Bubbling away in the background…

Hidden away in last month’s budget (1) was a proposal that could be causing some concerns for football club finance directors.  Para 2.25 states:

The Pay As You Earn (PAYE) system is a fundamental part of the UK tax system. The Government wishes to explore how it could be improved in order to reduce costs and make the system easier for employers and HMRC to administer. As an initial step, the Government intends to consult with employers and payroll providers on mechanisms that could support more frequent or real time PAYE data.

A detailed discussion document (2), aimed at kicking off the consultation process (which is scheduled to be completed quickly, by 23 September), has just been issued, and Para 4.31 suggests that the use of real time information has the potential for:

enhancing compliance with tax laws by using real time information to assist in tackling late or under payment of the deductions some employers make

Late or under payment of taxes?  Football clubs?  Surely not!

Another document , Tax consultations announced at Budget (June 2010), downloadable from the HMRC website here, introduces the consultation under the simple heading of PAYE improvement.  All this falls short of proposals in Alistair Darling’s budget (3) of March this year, aimed at “Employers that operate Pay As You Earn (PAYE) schemes to account for income tax and National Insurance Contributions (NICs) and have a history of serious non-compliance in terms of paying late or not paying“; these would have included “provisions allowing HMRC to require security in the matters that can be covered in PAYE regulations. It will also set out the new offence of failing to provide security. Similar provisions will be made for NICs through regulations using existing powers.“

The Budget does however say that (Para 2.112) “The Government will now consult on introducing a power for HMRC to require financial security where PAYE & NICs are at serious risk of non payment, rather than legislate in the upcoming Finance Bill as announced at the March 2010 Budget“, so financial security is not necessarily off the agenda

So, because of a timely change in government, football clubs may have had a narrow escape from the prospect of having to up-front security if they already had a bad track record of payments to HMRC (too many to list, but Club round-up might include some possibles).  HMRC may well be just a tad disappointed.

Nevertheless, HMRC may well end up with stronger powers to ensure PAYE and NICs are paid on time, a situation which too many football clubs are entirely unfamiliar with.  Certainly the days of being able to negotiate late payment of already overdue debts look to be coming to an end.

‘Audacious vision’ at Notts County

Had I just come out of a time warp I thought when I read today (1) that Notts County’s owner Ray Trew has ‘an audacious vision’ for the club?

Exactly a year ago today it was reported (2) that Nottingham Rugby had been successful in challenging in court their eviction from Meadow Lane by Notts County’s previous owners, Munto Finance (see postings passim for the horror show that was that era).

The ‘awesome vision’ – and I must in fairness point out that the phrase is one coined by one of the Nottingham Post‘s reporters, and not one of Ray Trew’s – relates particularly to the Rugby club (Premiership rugby in three years) but also to the football club (Championship football in three years).  Munto, it will be recalled, had aims for the Premier League under Sven-Goran Eriksson.

As Trew points out, “We have reduced the debts at Notts from £7.3m to £2m in five to six months, which isn’t bad going.  There is no doubt this club will be free of debt by the turn of the year“.  In April it was revealed (3) that he had “ploughed close to £2m of his personal fortune into Notts County“, and that he had “footed its astronomical wage bill, which he has revealed is £4.8m a year.“

One word that seems to be missing in all of this is ‘sustainability’.  Is the economic miracle of the club’s rise to the Championship to be financed by increased revenues, so-called ‘soft debts’, or real investment through the purchase of shares?

I wait for the day when I read a report on any club that includes the phrase ‘audacious realism’ rather than ‘audacious vision’ or the vacuous ‘ambition’.  A long wait I suspect.  Unsurprisingly my Google search on “audacious realism” and “football club” ‘did not match any documents‘.

Meantime, as I wait for one to miraculously appear, I’ll be working on my Awards for 2009/10 (last season’s are here).

Club round-up

A variety of snippets of insolvency and related news.  Readers unfamiliar with events at particular clubs should use the Quick Club Links in the left side bar for postings passim.

• Ashford Town (Kent)
  Today’s the day of the Administration hearing (1) and a resolution (?) of the confrontation between Don Crosbie and Tony Betteridge, co-owners of the club – a critical day for the future of the club.

• Bradford Park Avenue
  The HMRC winding-up petition has been dismissed (2), presumably because the club cleared its debt.  The sum involved was ‘four figures’ (3).

• Bromsgrove Rovers
  The club have managed to reach agreement in principle to continue playing at their traditional home, the Victoria Ground (4), groundsharing with new club Bromsgrove Sporting.  There are still some terms and conditions to be agreed however.

• Cardiff City (late addition)
  The club is due back in court to face HMRC on Wednesday 11th August over a PAYE bill of £1.3m (5).

• Crawley Town
  Big-spending Crawley Town had been facing an HMRC winding-up petition (6), but said that the bill had been paid a month previously.  The petition was dismissed in court yesterday.
  Am I alone in thinking that something at Crawley Town somehow just ‘does not compute’?

