|Clubs in Trouble|
|Written by Wyn Grant|
|Wednesday, 07 March 2012 10:49|
The past month has been dominated by Rangers going into administration and the continuing troubles at Portsmouth while in League 2 Port Vale are facing administration.
It’s a complex picture that’s being revealed at Rangers and not all the troubles can be laid at the door of the present regime with overspending having occurred in the past. Rangers were forced into administration because they had not paid their current tax bills, resorting to the old ploy of using money that should have paid to Revenue and Customs as a credit card.
On top of that they could face a £75m bill if a tax tribunal finds against them over their use of an employee benefit scheme to reduce players’ exposure to tax. They are not the only club to have used such schemes.
In the meantime they have suffered a ten point deduction and are now being challenged for third place in the Scottish Premier League. In any case they could not qualify for Europe next year as they could not come out of administration quickly enough.
Their troubles have had knock on effects for smaller clubs in Scotland. Dunfermline were only able to pay players 60 per cent of their wages in February because Rangers owed them £85,000 for tickets bought by their fans.
The underlying problem is that the current Scottish football model is simply not viable and despite several reports no one has been able to come up with a workable alternative. There is simply not enough television revenue to sustain the ambitions of clubs and attendances have been falling against the background of the economic downturn.
The idea of the ‘Old Firm’ playing in the Premiership or even the Championship is off the agenda if it was ever on it in the first place. An ‘Atlantic League’ for smaller European countries could work, but has been talked about for over a decade with nothing ever happening.
If anything, the picture at Portsmouth is even bleaker. The club may not be able to complete its fixtures for the season according to the administrator. Part of the problem is that the club’s parachute payments from the Premier League are tied up as part of the agreement concluded when it last came out of administration. The Football League has also frozen its payments which would provide much needed cash flow.
Even so the club could provide attractive to a purchaser. The balance sheet has improved. There are a ten-and-a-half acres of land attached to the stadium for which planning approval for commercial development is available. There are eight million people within 90 minutes drive of Fratton Park. The club has one of the most fanatical fan bases in the country that would be willing to back the right sort of new owner.
The Supporters Trust has made plans for a phoenix club. But if the rules were applied that would have to start at Step 5 of the non-league system. Clubs at that level, or indeed any level below the Conference, would not be able to cope with the number of fans Portsmouth would bring away.
Port Vale look like repeating the administration they suffered in 2002. Revenue and Customs have served a winding up order on them and the players have not been paid. The board now has fewer directors than is legally required for it to function. The club are behind on repayments on a loan made by the local council. However, there is a prospective local purchaser waiting in the wings.
The difficulty for clubs that follow a prudent financial path is that it limits their success on the pitch. Although Arsenal fans will have been heartened by their victories over Spurs and Liverpool, they are still concerned that the club’s spending is too cautious.
Arsenal reported a pretax profit of £49.5m in the six months to end of November compared with a loss of £6.1m a year earlier. Football turnover was up from £97.6m to £113.5m. Cash reserves increased from £110.4m to £115.2m.
The sales of captain Cesc Fabregas to Barcelona and midfielder Samir Nasri to Manchester City boosted the bottom line by £63m. Defending the club against charges that it is over cautious in its spending, chairman Peter Hill-Wood stressed that the club had invested £74.7m on new players and contract extensions, costs that will be spread over several seasons.
Wolves are another club that follows a prudent financial policy. Profits there have dropped by nearly £7m compared with last year, but the club still managed to record a pre-tax profit after player trading and net interest charges of £2.2m in the year to 31 May 2011. The figures take into account record £7m buy Steven Fletcher and other acquisitions.
Operating costs increased to £37.9m compared with £29.8m in 2009-10 mainly due to players' wages. Turnover was up to £64.6m compared with £60.4m in 2009-10 largely because of the new three year Premier League television deal.
Aston Villa have the worst of both worlds with a faltering performance on the pitch and big losses off it. Villa announced losses of almost £54m for the year ended 31 May 2011, up from £37.6m. American owner Randy Lerner has put £25m of his own money into the club over the past two years to keep it on an even keel.
The figure includes the money spent to bring Darren Bent to the club in January last year, but does not include the sales of Ashley Young to Manchester United and Stewart Downing to Liverpool which went through last year.
There was an unexpected £12m burden placed on the club's finances relating to the enforced departure through illness of then-manager Gérard Houllier and his backroom staff. The compensation costs paid to Birmingham City for the acquisition of Alex McLeish, thought to be £2m, are not included in the accounts.
There were record revenues of £92m with commercial income increasing by 15.9 per cent and total income by 1.3 per cent. There was a £8.3m reduction in bank borrowings.
The financial benefits of a year in the Premiership are demonstrated by the latest financial results from Blackpool FC. After making a loss of £6.7m the previous year, the club has reported record profits of £20.9m.
Turnover rose from £9.4m to £51.7m. Just £3.5m was spent on new signings and the wage budget reached £12.1m. Overall costs rose to £30.7m. The figures are believed not to include the sale of star midfielder Charlie Adam to Liverpool and other departures.
While the figures show the benefits of a prudent financial policy, possibly a little more spending would have given the club a second season in the top flight. While the club insists that investment on improvements to the ground is ongoing, some think that more could be done more quickly, including upgrading the Squires Gate training facility.
Blackpool managed to break the record for payments to a non-playing member of staff with the chairman's father, Owen Oyston, receiving £11m in the last accounting year for his work as a director. That works out at £211,538 a week and very few players get that much.
Clubs are, of course, entitled to set renumeration levels as they see fit but this does seem somewhat excessive to say the least. But then normal financial rules often don’t seem to apply in the world of football.
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.