Clubs under pressure as HMRC blows the whistle

In 2005 Accountancy Age wrote an article entitled “When Saturday Comes”, in which football accounting experts suggested that clubs had learned the lessons of Leeds’ (first) financial collapse, and their poor use of TV money. Move on five years, and new owners are making old mistakes.

The potential to lean on accountants as the standard bearers for financial rigour and good governance is effectively being ignored, advisers say.

“The beancounter doesn’t get the attention they deserve [in the clubs],” according to Joe McLean, recovery and restructuring partner at Grant Thornton.

“FDs lose the intellectual battle every day – those in the industry are endeavouring to get fellow directors to live within their means, but press and local pressure pushes clubs to live outside their means.”

Others that lose out when clubs collapse are, of course, the creditors.

HM Revenue & Customs has shown that it will not tolerate clubs failing pay their tax ad infinitum. Last week it issued winding-up orders against Cardiff City, Southend United and Premier League Club Portsmouth – with the first two given 28 days to settle their bills with HMRC, and the latter given until tomorrow to prove the club can avoid insolvency.

Advisers have suggested that it is not just the taxman who is fed up with clubs’ credit antics. Several told Accountancy Age that banks were looking to steer clear of involvement with football clubs.

“If you take the macro­economic view, where banks lent aggressively, they can only now lend to viable businesses,” said McLean.

Reports have claimed that the government is looking to set up a football governance regulator to watch over the industry. But that model is flawed, experts suggest, because watching from the outside will have little impact on the day-to-day decision-making process in clubs.

Proving wrongdoing would also be a mammoth task – and such a body would require substantial funding. The biggest problem clubs face is handling their massive wage bills, and making sure that key creditors are staved off.

Suggestions by football experts from Deloitte and other governance specialists that the wages-to-turnover ratio must not exceed 60% has been heeded by some, but
not all.

The Premier League might want to follow the Football League’s introduction of a transfer embargo if clubs fall behind on their tax payments.

McLean would like to see clubs forced to live within their means, but he is concerned that with Premier League clubs set to receive up to 25% more in TV funds from next season when a new contract comes into force, this money could be squandered rather than shoring up balance sheets.

“You cannot spend your new-found wealth until your football creditors and HMRC are paid – that’s what has to happen.”

IN OUR VIEW

With UEFA leaning down hard on the Premier League to tighten rules on clubs’ debt levels, it seems certain that football financial governance will require an iron fist rather than a watching brief. Then, finally, fnance professionals can help a club manage itself rather than get involved when they are close to collapse.

Further reading:

When Saturday comes