HMRC v. Sheffield Wednesday
Posted by John Beech on July 24, 2010
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.