English football business update - Plymouth Argyle, Football League

Plymouth Argyle are languishing at the bottom of League 1, ten points having been deducted by the Football League for an ‘insolvency event’, giving notice of their intention to appoint administrators.Players have not been paid since November and their debts are estimated at £13m.

Yet in 2008 they finished 10^th in the Championship, had posted a £1.1m profit and were named by Deloitte as the ‘best financially-run club in the Championship’.In principle it should be possible to run a successful football club in Plymouth.It’s a large city, albeit with some economic challenges.But it has a prosperous hinterland and there is no league club in Cornwall, Truro City’s aspirations notwithstanding.Admittedly, it’s relatively remote geographically which puts up the cost of travelling to away fixtures for fans which prompted a television commercial featuring the ‘Green Army’.But that is not a serious obstacle to commercial success.

What went wrong?Around 2008 player wages in the Championship boomed.Argyle increased their wages but they couldn’t keep up with clubs that had received parachute payments.Argyle supporters’ trust chairman Graham Clark commented, ‘Basically, the club was run by local businessmen and it became a struggle for them to maintain Championship football.’

So Argyle sought new investment and this was secured, in particular through a 38 per cent stake taken by Japanese businessman Yasuaki Kagami.An ambitious bid to make Plymouth one of the locations for England’s ultimately unsuccessful attempt to host the World Cup was launched.

But then things started to go wrong.In 2010 Plymouth were relegated from the Championship which was increasingly becoming a de facto Premiership 2 with much higher television revenues.The club lost £2.9m in incomes from this source and gates plunged by 25 per cent.Expenditure was running well ahead of income.

Kagami has repeatedly failed to deliver promised funds, having undertaken to provide £2m to get the club to the end of the season.The club has faced a number of winding up orders from the Inland Revenue, the most recent one settled by a £330,000 donation from a supporters’ charity.A fire sale of players in the January transfer window did not produce as much revenue was hoped for.

Peter Ridsdale of Leeds and Cardiff fame has been acting as a financial adviser and has been looking for prospective buyers.Although there have been rumours of interest, no one has come forward publicly.Of course, a club that goes into administration is usually available at a lower price.Or prospective purchasers may have been put off by the scale of the problems.

Home Park is currently mortgaged for £5.7m, having been bought from the council in 2006.They may be prepared to buy it back, but local authorities have little spare cash at the moment.With the club almost certain to be relegated to League 2, the future looks bleak.

Bristol Rovers are another club in relegation trouble at the foot of League 1.The directors of Bristol Rovers have said that they will continue to bankroll the cluband there is no risk of the Pirates going into administration even if they lose their battle against relegation to League 2.   Rovers'  last set of published results which covered the 12 months to June 2009 revealed a loss of more than £1.7m and debts approaching £4m.

Some fans have formed a Black and Gold campiagn to express concerns about the way in which the club is being run.    They are particularly worried about the lack of progress in redeveloping the Memorial Stadium into a 18,000 capacity venue, a scheme for which planning permission was granted in 2007.   If the plan cannot go ahead, they would rather be told.The Pirates purchased the Memorial Stadium from Bristol Rugby Club, who were then in administration, in 1998.  Before that they played for nearly ten years at Bath City's ground at Twerton Park.

With Southend United also facing up a winding up order over an unpaid tax bill, it is perhaps not suprising that Football league chairman Greg Clark has told the House of Commons committee investigating football that clubs are heading for a 'debt precipice'.  Interviewed later on Radio 5, he said that debt was on the increase and even if one took steps to cut it now it would be five years before any effect was seen.  It is perhaps worth pointing out that what matters with debt is not its absolute size but whether you can service it.

In his Radio 5 interview, Clarke pointed to the fact that League 2 clubs had agreed to a protocol that limited spending on wages to 60 per cent of turnover.  They were hoping to extend that arrangement to League 1, although one could infer that some resistance was being encountered.   Eventually the scheme could be extended to the Championship although it was also hoped to introduce a version of the Uefa financial fair play rules there that would require clubs to break even over five years. 

The interviewer suggested that what was need was an imposition of rules given the difficulty of achieving consensus, but Clarke insisted that the Football League was a democracy not an autocracy.  There were seventy-two sovereign businesses and although it was difficult to gain traction at first, it was better to win clubs round to such arrangements rather than impose them.

In the Blue Square Premiership, a number of clubs are facing difficulties.Kidderminster Harriers are trying to deal with debts that turned out to be much greater than anticipated and have deterred one potential investor.Darlington are seeking to move away from their ‘white elephant’ of a 25,000 seater stadium where average crowds have been 1,800.Mansfield Town are locked in a legal battle over the ownership of their ground, of which they were locked out for a while, and has now been referred to the High Court.The split between fans and owners at Wrexham has widened after the controversial former chairman of Chester City was involved in a takeover bid.

The recession has hit hardest at the lower levels of football where cash flow is constrained and it is more difficult to attract new investment away from the glamour of the top flight.

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.