PracticeConsultingBuild an infrastructure, or blow it all on a decent striker?

Build an infrastructure, or blow it all on a decent striker?

As obscure and esoteric as Financial Reporting Standard 10 might be it has had its effect on the nation's favourite sport.

When Deloitte & Touche unveiled its ninth Annual Review of Football Finance most were interested only in who was the richest club. But it takes an accountant to spot that a little-known standard may have made all clubs’ balance sheets look just a little bit better – no matter how much they made.

Relating to intangible assets, FRS 10 allows clubs to amortise the cost of a player over the term of his contract instead of putting it all on the balance sheet in the year of purchase.

Instead of £10m being noted as a loss in the year a player is bought, £2m can now be written each year of his five-year contract.

Not hugely signifcant but it does mean a rosier glow of health for the books of some clubs.

However, FDs up and down the league need not get over excited. Because the numbers men at Deloitte’s point out the standard is unlikely to trigger a spending spree.

Jason Zillwood, senior manager on Deloittes’ Football Industry Team, says: ‘Clubs will not look at it and think we can spread the cost of buying a new player. Their primary focus is always going to be on cash flow.

‘FRS 10 enhances the balance sheet, which is good news. But the question is always, “can we physically afford to buy this player”‘.

Trasnfer fees paid for high-profile and high-scoring players is the issue that dominated this year’s report which focused heavily on what clubs are going to do with all the cash they reap from television deals.

TV deal

With the Premier League receiving £2.4bn for coverage, the report claims there is a ‘golden opportunity’ for the smart club chairman. Deloittes’ claim that the clever football leaders will work on business infrastructure and not allow expensive players to pocket the cash.

‘The Premier League television deal and also the new deal thrashed out by the Football League has given chairmen a golden opportunity to put the economics in football right,’ says Gerry Boon, head of the Deloittes’ team.

‘The hard work now begins. It depends how the chairmen spend the new influx of money. It remains to be seen whether the money will go straight into players pockets or into building a sound business infra structure,’ he adds.

Indeed Boon sounded a sceptical note. He observes that the pressure from fans for clubs to spend on fancy new players is immense and almost irresistable. Cash is more likely to go on ‘unrealistc’ spending rather then good business models.

The evidence to date speaks volumes. The latest report shows that in the season 1998/99 only five clubs in the Football League reported operating profits. Or, to put it another way, seven out ten Premier League clubs made operating profits while more than nine out of ten Football League clubs made operating losses.

The Premier League made a total pre-tax profit of £68.8m. But the Football League – all the other clubs – saw a 45% slump in total pre-tax profits to £75m.Manchester Utd remained the wealthiest team with profts of £22.4m, but their increasing gains only serves to highlight the growing gap between the richest and poorest clubs.

Boon says: ‘The challenge for clubs will be to manage their money sensibly. But football clubs continue to spend the increases in revenue on transfer fees, in particular, and wages.’

And, despite all the success at the top end, Boon was moved to cite lowly Wickham Wanderers as an example of a club that really knows how to manage its finances.

But then they are unlikely to win the Premiership.

Links

Football income to break £1bn barrier

Non-listed football clubs fair better

Highlights of the report

Deloitte & Touche website

Archive

Deloittes report shows dive in soccer profits

Football’s big league finances

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