• Crystal Palace
  The CVA has been agreed and it looks full steam ahead for the CPFC 2010 consortium to take over the club (7).

• Dorchester Town
  The club had defaulted on one payment to HMRC, but have now been given a three-month reprieve, having renegotiated with HMRC (8).  Vice-chairman and club secretary David Martin made the interesting assertion that “Around one third of Conference clubs have arrangements in place with Revenue & Customs“.

• Farnborough Town
  The club’s transfer embargo has been lifted by the FA, player payments having now been made  (9)

• Halesowen Town
  The takeover by the Ingram brothers has finally been approved by the FA (10), but manager Matt Clarke has resigned following his suspension by the FA for a year (11), and captain Scott Rickards has also been suspended for six months.

• Ilkeston Town
  Yesterday the club was granted a 42-day extension to HMRC’s winding-up petition (12).  The main issue is £47,000 due for income tax and VAT; this dates from two years ago under previous owner Chet Whyte.

• Portsmouth
  Where to begin!  The club is bereft of players for the coming season (13) and, at the time of writing, have only 15 players, some of whom will leave during the transfer window, and none of whom is a goalkeeper.  An eventful tour of North America has just been completed (14), to the relief of all no doubt.
  The big crunch comes next Tuesday (15) with the complex confrontation with HMRC over the CVA.  Administrator Andrew Andronikou remains confident; I would have to say that I think it is less clear cut.

• Preston North End (late addition)
  Trevor Hemmings, who now owns 88.8% of the club’s shares, has lent the club a further £200,000 (his loans total £15m) to pay HMRC (16).  He needs a 90% stake in the club to force the sale of all other shareholdings.

• Rushden & Diamonds
  A winding-up petition brought by HMRC has now been withdrawn (17).  Strategic director Helen Thompson (18) had highlighted the massive overheads incurred in the running of the stadium.

• Sheffield Wednesday
  The club is due in court on 11 August over £550,000 debt to HMRC (19), but accuse, rather unhelpfully, HMRC of  ‘disproportionate action’.  Much will depend on the club’s bank holding firm in their support.

• Southend United
  Next of the club’s increasing regular appearances in court against HMRC is due next Monday (20).  Chairman Ron Martin has been uncharacteristically silent over this latest turn in events.

A total of thirteen fifteen clubs, some with deep cause for concern, others less so.  But it is hardly an advertisement for English football management or its benefactor model for that matter.

ASHFORD TOWN (KENT) UPDATE – 29 July 2010

Tony Betteridge’s winding-up petition has failed; Don Crosbie’s move to place the club into Administration has succeeded (A).  The Administrator has called for bids for the club to be placed by 17:30 today (!).  The race is on to get the club into the Kent League for the coming season.

– LATEST – 30 July 2010

Well, an interesting outcome of the bidding process.  The winner was … Tony Betteridge (B), in what he described as a hollow victory.  Hopefully the paralysis surrounding the club has been lifted and the club can press ahead with joining the Kent League.

– LATEST – 2 August 2010

It seems that the clock has beaten the club – see Tony Betteridge’s statement here.

SHEFFIELD WEDNESDAY UPDATE – 30 July 2010

The club has issued a statement (C) dismissing Club 9 Sport LLC’s interest, and suggesting that a minimum investment of £5m on day 1 is needed.  Hmm, a smidgen more would come in handy I would suggest.

SHEFFIELD WEDNESDAY LATEST – 1 August 2010

Club 9 Sport has hit back, criticising the Owl’s board.  Its website (D) offers no fewer than three downloads: a press release issued by co-investment partner, Dennis Hobson, and themselves (E), which is critical of the way the club’s behaved; an open letter to ‘fans, supporters and allies’ (F), which includes statements on what they will and will not do in the future if successful in acquiring the club; and a document entitled ‘First Steps on the SWFC Turnaround (G).

The last of these three will make strange reading to fans used to the usual ‘new benefactor’ guff promising Premier League football in a new stadium before you can say ‘Sven-Göran Eriksson‘.  In style at least, it has strong similarities to the approach Derby County’s American owners have adopted.

CRYSTAL PALACE LATEST – 20 August 2010

Good news at last for Palace fans. The club is out of Administration and into the ownership of Steve Parish’s CPFC 2010 consortium (H).

Who loves fans? Who doesn’t?

There’s an interesting pair of stories in the news today.

First comes the news (1) that UEFA have introduced a new requirement in their club licensing requirements – the necessity for a club to appoint an operating supporter liaison officer (SLO).  The purpose of this rather clumsily named role is to “to ensure a proper and constructive dialogue between a club and its fans“.  The need for this is so fundamental and obvious that it is amazing that UEFA have only just come up with it!  In fact, they did so at the prompting of our own Supporters Direct (SD) and its SD Europe arm.  The SD website (2) offers this expansion on what exactly an SLO is:

Supporter Liaison Officers at clubs already exist in a limited number of European countries and primarily help improve the dialogue between the fans and the clubs they support. Most importantly, SLOs must be credible with fans, and therefore should have experience with and contacts to the networks in the fanbase at the club.

