Radio 4 on football finances

[Dirk Gently]

If anyone's got an odd 40 minutes to spare and is interested in football finances and the parlous state of lower-league clubs, I can recommend File on Four which was broadcast last night.

Link to listen again is here : http://www.bbc.co.uk/iplayer/episode/b00fb8yf/File_on_4_11112008/

[SpaceCruiser]

I can't listen to that, could you or somebody else write a precis of what is being said?

[Sarah Star]

That was quite frightening - especially what happened to York City and Luton. No wonder John Madejski is holding out for the right buyer. John Batchelor seemed quite proud of what he did.

[Dirk Gently]

I can't listen to that, could you or somebody else write a précis of what is being said?

Certainly - I'll even correct "précis", since it's a French word and has accents.

From what I remember of it :

- many FL football clubs are using HMRC (i.e. tax) as a "bank", by not paying tax bills and running up big debts
- standard of business in many FL clubs is unbelievably shoddy
- FL say they can't do anything because these are individual companies they can't interfere in
- estimated 50 FL clubs owe £60M plus to HMRC
- HMRC is opposed to the football creditors' rule, so refuses to agree to any football club CVA while this rule exists, even if the club pays 100p in the pound to HMRC (hence all the points deductions for not agreeing a CVA)
- very rarely are people making effective checks are made on anyone trying to buy a club. Examples :
* John Batchelor who has a string of insolvencies and bought York City for £1, then six months later walked away with £400K profit and dumped York after selling their ground. He admits he lied to supporters and would do the same again - currently hovering around Mansfield
* Sheffield Weds, where the owners are happy to sell to a group who can't prove they have any money. Their only evidence is a letter from a bank in Dominica signed by a convicted money-launderer. The only thing that's stopped the sales is the Wednesday Trust, who own 10% of the club, and who have been unable to check the bona fides of the potential buyers;
* Port Vale keep getting offers from people who have no credential, possibly no money, and who seem more interested in the ground and land around it than the football club;
- further big worries over FL clubs' finances in recession. In past 20 years 3 clubs in PL, 33% of Championship, 50% of L1 and 63% of L2 cubs have been in administration, and forecasts are there'll be more.

[SpaceCruiser]

Thanks for that, Dirk. I'll certainly avoid using the word "precis" in future and use the correct word "summary"!

The FA or the FL really should bring in some rule or accreditation to help the football club prove that they are very well run or some such thing.

[Royal Rother]

I am sure shit and fan will coming into close contact regularly in the next couple of years.

(And no, I'm not suggesting you should come round and beat the crap out of me any time soon Spacey!)

[Dirk Gently]

Thanks for that, Dirk. I'll certainly avoid using the word "precis" in future and use the correct word "summary"!

The FA or the FL really should bring in some rule or accreditation to help the football club prove that they are very well run or some such thing.

There is a perfectly simple solution, which I hope will come one day and has been suggested to the FL.

It's that the League rules are changed so that all payments from clubs to HMRC are made through a confidential third-party, which then issues a "certificate of compliance" to the league that the club has made all their required tax payments.

It gets round the problem of company confidentiality, but the big problem is that league rules can only be changed by the members clubs themselves, so enough of them need to want the changes before they'll happen.

[Wycombe Royal]

Here is another view (from a Celtic news website) on PL finances (they also make interesting comments about Setanta and don't stop far short of saying it is another ITV Digital waiting to happen):

http://www.celticquicknews.co.uk/2008/12/carnage-awaits-english-footbal.php

I've been watching the economic carnage in recent months with a compulsive interest, but with no small alarm.

HBOS, RBS, Ford, General Motors and many more of the world's most reputable companies have been, or are still, teetering on the brink of failure, all brought low by a toxic mix of two problems, unprofitability and a lack of cash.

So what for the football industry? Since its inception in 1992 the FA Premier League (FA PL) has grown to become the wealthiest league in world football. 2008 marked a new high, with three clubs reaching the semi final of the Champions League, two reaching the final, and a player from the league becoming World Player of the Year for the first time.

But the silverware hides disturbing facts; despite having the highest income of any league in the world, the FA PL also has the highest debt. Figures for 2007, the most recent year available, put the combined league debt at over £3bn, with 17 of the 20 clubs reporting a loss.

More than this, 11 clubs were insolvent, with negative shareholder funds. Chelsea (-£243m) and Fulham (-£149m), lead the way, both are supported by their owners, for the time being anyway, while the rest are supported by their bankers to various levels.

Average debt to turnover ratio for the league was 220%, with much of this debt concentrated on the four regular Champions League participants, Manchester United, Liverpool, Arsenal and Chelsea. The average debt to turnover ratio for the other 16 clubs is 108%, still an enormous Sword of Damocles hanging over many less salubrious names.

