Clubs are slowly escaping the quagmire created by the collapse of ITV Digital and the inflated wage demands of top players, according to the 33 FDs from clubs across England and Scotland who have responded to the third annual PKF/Accountancy Age football finance survey.
Performance
Last year, when we asked finance directors whether their club expected to make a profit in the next accounting period, fewer than one in four said they did. This year, there is a greater sense of optimism, with one in three respondents confident of pre-tax profit. The flip-side to this is that, while only 57% didn’t expect to make a profit in 2003, that number has now risen to 67%. The big change here is certainty.
When the question was asked at this time last year, nearly one in five finance directors was unsure of the situation. This is perhaps not surprising given the state of flux the whole football industry was in at the time. This year, though, the blinkers are off. Every FD was able to take a definitive view on the company’s financial position, and while the news was bad for some, it at least allows them to prepare for any trouble ahead.
Do you expect to make a pre-tax profit in the next accounting period?
Money concerns are especially acute outside the Premiership. With TV revenue now a less significant part of a club’s income stream, those in the Championship, League One and in the Scottish divisions all cite the ability to raise fresh capital as one of their biggest concerns. In particular, the ability to attract sponsorship has been hit hard and few new revenue opportunities are appearing, far fewer than in 2003.
The survey highlights that many clubs want the bodies that oversee football in the UK to help improve their performance, especially in the Football League where requests for assistance with benchmarking and better communication between clubs are common.
UEFA, Europe’s governing football body, is one group trying to help clubs get on a firm financial footing. It has introduced a system of club licensing, which requires companies to produce detailed accounting information and prove they have sufficient funding to honour their obligations during the season. Without the license, clubs cannot compete in UEFA competitions.
While all the Premiership clubs asked had the license, the numbers are far lower elsewhere. But even those with licenses seem distinctly unimpressed. Fewer than one in four find them of any use in helping provide a firmer financial footing, while nearly half say they are unhelpful or no use at all.
Salaries
The wages of players – a club’s biggest asset – is always going to be a key factor. Over the last few years, it has been the size of this cost that has put the biggest drain on resources. Unsurprisingly, perhaps, it is players’ and agents’ inflexibility with regards to wages that has been highlighted as the biggest concern for football FDs over the next 12 months. This was particularly true in the Championship, where 78% of respondents cite it as a worry, while 50% of Premiership FDs believe it to be a major concern.
It seems that the new financial realities of football have not yet been fully accepted by players. But burying their heads in the sand could backfire. Clubs are now more keen to search overseas for players and are reducing the number of senior figures in their squad to cut costs. The problems in many clubs have been exasperated by players’ super-creditor status, and more FDs than before (58%) are in favour of scrapping this situation.
Given the continuing problems related to players’ pay, it isn’t surprising that nearly two-thirds of those questioned have discussed wage capping with their directors. The outcome of these discussions varies between the leagues. No Premiership FD believes a cap can be introduced effectively in the league, compared with League One where 83% think it would be successful.
The FDs will soon get the chance to test this as the introduction of a ‘soft’ wage cap, linked to turnover, is imminent. The cap has already had successful trials in League Two (formerly Division Three).
Debt
While clubs may be struggling to make money in football’s new environment, it seems they are at last able to finance their debt more effectively. When this survey first started, only 21% of clubs had guarantees from directors or shareholders for the debt funding at the club. That figure has now increased to 58%. Funding the debt in this way puts the club in a more secure position, as directors are less likely to waste funds and banks would not usually force clubs down the administration route, instead going after the guarantors.
In addition, clubs felt under less pressure from their banks than last year, with 58% saying the pressure was coming off and only 33% feeling under more pressure.
Only a quarter of FDs have had to increase their bank facility during the last year, but just over half feel they will have to use more than 90% of that facility in the next 12 months.
Following the controversy over several clubs going into administration and coming out in a better position, the idea of points deductions has received great support. With both the Premiership and the Football League introducing such systems, football chiefs will be glad of its support from 73% of FDs.
Television
Revenues from television have become vital to a football club’s lifeblood, especially higher up the league. Following the collapse of ITV Digital, television’s influence on the national game became all too obvious. This showed in the concerns of FDs. Thankfully, the situation, at least for the Premiership, is a lot more stable than last year.
At that time uncertainty was rife over a new deal from Sky. The broadcaster had no real competition for the rights to games and many feared a major drop in income.
However, that situation did not arise and the deal remained largely the same. Consequently, football FDs are far less concerned about it.
TV revenue, however, is still rated as the most important income stream to Premiership clubs. By contrast, most other leagues, with the exception of the Scottish Premier, rate ticket sales and sponsorship as far more important to financial performance.
Even Football League clubs are now more satisfied with their TV deals. Whereas only 22% were happy with how money from television was distributed through the league, now 40% find it acceptable.
Ground/stadium
Many football clubs have a great affinity and connection with the stadium they play in, and this could be one of the reasons why so many clubs are against the idea of a ground share with another club. Less than a third of English clubs would consider this.
But given the increasing importance placed on generating alternative revenue streams from stadium use by FDs, it could be that ground sharing is frowned upon for quite a different reason.
The situation is very different in the Scottish Premier League, where two thirds of clubs says they would consider ground sharing. This may be because finances in Scotland are more precarious than in England, or because the number of clubs in the country is higher compared to the population. This makes it harder to generate alternative income streams from the local market.
Agents/transfers
The image of agents as leeches feeding on the game is perpetuated by the FDs, and their opinion of players’ representatives is worsening. Last year 62% of those asked said that agents added cost but were useful, however this year, 64% think they add costs and hinder negotiations.
Only FDs in the Premiership were comfortable with the presence of agents, with two thirds finding them useful.
Fortunately, agents’ powers seem to be on the wane. Of those asked, 58% believe agents had become less powerful over the last year, while only 18% think they have increased their influence.
In terms of transfers, the lack of money available has obviously stifled the volume and values in the market, but given the new climate, clubs are less prepared to go out on a limb to get the player they want. The once popular ‘sale and lease-back’ arrangements made famous by Leeds United, have taken a big knock. Many are now steering clear of these deals, with only 15% now using this method for financing purchases, compared to nearly a quarter last year.
Relegation
Relegation is a club’s worse nightmare. Not only does your team end up playing against a lower calibre of opponent, it can have a devastating impact on revenue. Yet the threat of relegation, which has to happen to many teams, is ignored as a possibility when budgets are prepared.
There is much to be said for positive thinking, but realism has to play a part if disasters, such as that which befell Leeds, are to be avoided. There is evidence of this pragmatism emerging in part.
Most clubs (55%) now budget for a mid-table finishing position although more still plan to finish in the top quartile than in the bottom one. But not one FD questioned entertained the possibility of relegation when setting budgets.
Perhaps, given the sense of optimism that has only just recently re-emerged in the game, it would be a little too harsh to criticise football’s finance directors for ignoring this very real threat.
Like the fans at the start of a new season, they all hope for the best for their teams – and for the first time in a number of years it seems that those dreams may become a reality.