They inform the fans about relevant decisions made by the club management board and, in the other direction, communicate the needs of the fans to the board, as well as building relationships – not just with various fan groups and initiatives, but with the police and security officers, They will also engage with fan liaison officers of other clubs before matches to ensure that the fans behave in accordance with security guidelines.

To implement the new requirements, a network of SLO project contacts from each national governing body across Europe will be created and work together with the UEFA club licensing team and Supporters Direct to assist clubs and supporter groups improve communication in each of the 53 UEFA member associations. This year more than 600 clubs applied for a UEFA licence with many more applying for domestic licences based on the same or similar principles. Hence, the broad scope and significance of the SLO project.

Like the licensing system itself, the implementation and development of supporter liaison officers will be a tool to raise minimum standards; a dynamic system changing over time, and focussing on developing and improving the dialogue between the fans and the clubs.

An excellent development – here’s hoping it would be accepted throughout the English football pyramid rather than just by clubs hoping to play in Europe.

On the other hand, there is the news (3) that the vast majority (it appears to be all except Arsenal and Liverpool) of the Premier League clubs are simply ignoring the 2000 Premier League Charter which pledged that replica strips would be released every two seasons at a minimum.  Worst offenders are Tottenham, who have launched three new kits every year for six seasons in a row.  This coming season they will have different sponsors, and hence, it is reported, shirts, for their Cup games, resulting in no fewer than six shirts being offered, although at the time of writing only three shirts are being offered on the club website (4).

It’s not exactly difficult to see which is more pro-fan – UEFA or the Premier League.

The trouble with new stadiums 3

[See also The trouble with new stadiums 1, which looked at the argument that "We’re a club with ambition and we need more seats to reflect that ambition", and The trouble with new stadiums 2, which looked at the argument that "We’ve got the wrong sort of stadium.  We need one better suited to maximising our revenue streams."]

The third argument that is often put for building a new stadium is:

• There’s this amazing property deal we can do. We’ll sell the old stadium for redevelopment and there’ll be loads of money to build the new one.

My first reaction to this is, I would have to admit, intuitive.  I’m a believer in the maxim that, if something looks too good to be true, then it probably is too good to be true.

On the basis of evidence however, I would argue that in far too many cases two problems arise when this argument is out forward.

Firstly, there may well be concerns as to who exactly ‘we’ refers to.  Does it refer to the club as ‘construct’, or to the club as ‘company’?  In other words, who will see the benefit financially – the club itself or the owners?  Or in the case of Southend United, the Chairman and his family (1).  The core issue is as much one of transparency as one of the rights and wrongs of who benefits.  Unless who precisely benefits is made clear from the beginning, fans may well end up feeling they have been misled.

The second problem is the understandable euphoria that the announcement of plans for a new stadium brings.  It also tends to bring a lack of realism on both the potential costs and the potential for delays resulting from, for example, planning problems.  In the latter case, it never ceases to amaze me that clubs do not anticipate that planning to build in a green belt area might just invoke some opposition.  Even having the local council ‘onside’ is no guarantee that there will be no problems – an election can mean going back to square on.

What tends to happen as costs escalate and planning battles rage on is that any Plan B becomes forgotten, and the club’s board become obsessed with pushing through their Plan A as a matter of dogma.  All too often it is not just a case of dogma; it’s a case of having become embroiled with developers.  The board have manoeuvred the club into a position where they cannot back out – the new supermarket rather than the new stadium is what it is then all about.  Which takes me back to the exception I mentioned in my previous posting – if the owner’s expertise lies in property development it may become difficult to keep focus on the best interests of the club.

I suspect, if you have now read all three of my postings, that you may well have gathered that I am not a fan of the ‘new stadium’.  To be fair, I have been arguing my case as a generalised one.  There are cases where there are exceptional circumstances which mitigate strongly towards building a new stadium, and I’ll turn to these shortly in a fourth and final posting in this series.

HMRC v. Sheffield Wednesday

Sheffield Wednesday are the latest club to face a winding-up petition from HMRC (1), over a PAYE debt of £550,000.

But Sheffield Wednesday is not your average club.  A founder member of the Premier League, its playing performance has been somewhat variable since.  Relegated in 2000, it faced a further drop to League 1 in 2003, bounced back to the Championship in 2005, only to be relegated again this summer.

In spite of this yoying, which makes financial control a particular change, the club had managed to turn a profit before tax in 2006/07 of £1.5m and in 2007/08 of £2.2m, although worryingly the most recent figures, for 2008/09, show a loss of £3.7m.  Also worrying for the club is that the all important salaries/wages ratio, which for four consecutive seasons had been below the ‘good practice’ mark of 60%, leapt up to 73% on 2008/09.

