Doom, gloom and surprising optimism

The shedding of thousands of jobs by the likes of American Express, Electronic Arts and Motorola is symptomatic of something much more worrying, according to Douglas A McIntyre.

If a recession is measured by the rapidity and breadth of job loss across huge parts of the economy, the current downturn will be unusually vicious. Even highly profitable firms are resorting to firings relatively early in what is almost certain to be  an extremely difficult cycle which could last for several quarters.

It’s regular practice for a company in a downturn to start laying off staff; this would happen if profits had fallen slightly, so you can imagine how much more drastic it could be in a recession.

What the layoff news is showing now, in what is probably the second quarter of a recession which could last for six or seven, is that large corporations believe that their revenues will get much worse and that the chance for improvement is further into the future than most companies believe that they can reasonably gaze.

With each job that is lost at a company that is doing relatively well, the probable depth of the downturn gets worse. Many of the cuts being announced now are based more on confusion and fear than on reason.

Fear indeed: Electronic Arts has revenues of $5bn and is still cutting employee numbers by 6% (admittedly I’ve since realised it made a loss of about $300m)

Meanwhile, those at the upper echelons of soccer see nothing but success in the future.

Manchester United chief executive David Gill is not convinced the credit crunch will have the catastrophic effect many pundits fear… with a new Premier League TV deal about to be negotiated, Gill feels the enduring popularity of the nation’s number one sport can take the edge off whatever impact is eventually felt.

In fairness to Gill, he does recognise that the recession will have some sort of an impact (just look at West Ham, whose owner was a banking magnate in Iceland – we all know how that turned out). However, he is confident that the Manchester United brand will pull through.

I understand where he’s coming from but I think he could be more cautious. He may be trying to promote the brand, and that’s fine, but the collapse of ITV Digital shows that signing a contract to spend hundreds of millions – and billions in the case of the Premiership – to broadcast soccer does not necessarily mean that the money will come through. Like all good businesses, Man Utd are looking to other revenue streams, such as deals in Saudi and Switzerland. But only a few clubs are this fortunate. The soccer television bubble could be the next to burst.

Facebooktwitterredditpinterestlinkedinmailby feather

Leave a Reply

Your email address will not be published. Required fields are marked *