It only takes a cursory Google search to see that all is not well in English football. A laundry list of clubs are mired in financial difficulties and, according to some critics, a crisis of governance threatens the game’s lower league future.
Bury, Oldham Athletic, Blackpool, Sheffield Wednesday, Notts County, Bristol Rovers and Bolton Wanderers. That’s just the most recent crop of clubs caught-up in professional football’s almost never-ending cycle of financial crisis.
The crisis is a many-headed beast, tying in chronic short-termism, bad business practice, poor governance, non-existent oversight and a winner-takes-all ethos that’s leaving smaller clubs behind.
Starts at the top
The problems, like they often do, begin at the top. “The Premier League is the big body at the top with all the money, and to an extent that money rolls down to the lower leagues in the form of solidarity payments,” explained Dr Rob Wilson, a specialist on sport finance at Sheffield Hallam University.
These so-called solidarity payments are subject to change, however, and taper dramatically as you go down the English Football League (EFL) food chain. The emphasis for clubs is then, Wilson said, to chase promotion at all costs.
“The EFL has implemented the profitability and sustainability rules, and those regulations are set up to ensure that clubs act more fiscally responsible, but what you find is that irrespective of those rules clubs are still gambling with their long term future to chase that short term reward.”
The recent Championship play-off final is an instructive example. Both clubs had thrown the kitchen sink at gaining promotion to the Premier League. Derby went so far as selling its stadium to its own owner for £80m, all in an attempt to unlock more money for its promotion race.
The gamble didn’t pay off, and Derby lost 2 - 1. “The loser of that game hamstrings themselves as they can’t spend money the next season”. Indeed, Wilson noted, it’s likely no coincidence that Derby’s manager Frank Lampard has vacated his position rather than dealing with next season’s grim financial constraints.
Out of control costs
For Kieran Maguire, author of the Price of Football and an expert on football finance, the troubles that clubs are facing is “a culmination of an overpayment of wages and poor cost control in terms of how the clubs are being run”. Even when clubs are being promoted, he said, it’s “on the back of talent they can’t afford to pay”.
“In the championship, wages are 150% of revenue,” said Maguire. To sustain themselves, clubs rely on the largesse of owners. But in many cases, owners lose interest or simply run out of cash.
“Bury FC were acquired for £1 in December by an owner who completed no due diligence and by February had stopped paying wages,” said Maguire. “In Notts County’s example, the club was making a loss which was underwritten by the owner. When the owner’s businesses outside of football started struggling, the situation was no longer tenable.”
And there’s simply the matter of football an unusually high number of rogue characters who enjoy the glamour of it all, and there are virtually no barriers to entry for owning a football club besides money.
Limit to largesse
In other words, there’s a definite limit on the extent to which owner patronage can fill in the gaps created by poor governance. And yet, the vast majority of clubs seem to be playing this game. “According to my research, 53 of 72 clubs in the EFL were losing money,” said Maguire.
For clubs acting sensibly, however, there’s little reward in terms of on-field success, reflected Sheffield Hallam’s Wilson. “Clubs that are trying to be financially sustainable will always be in the middle of the pack. They are surrounded by clubs willing to spend over the odds and make emotional judgments.”
Both Wilson and Maguire agree that tighter regulation is needed. “I know there was a motion in parliament with a view to starting an overall regulator to the game,” said Maguire. “The Premier League and EFL are a members-only organisation at present, and there’s an element of self-interest at play.”
Another option is substantially harsher penalties for transgressing the EFL’s profitability and sustainability rules. “League governors need to encourage sustainability,” said Wilson. “That might mean an uneven division of revenue, for example. So a bigger slice to smaller clubs.”
Who really suffers
At Plymouth Argyle, they’ve seen their share of troubles. The football club went into administration in 2011, but since then it has worked since exiting to make itself more sustainable.
Still, football is a cruel game, and last season the club was relegated after a poor season. The timing was unfortunate, according to Plymouth’s financial controller Ben Rendle, as the club is currently redeveloping its grandstand and went the whole season without revenue from its suites.
“The last season we had it tough,” said Rendle. “But by investing in the club, we can kick on in the future. It’s about leveraging revenue streams and thinking creatively about bringing revenue streams to bear.”
Despite the struggles, the club is veering away from what Rendle labels the “sugar daddy” model, and forging its own path instead. “What you’re seeing more of is clubs investing in the infrastructure around them.”
The alternative, the sugar daddy model, often comes at an existential cost, as Rendle, Wilson and Maguire point out. And what the stories about financial difficulties in football often miss is the legion of lower paid employees affected by a club’s troubles. “When we went into administration in 2011, our fan base did bucket collections for the staff to keep them going because we were essentially unpaid for nine months,” recalled Rendle. At Bolton Wanderers, the club had to set up an emergency food bank for struggling employees.
Frustratingly, Wilson and Maguire expect the status quo to endure in the short to medium term despite the high human and financial costs. But the chickens will eventually come home to roost, and it “will take clubs going into liquidation before authorities step in,” said Maguire.
About Francois Badenhorst
I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter.