Whatever happened to due diligence?
Posted by John Beech on February 13, 2010
In much the same way that you would get a surveyor’s report as a matter of course when considering buying a house, so you would ‘conduct due diligence’ if you were considering buying any company, especially so, I would have thought, if the company happened to be a football club. It seems that due diligence is going out of fashion in the football sector. Let’s look at just two recent examples:
- Notts County
Way back on 5th January (1) the club’s debts were reported to be £1.5m. When Ray Trew bought the club on Thursday, the same figure was being reported (2). Today new Chief Executive Jim Rodwell says the figure could be more than £5 million: “We will not know until we have had a close look over the next three to four days. We were asked to step in to save the club so we could not take the due diligence process as far as we wanted to before we made the commercial decision to buy the club.” And that is after Sven Goran Eriksson has agreed to kiss goodbye to the £2.5m he was still contracted to earn.
- Birmingham City
Carson Yeung, the new owner, called in the police over what he saw as financial irregularities (3) after he had bought the club. In a statement it was announced that “Due diligence is proceeding and this is really the first episode” (4). As previous owner David Sullivan was swift to point out of Yeung helpfully: “He merely asked us about ten questions and failed to bring in accountants or auditors. It’s a bit like me buying a house and failing to conduct a survey and then moaning when the damn thing collapses” (5).
Now, if new owners are so casual when buying a club, and the various Fit and Proper Person Tests are as difficult to pass as getting a Provisional Belgian Driving License, perhaps the football sector could learn from the House Information Pack you now have to provide when selling a house, or the 12 months MOT that you would expect to get when buying a second-hand car. Perhaps what we need in English football is not an ineffectual Fit and Proper Person test, but rather a Fit and Proper Football Business Licence. Without this License, the club’s owner wouldn’t be allowed to hold the current ineffectual ‘ticket’.
It could be a requirement that every football company should hold this License every summer in order to be allowed to compete the following season. Given the FA’s penchant for a ‘tick box’ approach, the application for the Licence could be very simple and might look something like this:
- Who actually owns the company, and the ultimate parent company? (Well, OK, perhaps a bit tricky for, say, Leeds or Portsmouth)
- Has your largest shareholder ever been to see the club play?
- Can your largest shareholder locate your club within 50 miles on a blank map?
- Are you up to date with all your tax payments?
- Have you paid all your football creditors?
- Can you produce a written guarantee that your ‘soft’ debts will not be called in within the next five years?
- Is your wages-to-revenues ratio less than 60%?
- Do you have a fans’ representative on your board?
- Do you have a Plan B for when it all goes pear-shaped on the pitch? (Please attach)
To hold the Licence, you must be able to answer the first question, and answer ‘Yes’ to all the others.
OK, it’s all a bit back-of-a-fag packet and needs some honing – suggestions are welcome.
But seriously, unless English football starts to put its own house in order and reign in the more absurd excesses that derive from the dysfunctional and unsustainable Benefactor model of football business, it will continue like a Toyota with a loose floor mat heading for the UEFA brick wall of the Financial Fair Play protocol (see postings passim).