Solving football's cash crisis

As the new Wembley stadium begins to rise from the ashes and Tony Blair throws his weight behind a London bid for the Olympic games, things are looking up for British sport.

But as our national game enters the close season, financial woes continue to afflict football. Where it was once just the smaller clubs of the Nationwide League under threat, it is now clear some of the bigger teams, relegated out of the Premiership, who will have to do some nifty financial footwork before the beginning of the next season if they are to get themselves back on an even keel.

Financial managers at West Ham, Sunderland and West Bromwich Albion will be looking very closely at their bank balances, likely income and their costs, to work out just what they are going to do. A mass sale of players could ensure financial stability by bringing down overheads. But the clubs will have to balance that against their needs to field quality teams able to win a place back in the Premiership where the income, mainly from TV deals, is that much greater.

But the clubs also have another hope. The Football Association has appointed accountant and insolvency expert Mark Palios as its new chief executive.

There will be great hope that the former PricewaterhouseCoopers man can bring about some kind of miracle to ease the financial hardship of many of the worst off clubs.

But he faces difficulties himself. First, he will be making sure construction of the new national stadium runs to plan and budget. Supporters and clubs will look to Palios to help them find some way out of their financial troubles. Take Sunderland for instance. Relegation from the Premiership to the first division of the Nationwide League will see its income from football’s governing bodies fall from £15m to £7m while it struggles with debts of £26.5m.

Within the last few weeks Leeds Utd have had to appoint an interim chief financial officer from Ernst & Young after the FD quit when it was revealed the club had debts of £80m.

Among the Nationwide League sides Ipswich Town, Leicester City, York City, Port Vale entered, and some left, administration procedures. Huddersfield became an exceptional case when the club’s own players applied for the administration order.

Commentators have made clear that the central issue is the cost of players’ wages and the contracts they have – the so-called super creditor issue – which makes renegotiation almost impossible.

And the Inland Revenue has become an issue. Traditionally, the taxman took a softly, softly approach to football, always appearing willing to negotiate on the tax owed.

But last week’s intervention by MPs has muddied the waters. Backbenchers have demanded a meeting with Dawn Primarolo, the paymaster general and minister responsible for the Revenue, to express their concerns about the taxman’s treatment of financially ailing clubs. Their driver is the apparent disparity between the various deals the Revenue has struck with insolvent clubs. Their central challenge is why, for example, the Revenue will settle for a return of 10p in the pound from Leicester City where York City had to stump up 63p.

So can Palios produce any answers? That remains to be seen. Tackling the super creditor status of highly paid players would be a start. It would give clubs a fighting chance of restructuring finances and it’s the big wish of insolvency experts brought in to help ailing clubs. A correction in players’ wages and transfer fees would also help, but those, driven as they are by markets, are harder to manage.

Ironically, the closed season will help and hinder clubs. The summer ushers in the transfer window which allows clubs to sell players to raise funds. But it also means a fall-off in income because the clubs no longer have gate receipts from games.

It’s anybody’s guess now where many of the club’s finances will be come start of the 2003/2004 season.