As Southampton look like it could become the latest football financial casualty, TOM SCOTNEY looks at why the number of failing clubs is on the rise.
Football is not so much the beautiful game as ugly business, according to research by a sports businesses research centre at a West Midlands university.
Southampton FC look like they could become the biggest football club to go into administration since Leeds United in 2007, after shares in the clubs parent company were suspended yesterday.
Southampton Leisure Holdings warned that without the injection of additional finance it would be unable to continue as a viable business, after it missed a finance deadline of March 31.
While talks with a number of parties were going on, the company said it was required to suspend its shares because the uncertainty had prevented it from posting half-year results. The club had reportedly failed to agree an extension of its overdraft with Barclays, and accountancy firm Begbies Traynor was set to step in as administrator.
Saints are one place off the bottom of the Championship. The ten-point deduction that comes with administration would guarantee them relegation and a place in the division below next year.
Southampton is the latest club to be hit by financial difficulties in recent years. Bradford, Leeds, Leicester City, Bournemouth, Luton, Wimbledon, Notts County, Port Vale, Ipswich, Barnsley, York, Huddersfield, Darlington and Cheltenham, among others, have faced financial ruin in the last few seasons.
But research by the Centre for International Business of Sport (CIBS) at Coventry University last year found cases of insolvency at football clubs were on the rise. Dr John Beech, the lead author of the report published by the CIBS, said administration was being exploited as a tactic by clubs who had no practical way of servicing their debts. He said: “In spite of the Football Association’s efforts to deter clubs from following the path of going into administration, it remains an all too common choice.”
The present system where clubs are deducted points if they go into administration had no effect on the businessmen that run the clubs, Dr Beech said. He added: “The present system is dysfunctional and counter-productive. In the recent case of Luton Town, a total of 30 points has been deducted, 20 of them as a result of becoming insolvent; this punishes the club for the misdemeanours of the previous owners.”
“More significantly, though, it also greatly reduces the chances of the club recovering, which is supposed to be a primary objective of seeking the protection of administration in the first place. HM Revenue and Customs losing their preferential creditor status, combined with the Football League’s insistence that football creditors – other clubs owed money for transfer fees, for example – remain preferential creditors is proving increasingly problematic in establishing Company Voluntary Agreements, which the League themselves want as a first step out of insolvency.
“Any other industry sector riddled with CVAs would have been heavily regulated into line. If English football doesn’t put itself into order, there is a danger that it will be forced to, on terms not of its making or preference.”
The Insolvency act was introduced in 1986 and since then about 60 clubs in the league have become insolvent.
Clubs have been accused of waiting until they were already assured of relegation before going insolvent, and effectively rendering the points deduction irrelevent. Only in Leeds United’s case has a club ever missed out on promotion because of a financial-related points deduction, and a huge number of clubs that have been punished by the FA for going into adminsitration have found themselves relegated because of it.
At the very top, firms have found super-rich buyers to make them immune to financial worry – as long as the owner stays interested in the club.
But the high cost of player wages means hardly any clubs break even. In the five seasons up until 2006, the 92 clubs in the English league made an aggregated loss of £1.1 billion. This has led to clubs finding it difficult to keep trading under normal financial conditions.
The rule surrounding football insolvencies mean it is often the local business communitiy that is most harmed by the financial collapse of a club. Rules state that all football creditors have to be paid off in full first, regardless of the position of other unsecured creditors of the club. The Inland Revenue challenged this rule in 2004 but lost, meaning the businesses and supporters of the club – and the taxpayer – carry the can for the footballing failures.