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! Football Finance

Archive for April, 2009

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 »

Gresley Rovers, Chris Wilder and a forgotten virtue

Posted by John Beech on April 28, 2009

While the media’s attention has been focussed on Darlington and Southampton of late, rather less attention has been paid to the plight of Gresley Rovers of the Northern Premier League Division 1 South. The club is past its ‘glory years’, when they were finalists (1991) and then semi-finalists (1993) in the FA Vase, and, although just above the drop zone this season in terms of place, definitely safe on the points tally.

As the noughties dawned, Gresley were beginning to struggle financially. In 2007 they took the bold step of buying their ground with the help of a grant from the local council (1). Perhaps this was a financial step too far. In April last year Chairman Mark Evans resigned with that too familiar cliché of having taken the club as far as he could (2). A group of local businessmen led by Mark Harrison stepped in (3), but by October there were rumours of impending Administration (4). Next month players were asked to play for nothing and an exodus began (5).

Earlier this month things had become so bad that the manager, Gary Norton, started managing for nothing and even subsidised the club from his wedding fund (6), a level of club committment that would be hard to match. On Friday Mark Harrison announced that, because of the club’s financial situation, Gresley Rovers were resigning from the Northern Premier League (7). The future of the club is far from clear – debt is described as ‘crippling’ and Administration may yet be the only option.

But please note, there was no fuss, the club considered their relationship with their league first, they did not seek a ‘holding company’ loophole, and by resigning they have behaved with a quality more present at these levels than higher up the pyramid – decorum.

Decorum is not a word one would rush to use about Chris Wilder, Oxford United’s manager. The club has been deducted five points for fielding an unregistered player, costing them a place in the play-offs. He has just described the Conference as “this poxy league” (8), a word rather more aptly might be applied to his approach to public relations. It will be interesting to see the response from the Conference, in which Oxford United will of course be playing next season. A 2 points deduction this season would mean they were denied a play-off place notwithstanding the existing 5 points deduction.

Posted in Assets, Governance, Insolvency, Stadium | Tagged: , , , | 3 Comments »

AFC Wimbledon & FC United of Manchester

Posted by John Beech on April 27, 2009

English football’s bastard love children are proving themselves upwardly mobile. AFC Wimbledon will be playing in the Conference next season and FC United almost made the play-offs for promotion to the Conference North. Considering both clubs started from scratch so recently, this is no mean achievement. No doubt dreams of emulating their errant ‘parents’ – MK Dons (albeit a parent that has now given up any parental claims) and Manchester United (who have never made any claim of parentage) – will be rekindled. There are of course historical precedents such as Liverpool (out of Everton), but a century on there are now formidable barriers to the push onward to the summit of the pyramid.

Probably the biggest barrier is the simple and straightforward financial one. In the absence of any rocket payments (qv), unless a club has phenomenal financial backing the prospect of the top tier must remain a dream. The present situation of the clubs does suggest they are well positioned for a further upward movement at least in the longer term future. AFC Wimbledon’s home gates this season, at almost 3,000, are more than twice those of their nearest rivals, and would have placed them fourth in this season’s Conference home attendance table. With a boost in attendance which League football would bring, AFC Wimbledon would not look out of place in the League 2 home attendance table, although ominously, without that boost, the club would be just one place above Darlington (1).

FC United of Manchester, at just over 2,000, are clear winners of the Unibond Premier attendance table, and would have just taken the winner’s spot in the Conference North home attendance table.

For AFC Wimbledon, the better bet of the two on both current performance and support for qualifying for promotion to League football, face the potential obstacle regarding their stadium. Currently they are located at the Kingsmeadow stadium, owned by Kingston Council, the club owning the leasehold, and with an income from renting the facilities to Kingstonian FC. Kingsmeadow is not currently Football League compliant.

There is a grim irony in this for Wimbledon. Wimbledon FC’s decline began with the fact that their then ground, Plough Lane, was not Taylor-compliant and in 1991 the club began its journey which eventually led to Milton Keynes. For AFC Wimbledon, if it is to progress further, the stadium issue remains unfinished business after almost twenty years.

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

Southampton’s attempted ‘holding company’ loophole

Posted by John Beech on April 24, 2009

Southampton have been docked 10 points by the Football League (although this will subject to an appeal [1]). The club had hoped to avoid the penalty on the grounds that it was their parent company, Southampton Holdings, which had gone into Administration rather than the club itself (2).

Had the deduction not been imposed because of this technicality, it would have been ridiculous. As the statement from the Football League (3) points out inter alia, “the Holding Company has no income of its own; all revenue and expenditure is derived from the operation of Southampton Football Club Limited (SFC) and the associated stadium company” – hardly a hands-off parent company!

Even putting aside the matter of the intended appeal, this does not mean that there is no loophole. Some clubs have far more complex company structures, and in such cases the key points in the Football League statement may not be so black-and-white. Where the club is exploiting property other than the stadium, for example, it may well not be that “[the companies involved] are inextricably linked as one economic entity”.

The Football League needs to review its regulations and make sure that this potential loophole is well and truly sealed – one case does not prove the robustness of the current regulations. At the same time, it needs to ensure that in a repeat of the Birmingham City case of 1992 (see my earlier posting ‘Southampton‘), a club is not unjustly penalised for matters that had nothing directly to do with the conduct of the club.

Meanwhile the Administrators can now focus on the rather more vital matter of trying to ensure the club’s survival. 10 points will be neither here nor there, this season or next, if they cannot find a credible buyer for the club.

Posted in Governance, Insolvency, Ownership | Tagged: , , | Leave a Comment »

Debt, the APPFG Report and the beleaugured Premier League

Posted by John Beech on April 23, 2009

Owners of Premier League clubs must be beginning to wonder who is going to have a pop at them next. First UEFA President Michel Platini complained about the lack of homegrown players in the PL (1); then he slammed their proposal for a 39th game played abroad (2). Next the attack came from nearer home – it was by Lord Triesman of the FA, calling on them to cascade their riches down the pyramid (3).

Now they have been accused by the All-Party Parliamentary Football Group of ‘financial doping’ (4). Of particular concern to the Group are ‘ “ludicrous levels of borrowing” and the use of profits to service large debts.’

A review of the most recent set of financial data covering ten years for the clubs who currently constitute the Premier League (which does not cover the takeovers of Liverpool and Manchester United it should be pointed out) would suggest that they should not all be tarred with the same brush.

Certainly there has been a significant increase in the number who have switched from prudent business models to models which depend on ‘soft debt’ from their benefactor to be sustainable, a switch to a strategy with far higher risks associated.

As there are clubs who have consistently ‘built their stadia on sandy ground’ – examples are Bolton, Middlesbrough and Portsmouth – so there are clubs who have been consistently prudent by comparison. Examples of this second type are Tottenham and West Bromwich. Those who have moved in recent years from the second to the first include, most dramatically, Chelsea under Abramovich.

So far we have seen more statements of how an ideal top tier should be run financially by its individual clubs rather than any realistic discussion of how a transition to this ideal might actually take place.

I am reminded of the old chestnut of the motorist being told be a helpful rustic who he asked for directions, “Well, if I was going there, I wouldn’t start from here”. Too many PL clubs would be starting from the wrong ‘here’, and these include Bolton Wanderers, home of Phil Gartside, who is currently proposing a restructuring and expansion of the Premier League (see A Bubble Bursting?).

There are three possible transition routes:

  • An immediate ban on future debt

Direct and effective though this might be, it would lock in the inequalities that soft debts (and, to my mind, advantages every bit as unfair as those which clubs going into Administration have supposedly gained) have generated to date, and ensure that the playing field remained distinctly uneven.

  • An immediate ban on past and future debt

This approach is simply unrealistic given the phenomenally high level indebtedness already ambient – too many clubs would be caught in the ban.

  • A phased transition to low or no debt

The only viable option, but one fraught with difficulty in the detail however. Over what time scale? Would clubs with bigger debts have longer to clear their debt? Some debt should be allowed – businesses need access to loans to expand – but the devil needed in the detail is to allow only debt which is manageable from revenues rather than through the owner’s indulgence.

All in all, a can of worms, but a can that desperately needs to be opened.

Unless some form of regulation is introduced we will continue to see clubs competing on the basis of ‘our benefactor’s wallet is bigger than yours’ – hardly a healthy state for what is, let us not forget, a sport, albeit a post-commercialised one.

Posted in Governance, Insolvency | Tagged: , | Leave a Comment »

A bursting bubble?

Posted by John Beech on April 20, 2009

Almost since the Premier League first sold its broadcasting rights and started on a seemingly unstoppable upward spiral, sports management academics have debated when the bubble was going to burst. Over the years the debate has become less fruitful, and less frequently aired.

North of the border it could just be that the bubble is about to burst. Setanta took over SPL broadcasting rights in 2004 and have not only the current contract but also a contract worth £125m for exclusive coverage for four seasons beginning in 2010 (1). It is that future contract that they are currently seeking to renegotiate. Any renegotiation downwards would hit the smaller clubs in the SPL disproportionately, and will doubtless be strongly resisted. Adding to the uncertainty are events south of the border.

Phil Gartside, Chairman of Bolton Wanderers, has been drumming up support for a revised Premier League. In October he called for a two tier Premier League with two divisions consisting of 18 clubs each (2). His motivation was clear – to get more from broadcasting rights so that British benefactors could compete with foreign benefactors in feeding the habit (financial, that is) of the clubs’ players. Suddenly he was a convert to salary caps too. He floated the idea of no relegation from (and hence no promotion to) this new 36 club elite in English football (3) – a patently absurd idea that goes against the whole grain of the English league ethos.

The latest version of his plan is to be debated this week by his fellow Premier League Chairman (4). This version now envisages one club moving each way to and from the revised and reduced Football League between seasons (5), and, in a radical move, the 36 clubs would include Celtic and Rangers. That would require the approval of UEFA, who ostensibly do not allow cross-border league competition, although one only has to look at the examples of Cardiff, Swansea, Wrexham, Berwick and Gretna in the UK, and Monaco and Vaduz in continental Europe, to see that this policy is not always applied. The timing of a request for UEFA approval would not be helped by the controversial issue of a home team for London 2012.

Initial reaction from Celtic is reported as luke warm (6). Support from south of the border is not universal. Crystal Palace chairman Simon Jordan argues that the Old Firm should pay £100m to join such a new two-tier Premier League (7). Is his position on this issue in any way shaped by Crystal Palace’s current position in the Championship – 13th (and hence 33rd among a notional top 34, if Celtic and Rangers were to be included, or 36 if they were not)? There is thus no certainty that Crystal Palace would ‘make the cut’.

It is this ‘cut’ that would create the biggest challenge. Any cut based on current league positions would be arbitrary. Take the situation today, for example, a day chosen as arbitrarily as any other. The ‘good old boys’ of the Ribble Valley would be well represented in the elite, as would Greater Manchester, but over the Pennines in Yorkshire there would be anomalies – two Sheffield clubs in, but none from Leeds/Bradford.

Gartside is certainly right for calling for debate on league structure. But what is needed is not some tweaking based on potential broadcasting revenues, but rather a boldness to start with a blank sheet of paper. One parameter that should be considered is surely average gate. Leeds United are still averaging over 23,000 this season despite the fact that they are in League 1; only four clubs in the Championship are exceeding them; Doncaster, who would make the cut, are averaging less than half the Leeds attendance.

Boldness from Premier League Chairmen? I’m not holding my breath.

Posted in Broadcasting rights, Governance, Revenues | Tagged: , | 3 Comments »

Double blow for Charlton

Posted by John Beech on April 19, 2009

Charlton Athletic have been relegated (1). This further relegation for a club which was in the Premier League as recently as 2007 places then in the company of Barnsley, Bradford City, Leicester, Leeds, Manchester City, Nottingham Forest, Oldham Athletic, Queens Park Rangers, Sheffield Wednesday, Swindon and Wimbledon. Southampton are currently candidates for inclusion on the list.

It’s not just a matter of pride – it’s a matter of probably reduced gates, reduced revenues, and reduced sponsorship income as well as reduced broadcasting income. Charlton have already taken action financially by planning to reduce their staffing levels (2), this in the context of an annual loss of £11.5m (3) – cuts would have been necessary if they had stayed up.

What I see as the second blow to the club is the fact that they have sold their training ground, the Community Trust’s Charlton Park rugby ground and the youth academy’s Pippenhall sports ground, albeit to directors of the club, and on a lease-back basis (4). The deal will give the club £1.5m of much needed working capital, but burden them with as yet undisclosed lease payments.

Club Chairman Richard Murray pointed out: “The three key points are that the assets are in friendly hands, it’s a 25-year lease, and if the club wants the facilities back, it can buy them back”.

The first and second points together would leave me feeling rather worried if I were a Charlton supporter. 25 years is a long time in football, and the hands may not be so friendly continuously over the next twenty-five years. Benign though they are now, circumstances may well change. When Millmoor was handed over to Ken Booth at Rotherham in 2005 (5) to write off so-called ‘soft debt’ to the outgoing Chairman, who had for many years been the club’s benefactor, few would have foreseen that his sons would screw the club down over rental to the extent that it ended up moving out of not only Millmoor but Rotherham itself. Another example is the case of Wolverhampton Wanderers, where Sir Jack Hayward poured in as much as £40m subsequently written off – benign by any standards. Where once there were four members of the Hayward family on the Wolves board, today there are none however – the Hayward hands are gone.

Richard Murray’s final point is that the club can buy the facilities back, but how realistic is that? Certainly not in the short term, and it would take a major reversal in Charlton’s fortunes for them to be able to afford to.

The club survived its major financial crises of 1983 and 1984, so here’s hoping they can bounce back financially again.

Posted in Assets, Governance | Tagged: , | Leave a Comment »

Buyers for Salisbury City?

Posted by John Beech on April 16, 2009

Salisbury City, currently lying 14th in the Conference with 54 points, have been up for sale for £1 since April 8th. (1) and are now reported as having three or four serious candidates to purchase the club (2). It’s not just having £1 that matters – a condition of the sale is that the new owner invests in the club.

Promoted in 2006 from the Southern League and again in 2007 from the Conference South, the club suffers from Gretna Syndrome – financial performance lags behind playing performance and the club is consequently under-funded for the level it now finds itself at.

In recent years Peter Yeldon has been on and off the scene in the role of benefactor. One of the game’s ‘colourful characters’, he was reported in May 2005 as having been ‘”severely reprimanded” and fined for malpractice by the Professional Standards Office of the Institute of Chartered Accountants in England and Wales (ICAEW)’ (3). Yeldon joined the board of Salisbury City in October 2004, but quit in June 2006 (4). In August 2006 he was back again (5) but in April 2008 it was announced that once again he would be stepping down (6). In January 2009, he was, you’ve guessed, reported as having rejoined the board. At the time of writing he is not listed as a director on the club’s website, and the club statement announcing the sale referred to him as a ‘former director’ (7). Quite. This rapid succession of changes cannot have helped in bringing stability to the club’s financial planning.

Yeldon’s departure last summer was certainly followed by hard times – players had to be sold and loaned out, and a public appeal was launched, to which players contributed, an indication of their loyalty to the club (8). A second appeal was launched in January (9).

How serious any of these candidates are remains to be seen, as indeed does their identity. The game’s now legendary ‘mystery backers’ are back again.

There is a slight sense of déjà vu in all of this. In 2002 the present Chairman, Neville Beal, led a consortium which saved the club, then on the brink of oblivion. Then, however, they were about to resign from the Dr Martens league; today they hold a much more respectable position in the pyramid.

Posted in Governance, Ownership | Tagged: , | Leave a Comment »

Parachute payments, and rocket payments?

Posted by John Beech on April 14, 2009

As the Premier League season reaches its climax, thoughts at those clubs in or near the relegation zone must be turning to next year’s budget. Let us hope that they are more sensible than the famous occasion in the spring of 2008 , when Paul Jewell, manager of Derby County (under a previous management, it must be stated), famously announced that they had spent their parachute payment before their first season in the Championship had even kicked off (1).

Parachute payments, which are paid out of broadcasting rights, were introduced by the Premier League to help clubs adjust to the financial rigours of life in the Championship, recognising that budgets could only be pruned with difficulty after a perhaps unexpected experience of the ‘drop’. Given the increasing gap between the wealth of the Premier League and the Championship, this seemed a pragmatic solution.

Well, at least it was for the clubs that experienced the drop, and no doubt they are grateful for this easing of their lot having fallen into reduced circumstances. Whether the clubs who have just failed to make it through the Championship play-offs share this view is less clear. For them it must seem an unfair advantage for the ‘fallen ones’ in the new season.

Indeed, it does have a smack of setting clubs up to bounce back – a kind of a whip-round by the PL clubs for their weaker colleagues, with a message of au revoir rather than adieu. In business terms, it is recognising, and in one sense rewarding, failure rather than success.

It strikes me that to recognise success – promotion from the Championship – is every bit as deserving, especially as newly promoted clubs have to adjust their budgets upwards from Day 1 in the Premier League. They need funds immediately to invest in new players of a higher ilk; for the newcomers it must seem an uneven playing field.

Perhaps the Premier League should introduce ‘rocket payments’ – a kind of whip-round to say Welcome! to their new members. It would reduce the phenomenon of yo-yoing, a phenomenon that no-one likes and which does little for the game in general or the clubs it affects. It would also encourage the emergence of new ‘top rank’ clubs.

Which is of course what the existing Premier League members do not want.

Posted in Governance, Revenues | Tagged: , | 8 Comments »

Luton Town and an unfair disadvantage

Posted by John Beech on April 14, 2009

The 2008/09 season in Division 2 will not be one that the Football League will look back on with pride.

The League has struggled to deter clubs from going into Administration by imposing points deductions. This demonstrably has not worked. At the season start three clubs, Bournemouth, Luton and Rotherham, began with a total of 54 points deducted related to repeat insolvency events (Luton were carrying a further 10 points penalty for financial irregularities which their previous manager had ‘whistle-blown’) and since then Darlington have had 10 points deducted for entering Administration, again for a second time – a total of 64 points. To give a sense of scale, 64 points would be sufficient to place any club awarded them in the play-offs zone without kicking a ball.

Luton, who, under their current ownership by LTFC2020, have more than shown their will to succeed with a notable victory at Wembley, have succumbed to the inevitable given a thirty points deduction, ironically through a victory by Grimsby, whose manager was the whistle-blower mentioned above.

This second punishment – the 20 points penalty this season – now takes on a worrying edge, as relegation is all too often the start of a spiral into Administration, something which the Football League claims to be trying to deter. Fortunately their attempt to bounce back will be bolstered by the over £400k they have made through their success in the FA Trophy (1).

Luton’s relegation will of course be good news for the club that now avoids relegation – surely a case of an unfair advantage if ever there was one. Any sanction imposed against one club should not be of specific benefit to one other club. To allow this, which is far from unprecendented, Altrincham for example having escaped relegation from the Conference because of issues at other clubs for three consecutive seasons, makes a mockery of sanctioning clubs for financial mismanagement through points deduction, especially when the original ‘offences’ were committed by a previous owner.

Posted in Governance, Insolvency | Tagged: , | 2 Comments »

Norwich away is awry

Posted by John Beech on April 10, 2009

Readers of this blog may recall that in my posting Life’s tough in Administration of 1st April (1) I commented on the fact that Norwich players had paid for their own flights to Blackpool for an away game. Now comes the news that the club’s directors have personally paid for the flight to Swansea this weekend (2). Had Delia Smith gone round the boardroom with a bowl and a cry of “Let’s be having you! Come on!”?

This is not simply a new twist to the story – it adds a significant new dimension, the terms and conditions of employment of the team members. In the earlier Blackpool case, it might be argued that the club did not see a flight as a reasonable way to travel, and if the players wanted to use an unnecessarily expensive form of transport, then fine so long as they paid for it themselves. It’s not clear whether the players were reimbursed the notional cost of the train fare or their part of the cost of coach hire.

In this latest Swansea case, the fact that the directors paid implies that the club’s position is that flying is the reasonable way to travel. According to the AA’s route planner, the journey from Norwich to Blackpool is a smidgeon over 250 miles and takes a minute under five hours. Norwich to Swansea, on the other hand, is slightly longer – 307.6 miles, taking five hours and thirty seven minutes.

What strikes me is not the implicit setting of a limit for being allowed to fly, but that their flights to Swansea are being paid by the directors rather than by the club. A rum way to run a business. Surely if an employee is required to travel on business, then the employer (which in this case is the club) should pay the travel expenses. If I go to an academic conference to present a paper, I’d think it mighty odd to be told “Well, you can go, but only because the University Governors have had a whip-round”!

Norwich’s revenues last season were £10.9m, and they spent £6.8m on players’ wages. This should allow the basic principle of paying staff travel expenses to apply, but the annual overall loss of £2.7m explains why it hasn’t (3). The cost of ‘first team travel, medical & fitness, accommodation & catering’ was itemised as a total of £805k.

It is possible that Norwich may find themselves having to turn out at Brunton Park next season to play Carlisle United (281 miles; five hours and fifty-five minutes). Would the directors pay up personally again, or would they join John Nixon, Carlisle’s Managing director, in his call for league regionalisation (4), an idea with obvious financial advantage for both clubs and fans.

Norwich’s only remaining away games this season are fortunately at Ipswich and Charlton.

Posted in Costs | Tagged: | 1 Comment »

Football’s postcode lottery

Posted by John Beech on April 9, 2009

Port Vale have had their share of problems of late. They were facing ‘huge losses’ (1) and this a club that had gone into Administration in 2002. Two recent pieces of news will have brought some relief though – first, the club’s shirt sponsor, Harlequin Property, are reported as “set to invest £500,000 in Valiants” (2), and, secondly, Stoke-on-Trent City Council has agreed to a two-year deferment of £227k in capital payments on a loan (3), a repayment holiday which will be most welcome to a club which last November reported annual losses of £384k. Not that the council displays undue favoritism to Port Vale. In 1997 it had part-financed the move of Stoke City to the then new Britannia Stadium to the tune of £3.1m (4).

Such willingness to support local clubs is far from typical, but in my post of April 3 I noted examples of possible stadium purchase (Southampton), possible £100k loan (Cheltenham Town) and £50k sponsorship deal (Bury).

Over the border in God’s ain country at least one council takes a less benign view. North Lanarkshire Council, based in Cumbernauld, one of Scotland’s New Towns built in the 1950’s to help with housing and rehousing the Glasgow population overspill, owns the Broadwood Stadium Company Ltd, through which it operates the multi-purpose stadium of that name. Its first tenants when it opened in 1994 were Clyde FC, who now share the stadium with Rangers’ reserves. Clyde are now being threatened with eviction by the council for rent arrears, said to be of the order of £150k by the club, but £270k by the council. If there is no resolution by the end of this month, Clyde may cease to exist. Either sum would presumably be small beer to Stoke-on-Trent City Council (population of 240,636 in the 2001 Census; the population of the Potteries Urban Area was 362,403), but apparently not to North Lanarkshire Council (population 324,700 in 2007).

Such an extreme range of attitudes to the local football club by their local council is simply perverse.

Posted in Community | Tagged: | 2 Comments »

Portsmouth 17 – Southampton 5

Posted by John Beech on April 9, 2009

That’s annual losses in millions of pounds, not goals.