In the annual report for 2008/09 Chairman Lee Strafford said “…Sheffield Wednesday is a good long-term opportunity for investors who are focused upon developing the strategy that has now been put in place.  There are a number of possible investors looking at the plans and assessing the potential, but your board has drawn up these plans with a view that the continuing support of the Co-operative Bank and the other debt holders the club can be taken forward with or without investment.  This is a credit to the longer-serving and former directors who have ensured that the club continued to remain within its agreed banking facilities, which have been renewed until 31 December 2010.  The Group’s net debt has been reduced by a further £0.3m during the year from cash generated from operating activities and player trading in the prior year.“  This might be decoded as “We want out.  We are beholden to the goodwill of our bank.“

And that goodwill is being stretched.  The most recent data I have indicates that the club’s debt to the Co-operative Bank is just over £24m, consisting of an overdraft of over £9m, a loan for the training ground of over £9m, and parked debt of over £5m.  I read reports on fans’ forums that the club’s overall debt is over £30m.  For a club dropping to League 1 this is a very high level.  My research shows that clubs in League 1 generally begin to get into trouble when debt levels reach £1m, and even for those in the Championship the corresponding level is £3m.

If the club fails to pay HMRC before 11 August, the date the winding-up petition is due to be heard, and it is far from clear at this stage that they will manage to, the prospect of Voluntary Administration hoves into view, with the prospect of new owners looking for a bargain price.  Prospective owners there have certainly been of late, the most recent being a long-running and ultimately unsuccessful attempt by Geoff Sheard and a ‘London-based international consortium’ (2).

Key in negotiations is the 10% holding of Wednesdayite, the Sheffield Wednesday Supporters Society (see here), which is good news from the fans’ perspective.  However, if the club were in Administration, this hardly puts them in a position of strength.

The implications of failing to beat, ironically enough, Crystal Palace on the last day of the season, thus being relegated, may prove far-reaching.

One thing I have not mentioned so far is that last October the club won approval for an expansion of Hillsborough from 39,000 to 45,000 seats, due for completion by the end of 2013 and at cost of, wait for it, £22m.  For the record, the average attendance last season when still in the Championship, was just above 23,000.  Comment is superfluous.

Self-destruction at Ashford Town (Kent)?

The announcement yesterday (1) by Chairman Don Crosbie that the club was to be placed into Administration might be interpreted as a case of too much dogma and too little karma.  Already reported to be facing a winding-up petition from HMRC (2) and banned from football activity by the FA (3), he had earlier in the day withdrawn the club from the Isthmian League (4).  The club is seeking to join the Kent League (5), but faces a race against time, and may disappear through lack of a league to play in.

This is all a far cry from the heady days when Don Crosbie and Tony Betteridge took over the club in April 2007 and, as the club website put it “instantly set about transforming things” (6).

The first obvious sign of trouble at the club was in March 2009 when Crosbie revealed that plans for a new ‘sporting village’ (that’s a new super-stadium in old money) were in tatters as the club faced a massive bill from HMRC and that he and Betteridge had fallen out massively (7 and 8).  Crosbie said “I have personally been responsible for a number of bills; both leading up to and during this current season. I paid for the ground repairs and pitch improvements. I have also been responsible for the wages and bills for the club since early October.“  Why ‘financial doping’ should be seen not only as acceptable but actually admirable at this level in football escapes me.  It is the scourge of the game at higher levels and UEFA at least is trying to eradicate it.

Betteridge responded that Crosbie’s statement was “full of inaccuracies“, which, if nothing else, implicitly confirmed a massive falling out.

Confusingly, in early April Crosbie claimed that the sporting village plan was back on track, and that he had agreed a deal with Betteridge to buy the latter out (9).

The following month the club was charged by the FA in connection with a failure top pay players’ wages (10).

The transfer of Betteridge’s shares to Crosbie did not take place, and in last month Betteridge began winding-up proceedings against the club (11).  Betteridge, it should be noted, holds the freehold to the club’s ironically named Homelands ground (12).

Throw in a major bust up, the subject of possible legal proceedings, with Maidstone United, who are in exile at the Homelands, but have been told by Crosby that the ground-sharing agreement has been revoked (13).

All in all, not a textbook example of good business practice.  It seems to be a case of, if one benefactor is bad news for your club, then two who fall out are considerably more than twice as bad.  Food for thought there for fans at other clubs with two benefactors – no names, no pack-drill.

ASHFORD TOWN (K) UPDATE – 21 July 2010

The hearing for the club’s application to go into Administration is set for Thursday (A), and it looks set to be a Crosbie v. Betteridge blockbuster.  The debt to HMRC is reported as £150,000, so no doubt they will be following the hearing with interest.

Nelson the latest to fold?

According to a report in The Lancashire Telegraph (1) Nelson “has folded“.  They have resigned from North West Counties Football League, and their website (2) has gone down.  Whether there are things happening behind the scene to allow them to ‘do a Grays’ or if there are plans forn AFC Nelson I don’t know – if anyone with their ear to the ground in the Ribble Valley knows more than the fairly scant information available publically, please share it with us.

