panglossians. One piece of evidence they cite for the success of the English model is the recent dominance of English teams in European club competition. But last season, no English team made it past the quarter-finals of the Champions League. And sign are growing of strain at even some of the dominant English clubs. Liverpool is in crisis as its American owners have been forced by the Royal Bank of Scotland to put the club on the market. And Manchester United is under pressure from fans disgruntled at the £700m debts the club's American owners have hung around its neck. Meanwhile, supporters of Portsmouth, which plunged into administration in February, seem strangely unwilling to share Szymanski's sanguine long view of the endurance of football clubs. And now we have England's humiliation in South Africa. The gap between the rhetoric of the Premier League cheerleaders and the reality is turning into a chasm.

It is time to ask questions. Could it be that, despite what the optimists say, fans don't want their clubs to risk bankruptcy merely to stand still? Might they prefer the Premier League to deliver some small degree of competitive balance? Is it possible that England supporters expect their national team, if not to win the World Cup, at least to avoid disgracing itself? The laissez-faire brigade has built this world of extreme inequality, financial profligacy, narrow self-interest and national failure in English football. The question is: how much longer will fans want to continue living in it?

Premier League 2008-09

Revenue: £1.981bn

Operating profits: £79m

Net Debt: £3.3bn (£1.4bn soft loans)

Spending on youth academies: £30m

Bundesliga 2009-09

Revenue: €1.6bn (£1.3bn)

Operating profit: €172m (£143m)

Net debt: €610m (£506m)

Spending on youth academies: €55m (£46m)