Football finances - Golden boots to grass roots

The prolonged, and for some terminal, crisis facing our treasured national sport is such that it has now become a parliamentary issue.

For the first time, the all-party parliamentary football group headed by Labour MP and Middlesbrough supporter Alan Keen, has launched a six-month investigation into the future of UK football.

At the top of its agenda is football’s finances. And rightly so.

Last year’s collapse of ITV Digital caused havoc in the world of football clubs’ cashflow. And the situation hasn’t improved much since.

To examine just how dire things are, Accountancy Age and PKF have for the second year running gathered views from football’ finance directors on the financial situation in England and Scotland.

Not surprisingly, once again getting club finance directors to talk on the record proved nearly impossible. This year, 21 of the 55 finance directors across the English Premiership and First Division, and the Scottish Premier League, responded to the survey conducted in the last two weeks of June 2003. (Motherwell was excluded because PKF is currently acting as its administrator – a clear sign of the times.)

And again, those 21 FDs would only talk to us on the proviso that it was done anonymously. What with rising debt, the majority of revenue spent on players’ wages and the emotions that surround the game, an FD’s financial viewpoint could be misconstrued as disloyalty to a club and its fans.

And as Charles Barnett, PKF partner and football industry specialist, points out, several of this year’s survey findings although welcome, will never happen unless the FD can convince the other directors and football managers.

For example, most finance directors, 60% of those questioned, said they wanted players’ salaries to be linked to performance on the pitch. ‘This is very welcome, but it’s one thing for directors to say and another thing for them to convince those responsible for negotiating players’ contracts,’ says Barnett.

And don’t be deceived by the millions of pounds being thrown around in the tussle to get the best players ahead of the football season that is about to kick off.

With the likes of Ruud van Nistelrooy and Lauren in their teams, Manchester United and Arsenal (above) represent the game’s glamorous side. But our survey shows most clubs are not generating enough income to match their inflated outgoings.

This year’s results also show that clubs are still relying heavily on their bankers. Just under half, 43%, of the FDs interviewed – a little less than last year’s – across the Premiership, First Division and Scottish Premier League (SPL) have increased their bank facility over the past 12 months.

But it’s First Division clubs that are suffering the most, with 80% saying they have increased their facility because they are in desperate need of short-term cashflow after the ITV Digital crisis and overspending in recent years.

And more than half of all finance directors polled said that they expect to use more than 90% of their facility during the coming year.

Perhaps not so shocking is that less than a quarter of clubs expect to make a pre-tax profit in their next accounting period.

Barnett says: ‘It’s not surprising but it confirms that, although it was evident that the industry was in a bad way last year, it hasn’t been able to resolve the issues.’

A resolution of financial issues, seems a long way off. Almost two fifths of clubs said they had felt more pressure from banks over the past 12 months.

Graph: Do you expect to make a profit in your next accounting period

Graph: Do you expect to make a profit in your next accounting period

PKF industry experts say this is surprising given the current economic climate, but said banks are aware clubs cannot be pushed much further.

The next step for them would be insolvency. But banks want to avoid this due to the negative publicity it would create for them.

Despite the diminishing revenue streams, clubs are still reticent on plans to share grounds. It remains clear that ground-sharing decisions are still based more on emotive reasoning than financial reality.

Compared to last year’s survey where only 14% of Premiership clubs would consider ground-sharing, the figure has risen to 40% among both Premier and First Division clubs and 33% in the SPL.

Although this is encouraging, it hasn’t solved the problem for Fulham FC which continues to search for a home for the 2004-05 season after talks broke down with Chelsea over sharing Stamford Bridge.

And again these views are from the FDs who tend to be ruled by their heads not their hearts. It will be difficult persuading those who have to convince the fans of its benefits.

Although many clubs, even the elite ones, continue to struggle financially, never before has the polarisation within the game been more apparent and more profound for the future.

As the survey shows, the gap between the Premiership and everybody else has reached staggering proportions and may force clubs in other leagues to, at best, completely reinvent their business models, or at worst die out.

TV income is still regarded as the most important revenue stream when planning the financial future of Premiership clubs, but ticket sales continue to be more important to clubs in the First Division and Scottish Premier League.

The views reflect the fact that lower league teams may no longer be able to rely on a healthy distribution of centralised TV income. The market for football content has now been proven to be finite and largely restricted to top clubs. The potential income from the internet and wireless communications continues to remain out of reach, at least for now.

With the competition for future TV rights receding and the European Commission raising objections about the selling of rights to an exclusive broadcaster, every one of the Premiership FDs who responded said their main concern was the potential fall in TV income when the current deal expires.

As is to be expected, TV income is less of a concern for clubs outside the top division. First Division clubs see their biggest potential sources of income coming from merchandising, ticket sales, sponsorship and conferencing and catering.

But one in three SPL finance directors and two in five First Division FDs polled said they were more worried about an overall reduction in transfer values. The inflexibility in players’ salaries was also a big concern for finance directors outside the Premiership.

Encouragingly, an emphatic 71% of clubs no longer rely on receiving a surplus of funds from outgoing transfers, showing the market has contracted significantly. Few clubs now have the luxury of being able to turn down an attractive offer for a star player, meaning that just over three quarters of clubs said they would sell their best player if the price was right.

The recent shareholder pressure laid at the doors of company directors over their escalating pay in the face of falling share prices and meagre dividends seems to have encouraged club FDs to back similar measures in the industry.

Performance-related pay for players was one of the points to win consensus among FDs questioned. The majority of finance directors said performance should be linked purely to results on the pitch.

And a significant 80% of First Division FDs said they were in favour of wage capping, while perhaps not so significantly, only 10% of Premiership finance chiefs agreed. Premiership FDs want an absence of regulation and the ability to rely on the free market to set salary levels.

While those directly involved in football finances know the reality all too clearly, the greatest obstacle to overcome is making the fans aware of it, too. So while on the whole, football and politics do not generally mix, the opportunity for the all-party parliamentary football group to straddle this divide couldn’t have come at a better time.

Graph: What are your biggest concerns for the sector over the next 12 months?

Graph: Potential sources of revenue over the next three years

Ultimately, football is about the grassroots, as Alan Keen, chairman of the parliamentary football group, recently put it. ‘The money in the game comes from supporters through matches, television subscriptions, merchandise or the licence fee – in all sorts of ways. But it’s still our money,’ he recently said.

It’s now up to those involved to get fans on board to make the changes needed to create a sustainable future for UK football.

For a full copy of the survey email [email protected]