Chairman and Managing Director Alan Pickering has said “Over the past few seasons the club has struggled to continue, particularly financially. Combined with a paucity of officials, sponsors, volunteers and spiralling costs, the decision to with draw the team has been made. Attempts to sell the club have been unsuccessful so far, despite many meetings and negotiations, but that position remains.“

From the Google cache of the club’s website (3) I have found that on Wednesday it announced that “After the recent loss of his father, who had been connected with the football club for half a century, current chairman Alan Pickering has decided now is the right time to offer someone new the opportunity of taking over this historic East Lancashire Football Club“, which would suggest that ‘folding’ might be a premature term to use.

Certainly the loss of Nelson would be very sad indeed.  This is a club that beat Real Madrid (OK, it was in 1923, but it was in Spain) and played in the Football League from 1921 to 1931.  In the latter year they narrowly failed to be re-elected, and were replaced by Chester City.

[On the subject of requests for help from readers, I'm still hoping someone can advise what has happened to Richard Rundle's excellent Football Club History Database Mk.2.  Do any readers know?]

Portsmouth’s continuing purgatory

To no-one’s, I suspect, great surprise, HMRC has waited until the last minute to object to the proposed CVA (1,  2 , and 3).

The grounds on which HMRC are appealing are twofold:

(a) The interests of HMRC have been or will be unfairly prejudiced by the taking of that decision;

and (b) There were material irregularities in the way in which the votes of creditors were counted at that meeting.

My thoughts on the two grounds differ, but, before I start banging on, it should be declared for the benefit of any reader unfamiliar with this blog, that I am a Pompey fan, although I hope that this is in no way relevant to my views.

The first objection is a statement that HMRC have had enough of the football creditors’ rule, and do not see why the Exchequer should get a lesser percentage than the 100% which football creditors – clubs owed transfer fees, players on contract, etc. – are entitled to.  Frankly, I have no problem with this view.  The defence that football is somehow special and needs to maintain the integrity of its transfer market cuts no ice with me.  I can see no valid reason that HMRC is de facto an unpreferred creditor.

However, I am uncomfortable with the fact that they are challenging this through the courts against one club.  The circumstances are exceptional, at least with respect to the sum owed (whichever you happen to believe the right sum is) granted, although the rate – 20p in the £ – is unexceptional.  Other recent cases include Darlington, where creditors accepted a reported 0.9p in the £, Crystal Palace with a reported 1.9p in the £, Salisbury City with a reported 27p in the £, and Northwich Victoria with a reported 42p in the £.

It strikes me that whether the football creditors in the case of a football club’s insolvency should or should not have a preferential status over an agency of government, HMRC, is a matter for parliament to decide rather than by the establishment of legal precedent in a particular court case, pursued by a particular agency of government.  For very many years they enjoyed this status, until it was taken away by the provisions of the Enterprise Act 2002.  This was an act of unbelievable folly, and that status needs to be restored by Parliament, by amendment of that Act.

In short, I entirely sympathise with what HMRC see as in injustice, but I think they are going entirely the wrong way about resolving that injustice.  They should be lobbying Westminster rather than pursuing a court case.  It is surely the role of Parliament to ‘reverse’ legislation rather than one of its agencies and a court.

The second ground of HMRC’s appeal – the ‘material irregularities’ argument is more complex.  My understanding of what they claim are material irregularities is centred on two distinct aspects of what has happened: a) that the Administrator ruled that their claims regarding image rights were invalid and b) the Administrator should not be in the position where he can make such rulings.

On the latter, I tend to agree, but again this strikes me as more appropriately tackled through Parliament and legislation rather than through the courts.  The courts might be the right place to deal with the former, but why bundle it in a dispute with Portsmouth?  This issue first, in my reckoning, raised its ugly head with respect to Sol Campbell at Notts County – why didn’t they take Notts County to court to resolve the issue?

HMRC seem intent on bringing all the issues to a single head against Portsmouth, which strikes me as tactically naive from their own perspective.  No doubt their motivation is pour encourager les autres.  Why Portsmouth?  Well, we keep coming back to the massive and exceptional size of the debt (even at the lower, Andronikou level) – the highest previously I find in my records is the reported £7.7m due to HMRC by Leeds United in 2007.

A mess, rapidly turning into a dog’s breakfast, and one which, in the worst case scenario, could see Portsmouth liquidated, and HMRC ending up with much less than the 20p in the £ they are rejecting.  No-one’s a winner if that happens, except of course the lawyers.

An upside to England’s early exit?

As well as my involvement in sports management research, I have another part to my day job – researching tourism management.  These two worlds overlap in the topics of sports tourism and mega-events.

Catching up with my monitoring of tourism management developments, I came across a couple of reports suggesting that England’s early exit was going to be mainly rather good news for English travel agents.  Andrew Pozniak, Director of e-Commerce for Google, has pointed out that “Travel searches on Google leapt by 15% after England went out of the World Cup in 2006” (1), and TravelMole offered more direct evidence: “Within an hour of England’s defeat to Germany, lowcostholidays.com reported a sudden surge in web traffic, around 40% increase compared to the previous week” (2).  *

It’s an ill wind and all that, although on the other side of the coin Thomas Cook Sport had knocked more than £600 off its remaining four-day packages to South Africa for the quarter finals.

