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

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.

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