Football Management

Commentary on the management of over 160 English football clubs by Dr John Beech, winner of the FSF Writer of the Year Award 2009/10 Twitter: @JohnBeech Curator of Scoop.it! Football Finance

Posts Tagged ‘Revenues’

The new broken-time payments

Posted by John Beech on March 24, 2012

The decision by UEFA to increase significantly the compensation fee paid to clubs for releasing their players to play in Euro 2012 (1) – for Euro 2008, the total compensation was €43.5 million; for Euro 2012 a total of €55 million had been proposed, but the figure is now to be €100 million (£83.4 million) following pressure from the European Club Association (ECA) (2) – is not entirely unexpected, and not entirely unreasonable. I have my concerns about it though…

Professional football was born on the back of the issue of broken-time payments – compensating amateur players for time they had had to take off from their day-jobs. It’s hardly inconsistent, over a century on, that clubs would seek broken-time payments for players released for international duty.

Nor is it inconsistent that, in a post-commercialised football age, the selection of a player for international duty has little to do with honour and duty, but rather more to do with maximising revenues for the national team.

Certainly international duty, notably with respect to the African Cup of Nations, can have a worrying impact on particular clubs.

There is also the issue of injury while on international duty, although this seems to be resolving itself by the number of declared injuries which somehow heal themselves miraculously quickly once the ‘threat’ of international duty has passed.

By and large then, my view is one from a natural perspective of a mixture of realism and cynicism.

My concern is more at the level of unintended consequences. I’m in the middle of a major research project looking at the concentration in certain European football leagues. Notwithstanding the current difficulties of one of the two clubs, Scottish football, for example, offers no exemplar of healthy competitive balance in its top tier. Since the Scottish Premier League was founded for the 1998/99 season, there has so far been just one single appearance, as runner-up, by a team other than the Auld Firm in the top two at the end of the season (it was Hearts in 2005/06 in case you are scratching your head). The last time another club won the Championship was back in 1983/84 (Alex Ferguson’s Aberdeen), and you have to go back to 1903/04 to find the last season that neither club was winner or runner-up (since you ask, the winner was Third Lanark and the runner-up Hearts; you will be less surprised that Rangers were third and Celtic fourth). While the Auld Firm’s stranglehold on their domestic Championship is the strongest in Europe, the majority of European national leagues suffer from ‘Big 2’, ‘Big 3’ or ‘Big 4’ syndrome (see also posting passim), a fact that is contrary to the principle of maintaining competitive balance within a league.

The reasons that leagues became dominated by a handful of clubs are varied, and the dominance usually dates back to a pre-commercialised era. Our research is beginning to show that the maintenance of dominance in a national league is strongly correlated with the distribution of the broadcasting revenues of the Champions League and the Europa league (and of course their predecessors). In short, rewarding clubs financially for simply being the top clubs reinforces their position, by ensuring that the rich clubs get ever richer, and can hence, afford, the better payers.

As these enhanced UEFA fees to clubs for Euro 2012 will, albeit on a smaller scale, have the same, presumably unintended, outcome, it concerns me that the lack of competitive balance in European national leagues is once again being reinforced, something which is NOT good for the game.

Posted in Revenues, UEFA | Tagged: , | 4 Comments »

The changing face of Premier League shirt sponsorship

Posted by John Beech on September 15, 2011

The news the other week that Manchester United had secured a lucrative sponsorship deal with DHL for their training kit (1) rather caught my attention.  It wasn’t the unique (?) case of training kit being sponsored – I would expect this to be a one-off, with all new shirt sponsorship deals having a clause requiring exclusivity over all shirts.  It was the fact that a global courier service was the sponsor.  Their business is truly global, they have previously sponsored sport (2), and a Premier League club would give them global ‘reach’.  No doubt we will see UPS signing up next season – they too are already into sports sponsorship (3).  They actually offer a handy application form on their website – commercial managers of football clubs get typing!

The news that QPR have finally signed up not one but two shirt sponsors (home/away kits) (4) allowed me to complete this season’s entries into my Premier League shirt sponsorship database.  More on this in a second, but I must warn you that the official QPR website has followed the Times in charging for content other tasters – a distinctly retrograde step and hardly fan-friendly.  Do these clubs need ‘naming and shaming’?