These two teams constitute the nearest the South Coast can offer to Glasgow’s Old Firm – bitter rivals on the pitch and a distinct animosity between their fans. In some respects, like Celtic and Rangers, they are oddly similar – perhaps the cause of the rivalry. They have both employed Harry Redknapp and Alan Ball as their manager, and have both fielded England international Peter Crouch and ambivalent international Nigel Quashie .

The rivalry has been more off the pitch than on. Portsmouth’s heyday was the years on either side of World War II, but they suffered relegation in 1959, only returning to stay in the top flight in 2003 (there was single season there in the late eighties). The intervening years had been ones of mixed fortune, and they included a spell in the old Division 4.

Southampton, on the other hand, only achieved top flight status in 1966, where they remained until 2005 apart from the years form the years 1974 to 1978.

I should, at this point, declare an interest: in my youth I stood on the terraces at Fratton Park, in the later years of Jimmy Dickinson, still a consumate player. While I still follow their results every Saturday, my interests today lie far more in the Board Room, as they do at Southampton. Southampton’s current predicament does not fill me with glee, which is untypical as a Pompey fan – rather, I think ‘There but for the grace of God go Pompey’.

While Southampton’s parent company has just been placed in Administration (see postings of 1 April and 3 April), with the publication of the current level if indebtedness, Portsmouth’s financial results were declared yesterday, which makes a good starting point for a comparison.

Portsmouth (1)

Annual losses: £16.66m for year ending 2007/08

Annual turnover: £70m

Main debts: Loans outstanding of £44m with Standard Bank and Barclays Bank.

Southampton (2)

Annual losses: £4.9m, despite a £12.7m profit on disposal of players’ registrations, in year to 30 June 2008.

Annual turnover: £14.9m

Main debts: £27.5m (liabilities of £23.1m [mainly to for cost of stadium, and overdarft of £4.4m)

The differences between their current league positions and financial situationscan be attributed to three main causes:

  1. Relative stability off the pitch
    Portsmouth have not suffered from the level of board room politics that has dogged Southampton in recent years. Both, however, have been as profligate in hiring and firing of managers as you would expect from any club that isn’t Crewe Alexandra, Manchester United or Arsenal.
  2. Fairy godfathers
    (I’m loathe to use the term ‘benefactor’ because of its moralistic connotation). Portsmouth has had significant financial backing through ownership by first Milan Mandaric, who rescued the club from Administration, and then by Gaydamak père et/ou fils depending on your persuasion. Rupert Lowe et al. have not been in the same league in terms of financial clout.
  3. Stadiums
    While Portsmouth have been producing plans for a new stadium in at least four different locations since at least the 1970’s, they have never actually got round to building it and taking on the debt it would involve.

Portsmouth can’t keep putting off the stadium issue. Lack of capacity is constraining their matchday revenues, but the latest thoughts – to rebuild with larger stands – finally show some financial realism.

Mind you, Fratton Park has not been the same since the Milton End was sorted for the 2007/08 season, and away fans were given the luxury of a roof!

Posted in Insolvency | Tagged: | 1 Comment »

Shouldn’t ticket pricing be more imaginative?

Posted by John Beech on April 7, 2009

Traditionally ticket pricing has been on the standard principle of ‘This is the price: you pays your money and you buys your ticket’. A fine principle in times of economic stability but one which doesn’t not work so well in times of recession.

As minds turn to next season, in many cases with enforced but unrealistic optimism, the annual price review is taking place. There are many examples of ticket prices being held or even reduced. At Stockport County, under severe pressure for a tax debt of £125k, they have come up with a special deal of a four-year season ticket in order to raise money quickly (1). Good luck to them, but it is a less than ideal approach in the long run – if it works too well, it will severely hit their cashflow over the next four years. What it does merit as an idea is that it demonstrates an imaginative approach to yield management, the process of manipulating your pricing with a view to maximising your revenues and hence your profit.

