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What are the two biggest concerns for the sector over the next 12 months?
Potential sources of revenue over the next five years
That one non-attributable comment tells you more about football’s current crisis than any on-the-record briefing. Everyone knows there is a problem, no one knows what the solution is and the best anyone can hope for is to avoid being the first to pull the plug and therefore shoulder all the blame.
That’s especially true of the banks. There have been high-profile examples of clubs raising finance in innovative ways – Manchester City is the latest, announcing this month that it is negotiating to raise £163m by effectively mortgaging future ticket sales at its new state-of-the-art stadium. But for most clubs it is still the bank and the line of credit it offers that keeps them afloat.
The financial reality facing modern football, as revealed in the joint survey of football’s leading finance directors released by Accountancy Age and PKF this week, is very worrying. Again, getting people to put a name to a quote is all but impossible: we were only able to persuade 22 FDs (40% of the 55 questioned) to take part in the survey on condition of anonymity.
The survey shows you shouldn’t believe everything you read on the sports pages. Behind the headlines warning of falling incomes, more clubs are actually currently increasing their credit lines.
Despite the fact that few expect football’s next TV deal to result in anything even close to the £1.1bn, three-year agreement with Sky which began just a season ago, clubs are being forced to borrow more. Players still need paying, grounds need maintaining and transfers have to be funded if supporters are to be kept happy.
As a result, more than half of the FDs questioned (across the English Premiership, Nationwide First Division and Scottish Premier League) have increased their bank facility over the last 12 months.
And few clubs are simply extending their borrowing on the off chance they might need it: more than half say they expect to use at least 90% of it over the next 12 months.
If there is any encouragement to be taken from that, it’s the fact that borrowing is heaviest among Premiership clubs where 71% have realised their facilities. At least there are greater potential rewards on offer for those clubs.
Worryingly, most clubs are almost certainly borrowing expensively. All Scottish clubs surveyed are on variable rates of borrowing as are 70% of the English clubs polled. And very few are willing to disclose the rates at which they are borrowing – a clear suggestion that the rates being charged are considerably over base.
If there is one single thing that suggests many clubs are in hock to their bank it is the terms of the borrowing under which they are operating. Some 17% of clubs have unsecured borrowing (again, expensive) and it is a trend that is highest among smaller clubs whose turnover is under £10m. At this most vulnerable of levels more than one in four clubs have unsecured borrowing.
Given the sport’s shaky foundations, new lenders are not exactly queuing up to offer money to clubs, which again strengthens the hand of existing lenders, not the clubs that are borrowing from them.
The situation is not just acute for the clubs as businesses, it’s personal too. Nearly a quarter of clubs’ funding have been personally guaranteed by a director. As PKF head of corporate recovery Philip Long says: ‘This is a cause for concern given the high level of borrowing within the sector versus corporate security.’
But modern football clubs are slaves to two masters: as well as the banks, there is, of course, Sky – the only TV operator left with serious cash to flash.
TV and radio deals are regarded as the most important source of revenue when planning the financial future of Premiership clubs. It’s viewed as less important outside of the top division – but that’s more by default than design.
With the demise of ITV Digital – the £180m it owed to League clubs when it collapsed earlier this year was only partly replaced with a £95m four-year agreement with Sky – first division clubs are relying more than ever on ticket sales from corporate boxes, merchandising, sponsorship, conferencing and catering.
But TV money is still seen as the principal revenue stream.
Among the leading Scottish clubs, it’s different. North of the border corporate boxes are viewed as more of a cash cow over the next five years than TV and radio deals.
Not surprisingly, the smaller the club, the unhappier its FD is about the distribution of TV money. Nearly three-quarters of all football FDs polled think TV money should be negotiated centrally. But only one in four first division FDs think the current allocation arrangements are acceptable compared with 60% of the Premiership.
All this isn’t just a headache for FDs: make no mistake, it will affect players too. Every respondent agreed that players’ salaries should reflect recent performance and over half thought pay should be performance-linked to first team results. In many cases FDs argued that up to half a player’s salary should be dependent on results. Perhaps more controversially, almost half of the sample argued pay should be linked to other performance criteria such as match attendance or TV revenue.
Linking pay to performance as closely as that will take time to achieve. But expect more of it to be negotiated into players’ contracts – especially when a financial rain-check is being taken all over Europe.
In Italy last week state broadcaster RAI told the Italian league that it will end 40 years of coverage unless the asking price for the highlights package is halved.
But while no Premiership finance directors believe that the domestic leagues should follow Italy’s lead and relegate clubs that face financial difficulties, there is at least one area where British FDs are willing to allow their heads to overrule their hearts.
Some 78% of FDs responding to the survey said they supported the club that employed them, but 74% said they would be willing to sell the club’s best playing asset if the price was right.
That sort of attitude won’t necessarily endear FDs to the fans of their clubs but it might just save the game from financial ruin.
For a copy of the report, Financing football – the new reality, email firstname.lastname@example.org