Why I shall be especially grumpy this Saturday afternoon
Posted by John Beech on April 3, 2012
“Football clubs ‘in poor financial health’” a headline on the BBC News website has just screamed (1). Apparently “many clubs are continuing to spend too much, principally on players’ wages, as they always have done”. What? Surely not? Well, OK, the said headline was in the Business section of the BBC website rather than their Sports section.
Begbies Traynor, who over the years have been Administrators of Chester City, Kingstonian, Lincoln City, Huddersfield Town, Northwich Victoria, Wrexham, Farnborough Town, Crawley Town, Scarborough, Bournemouth, Halifax Town, Southampton, and now Port Vale, have just completed a survey looking at the finances of Football League clubs.
Beneath the trite headline, there was some detail of interest.
“Of 68 teams surveyed in those divisions, 13 have signs of distress such as serious court actions against them, including winding-up petitions, late filing of accounts and “serious” negative balances on their balance sheets.
That 19% compares to just 1% in the wider economy, the firm said.”
In particular “the financially distressed clubs include three in the Championship, six in League One and four in League Two.” Obviously the survey had been completed under conditions of confidentiality, so we can only speculate on which these thirteen clubs might be that are under short-term financial pressure, a temptation which I will resist, at least publically.
There are also the clubs which, to me, have potentially longer-term pressures because they operate on business models which may not be sustainable. Two which have caught my eye with their recent publication of financial results are one likely to be relegated to the Championship, Wigan, and one about to be promoted out of the Football League, Southampton.
At Wigan (2), turnover was reported as up 16% on the previous year, although this, it was conceded, was “mainly due to the increased Premier League broadcasting rights contract”. Worryingly though, net losses had risen from £4m to £7.2m.
Wigan fans might take some comfort from the fact that:
“Net debt including bank borrowings and loans from David Whelan and his family remained virtually unchanged at £72.2m compared with £72.6m in the previous year Since the year end £48m of debt was converted to equity which significantly reduces the Club’s long term liabilities.”
Chief Executive Jonathan Jackson commented:
“This position would not have been possible without the continued financial support of Chairman, David Whelan. The post year end conversion of debt to equity has significantly strengthened the Club’s financial position and has, to a very significant extent, written off the debt owed to Mr Whelan. The club cannot continue to make losses every year and we are continuing to shape all aspects of the Club to ensure the long term future remains positive both on and off the pitch.”
Perhaps just a hint there that Mr Whelan’s pockets are not bottomless. It was he who has called for control on players’ wages (3). It was Wigan that managed to hit a wages/revenues ratio of an utterly unsustainable 208.3% in 2004/05 (posting passim).
Meanwhile over at Southampton another ‘debt for equity’ conversion was reported last Thursday (4). The estate of former owner Markus Liebherr had ‘invested’ £33m over two seasons but had now converted these loans into shares. (My reason for putting single quotes around ‘invested’ is that I do not see loans as investments. If I had pushed my credit cards to their spending limits, would I talk in terms of MasterCard and Visa investing heavily in me?).
This conversion certainly takes the financial pressure off a club which last season made a net loss of £11m in gaining promotion from League 1.
The Liebherr family seem to be in that rare group of benefactors which includes Steve Gibson at Middlesbrough – those prepared to dig into their pockets deep and for the long term. At Middlesbrough the club is “now free from debt owed to external providers” (5).
Looking along the South Coast from the perspective of a long-suffering Pompey fan (but who is number 1 a football fan rather than a club fan), a club in deep, deep trouble not least because it is still paying some players Premier League wages as it faces the drop, my eye caught on the wages/revenues ratio at Southampton, a very high 93%.
This counter-evidence in the discourse over the financial strengths and weakness of clubs is hardly typical. While few clubs, correction, no English clubs, are as financially distressed as Portsmouth, the Begbies Traynor report paints a more typical picture.
As Portsmouth head for Southampton this Saturday, to be ‘entertained’ as the media like to phrase it, I’ll not be building my hopes up for a surprise Pompey victory. The earlier derby this season may have been a draw, but Portsmouth now have a depleted squad, forced upon them by their financial circumstances (and as one might well argue, not before time). No, I’ll be quietly fuming on the absurdity that the outcome on the pitch will have been determined ultimately by the lottery of how rich and how committed your club’s benefactor has been. It may be a football match, but it certainly is being played in a context of competitive balance. One club has been the subject of heavy financial doping, and is paying the price, and one is the subject of financial doping, but has so far kept the ‘habit’ under control. One is a savage indictment of the failings of the benefactor model, and the other is fortunate enough to be able to say ‘OK so far’.
If any good at all is to come out of the ‘basket case’ circumstances Portsmouth finds itself in, it will be through a new and more sustainable financial model, which is why I fully support the community share offer from the Pompey Supporters Trust. Post-commercial era football has totally lost it way. Clubs have become the playthings of sugar daddies, and have, as in the cases of Portsmouth and Southampton, sugar daddies with no local connection. Ownership has become a lottery, and fans have been betrayed as a consequence. Football governance looks as it will receive only light-touch reform, but that is insufficient to set it back on a road where the results of games are determined in a context of competitive balance. Financial Fair Play, whatever the extent to which it will actually prove successful, is a no brainer. And fan ownership is the only way to ensure clubs are a part of the community whose name they are happy, and proud, to identify themselves by.
This posting is, for the moment, open to comments, but please bear in mind that this is not a fans’ forum – it is a personal blog, which is happy to encourage serious debate. Trolls will have their comments deleted, as will those who favour the so-called banter of ‘scummers’ and ‘skates’.