When FA chairman, Lord Triesman, raised concerns about the financial health of FA PL clubs in October, the point was correctly made that as long as the debt can be serviced, clubs do not have a problem, but the medium term prognosis suggests there is reason for concern.

Unlike retailers, football clubs secure most of their annual income at the start of the financial year, and in the case of the FA PL, crucial television contracts, as well as many sponsorship deals, are contracted for years to come.

But any 'what if' exercise proves arresting. The league's enormous television deals with BSkyB and Setanta, which pays an average £28m per club per season, has only 18 months left. Right now conversations will be taking place around the next deal, which will run from 2010 to 2013.

FA PL clubs are currently enjoying the most financially rewarding period in the history of the sport, but almost all are losing money, most are insolvent, average debt is 220% of average turnover, and they are renegotiating with the goose that laid the golden egg in the middle of a recession.

The summer of 2009 may bring a sharp refocusing, but unless the next TV deal matches the current, 2010 will bring the biggest football bubble in history crashing down.

There is another issue to watch out for in early 2009. Setanta need to grow subscriber levels to keep the wolf from the door and chose the risky strategy of not asking subscribers to commit to a 12 month contract.

Their next big opportunity to bring in new customers is not until the English international team return to competitive action in April, poor subscriber numbers between now and then could finish the broadcaster, imposing an immediate chasm in the finances of clubs north and south of the border who are dependent on them.

I have been talking about the perils of debt and unprofitability for years. A psychosis overtook the country where many ignored the basic facts of business, but two questions haunt football:

If so many clubs are losing money and are insolvent in years of record income, what will happen if income drops?

What size will the FA PL television deal that kicks in, in 2010 be?

If it's as low as the deal which preceded the current one, there will be carnage in English football.

But, it's an ill wind....

[Royal Rother]

Carnage is a good word, but I'm not sure it's quite strong enough to describe what football is heading for.

When we are one of the last financially fit clubs left standing in 3 years time there are a few threads I will resurrect.

[The 17 Bus]

trouble is RR that they will bail out many of the ones run badly, can anyone list the clubs that walked away from their debts??

Leicester I think??

[Thaumagurist*]

trouble is RR that they will bail out many of the ones run badly, can anyone list the clubs that walked away from their debts??

Leicester I think??

Yep, they got a brand new stadium free of charge.

Bradford also walked away from their debts. What was even more amazing about Bradford, whilst being in administration, is that they managed to sign new players even though they said they were banned from doing so!

[T.R.O.L.I.]

I would love it if the next PL TV deal was substantially smaller in value than the current one.

[Stranded]

trouble is RR that they will bail out many of the ones run badly, can anyone list the clubs that walked away from their debts??

Leicester I think??

Times have changed - I can't see the government getting involved to bail out football clubs, they are not a central business to the economy such as banks and there simply aren't enough rich Arabs running around to buy all the clubs that could end up in serious trouble.

[DrZoidberg]

trouble is RR that they will bail out many of the ones run badly, can anyone list the clubs that walked away from their debts??

Leicester I think??

Times have changed - I can't see the government getting involved to bail out football clubs, they are not a central business to the economy such as banks and there simply aren't enough rich Arabs running around to buy all the clubs that could end up in serious trouble.

Only disagree on the point about there not being enough rich Arabs. There are plenty ... they would however need to be rich and stupid to want to buy into a football club though. Most of them are pretty smart.

[Royal Rother]

I would love it if the next PL TV deal was substantially smaller in value than the current one.

Highly likely you'll be having a right old chuckle next year then.

[T.R.O.L.I.]

I would love it if the next PL TV deal was substantially smaller in value than the current one.

Highly likely you'll be having a right old chuckle next year then.

Only if the reduction is sizeable enough that is causes a lot of clubs run on dodgy financial standings to seriously struggle.

IIRC, West Ham were 1 game (the 2005 playoff final) away from administration and Man City were in the financial mire untile the Arabs bought out Thaksin. What football in this country needs is a reality check and if that comes in the form of a "big" club going into administration and thus having points deducted (although it's only 7 points in the PL rather than the 10 in the FL) and relegation then so be it.

To paraphrase Darwin's works - "Evolution is the survival of the fittest".

[winchester_royal]

I've said it before, and i'll say it again. Madejski's so called 'prudeness' will be what breaks this club into the top 6 of English football.

[Slinky]

That was quite frightening - especially what happened to York City and Luton. No wonder John Madejski is holding out for the right buyer. John Batchelor seemed quite proud of what he did.

John Batchelor has been quoted up here (north west) this week stating he wants to buy Chester City but that the fans would have to accept the name would change, the colours would change and the stadium name would be sold to highest bidder. He also said that as Harchester United have 23000 fans signed up then that'd be a possible name to be used with their associated colours!

