Another Month of Upheaval

It’s been another month of upheaval in the world of domestic football finance in the UK. Crystal Palace came as close to liquidation as any club have been in the recent past before a last minute deal saved the Eagles. However, one insolvency expert warned that eight clubs in the Premier League and Championship were on the ‘critical’ list. When clubs do run into trouble, there are fewer white knights around to rescue them.

As we have been reporting on www.footballeconomy.com for some months, the tax authorities have been increasingly losing their patience with football clubs who often seem to treat meeting PAYE, national insurance and VAT debts as optional extras. In some cases clubs have been only a few weeks behind with payments when winding-up orders have been issued. At a time when the public finances are under pressure, Revenue and Customs need to maximise their tax take.

They have now taken matters a step further by issuing a writ against the Premier League over the ‘football first’ rule. Although the writ was issued against the Premiership, a similar rule applies in the case of the Football Association and the Football League, so if the tax authorities were successful, the judgement would apply to the whole of football. The then Inland Revenue made an earlier attempt to have this rule overturned in 2004 and did not succeed, but clearly they think it is worth another try.

As things stand transfer payments to other clubs, debts to managers etc. take priority over other liabilities. This often means that the tax authorities, but also small businesses and the St. John Ambulance end up with just a few pence in the pound. The football authorities argue that unless football debts are given priority, the whole edifice of football would come crashing down.

The counter argument would be that football clubs should manage their affairs so they do not repeatedly get into debt. However, as is often remarked, football is a business like no other. As the old joke goes, if you want to make a small fortune, start with a big one and get involved in a football club. Indeed, in a story we featured on our site recently, the chairman of St. Mirren was complaining that not only had the club cost him a lot of money over the last ten years, it had also contributed to the breakdown of his marriage.

What makes football different from many other businesses is that in many ways the customers have a greater influence on what the business does. The fans demand success but, of course, only a few clubs can be really successful. In any league at any one time, half the clubs are going to be in the bottom half and even if clubs are just above the halfway line, fans are likely to complain about ‘mid-table mediocrity’. Boards feel the pressure to splash out on players or a new manager and that’s when the problems start.

Whether the court action by Revenue and Customs succeeds remains to be seen: I think the outcome is genuinely uncertain. In the meantime, another attempt to curb spending by big clubs has been made with the passage of the UEFA fair play rules. This will not start operating until 2012 and there will be a three-year transitional period when clubs will be allowed to accrue losses of £38m. After that, clubs that do not break even will be excluded from lucrative and prestigious European competitions.

The full rules will not be published until later this month and, like so many things, the devil is in the detail. Spending on the development of stadiums and on youth academies can be offset against the break even target. At the moment, the top clubs in England seem remarkably relaxed about the new rules. This may be because they think they can find a way around them.

In fact the rules will potentially hit ‘benefactor’ clubs where a rich owner subsidises the purchase and salaries of players. Arsenal, Liverpool and Manchester United do not fall into this category, although in the case of United there are clearly issues about how their debt is structured and serviced. Chelsea could potentially be affected, but they have a strategic plan to break even, although achieving it may not be easy. Manchester City could be certainly be hit, but they could go on a spending spree over the next two years, hoping to qualify for the Champions League and improve their incomes stream.

It may be that the rules will hit clubs outside the top five hardest. Fulham had a great season that took them to the final of the Europa League, but are reliant on subventions from their owner. Everton tend to make a loss most of the time. Even Blackburn Rovers are a loss-making clubs.

Liverpool fans have different views about Rafa Benitez, but some of them marked his departure with a demonstration outside Anfield that included the burning of an American flag. As far as many fans are concerned, the team’s relatively poor performance this season but can be laid at the door of the American owners. However, they have brushed aside a public letter of criticism from the former owner, David Moores, and Hicks and Gillett don’t look like departing anytime soon.

Over at Old Trafford, it doesn’t look as if the Glazers will be departing either. They always insisted that the club was not for sale and now the Red Knights have shelved their bid for the club. The only price the Glazers seemed to even be prepared to contemplate, around £1.5bn, was way beyond the Red Knights’ valuation of £850m - £1 billion. Securing a sale through a consortium of that type when the owners had a long-term plan to make money through capital appreciation was never going to be easy.

Nevertheless, the mobilisation of fans by the Manchester United Supporters’ Trust in the green-and-gold campaign was impressive. The Coalition Government agreement contains a pledge to make it easier for fans to embark on mutual ownership of clubs. What this will mean in practice remains to be seen. For the moment big money still rules at the top.

Wyn Grant is a regular contributor to Albion Road and also the publisher of footballeconomy.com, a website covering the business and economy of the game of football.