Two initial views of the data show some interesting trends.  First, some data on the country of the sponsor.  The graph is a tad grainy as presented I fear, but clicking on any of the images will open it up to a rather more legible size (I kept them small on the posting itself so as not to slow downloading).

Very broadly there seem to be three periods  apparent: from the start of the Premier League a steady-state period to roughly to the end of 1997/98, with sponsors falling roughly equally into the UK and foreign categories; a period from then until 2006/07, when foreign sponsors started to turn away, before starting to return; and the most recent period, showing a return to a roughly equal split.  I would have to admit that I can’t see a simple obvious reason for this trough of foreign sponsorship in the middle period.  Do any readers have any thoughts on this?

While the Premier League began with almost half the clubs sponsored by locally-based companies, there has been a slow but steady decay.  This I would simply attribute to the rising cost of shirt sponsorship, with foreign-based multinationals better placed to pay higher fees than the likes of, for example, the splendidly named Reg Vardy Motors, sponsors of Sunderland roughly a decade ago, and now part of Evans Halshaw.

It shouldn’t be assumed that ‘local’ necessarily means a UK company.  For example, Peugeot sponsored Coventry City for their first five years in the Premier League – the Peugeot 206 was at that time built at their Coventry site.

Secondly, data on the sponsor’s sector.

The graph shows the four most frequently occurring sectors over the two decades.  Financial services are just the largest grouping at 13.5%, closely followed by breweries at 12.8%, although, if the breweries are combined with the occasional sponsorship by spirits and cider manufacturers, alcohol manufacturers, with a combined total of 13.8%, slip into top spot.

It’s clear that financial services have grown steadily as sponsors over two decades, but gambling, the Johnny Come-Latelys of PL shirt sponsorship, is very much in the ascendancy.  Together the two sectors now sponsor 13 of the 20 clubs.  The early days of the Premier League saw a much greater diversification among shirt sponsors.

Finally a look at the Top 4 v. the rest of the Premier League clubs.  One would expect the clubs which have pretensions of being global brands to attract global sponsors, and this is indeed the case.

By playing more televised matches, especially when qualifying for the Champions league, the Big 4 have consistently attracted more foreign sponsors than the other clubs, generally two to three times more.  By being able to play a global market in attracting sponsors, they have been able to push their sponsorship charges up, and so increase their financial muscle.  There is thus a double effect of reinforcing their dominant position, by greater TV revenues and by greater sponsorship revenues.  Whatever happened to competitive balance?

Posted in Marketing, Revenues, Sponsorship | Tagged: , , | 7 Comments »

A day of reckoning

Posted by John Beech on May 23, 2011

I managed to follow the great play-off between AFC Wimbledon (to whom, many congratulations) and Luton Town (to whom, commiserations) at least live online.  Football at its most exciting.  I wonder if Andy Burnham chose quite the right words though when he tweeted “Wimbledon back in Football League. Brilliant. A great victory for all football supporters over the money men. Well done to all at AFC.”  I’m sure he wasn’t referring to Luton as ‘the money men‘, although his comment would have been entirely appropriate if Wimbledon had beaten Crawley Town.

Yesterday, with the final day of Premier League games, unfortunately found me in the Tirol in a hotel room, arriving and logging on just after the games had started.  Heady stuff, and probably the most exciting afternoon in the PL all season.  As Alan Hansen was moved to write (1), “The big winner has been the Premier League itself, because this season has shown it to be the most exciting of the lot. ”  I’m not sure that I would enirely agree with his argument.

It struck me, particularly as I was feeling somewhat removed from the action, that it was distinctly odd that all the excitement was over who would or wouldn’t be relegated.  Aston Villa v. Liverpool, Everton v. Chelsea, and Fulham v. Arsenal were attracting very little attention from the twitterati.  Is this the grand scheme of things that the greedy breakaway Chairman of the old First Division envisioned some twenty years ago?  I came to the conclusion that in fact, yes, it was, had they bothered to think their plans through.  To me it is yet another symptom of what is wrong with the governance of English football.  Who is or isn’t relegated is clearly an important part of the general excitment of football, but it surely shoudn’t be the major focus.

The sacking of Ancelotti (2) because “this season’s performances have fallen short of expectations and the club feels the time is right to make this change ahead of next season’s preparations” to me provides yet more evidence of just how dysfunctional the Premier League has become.

Relegation from the Premier League undoubtedly puts serious financial pressure on a club.  When the drop in broadcasting revenues is netted off against the parachute payment, one is looking at a drop of £30m-£25m in revenues.  To this must be added a drop in matchday revenues (reduced attendance and lowered ticket prices) and a drop in merchandising sales, although these will vary from club to club, depending on the loyalty of their fans, in particular how large the core of ’till I die’ fans is.  Clubs may face a contractual drop in sponsorship fees, and may or may not have had the wisdom to include relegation clauses in their players’ contracts.  In other words, any club relegated faces a financial problem, but some may face significantly harder problems than those who had planned for the eventuality.  Clubs will also be in different states of financial health to start with.

Last week I was asked by BBC West Midlands to review the prospects for Wolves and Birmingham City should they be relegated.  On virtually every financial measure Wolves looked far more resilient to facing the drop than Birmingham City.  West Ham will undoubtedly face serious difficulties too, and only Blackppol look reasonably equipped to face the drop.

The Football League season is not quite finished, but further down the pyramid things are clearer with respect to next season.  AFC Wimbledon and Crawley Town are joining the Football league, the epitome of fan ownership and ‘benefactor’-induced financial doping respectively.  At the other end of the Conference National, it’s goodbye to Southport, Altincham (whose luck in benefitting from other clubs’ financial problems finally ran out, Eastbourne Borough, and Histon.  I’m sorry to see Eastbourne Borough go down as they were the most senior English club which is a Community Interest Company (CIC).  As an interesting aside, the Scottish Premier League may well have a CIC as a menber in the coming season – St Mirren (3).  This is a case that is well worth following, as the current owners are seeking to sell the club in a way that was  “making sure it remained sustainable and debt-free” (4).

Lower down the pyramid, the upcoming movements are plotted here.  Good to see resurrection clubs AFC Telford and Farsely on the way up.  It’s interesting to note that Ilkeston are listed as ‘reinstated’, good news for their fans following their resurrection (5), but I wonder what, for example, King’s Lynn fans or Grays Athletic fans will make of the reinstatement decision.

Finally I turn to a football story that is relevant to me in my immediate circumstances, but which does not seem to have well covered by the English-speaking  media, although due credit to Yahoo! Sport (6) for being an exception.  The story quite simply is that a major derby match between Rapid Vienna and Austria Vienna was abandoned after 26 minutes following a major pitch invasion – see here and  here.  Disturbing images that we hope we will not see moving further northwards and westwards.  After thirty minutes of disruption, the police felt unable to guarantee the safety of the players in a resumed match.  We seem to have moved onward from such dark days in England, and it was good to note the Birmingham City fans staying on at White Hart Lane to show what they had in common with Spurs fans (7).

Mind you, I suspect that “Thursday night, Channel Five” is not really going to catch on on the terraces.

Posted in Broadcasting rights, Costs, Economic impact, Fans, Football Conference, Governance, Merchandising, Premier League, Promotion, Pyramid movement, Relegation, Revenues, Sponsorship | Tagged: , , , , , , , , , , , , | 2 Comments »

The scarf your mum knitted and competitive balance

Posted by John Beech on February 22, 2011

I haven’t been enjoying lunch lately.  Nothing to do with the food in the university canteen; it’s my daily read of The Guardian I blame.  That Matt Scott in particular had me choking today (1) over my vegetarian shepherds pie, although the oxymoron itself hadn’t put me in the best of moods.  I was so bothered that I’ve created a new tag (‘financial doping’) as a result, and will apply it retrospectively as time permits.

To be fair, Matt is an excellent writer, and its was the implications of what he wrote that vexed me, rather than the content per se.  His lead story was about a new Sport+Markt report on European Football Merchandising (2), a snip, I would imagine at 5,831 euros (no, I kid you not, such is the price of valuable market research in the football sector these days).

Matt reported:

The key finding of the European Football Merchandising Report, a survey of 182 clubs and 10,000 fans, was that United’s global revenues (excluding television income) have fallen by 10% in 12 months. The report’s author, Dr Peter Rohlmann, told Digger this was attributable to the “green-and-gold” campaign against the club’s owners.

“Our data show the club has lost retail revenue from the year 2009 to 2010 by around 10%,” Rohlmann said. “This is due to the fact that all the circumstances about the ownership and the behaviour of the Glazer family were not positive in the minds of Manchester United fans. This has had a direct impact on their merchandising spend.”

Rohlmann did not disclose the figures relating to United’s merchandising income because all disclosures made to Sport+Markt by clubs are on a confidential basis. However, he stated that the report analyses all of United’s self-generated merchandising revenues, along with those of their licensing partners such as Nike.

As United reportedly seek a 50% improvement on their £302.9m, 13-year Nike shirt deal, which expires in 2015, the demonstration of a decline in revenues comes at a bad time for the club. The Premier League leaders’ share of the merchandising market, which is worth €1.2bn for the 10 highest-earning clubs across Europe, has also slipped. They are now ranked sixth, down one place from 2008.

A spokesman for the club disputed Sport+Markt’s findings, saying royalties from the profit-share arrangement with Nike had risen in each of the past four years.

Now let’s just stop and put that into its real perspective.  That’s €1.2bn, or a smidgen over £1bn, or a £100m per club, that the fans of just ten clubs have spent in one year on merchandising.  Rather a far cry from the days when you got your mum to knit you a scarf in your club’s colours, and perhaps splashed out on a rosette on Cup day.

As I said, it’s the implications of this that bother.  Such enormous sums spent on the merchandising of a few clubs results in ensuring that the rich and strong clubs just get richer and stronger.  In other words, it distorts the competitive balance in the respective leagues.  It’s not a million miles from financial doping – the attempt to buy success by distorting the balance of competition.  This is normally in the form of ‘benefactors’ pouring money into clubs à la Manchester City or Chelsea, or, at a different level, Crawley Town.  What’s particularly insidious here is that it’s the fans who are being drawn in to pay for the club’s habit.

There is at least one up-side to this though – the Green and Gold campaign is having the desired impact.  As for me, I’ll stick to wearing my favourite footie T-shirt (available from WSC – who still won’t reciprocate a link on their links page, incidentally).

As this was The Digger column that was provoking this reaction, I should have guessed there would be more to incense me.  Matt also reported:

Any defence whose last line consists of Sébastien Squillaci and Manuel Almunia is vulnerable to the attentions of a journeyman striker picked up from the French fourth division. And Jonathan Téhoué, left, proved it in the FA Cup fifth round against Arsenal. Now Digger can reveal just how valuable the Frenchman’s equaliser is expected to be for Leyton Orient. Arsenal turn over £3m for every home game and under the terms of the FA Cup revenue-sharing agreement Orient will be due 42.5% of the net gate receipts that the Emirates Stadium replay generates.

Although the Gunners have yet to announce ticket prices for the 2 March match, the profit is expected to be in the region of £1.6m, raising £700,000 for the League One club. If the match is televised, it will make close to £1m for Barry Hearn’s club – not bad for one game, considering Orient’s total turnover of £3.3m in the 2008-9 season.

Here there is at least an income to the club related to their performance on the pitch.  Orient certainly deserve some good news after their shabby treatment by the Premier League.  My gripe is not with Orient but rather with the fact that in general the distribution of broadcasting rights has the same result – making the rich clubs even richer and distorting the balance of competition.  And who’s feeding the habit?  It’s the fans again.

Have we really lost all sense of the sporting ethic?  Sadly I think I know the answer to that one.

Posted in Benefactors, Broadcasting rights, Ethics, Financial doping, Merchandising, Revenues | Tagged: , , , , , | 1 Comment »

Liverpool and Manchester United

Posted by John Beech on October 14, 2010

I’ve been abroad for work and then taken a couple of days leave – the net result is a week of only occasional internet contact.  A week is a long time in football it would seem.

All my standard searches to keep up with football management affairs have resulted in a total overkill on the Liverpool sale soap.  Certainly it’s a fast-moving and ever-changing saga – I was interviewed on BBC News 24 this morning, and already there has been a development, oh, and a non-development.

It strikes me that the focus on Liverpool, understandable though it is, has meant that some very interesting football management stories have been largely ignored.  For example, there are stadium stories at Bristol City and Worcester City, not to mention the 2012 stadium confrontation, and the Portsmouth CVA and Sheffield Wednesday’s plight should definitely not be ignored.  I hope to blog on at least some of these shortly.

The oddest of largely ignored stories is, to me, the reporting of Manchester United’s financial results (1).

The club has certainly done stunningly well in terms of growing revenues and turning a profit.  Turnover is more than twice that of cross-city rivals Manchester City.  Wages have risen, but the wages/revenues ratio remains just a vague aspiration for most clubs.

All very commendable, but there is the other side to the coin – an £83.6million loss and overall debts of £521.7million.  For all the success with growing revenues, debt management has been rather less successful. Given all the legitimate concerns of United fans regarding the Glazers, there is still room for a glance at Liverpool and the thought that things could be distinctly worse.  The difference between the club’s financial positions is nevertheless not so great, even if the relatively small difference leads to quite different outcomes.  Highly leveraged debt leaves a club worryingly exposed.

In the way that we are running out of ‘benefactors’ with deep enough pockets, we are also running out of ‘investors’ with sufficient finds of their own to invest.  Clubs seem to be convinced that the scenario at Portsmouth could never possibly happen to them.  First Portsmouth, now Liverpool.  Just how many Premier League clubs to teeter on the brink will it take before Chairmen get a grip on club finances, before they take Mr McCawber’s advice.  Unless spending is reined in to the extent that the business model becomes sustainable, we live in danger ultimately of only having a weekly exhibition match between Mansouri City and Abramovich Globetrotters to tune in and watch.

Meanwhile back at Liverpool, or rather at court rooms around the world…

Posted in Costs, Debts, Investors, Ownership, Revenues | Tagged: , , , , | 5 Comments »

The trouble with new stadiums 2

Posted by John Beech on July 8, 2010

[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.

Posted in Assets, Marketing, Merchandising, Revenues, Stadium | Tagged: , , , , | 2 Comments »

A scarcely noted Football League failing

Posted by John Beech on March 30, 2010

While the media have focussed strongly on the failings of the FA in the last week and disseminated the calls for reform from a wide variety of sources, scant attention has been paid to a very basic failing by the Football League – its refusal to increase ticket allocations for Carlisle and Southampton fans to the League Cup final last Saturday.

Southampton were allocated 44,000 seats, which were all sold well before the match (1).  Carlisle had to cope with a 13:30 kick-off on the day the clocks had just gone forward, and the number of coaches that travelled overnight showed their fans’ dedication.

On the day a superb turn out of 73,476 was recorded, with the League crowing “That’s more fans than were in Istanbul last season to watch the final of the UEFA Cup, between Shakhtar Donetsk and Werder Bremen and more than watched the domestic cup finals in Italy, Spain and Holland.” (2).

True, but why were there still blocks of seats unoccupied with fans eager for tickets?

Click to enlarge

A lonely steward contemplates the 73,476 spectators in other parts of the stadium

The League were certainly neither keeping fans happy by refusing further tickets, nor were they revenue maximising – a lose/lose scenario if ever there was one.  Yes, I appreciate it would have tipped the balance of support even further Southampton’s way, but that is the sort of issue which the FA should have thought about when they decided not to move the national stadium to a more equitable location.  The choice of date hardly helps with equity in any case.

All of that said, it was a tremendous event which I thouroughly enjoyed (even as a Pompey fan!).

[I was there by the kind invitation of Supporters Direct.]

Posted in Fans, Football Association, Football League, Revenues, Stadium | Tagged: , , , , | 5 Comments »

HMRC v. Rochdale

Posted by John Beech on September 24, 2009

Rochdale is the latest club to be served with a winding-up order by HMRC (1).  Of all the reassuring words from the club, perhaps ‘it is business as usual at Spotland Stadium‘ that are the most worrying, given that cashflow problems are blamed as the cause of this action.

Back in April 2007 they faced a similar winding-up order, which they fought off (2).  On that occasion late payment of grant monies was said to be the cause of a major cashflow problem.

The club has certainly taken steps to try and address its financial problems.  Last January there was talk of a merger with the Rochdal Hornets of rugby league fame (3).  This came to nothing, and the Hornets went into Administration with a debt of £55,000 to HMRC (4).  In March, MMC Estates finished a four-year spell as club sponsors adding to the financial pressures (5), but in May, having failed in the League 2 play-offs, the club released seven players and placed another three on the transfer list (6).  Over the summer there was even talk of a groundshare with Oldham (7).

No doubt the club is feeling the pinch of the ubiquitous credit crunch, but, like Accrington Stanley (see postings passim), with nearby neighbours in higher leagues, they face a real problem in building revenues.  Cutting costs is unfortunately only half the solution and arguably the less challenging of the two halves.

Posted in Costs, Debts, HMRC, Insolvency, Revenues, Stadium | Tagged: , , , , , | Leave a Comment »

Ripping off the fans?

Posted by John Beech on September 8, 2009

As Stefan Szymanski points out in his highly readable new book Why England lose co-authored with Simon Kuyper, football clubs, and indeed sports clubs in general, have a problem with appropriating revenues from their fans.  In other words, many club-oriented activities, such as sitting in the pub and discussing last night’s game, do not lend themselves to the generation of revenues for the club.

It is not surprising then that clubs seek innovative ways of shaking the money out of fans’ pockets.  Affinity credit cards and even mortgages are becoming common place.  But shouldn’t fans get at least the same terms that others get?

A report by John Fitzsimons of lovemoney.com highlights a number of cases where fans pay over the odds in return for their loyalty to thelir club.  He concedes that not all such deals are bad value, but a worrying number offer very poor value, and he recommends shopping around before signing up to a club package.

What is not clear in all of this is to what extent the club and/or the financial service provider benefit by fans paying over the odds.

Posted in Fans, Revenues | Tagged: , | Leave a Comment »

Management of a PL club from the inside

Posted by John Beech on September 7, 2009

John Williams, Chairman of Blackburn Rovers – a post he was promoted to  in 2005 from his earlier position as Chief Executive, is no ordinary PL Chairman. Clearly he does not subscribe to the culture of secrecy (see previous posting Culture of Secrecy) that makes any research on football management so challenging.

Today the Lancashire Telegraph published an interview with him by Andy Cryer. It can be read here.

This rare transparency is not only to be welcomed, but much more importantly it demonstrates that a Premier League club can be run on sound business lines.  Well worth the read.

Posted in Costs, Organisational culture, Revenues, Uncategorized | Tagged: , , | Leave a Comment »

Everton and Mr Micawber?

Posted by John Beech on July 16, 2009

According to the Liverpool Post, Everton Chairman Bill Kenwright “laments club debt despite record turnover” (1). It’s tempting to shout ‘Mr Micawber!’ at him, with a dash of ‘The Emperor’s got no clothes!’, but, while that may be sound yet obvious advice, the problem of debt in a Premier League club deserves deeper analysis.

Details of Everton’s financial position emerged at a Shareholders’ Forum last night, which the club reported live on its website (2), a welcome change from the usual culture of secrecy (see [3]) that surrounds so many clubs.

The basic financial details (bearing in mind that the accounts are still subject to audit, so there might be some corrections to come) are:

  • Annual turnover now a record figure of almost £80 million, up 5.3% on 2007/08 and up 55% on 2006/07
  • Commercial income up from £6.7m to £7.4m
  • A wages bill of £49m, up slightly from the previous year’s £44.5m, but only 62% of turnover, one of the better percentages achieved by a Premier League club

On the face of it, all seems healthy, but:

  • Debt levels have increased by £16m over the last three years

This is good cause for lamentation!

There are a number of reasons why football clubs, in general, can find themselves in this position:

  • They fail to concern themselves with long-term debt, focusing only on operating profit or loss.
  • The drive for success on the pitch clouds financial judgment, and unrealistic aspirations result in the risky strategy of borrowing money on the assumption that improved playing performance will allow the money to be repaid, an assumption which may turn out to be unfounded.
  • Rather than try and manage costs against projected revenues, they automatically see the solution as getting more investment, which is unsustainable as a business model.

Readers are invited to add their own examples of clubs which make all three mistakes, although a rather shorter list would be one of those which make none of them.

Behind these three reasons lies a deeper reason. Clubs do not of course operate as normal businesses. Because they operate in league structures, their businesses strategies are to a large extent shaped by the strategies followed by the other members of the league they play in. If other clubs pay silly money for and to players, there is little option but to follow suit, and the vicious downward spiral is reinforced.

Unless the constant inflation of both transfer fees and payers’ wages is tackled at the league level, and specifically at the level of the highest tier in the league structure, there is going to be a lot more weeping and wailing and gnashing of teeth, not to mention lamentation.

Posted in Costs, Debts, Governance, Revenues, Transfers, Wages | Tagged: , , , | Leave a Comment »

Another HMRC winding-up order

Posted by John Beech on July 8, 2009

This time it’s Rushden & Diamonds (1), for an as yet unspecified sum.

The club blames massive overheads on their stadium, sponsors not meeting their commitments, and little interest accruing out of capital invested. Hmmm.

The club’s stadium at Nene Park in Irthlingborough was opened in 1969 and comprised Irthlingborough Diamond’s ‘dowry’ at their ‘marriage’ to Rushden Town in 1992. It was then redeveloped, in a spirit of optimism for the future, and understandably, certainly at the time, incorporated conference and hospitality facilities. It is not so much that the overheads are the problem; it is the diminishing revenues with which to service the overheads that is the problem. An average gate of 4,457 in 2003/04 has dwindled to 1,609 in the season just finished, in no small part due to relegation back to the Conference in 2005 (figures from the invaluable website of the late Tony Kempster). That summer owner Max Giggs handed over control to the Supporters Trust, at just about the worst time for an incoming management team to take over. In short the Trust inherited a stadium that was over-specified for their needs (tell Darlington fans about that!). In 2006 the Trust handed over to Keith Cousins, a former Vice Chairman of Peterborough United, who injected funding.

Sponsors not meeting their obligations seems the most understandable of the stated reasons. Shirt sponsors are Haart estate agents; I can find no confirmation of my speculation that it refers to them, but their sector is not enjoying a healthy phase to say the least. (I’m happy to set the record straight if I am wrong in suggesting that it might be Haart that is being referred to.)

The reference to poor interest rates I find hard to make sense of. If the club has the kind of deposits that provide sufficient return in happier times to cover their tax liabilities, why can they not see off (or indeed have pre-empted) a winding-up order with a small dip into these deposits? Again, I would be happy to publish the comment of someone better informed on the club’s finances than me.

Whatever the circumstances and the reasons, it is a depressingly familiar tale of a club failing to pay taxes. When will they learn that HMRC is unforgiving?

Posted in Benefactors, Debts, Insolvency, Ownership, Revenues, Stadium, Trusts | Tagged: , , , , , | 1 Comment »

Premier League wages

Posted by John Beech on June 6, 2009

Deloitte’s Annual Review of Football Finance is eagerly awaited by fans of the football business, and this week’s appearance was no exception (1). Their view that, all in all, the Premier League garden is rosy, was repeated in reports such as that of the BBC, which is headlined “Premier League ‘defies downturn’” (2).

Over recent seasons I have been concerned with Deloitte’s penchant for equating ‘richness’ with ‘revenues’, and their latest report continues a trend of focusing on positives. Am I alone in thinking that they are in danger of slipping into putting a positive spin on things?

Take for example their reporting of a 62% figure for wages/revenue ratio for the Premier League (3), almost down to the level of 60% advocated by Michel Platini, and the figure now mandatory for League 2 clubs.

