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Footballing finances

13 August 2013

Latics' concern over widening gulf

Latics' Chief Executive Neil Joy is not surprised by the findings of a new report on football finances.

North West football clubs are on track with the so-called ‘financial fair play’ (FFP) regulations, according to new research from business advisory and accountancy firm BDO LLP. 

 

But as pressure mounts on benefactors to plug funding gaps and keep clubs competitive on the pitch, owner exits can be expected outside the Premier League during the next two seasons.

Mr Joy said: "The report highlights the ever-increasing disparity in finances between the Premier League and club at our level, something we have been aware of for some time.


"Clubs at our level do everything to ensure compliance with Salary Cost Management which means they can establish solid foundations for success on the field without jeopardising their futures." 

 

The report, ‘A New Dawn for Fair Play?’ which saw 66 finance directors from all English professional divisions surveyed, reveals that 85% of clubs expect to comply with FFP rules in 2013/14 without any significant changes to their business models.  However FFP compliance is still the third most pressing concern for Premier League and Championship clubs, with 83% planning to spend less or the same on payroll costs this season. 

 

In addition, only 12% of clubs expect to increase their transfer budgets with almost half of clubs in the Premier League and Championship (44% and 41% respectively) saying FFP is a key driver in this decision.

 

The survey reveals that only 30% of finance directors describe their club finances as ‘very healthy’ - although there are marked differences between the divisions, with Premier League finance directors the most positive  (83% describing their financial position as ‘very healthy’) and their counterparts in League One the most concerned (14%).

 

Julien Rye, partner and football specialist at BDO LLP in the North West, said: “The divisions below the Premier League are crying out for a sustainable business model.  Football clubs play a vital role in the North West and in local communities, so there is a clear need for greater financial stability and a higher proportion of clubs living within their means.”   

 

The survey also reports a growing reliance on benefactors to plug funding gaps at clubs.  In total, 65% of clubs acknowledged a dependence on principal shareholder(s) to finance operating losses compared with 58% last year; for the Championship the figure is 94% and for League One it is 64%.

 

Faced with the challenge of plugging a funding gap while also keeping the club competitive on the pitch, it is perhaps not surprising that 28% of Championship club owners and a third (36%) of League One club owners are considering a full or partial exit in the next 12 to 18 months. 

 

At the same time, a similar proportion of clubs, 33% and 21% respectively, have been approached by potential new external investors in the past year.

 

BDO’s Julien Rye continued: “The pot of gold that the Premier League, which attracts substantial commercial income, is perceived to represent means there is intense competition for a limited number of promotion places.This creates a temptation for Championship and League One clubs to overspend and push themselves into the red, leading to a dependency on principal shareholders bankrolling trading shortfalls. 

 

“In this context, and due to minimal resources, we now see around a third of existing owners seeking a full or partial exit.  Football clubs continue to attract huge interest and publicity but, when it comes to the crunch, only a limited number of potential investors have the resources and the appetite to bankroll the cost of their club’s ambitions. 

 

“Only a select few clubs will attract very wealthy benefactors and so, for others, where sources of funding are limited, it's likely that the only interested parties would be supporter group's that recognise the important role clubs play in their local communities.  This may see some clubs go back to basics, with overly ambitious promises of silverware traded for closer ties and greater financial stability – a backlash, perhaps, against the profligacy of previous regimes. However, the challenge as ever will be to balance that with the continued demand of the fans’ desire for success.”

 


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