Member Article

Football clubs pose business challenge

Running a football club without losing money is becoming increasingly difficult, research by PKF Accountants & Business Advisers has found.

66% of clubs stated they were expecting not to make a profit before player trading and amortisation, compared with 42% last year.

The Leagues Apart survey questioned 62 finance directors from the English Premier League, Football League Championship, Football Leagues One and Two, and the Scottish Premier League.

89% of Premier League clubs expect to make a profit compared to 12% of Championship teams and one-third of League 1 sides.

The precarious situation was highlighted as 58% of those surveyed were dependent on a principal shareholder to finance annual revenue shortfalls or operating losses; this proportion was considerably higher in Championship teams (87%), compared with 44% of Premier League clubs.

Over half of Championship sides were concerned that the economic environment would reduce ticket sales, compared with just 22% of Premier League clubs.

It was similar outlook for sponsorship expectations as Championship and League clubs expected to lose out to sponsorship falls.

Billy Cairns, Partner and member of PKF’s Football Industry Group, said: “The divide between the rich and the poor in football is growing wider. You simply need to contrast the fortunes of Premier League giants such as Manchester United, which recently tapped Wall Street for additional funding, with lower league sides such as Port Vale and Portsmouth, which are both in administration, to get a good idea of what is happening in football club boardrooms across the country.

“With match day revenues continuing to decline, operating costs still rising and a growing reliance on the generosity of major shareholders, many clubs outside of the Premier League elite are balanced precariously on the knife edge between survival and insolvency.

“This tension is particularly evident in the Championship, where many clubs gamble with their very survival for a shot at entry to the Promised Land of the Premier League. The dilemma is there for all to see – find a generous benefactor, spend more than you earn, gain promotion and pay the fines; or play by the rules and settle for mediocrity.

“The benefactor model can seem appealing because it has delivered instant success on the pitch in some high-profile cases, but it is inherently unstable – you only need to look at recent history to see what can happen when such a set-up comes crashing down.”

The research also highlighted how clubs were looking to combat the impacts of financial restraints.58% of respondents have set a wages-to-turnover ratio benchmark of less than 55%, compared to 46% of those surveyed last year.

Exactly half of respondents planned to reduce the size of their first team squads this season, up from 37% last year.

On closer closer inspection, Premier League clubs expected to increase squads, compared with just 6% of Championship sides.

Craig Burton, Partner and member of PKF’s Football Industry Group: “While there is some evidence of financial restraint and more robust attempts by clubs to curb the excesses of player wages, it is difficult to be too optimistic about the long-term prospects of the football industry outside the Premier League, unless there is strict adherence to the financial fair play and salary cap regulations.

“The responses to this latest survey suggest that a growing number of football club boards recognise that the current situation is unsustainable and are at least trying to do something about it. However, boosting revenues when the economy remains in the doldrums and slashing payroll costs when competing for talent internationally is easier said than done.

“Clubs are making the right noises but I suspect that many will need to urgently review their five-year plans with a strong dose of realism if the industry is going to make it through the next few years without any further insolvency cases.”

This was posted in Bdaily's Members' News section by Tom Keighley .