How meaningful is this aggregative figure when clubs have quite different base lines of revenues? The figure will inevitably be skewed towards the ratios of the clubs with the bigger revenues.

The day before the Deloitte’s Report hit the headlines David Conn of the Guardian had published his own survey of the finances of the Premier League clubs, giving details from the latest financial reports of individual clubs (4). These reveal that the revenues of individual clubs varied from the £252.6m of Manchester United down to the £43m of Wigan Athletic (and lower figures still for clubs such as Hull City where the latest figures cover their promotion season in the Championship, a factor which also affects the Deloitte aggregative figure).

It is worth recording the figures for wages/revenues as abstracted from Conn’s data (with figures covering clubs with Championship seasons italicised):

Stoke City – 106% of revenues of £11.2m
Wigan Athletic – 89% of revenues of £43m
West Bromwich Albion – 80% of revenues of £27.2m
Portsmouth – 78% of revenues of £54.7m
Hull City – 77% of revenues of £9m
West Ham United – 76% of revenues of £57m
Newcastle United – 74% of revenues of £100.8m
Fulham – 73% of revenues of £53.7m
Middlesbrough – 73% of revenues of £48m
Blackburn Rovers – 70% of revenues of £56.4m
Chelsea – 68% of revenues of £213.6m
Aston Villa – 66.7% of revenues of £75.6m
Bolton Wanderers – 66% of revenues of £59.1m
Manchester City – 66% of revenues of £54.2m
Everton – 59% of revenues of £76m
Sunderland – 58% of revenues of £63.6m
Manchester United – 47% of revenues of £256.2m
Tottenham Hotspur – 46% of revenues of £114.7m
Arsenal – 45% of revenues of £222.5m
(Liverpool – wages bill n/a; revenues of £159m)

These figures reveal, in addition to the wide variation between clubs:

  • that only three clubs are well within the figure of 60% (or the ‘average’ of 62%), with two other clubs just within it;
  • the high risk strategies pursued by Wigan, Portsmouth, West Ham, Newcastle, Fulham, Portsmouth, Middlesbrough and Blackburn;
  • the rather scary proposition that Manchester United and Arsenal might well have been even more dominant if they had not been constrained by their debt levels;
  • the high risk strategy that must be pursued to gain promotion from the Championship, and the further evidence this provides in support for the case for rocket payments (5)

Posted in Costs, Revenues, Wages | Tagged: , , | Leave a Comment »

FC United of Manchester’s new season tickets

Posted by John Beech on May 19, 2009

Early in April I blogged about what I saw as a general lack of experimentation with ticket pricing, with the result that clubs were failing to revenue maximise (1).

FC United of Manchester have just announced a very interesting experiment in the pricing of their season tickets for next season (2). In a nutshell, fans can pay what they like providing it is a minimum of £90, but in the knowledge that last season’s average price of £140 left the club with a loss. This offer is potentially limited to a month as the policy will then be reviewed.

This not only ticks the financial strategy and the community boxes for me simultaneously (Q: How many times is that likely to happen? A: Precious few; it is only likely to happen at a fan-owned club), but is also a great piece of marketing.

Will it become the in thing round Gigg Lane to boast about just how much you paid for your season? I’m sure most of their fans wouldn’t want that happen, but the club’s Director of Finance I’m equally sure could live with it!

Posted in Ownership, Revenues, Trusts | Tagged: , | 3 Comments »

Update on Cheltenham Town

Posted by John Beech on April 29, 2009

On April 3 I commented on the financial woes of Cheltenham Town, and how their request for a loan of £100,000 from the local council had become bogged down in problems of conflict of interest (1).

Things are looking a shade brighter for the club financially (if rather less so on the pitch – they now face next season in League 2). The Board have decided that they no longer need to seek the loan, citing cost saving measures and (unspecified) new alternative income streams (2). The latter may well refer to their success in attracting, for the first time, a ground sponsor, Abbey Business Equipment (3).

No club facing the drop these days can look forward to the future with any great sense of hope, but Cheltenham would appear to have more grounds for cautious optimism than they did a month ago.

Posted in Assets, Revenues, Stadium | Tagged: , | Leave a Comment »

 
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