Football clubs are being forced to make cuts on the pitch to cope with the recession, even though passionate fans are still buying tickets, researchers are saying.
According to in-depth research into the finances of the 92 league clubs by accountants PKF, clubs of all sizes are having to trim sails, even though season ticket sales in the West Midlands at least have continued to rise.
Their research found that clubs were being savaged by hefty drops in income from merchandising and corporate hospitality. And finance directors are increasingly insisting on a reduction in squad size and cutting back on players’ wages to make up the shortfall.
The firm’s eight annual ‘Staying on the ball’ survey found more than one in three clubs had seen income from merchandising and hospitality drop by more than five per cent – a big problem for the balance sheet.
Philip Long, the head of corporate recovery at PKF and a football sector specialist, said: “Given the cataclysmic financial and economic events over the last 12 months, it is not surprising that the results of our survey reflect the predominant themes affecting the UK economy. More clubs are finding it harder to raise funding, more are digging deep into their overdraft facilities to keep going, and fewer expect to make a profit this season.
“Finance directors are also clamping down on the size of the squads and trying to curb both player salaries and transfer fees – although the recent Premier League signings suggest that the big clubs are still immune from some of the financial pressures on the smaller leagues.”
While the top Premiership clubs were immune in some ways to the pressures, they still had to face their own problems, the study claimed.
For the year ahead, three quarters of the Premier League clubs in the study said they were expecting a reduction in income of between five per cent and 20 per cent for corporate hospitality, but appeared largely confident that match and season ticket sales will hold up.
But compared to this, the Football League Championship said match and season ticket revenue was its biggest worry.
Clubs in the West Midlands, on the other hand, had no need to worry about this. Local teams have seen a record year for season ticket sales, buoyed by success on the pitch from Aston Villa, Birmingham City and Wolves.
At the same time, more than a third of clubs nationwide are under more pressure from their banks – an overall increase from 24 per cent in the last year alone according to the PKF research – and half of all respondents said they would be pushing their overdraft facilities to the limit. The league under the most financial pressure appears was the Championship, with more than three quarters of its respondents intending to use more than 90 per cent of their overdraft.
Mr Long added: “Arguably, it is clubs in the Championship that have the biggest gamble – do they spend to try to reach the Premier League or spend to avoid relegation? Either way, the price of failure could be catastrophic. Clubs must plan for all eventualities and unsuccessful speculation using bank debt could be a one-way ticket to insolvency.
“What is surprising and moreover, concerning, is that across each revenue stream around a third of clubs do not believe the credit crunch will have any impact on their operations. In my view this is wishful thinking. Clubs must appreciate that the continuing economic uncertainty and rise in unemployment will affect their supporters’ ability to spend over the coming season.”
Finance departments at the clubs are having to take drastic action with squad sizes and players’ payrolls to make up for the off-the pitch losses.
But the gulf between the Premier League and the rest of the football clubs was shown in the different attitude to spending on players.
Nearly two thirds of clubs plan to reduce their squad size this year compared with 35 per cent in 2008 and 25 per cent in 2007.
Only 12 per cent are planning on increasing the size of the squad while 27 per cent of the total sample – but the majority of Premier League clubs – are budgeting to keep their squads the same size. Half the respondents will also be cutting their first team payroll next season – compared with just 19 per cent in 2008. This is the first time clubs have reported an overall downturn in wages in recorded history.
The Premier League clubs’ restraint on squad size does not extend to their payroll though, with 75 per cent budgeting for a larger payroll – perhaps indicating a strategy to concentrate on quality rather than quantity.
Stuart Barnsdall, the audit partner for PKF’s Football Industry Group: said: “The overall trend appears to be that clubs are cutting down on the size of their squad in order to spend more on their ‘star’ players. In particular, none of the Premier League respondents are increasing the size of their first team squad but three quarters of them will be spending more on their payroll.
“Again, the product is everything with only the Premier League bucking the downward trend which indicates that the financial gap between the haves and have nots is widening. The Premier League is the promised land with everyone wanting to be there.”