Other leisure sectors face the same problem as football clubs – once an empty seat has not been sat on (and paid for) it has no further value; in other words it has a very precise shelf life. Airlines such as Ryanair and easyJet, and to a lesser extent hotels, have adopted what was, at the time, a radical approach to pricing – previously tickets had gone on sale at a high level which reduced as the time of the flight approached. The new low-cost carriers turned this model upside down; they started at a low price and raised it as the departure came nearer. In order to milk the revenues, sophisticated software has been developed.

Now, I’m not suggesting that clubs rush out and buy the airline software. There are differences between the markets. In particular, there are many fans who habitually turn up on the day and buy a ticket, certainly in the lower leagues where there is always a seat available, whereas few tourists or business travellers would plan their journeys like this.

What I would suggest, however, is much more experimentation with pricing. To be fair, we do already see this with offers for particular games, but I believe that football clubs do not even come close to maximising yield (the revenues from tickets).

One obvious approach is to set a high price for purchase on the day and reduced but varying prices for before-the-day purchases on the internet. Internet ticketing came relatively late to football club websites, and today clubs run their sites from intermediated platforms with standard packages. Time for a reassessment of internet strategy I would suggest.

Yes, experimenting does take place, especially by the more business-like clubs, but what is needed is a widespread and systematic approach to yield management, especially among the lower league clubs, who are more susceptible to the pressures of the economic downturn.

Posted in Revenues | Tagged: | 2 Comments »

Gillingham’s Scally hits out

Posted by John Beech on April 6, 2009

Paul Scally, owner of Gillingham, never afraid of controversy, has attacked what he calls the ‘mockery’ of points deduction for clubs going into Administration (1). He would prefer to see clubs punished thus: “Rather than having points knocked off they should be relegated and only allowed to return three seasons later once they have proved to the league they have their finances in order.”

I would certainly agree with him that points deduction for clubs going into Administration is dysfunctional. However, I would take issue with some of the points he makes to support his case. Indeed, I would argue that points deduction is not only dysfunctional but is simply a form of second punishment.

His argument is based on the notion that “it may be they have spent money on players they shouldn’t have and that gives them an advantage they should not have.” How is going into Administration an unfair advantage? Agreed, they may have ‘spent money they shouldn’t have’. But how different is this from spending money lent to a club in the form of ‘soft loans’?

Scally bought Gillingham in 1995, then playing in League 3 (the old Tier 4) ,from Receivership at a reported price of £1. The club was ‘£2m in debt and in an eight-year spiral of unremitting failure’ (Independent, 27 March 1995). At the time he was happy enough to ‘do a deal’ with the club’s 212 creditors (Guardian, 4 September 1995) and made no call for his new club to relegated for three years. The system of points deduction was not, of course, in use at that time.

Within a season, the Gills had been promoted and soon were vying for further promotion. This, of course, would not have been possible if the sanction of compulsory relegation for three seasons that he now calls for had been in place. If it had been in place, would he have rescued the club? Would they in fact have survived?

By 2005, under Scally’s leadership, debts had grown to £9.5m (2) but negotiation with the club’s bankers meant Administration was avoided. In 2006 the club faced a transfer embargo after borrowing £200,000 from the PFA. By June 2006, the level of debt had grown to £10.3m (3). The following month the electricity supply to the club was cut off because of an unpaid bill of £100,000 (4). The stadium has been sold to and leased back from Prestfield Developments Ltd, another Scally company. By May 2007 the club’s overdraft had risen to £12.6m (5).

Relegation in 2005 and 2008 has not helped. Nor perhaps has the club’s location in Kent – Charlton Athletic offers a viable alternative of higher level football, and capitalised on this by offering free coach travel from Gillingham.

Today Scally is based in Dubai. He explains thus: “It gives me time to work on strategy over there and a bit of peace and quiet from the day-to-day stuff” (6).

Clearly the whole issue of clubs falling into Administration needs to be addressed, but a solution must be found that allows clubs to survive, and survive with sustainable business models.

Posted in Insolvency | Tagged: | Leave a Comment »

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