Bury and Bolton struggles highlight football’s financial failings
Bury have been expelled from the football league after 125 years and Bolton narrowly avoided following them into obscurity. Despite genuine sorrow from within the football industry, will the game finally learn some harsh financial lessons?
Bury have been expelled from the Football League after 125 years after a last-minute takeover bid from sports analytics firm C&N Sporting Risk collapsed.
Accounts for the League One club to 31 May 2018 were due on 28 February this year. They have still to materialise, but the last two sets of accounts available are horrendous.
In the 2016 and 2017 accounts, the club lost £5.3m combined on annual turnover of approximately £4.5m.
Auditors Kay Johnson Gee LLP warned in 2017: “We have considered the financial statements concerning the company’s ability to continue as a going concern. They indicate the existence of material uncertainty, which may cast significant doubt on the company’s ability to continue as a going concern.”
Professor Chris Brady, Professor of Management Studies and Director of Salford University's Centre for Sports Business, told AccountingWEB: “That kind of comment is not unusual under the going concern header in the accounts for a great many football clubs. Many state the need for ongoing support from their shareholders to be able to remain in business.
“Most clubs are only looking a year ahead and many are frankly, built on sand, without any foundations,” continued Brady. “Bury hadn’t paid player salaries since February. Frankly I am surprised they were allowed to continue in the Football League this season without giving more solid financial assurances over the summer. It shows a lack of governance by the Football League.”
A winding-up petition filed against the club was adjourned three times before eventually being dismissed by the High Court on 31 July.
By then, creditors had approved a company voluntary arrangement (CVA) put forward by owner Steve Dale, which was proposed to help settle some of their debts.
The CVA meant unsecured creditors, including HMRC, would be paid 25% of the money owed - but also triggered a 12-point deduction in the League One table under EFL rules.
In particular, alongside the insolvency was a mortgage on their stadium Gigg Lane, which put off the prospective new owners.
The mortgage was taken out in stages by the previous owner, Stewart Day, who sold to Dale in December.
The lender, Capital Bridging Finance Solutions is owed £3.7m. Capital, in turn, mortgaged Gigg Lane to a company based in Malta whose own lenders were eight companies registered in the tax haven of the British Virgin Islands.
A large percentage of the borrowed money never came into the club, because 40% was paid as “introduction fees” to unnamed third parties.
‘On the brink of liquidation’
Bolton Wanderers, also of League One, were given 14 days to avoid being expelled themselves. However, late yesterday afternoon a takeover by Football Ventures (Whites) Limited was finally rubber-stamped, allowing the club to fulfil its fixtures.
Prior to the Football Ventures acquisition Paul Appleton, the club’s joint administrator, had warned that Bolton was on the brink of liquidation. If the purchase had not gone through, the club was "not in a position to carry on trading".
Bolton’s accounts are six months late, but the latest available for the year to 30 June 2017 did not make pretty reading. In 2017 the club’s wage bill was £12.6m despite a turnover of £8.3m. Between 2013-2016, the club lost a combined £70m, despite annual turnover averaging £25m.
The club’s problems stem from the sale of the club by Eddie Davies in 2016 after he decided he no longer wanted to own or fund the club.
Self-made manufacturing millionaire (and CIMA member) Davies invested £185m of his own money into Bolton between 2003 and 2016, helping the club to remain in the Premier League for 11 of those years.
Once Davies sold Bolton, writing off £175m worth of loans in the process, the club lost critical financial support and was unable to cut its cloth accordingly.
Despite the bleak outlook at both clubs, it seems that football has not learned financial lessons.
The Annual Survey of Football Finance Directors by BDO, this week found 70% of clubs across the four English leagues were reliant on shareholders to fund losses, up from 57% in 2018.
Ian Clayden, BDO’s head of professional sports, explained: “Player cost inflation, whether it be wages, transfer fees or agents’ fees, is forcing EFL clubs to live hand-to-mouth, with reliance on player trading as a secondary profit centre – largely at the expense of stability and sustainable growth.
“An increasing number of clubs are ‘playing’ with the rules, taking unnecessary financial risks, employing ‘creative’ accounting and ultimately finding themselves criticised for financial mismanagement.”
*29/08/2019: This article was amended to reflect the purchase of Bolton Wanderers*