New research published by the International Journal of Sports Marketing & Sponsorship suggests that football clubs are using insolvency as a business tactic.
The research, which analyses insolvency events in UK football in the past 20 years, shows that many clubs have gone into administration more than once and that there is little regard for creditors, particularly government agencies such as the Inland Revenue and Customs and Excise.
New research published by the International Journal of Sports Marketing & Sponsorship suggests that football clubs are using insolvency as a business tactic.
The research, which analyses insolvency events in UK football in the past 20 years, shows that many clubs have gone into administration more than once and that there is little regard for creditors, particularly government agencies such as the Inland Revenue and Customs and Excise.
Lead author of the report, John Beech, head of Sport and Tourism at Coventry University, concludes that the inference is undoubtedly a willingness to enter administration as a business decision.
‘Among members of the Football League Division 1 and 2, more than half have suffered an insolvency event in recent years. Because the process of entering Administration is designed to help ailing businesses rather than hard-pressed creditors, it is seen as a relatively soft option by football’s governing bodies.’
The findings suggest that there are five basic triggers that lead to financial difficulty:
1. Clubs fail to cope with the financial consequences of relegation;
2. Clubs fail to pay government authorities such as the Inland Revenue on time resulting in cashflow problems and in consequence suffering winding up orders;
3. Soft debts, such as those from wealthy benefactors, become hard debts, which clubs have not budgeted to repay;
4. A loss of stadium ownership and the consequential reduction in revenues;
5. Repeat offenders, which have difficulty recovering from the impact of earlier insolvencies, or which decide insolvency is an acceptable process to clear debt.
Several high profile club chairmen, such as Barry Hearn at Leyton Orient, have complained that spending beyond their means equates to those clubs receiving an unfair advantage. They are, it is claimed, recruiting players through wages and transfers that they cannot realistically afford. Such chairmen say that the penalties are not stringent enough and automatic relegation should result.
Currently English clubs face a 10 point deduction and an insistence that they reach a Companies Voluntary Agreement (CVA) to repay creditors. The amount repaid varies, however, with direct football related debts to players, leagues and other clubs set at 100% by the football authorities. For other parties, however, the amount can be as little as 1p in the pound.
‘The picture that emerges is thus one of a cavalier attitude to payment and a willingness to drift into confrontation,’ says Beech.
‘There is very little evidence that winding-up orders have been fought and a mutually acceptable payment schedule negotiated. It suggests that clubs not only tend to be reluctant payers but also reluctant negotiators.’
The research shows that 62.5 per cent of clubs in League 2 had suffered an ‘insolvency event’, whereas only 20% of Premier League clubs had done so and only Portsmouth had while actually in the Premier League.
Another worrying development was the frequency of reoccurrence of insolvency. 47 per cent of repetitions happened with four years and 68 per cent within seven years.
Beech says that on one level this might not be surprising given that clubs were obviously in a weak financial position the first time round with, possibly, low attendance levels. However, he also believes that there is another reason:
‘It might be argued that the clubs had not learned their lessons. In only four cases (Darlington 2009, Luton Town 2007, Swansea City (2003 and Swindon Town (2002) were debts at a lower level than in the preceding insolvency event.’
The research also suggests that clubs seemed to have very poor contingency plans and even failed to realise the true reason for their financial difficulties. For example, a large number of insolvencies in the period 2003-05 were blamed on ITV’s OnDigital collapse, which significantly reduced TV income. Of the clubs that subsequently went into administration and blamed OnDigital’s collapse, all had debts well in excess of the amount lost due to the television deal collapse.
Indeed Beech points out that overall, financial planning appears to be very lax in most League clubs to this day.
‘The overall impression of English football clubs is that they face insolvency at an alarming rate and too few have developed sustainable business models to avoid it, or even avoid a repetition of insolvency.’