On the morning of the game I noticed a lot of general St George paraphernalia on sale at half price.  Did they know something or had they just over-purchased?  Whichever it was, the actual economic benefit was undoubtedly greater for the Chinese manufacturers than the English retailers.  But which figure would be used in an economic impact analysis – purchases from China, projected sales revenues at full price, or actual sales revenues?

Spin-off and indirect effects make forecasting, and post-event evaluation, of the economic impact of mega sports events at best an informed guess.  Costs are relatively easy to forecast (although projected costs always turn out to be rather lower than actual costs – I wonder why ) but projecting increased revenues is rather more problematic.  Increased beer and flag sales may well be directly attributable to an event, but what about, for example, increased television sales?  Those seeking to big up the economic impact of Euro2008 would have, as it happens, included my purchase of an HD TV a week before, but I can now reveal (my wife is not interested in football and does not read the blog) that Euro2008 may have triggered the purchase, but a purchase would have taken place anyway – it replaced a 25 year-old set that I was under considerable pressure to replace.  I might have held out a couple more years, but a new TV was going to appear in the Beech household at some point fairly shortly, Euro2008 or not.  Should my purchase really be included in the economic benefit?

Pronouncements on the economic benefit of a mega-event such as the World Cup need to be treated with caution.  And it always important to bear in mind who is making the pronouncement – what vested interest do they have in inflating the figures?

* Late Extra: A similarly upbeat prediction from The Co-operative Travel should England fail here.

More controversy at Halesowen Town

Halesowen Town has been a much troubled club over the past few years, much of it associated with erstwhile owner and manager Morrell Maison, and the club passing into Administration (see many postings passim).

The latest problem relates to current manager Matt Clarke and player Scott Rickards, although the allegation which the FA charge relates to is to do with an alleged betting scam during the 2007/8 season when both were still at Redditch United (1).

Meanwhile the long-running saga of the takeover by the Ingram brothers drags on, and the club has been told by the FA that it will miss out on this year’s FA Cup as the takeover has yet to be ratified.

An earlier press report suggests that the ban is because the club did not compete in an FA competition last year (2).  If this is correct, what a ridiculous state of affairs!  It means that a one-year ban for a breach of one rule must automatically become a two-year ban under a second FA rule!  The club will, however, be allowed to play in the FA Trophy according to the latter report.

If ever a club deserved better luck with the company it has found itself in, it must surely be the Yeltz.  Any insight on why the takeover has yet to be completed would be appreciated.

Significant development at Lewes

Lewes, who avoided relegation to stay in the Conference South, have appeared a number of times on this blog (see postings passim) for the usual ‘wrong’ reasons.  In 1977 they joined the Isthmian League Division 2, and by 2008 had reached the Conference National, only surviving there for one season.

Off the pitch the club has of late been troubled financially.  A long running battle with HMRC has seen the club flirt with Administration, the latest crisis being in January of this year (1).  The club had been struggling to pay off a £107,000 tax bill (2) and at that time were reported to owe £45,000 to other creditors.  This round of the battle to survive had been achieved through a mixture of donations and a couple of longer-term interest-free loans (3).

Today comes the news that the club, in what is being described as a ‘velvet revolution’ (4), has become a Community Benefit Society, moving to what historically football clubs were – organisations where a one person, one vote system operates, rather than organisations run at the whim of a single owner.  Details of the new organisation and the all-important transition over the next two years are available on the club website.

This move to a system of fan ownership is highly significant, and most welcome.  It is not a magic wand of course; the club still has debts, and the loans will have to be repaid.  If the Rooks can keep up the impetus, and, given the new climate of fans being directly involved the chances look good, they will succeed.  I certainly wish them well.

MORE ON LEWES DEVELOPMENT - 9 July 2010

The Rooks Supporters Trust (which is a different body from the Community Benefit Society) Newsletter 11 includes an interesting discussion on the context of this development.  It can be downloaded as a .pdf file here.

The trouble with new stadiums 2

[See also The trouble with new stadiums 1, which looked at the argument that "We’re a club with ambition and we need more seats to reflect that ambition".]

The second case put for building a new stadium is:

• We’ve got the wrong sort of stadium.  We need one better suited to maximising our revenue streams.

The first part of this argument I have no real problem with.  Virtually all English football stadiums are either ‘new’ (less than twenty years old) or ‘old’ (from the Victorian era), and, if your club’s stadium is in the latter category, then it is almost certainly suboptimal for players, fans and revenue generation.  Remember, I’m a Pompey fan, and Fratton Park was a disgrace for a Premier League stadium.

‘We need a better one’ in these circumstances can then seem perfectly reasonable.  However, there are two key questions a club needs to ask itself: a) Can we afford it? and b) Is this the most effective way of maximising revenue streams?

