PUBLIC SCRUTINY heaped on football clubs is forcing their finance directors to pay more attention on corporate governance than if they worked outside the sport, a report by BDO has shown.
According to the ‘A New Dawn for Fair Play?’ report, nearly two thirds of the 66 finance directors surveyed said they are more focused on their corporate governance than if they were to work in the same sized business outside of football.
Almost all of those surveyed said they regarded their club as a public interest business, with a third of English Premier League respondents having a remunerated non-executive on their club’s board.
“To some extent, the perceived higher than average level of public interest faced by football clubs manifests itself in a focus on good corporate governance, as reflected in the relatively high number of paid non-executive directors,” says Trevor Birch, insolvency partner at BDO, and lead practitioner on the Portsmouth FC administration.
Although football has received a bad reputation of late in regards to its finances, with the administrations of Portsmouth and Coventry City of most recent note, the upcoming Financial Fair Play (FPP) rules, which require all clubs that compete in European cups to balance their books, will likely have a positive impact on clubs’ financial management.
Among the requirements is a cap on owners injecting equity, overspending and losses. According to UEFA, which introduced the regulation, the rules were introduced to prevent clubs spending more than they earn in the pursuit of success.
The majority of clubs are expected to comply with Financial Fair Play for 2013/14. However, more than a fifth of the FDs working for clubs in the second tier of English football will need to make significant changes to their business model in order to achieve this. This compares with 8% for Premiership FDs and 14% for League One.
The figures highlight the gap between the Premier League and the rest of the football leagues in the country, explains Birch.
“The [Premier League] surges ahead and the lower leagues are left floundering in its wake,” he says.
“However there may be cause for optimism as we see the implementation of the fair play regulations starting to have a stabilising effect on operations going forward. Stakeholders are crying out for a sustainable business model and it can only be hoped that the regulations are embraced not just in letter but in spirit,” he adds.
To tackle Financial Fair Play and balance the books FDs are trying to get a handle on spend, most notably player wages. About 85% of clubs have clauses in players’ contracts stipulating a pay cut if the club is relegated with the number of Premier League and Scottish Premier League clubs that have this clause increasing in the last 12 months.
More than 40% of Premiership FDs and 66% of Championship FDs operate a wage to turnover ratio of more than 66%, although more than half are planning to reduce the payroll budget for their first team squad.
Despite complying with Financial Fair Play and reining in payroll administration is still a very real danger to clubs outside of the Premiership. Just three out of ten FDs rate their club as financially ‘very healthy’, while half said it could be better and 17% said the finances need attention.
However, Premiership FDs were more confused than other leagues when it came to profitability after player trading and amortisation; 16% of them cited they didn’t know if they were profitable at this point. This compares to 6% of Championship FDs and 7% of FL1.
The financial uncertainty continues as a fifth of clubs were late with their tax payments – although most managed to arrange Time to Pay deferment deals with HMRC. However, this did not apply to Premiership clubs with 100% claiming they were never late. Following the collapse of then Premiership side Portsmouth, all clubs must confirm payment of tax liabilities every quarter.
When asked whether they were concerned about various HMRC challenges to complex salary structures, including image rights and employee benefit trusts which could lead to higher PAYE bills, there seems to be a gap between the leagues. About 42% of Premiership FDs said they were somewhat or very concerned about this, compared to 39% from the Championship, 14% from FL1, none in FL2 and 20% in the Scottish Premiership.
You can download a copy of the report here.