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Reading FC’s woes flag wider tax issues in league

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As yet another team finds itself on the wrong side of HMRC, AccountingWEB talks to Kieran Maguire about the state of financial play in lower-league football.

11th Oct 2023
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Reading FC have once again been placed under a transfer embargo after owner Dai Yongge failed to pay the club’s taxes to HMRC on time, marking the third time the team has failed to pay its dues since relegation to League One this season.

The news follows a tumultuous period for the Berkshire-based team, with points deductions and various embargoes clouding an already depressing league drop.

Yongge has also had personal issues with the tax body, as he was charged with misconduct over failing to submit 125% of the monthly wage bill by 12 September, something the owner has failed to do on three separate occasions.

Releasing a statement, Reading FC thanked its supporters, while noting that the club continues to struggle with “cashflow issues”. However, in more positive news for the team, Yongge reiterated his intention to sell, giving the club a potential lifeline from its off-pitch accounting woes.

A pyramid built on sand

Sadly, the financial plight of Reading FC is not a unique circumstance, as multiple teams across the football pyramid face a choice between league irrelevance or financial ruin. 

Fellow League One stragglers, Wigan Athletic, as well as previously prestigious teams such as Scunthorpe and Southend, have also found themselves staring down the barrel of tax penalties, points deductions and multiple winding-up orders.

“Football clubs are not being run as profit-making businesses. They’re not even being run as break-even businesses – they’re being run as vanity exercises,” said author and football finance lecturer Kieran Maguire. 

The “sugar-daddy model” that many clubs fall into – where a team is bought by a wealthy individual who then bankrolls the club – has left many teams, Reading included, in an awkward position when the money runs out. 

“If the desire of the ‘sugar daddy’ changes, or if their financial circumstances change, then it means that any loss-making business that is being subsidised immediately becomes at risk, whether it’s a football club, rugby club or Formula One team,” Maguire said.

The human impact

And it is this model that has many of those on the ground over a barrel. In Reading’s case, players and staff have been paid late on multiple occasions. Wigan Athletic too was found guilty of a similar offence earlier last year and has since slashed wages in a bid to remain solvent, with drastic effects on players and staff.

Sofia Thomas, owner of Juno Sports Tax works with players across the football pyramid, and she too has noticed the issue of wages not being paid becoming increasingly common across the English Football League, arguing that these financial mistakes risk “adding accounting and tax stress on a player who is already facing significant stress”.

“When the payslip does not match up with the reality it creates issues for reporting the pay on tax returns and if the pay never arrives we get into the realms of negative income and claiming potential refunds via the tax return,” Thomas continued.

A dumb business?

Asked on whether tighter regulations could help better support teams from the financial pitfalls of league life, Maguire was sceptical of its benefits, arguing that you simply “cannot have poor decision-makers become good decision-makers through legislation alone”.

“What you need is people to apply common business sense to the industry and that is something that evaporates because football is very emotional, with people making emotional decisions that fly in the face of financial sense,” Maguire said.

Using Reading FC as a prime example, Maguire noted that for every £100 in income the club has received, they have spent £200 in wages.

“Football’s a really dumb industry when you think about it. [Manchester] United makes £5m from a match at Old Trafford, but it’s only open for 25 days,” Maguire said.

Community ownership

However, not all clubs run on the “bank of mum and dad” model. More recently, clubs are beginning to dabble with the idea of community ownership in order to bring greater stability.

In Germany, the 50+1 rule gives fans a major stake in their club’s financial future. Here in the UK, teams such as Newport County and Exeter City have found much-needed stability from the fan-ownership model, with the latter escaping liquidation in 2003 and, thanks to some smart investments and prudent financial planning, are now finding success in the third tier of English football.

“Simply put, if a club is owned by 1,000 members, they are not going to vote to have a loss-making budget,” Maguire said on the topic of community-trust ownership. Yet, he was also aware that, without disruptors with cash to burn, leagues could potentially become boring for fans.

“If you look at the Bundesliga, Bayern Munich won last season, they’ll win this season, and they’ll probably win next season. The romance of the game goes out the window,” Maguire explained.

Pride in the team

Rounding back to Reading FC’s financial issues, Maguire was blunt in discussing what the beleaguered club must do next to avoid further targeting from HMRC.

“Simply put, [Reading] need to acknowledge where they are with the current setup and set a budget accordingly. That’s what Exeter City do and they’ve found success,” Maguire said.

“Andy Holt, who’s the owner of Accrington Stanley, has one of the smallest budgets in the game and he said to the fans: ‘I’m going to try to give you a football club that you can be proud of but if you want success, you’re not welcome. If you want me to buy success and treat this football club as a vanity project, I’m not the right person for that’ and I think that’s the financial mindset clubs need to adopt.”

Replies (2)

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By mkowl
12th Oct 2023 09:27

Good old Kieran - I have been known to joust with him on X and once had to explain group relief to him. As a SWFC fan there have been plenty of accounting issues to debate.

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paddle steamer
By DJKL
12th Oct 2023 12:24

The other stress point, in Scottish football anyway, comes from the strivers, teams like Hibernian seem to need to do a decent sale every year or two to just to get their loss into a profit.

Up here there are real income multiple issues, Celtic say get an income of £60m, Aberdeen £15 and down the league the multiple stretches to ten times, so any hope of a non Old Firm league win is near impossible.

And colourful owners, well we had Romanov at Hearts.

Football is totally dysfunctional, when my employers every year can turn out a profit Hibernian , with all its staff etc, would kill to get, any pretence of a business is laid bare.

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