BusinessCompany NewsGetting a financial foothold

Getting a financial foothold

Take away Chelsea's Russian sugar daddy Roman Abramovich and the ubiquitous David Beckham and the saga of his transfer to Real Madrid, and football finance stories have been thin on the ground lately.

Chelsea may have been linked with every registered professional, and Becks and headlines go together like England and World Cup exits, but beyond these two subjects, things have been very quiet since Manchester United and Arsenal packed away their latest trophies in the spring. There is a good reason for this. A new financial reality has hit football and not before time.

The latest annual study of boardrooms by Deloitte and Touche has discovered that apart from the very biggest names and Chelsea, clubs are at last getting control of football’s phenomenal wages.

‘The past year has been a difficult one for football finances. Our report clearly shows grounds for optimism but not complacency,’ says Dan Jones, director of Deloitte and Touche Sport.

(This was somewhat undermined by the fact that on the very same day the report was published, Chelsea’s efforts to buy Juan Sebastian Veron centred around what to do with his £90,000 a week wages).

But life beyond the twilight world of southwest London is very different.

Large parts of the English football landscape have been in fiscal ruin over the past few years.

In the past three years, Leicester City, Ipswich, Notts County, York City, Port Vale, Barnsley, Bradford, Bury, Huddersfield Town, QPR, Swindon, Hull City, Chesterfield and Lincoln City have all gone into administration.

In the next few years, given a combination of circumstance, several other clubs – from the Premiership as well as the Nationwide League – could follow.

‘The financial business model at most football clubs is screwed,’ says Dave Boyle, a development officer with Supporters’ Direct, a government-backed body that tries to get supporters involved in the day-to-day running of clubs.

The collapse of ITV Digital, the chasing of success and spiralling wages have left all but a few clubs in perilous financial positions. Expenditure has long outstripped income. Now football clubs are beginning the process of paying back and it is painful.

In June, Football League chiefs met at Gillingham’s Priestfield Stadium to decide on a range of proposals that signal a growing reality in football to get to grips with the financial mess of many.

This includes deducting the points of or even relegating clubs that go into administration (the same proposal is being considered by the Premiership).

Or, imposing a wage cap on players in Division Three. If this last measure is successful there, it could be enforced on other divisions and that would require making a lot of hard choices. Final decisions won’t be made until a meeting by league bosses to be held just before the start of the season.

Of a total turnover of around £1.3bn for all English League clubs, the lowest division accounts for just £46m. Division Two has an £81m turnover and Division One, £205m. The rest is accounted for by the Premiership.

If change comes it will undoubtedly be at the lower end.

Getting the leviathans of the Premiership to swallow drastic financial medicine is seemingly impossible. But even getting the smaller clubs to accept the first spoonful is doubtful.

Imposing a wage cap means, in reality, many clubs will not be able to attract the better players, which means they will probably end up having to settle for a poorer league position than richer rivals.

Getting chairmen to sell that idea to supporters will be no easy task.

The expectations of supporters remain constantly high.

Boyle says chairmen and chief executives should try and ‘educate supporters’ more about today’s financial realities.

Leicester had 90% of their debts to the Inland Revenue wiped out when they went into administration, and the club relaunched under a new consortium.

Other clubs were not so lucky; York City was forced to pay back 63p in every pound rather than 10p to the Inland Revenue when it went into administration.

Now the Revenue could come under pressure to put uniform rules in place, though there is little optimism for success.

One change that looks imminent is the end of the super-creditor rule.

This contentious rule – which gives players preferential treatment over other employees in the event of insolvency – needs to be scrapped.

Paymaster general Dawn Primarolo has been chatting with league bosses to get the rule removed. This shows clubs are serious but the onus therefore remains on self-regulation if football clubs are truly to get their financial houses in order. But as this is likely to lead to very little change at all, should there be an outside body, a football regulating equivalent of Oftel – Offside, perhaps?

Boyle says an outside body would be an answer or else spending would remain at unrealistic levels.

‘It says it all about the nature of the game that you need a rule to stop people spending money they don’t have,’ he says.

Though outside regulation might be hard to impose on self-made men who made their millions in the way that many football chairmen did.

‘Regulation isn’t something that occurs to them,’ says Boyle. But football chairmen will always fight off an outside body surely? Well, as in many things, the European Union may be galloping over the horizon.

UEFA, European football’s governing body, is to introduce a licensing system in 2005 that could set salary caps, turnover limits, make sure that all clubs’ finances are in order – as well as ensuring that all the facilities are geared up to playing football in the top leagues across the continent. If they do not, then clubs will be stopped from having a licence and stopped from playing.

Outside regulation could very well be on its way after all. But administration need not be the end for a club. Leicester City have just been promoted back to the Premiership next season.

And, don’t forget Aldershot Town. In the 1980s, they dropped out of the Football League, a bankrupt and sorry club. Next season, they will kick off just one division outside the Football League. A good news story if ever there was one.

  • David Harding is a freelance journalist.

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