On 22 July 2002, then Premiership football club Leeds United sold lynchpin central defender Rio Ferdinand to sworn enemies Manchester United for a British record transfer fee of £30m.

The transfer was a bitter pill for Leeds fans, who had seen the club through a successful run in the prestigious Champions League just months before. But the deal was accepted as a necessity to drag the club out of crippling debt, which at the time stood at around the £80m mark.

Two years later, and other star players had departed, including Robbie Fowler, Jonathan Woodgate and Robbie Keane, yet the club’s level of debt was in excess of £80m, and Leeds United was still on the brink of collapse.

Only intervention by experienced accountants, and a painful restructuring process, led to solvency. Just two weeks ago, Ernst & Young partner and Leeds joint administrator Garry Wilson repaid the last of the club’s creditors, including the milkman.

The Leeds crisis was just one of the many that threatened the future of the beautiful game over the last few years. Leicester City, Bradford City, Cambridge United, Wimbledon (now Milton Keynes Dons) and York are just some of the clubs that have come face to face with the harsh realities of the football business in the 21st century, and faced ruin.

The clubs themselves are run by successful business people, well versed in balancing investment with risk. Yet tales of financial mismanagement are at the heart of many of these clubs’ woes. So what happened?

Garry Wilson believes that the root of Leeds’ problems stems back to a ‘different climate’ to the one currently facing football. The turn of the century saw spiralling wages and transfer fees, secured against club assets and supplemented by ‘wealthy benefactors’.

Leeds, along with other clubs, paid huge sums to players and also became involved in the process of ‘leasing’ players. This leasing helped to push the club into debt, and transferring those players barely covered the money owed to the leasing agency.

This, along with a wage bill of £56m in 2003 – the equivalent of 80% of the club’s turnover then – pushed Leeds to the brink of disaster. ‘Clubs were all so caught up in market conditions at the time. Rio’s deal to Manchester United was the one that happened before the [transfer] market collapsed. Assets the clubs thought they had became worthless,’ says Wilson.

But clubs still face other risks. Those making the leap from the Coca-Cola Championship to the Premiership have been presented with great wealth, yet this can become a poisoned chalice. Wimbledon and Ipswich, for example, fell out of the Premier League and faced financial difficulties, culminating in administration.

One of the main issues has been inflexible player contracts that stretch the player wages-to-turnover ratio. Huge contracts were signed with little room for manoeuvre, allowing players to earn Premiership wages even though the clubs had been relegated.

Former Leeds CFO Neil Robson found the club in a dire situation, strangled by debt from ‘transfer leasing’ and unmanageable player wages. ‘It was a double whammy – when revenues started to fall, costs could not be brought down,’ Robson tells Accountancy Age.

The collapse of ITV Digital also had a catastrophic effect. Around £180m owed to the Football League by ITV Digital went unpaid. Reports suggested that as many as 30 clubs faced administration due to its collapse.

The introduction of ‘parachute payments’ to clubs slipping down the leagues has eased the financial burden. The controversial ‘super-creditor’ status, which places certain creditors such as the players and HMRC above others if a club enters administration, provides a level of certainty regarding their financial exposure.

Despite the many financial disasters and calamities that befell many of England’s biggest football clubs, there is finally light at the end of the tunnel. Deloitte’s survey of football finances reveals that clubs are getting to grips with managing the balance between revenues and wages.

Football League clubs’ revenue increased by 7% to £440m in 2003/04, while wage bills fell by around 10%. Total wage bills for Premiership clubs, excluding Chelsea, fell from £706m (2002/03) to £696m (2003/04). And wage/turnover ratios fell from 61% to 59% across the same 19 clubs.

Grant Thornton’s Joe McLean, who has provided advice to many clubs, believes that they are beginning to cut costs and manage their finances better and most have emerged from the ITV Digital hangover. ‘League clubs are gearing themselves accordingly – new contracts are as low as £1,000 a week to top players – they’re driving down costs.’

McLean believes the introduction of the Bosman ruling, which effectively wiped out any transfer fee between clubs if a player is out of contract, has helped lower debt.

But he warns there are still huge risks. ‘On the one hand, clubs are slowly spending less of other people’s money, but the scenario they find themselves in is balancing success on the field with financial success in the boardroom – they get sucked into the pursuit of glory.’

The Football Governance Research Centre (FGRC) at the University of London has seen clubs learning from the ‘Leeds Utd’ example by taking risk management more seriously. Fewer clubs are increasing their overall level of debt, and more clubs have disposed of assets, deferred capital expenditure and extended credit periods.

Professor Christine Oughton, director of the FGRC, says that while the situation has improved, there are still risks associated with the knock-on effect of Chelsea’s recent high level of transfer and wage expenditure.

Clubs chasing Chelsea could be dragged into increasing expenditure, which entices other to follow suit. ‘Because of Chelsea’s expenditure there’s a danger it could encourage more spending on wages. It’s an industry with a lot of risk,’ Oughton says.

But pressure to bring success, while balancing the books, is onerous and constant. ‘That’s the issue – the line between success and failure is so narrow, yet an awful lot rides on which side you fall,’ says Robson. ‘The normal business risk is that, falling short of a target wouldn’t necessarily be catastrophic. But the potential revenue losses for not winning can be catastrophic, in terms of wages and transfers.’

On and off the pitch it seems that, despite the ongoing risks, the game may have finally learned from the mistakes of the past.