I suspect that in 99 cases out 100 the answer to the first question is a resounding ‘No!’.  Show me the clubs which already have the financial reserves to consider spending on a new stadium!  The new stadium will have to be financed, and if the club is worried about failing to maximise its revenue streams it needs to have a cast iron case that new revenue streams will be sufficient to even cover the cost of the loans needed to finance the new stadium.  Of course there will be exceptions, but it is worth bearing mind that even Arsenal, with a clear need for a bigger stadium and a sound business plan to finance it, have struggled because of the drop in house prices, and the subsequent difficulty in selling the houses on the stadium site.

If you want to maximise your revenue streams, the basic strategy model which is used for deciding the best way to grow your business is one called Ansoff’s Matrix.  This model considers whether to look at existing or new customers, and existing or new markets.  (There is a useful visual representation here which makes it much easier to follow.)  The 2×2 nature of the matrix results in four possible strategies, each with differing levels of risk.

The safest is ‘market penetration‘ – developing the sales of existing products to existing customers.  In other words, the simplest and most effective growth strategy for the vast majority of clubs, which have empty seats on a match day, is to try and get more bums on seats.  Clubs like FC United of Manchester have tried interesting tactics with pricing to achieve this, such as varying the price that fans pay to get a season ticket (see 1 for a discussion of imaginative ticket pricing, and 2 for FCUM’s approach).  Experimenting with different pricing strategies, such as BOGOF (buy-one-get-one-free), is quick, easy, low risk, and provides a useful indication of whether growth is possible – if you can’t get more bums on seats with this kind of approach, where’s the rationale for a new, bigger stadium?

Next two to consider, of medium risk, are:

• Product development - developing new products for existing customers
  In other words you find new goods or services to sell to your existing fans.  I’ve blogged before (see On clubs and club shops) on what I see as an unimaginitive range of merchandising that club shops offer, and clubs could do a lot more with this medium-risk strategy that does not require vast capital investment.

• Market development – developing finding new markets for the existing products
  In other words you recruit new fans.  Clubs do make efforts here, trying to encourage whole families to attend games for example.  More could be done, and again without vast capital investment.

The final strategy is the one with the highest risk – Diversification, in other words, moving into to some other area to find new customers to buy new products.  It’s here that the new stadium certainly raises it’s ugly head – without a new stadium we don’t have the right facilities to be able to do this, the proponents moan.  Of course, they are right, but they fail to recognise the attendant problems.  The problems with this case are twofold.

The first is the obvious argument that it is the highest risk strategy, and comes at the highest cost.  It simply does not make sense to attempt it until all the lower risk, lower cost strategies have been tried.

The second problem arises with what exactly the new products to be sold to new customers are.  A good rule of thumb is that the nearer the ‘fit’ with the existing product – in our case, football matches – and the nearer the fit withthe market – in our case, football fans – the better, the lower the new risk.  Why, oh why, then, do clubs who pursue this strategy look to build a new stadium complex with a hotel, restaurants or shops?  Could it just be that they think they are already in these businesses through their experience in ‘hospitality’?  I would suggest that there is a gulf of blue water between ‘pies & bovril’ and even prawn sandwiches, and I know I’m not alone in this view!  Similarly they see themselves as involved in ‘events management’ and see a connection between operating on match days and running conferences.  As someone who attends both, I would again argue that there is deep blue water between attending a football match and attending a four-day conference – they are world apart in terms of customers and the service these customers are looking for.  I would argue that the poorness of fit is every bit as big as it is with running a supermarket.  In a nutshell, building the new stadium with a conference centre attached is as sensible as an existing conference centre which is in poor financial shape deciding to build a new conference centre with a football stadium attached to ‘maximise revenue streams’.  Even if you sub-contract the running of the new business ventures, you’ve set up two poorly fitting businesses on the same site – not a recipe for success.

I’m sure you realise, and I readily, that I am generalising (and I’ll be looking at some exceptions in a later posting).  There is one way of lowering the risk in a diversification strategy, and that is to diversify into something which, for example, the owner is experienced, an area in which he made his fortune which is he is in danger of turning into a small fortune.  That is, with one major exception, which I will be looking at in my next posting in this series.  To give a wee hint as to what I see as the one exception that does not reduce the club’s risk, I’ll just remind you of the third case that is put when a new stadium is proposed:

• There’s this amazing property deal we can do.  We’ll sell the old stadium for redevelopment and there’ll be loads of money to build the new one.

Endgame at Southend?

The key outcome, at least in the short term, of today’s appearance in court over a winding-up petition from HMRC is that the club has been given another fourteen days to settle the debt of £238,710 (1).  However, the club has been asked to show that it is financially solvent if it is to avoid being put into Administration when it returns to court on 2nd August.  This has an all too familiar ring to a Pompey fan.

The club website (2) paints a picture, as one might expect on past form, of HMRC being unreasonable:

Yesterday the Club had arranged funds for the full amount to be sent to HMRC’s solicitors.

At the last minute HMRC added costs and a further sum to the petition which the Club was unable to arrange to transfer in time.

Despite an offer to pay this further sum in three to five working days the proposal was not agreed by the Revenue and they continued their request for administration.

The Club has now until 22nd July to produce evidence that it is able to meet its liabilities on an ongoing basis going forward.

The Southend Echo however paints a rather gloomier picture (3):

SOUTHEND United has won a temporary reprieve against going into administration over a £238,000 tax debt.

Her Majesty’s Revenue and Customs today applied for an order at the High Court to send administrators in to run the company, branding it “demonstrably insolvent”.

The court heard the club had not filed any evidence to defend the application since it was served on June 28.

Again, this rings some bells with a Pompey fan.

It’s a busy time in court for Chairman Ron Martin, which might explain why the latest of his ‘blogs’ is dated 13 April (3), where he informs us:

In my efforts and intention to discharge the HMRC indebtedness I have had little to no time today to turn my attention to the intended “third and final phase” blog.

My apologies for this but I am sure supporters will understand the importance and I will ensure that the blog is completed and dispatched on Wednesday.

You might feel that you have been caught in Groundhog Day (the ‘third and final phase’ blog has not appeared, and he is of course referring to an earlier court appearance against HMRC – keep up at the back!).

Due next week is the court appearance regarding the winding-up petition brought by Charterhouse Commercial Finances.  The club website purrs “With regards to Charterhouse Commercial Finances’ petition funds are in place to meet that liability“.  According to the Southend Echo this is over a debt of £140,000.  Let’s hope the Groundhog Day theme is not continued and that at the last minute Charterhouse Commercial Finances does not add costs and a further sum to the petition which the Club is unable to arrange to transfer in time.

Meanwhile, the Southend Echo also highlighted (4) the fact that a Ron Martin company is in trouble, with, erm, HMRC, would you believe.  Martin Dawn PLC, a property development company, is facing its sixth winding-up petition since 1999 apparently.  The current debt is one of £96,367.

Between the court appearances Chairman Ron has been recording video interviews for the club website.  In the latest (5), he speaks about the great stadium saga, saying “We have moved mountains to get where we are“.  Unfortunately, after 12 years that remains Roots Hall, with Fossetts Farm still remaining the stuff of dreams.

All in all, I fear there is not much hope of a nomination for best management practice this year at Southend United.

See also postings passim and in particular Final final warning for Southend United?

UPDATE - 14 July 2010

In court today, Charterhouse Commercial Finance Plc was granted an adjournment of their winding-up petition over a debt of £140,000 (A).  The new hearing will thus be after the HMRC hearing, which is due on 2nd August.

LATEST – 2 August 2010

The HMRC winding-up petition has been withdrawn, the club having paid the debt (B).  HMRC, who had argued that the club was insolvent, warned however that any future late payment will see the club back in court.  Chairman Ron Martin said that the payment had in part been met by Sainsburys, and commented “I would have liked to have said some months ago that this is what I was anticipating, but the outcome is what I thought it would be“, the meaning of which has escaped me so far.

The club still faces a winding-up petition from Charterhouse Commercial; Ron Martin said “We’ve made provision in our cashflows to make sure all debts, as they fall due, are covered over the next 12 months“.  For the fans’ sake, here’s hoping.

The transfer embargo remains in place, but Martin is hopeful of it being lifted very shortly.

Another side to the World Cup

Most of us will have been (eventually!) enjoying the World Cup as a feast of football, soaking up the atmosphere even if only in our sitting rooms or in the pub, and savouring the more dramatic and skilful moments.

We may even spare a thought for the pressure on those who produce this spectacle.  This morning Sir Alex Ferguson spoke of the pressure on Wayne Rooney, suggesting that this was the reason for his poor performance (1).  It’s all too easy to forget that the pressure is also on a whole load of people who are not players.

No less a figure than Mary Robinson, former president of Ireland and ex-United Nations High Commissioner for Human Rights, has strongly criticised FIFA for causing hardship to street vendors through the creation of exclusion zones around stadiums (2).  Street vending is estimated to account for 7 percent of South Africa’s Gross Domestic Product, and it has been estimated that there could be more than 100,000 street and informal traders who have lost their livelihoods during the World Cup.  No great benefit for them from the World Cup then; rather, they and their families will have had an extremely hard time.  Their reaction is recorded here.

This is not the first time that this kind of issue has emerged.  You may have noticed the strike.  I’m not referring to the problems of Les Bleus, but to the stewards protesting over pay (3) – they claimed they had only been paid £17, significantly less than they had been promised.  The strike was broken by bringing in police to take over their duties (4).  Whether they too were expected to work 15 hour shifts is unclear (5).

So far the World Cup, as an event, has been a great success.  But when talk turns to ethics it should not be confined to Suarez’s handball.  Given FIFA’s budget, it should be possible to ensure that the benefit of the World Cup extends to the hosts.