Having hust checked for an update on the story it seems the current Chester board have donw the right thing and told him where to go, see below's article in Chester Chronicle.

Vaughan says no to Batchelor's Chester City FC bid
Dec 5 2008 by David Triggs, Chester Chronicle

STEPHEN Vaughan last night pulled the plug on John Batchelor’s controversial takeover plans for Chester City.

Maverick businessman Batchelor held talks with Blues owner Vaughan on Tuesday and had the funds in place to purchase the club for a figure believed to be in the region of £2m.

But the major stumbling block for Vaughan was over Batchelor’s radical plans to completely re-brand the League Two outfit – changing their name and focusing on attracting big-money sponsors rather than bringing fans through the turnstiles.

Vaughan yesterday revealed he did not want Chester to fall into the hands of Batchelor, who this week admitted in a frank interview with The Chronicle that he did not “give a monkey’s” about toying with City’s history and heritage.

Vaughan said: “Under no circumstances will I be selling Chester City to John Batchelor.

“I have more chance of taking over at Liverpool than he has of taking over here.

“I have no doubt that he’s got the money, but he is not right for this football club. There were too many issues involved in the deal that I wasn’t happy with.”

Vaughan – City’s majority shareholder since 2001 – still intends to sell up. He held talks with an unnamed party of potential buyers yesterday morning. Property advisors First Asset Management and Worldwide Sports, a German firm who represent American backers, are also still in the frame.

Vaughan attended a meeting of Chester fans at the Deva Showbar on City Road on Wednesday and a second gathering is planned for the new year.

Batchelor, meanwhile, insists he has not given up on taking over the Blues.

He said: “I will buy that club and Stephen will sell it to me.

“I will explain to him why the future of football is in need of change. Chester City FC could define how clubs are run for the next 100 years.

“He has wasted a massive opportunity. I will not give in.”

Sheffield-born Batchelor, 49, is a former stand-up comedian and racing driver/team owner who acquired York City for just £1 in 2002. The club was plunged into administration less than a year after he took over.

The married father-of-four, who now lives in Cheshire, turned to “fixing” companies in financial distress after his racing career was ended by a neck injury he suffered in a crash at Oulton Park in 2002.

He ran for parliament as an independent candidate for Blackburn in 1997 and Tatton in 2001.

[Ian Royal]

Sounds like it's a shame Batchelor's neck injury wasn't slightly more severe.

[Vision]

AS Christmas messages go, it hardly added to the seasonal cheer. Cards sent out by John Madejski, the multimillionaire Reading chairman, to club staff smacked more of a gloomy Mystic Meg than Santa. They simply depicted a Christmas tree, stripped of any vestige of twinkling lights and with not a parcel in sight under its bare, brown branches.

The warning was clear: if you think Christmas is bad, just wait until the New Year dawns. As shops up and down Britain's high streets put down their shutters for the last time, football is starting to wonder out loud whether the January sales will be as much of a damp spending squib as those in the shops.

The January transfer window is traditionally the time to panic-buy. For teams at the top of the Premier League it is the time to strengthen squads buckling under the weight of European fixtures crammed on top of cup ties and demanding League games; for teams at the bottom it is the chance to spend quickly and hope that new players can save them from relegation and the catastrophic loss of income that goes with it.

Spending

January transfer spending in the Premier League and Football League has soared in recent years, from £33m in January 2003 to £175m last January. But that was when the good times rolled, when credit was easy and players' agents could name their price.

Now the only word associated with credit is crunch and even football's sugar daddies are squealing that enough is enough. If moneybags Chelsea, with Roman Abramovich, their Russian billionaire benefactor, have called a temporary halt to signings while they cut staff and shave spending, what chance have the rest?

Manchester United look as though they will limit themselves to investing £15m in their future by taking on two Serbs, Zoran Tosic (21) and Adem Ljajic (17) but it is not clear whether these deals will go through in January. Rumours swirl that Arsenal will bid a club-record fee to woo Carlos Tevez from United, while Liverpool have been associated with many big-name players.

Arsenal, at least, have money in the bank, but what happens when Rafael Benitez goes to George Gillett Jr and Tom Hicks, the Liverpool owners, with his price list? The Liverpool manager is likely to leave the room with his ears ringing from a lecture about economics, which may include how the pair plan to refinance the £350m loan they used to buy the club, which is due for renegotiation while the transfer window is open wide.

That leaves Tottenham Hotspur, one of the few profitable clubs in football, who have spied the promised land of the 'Big Four' under Harry Redknapp, their new manager, and could release funds for two or three significant signings. The only big spending will come from the coffers of Manchester City's Arab owners, whose pile of petro-dollars remains untouched by the financial meltdown.

If City manager Mark Hughes spends all of his budget, it is unlikely to come anywhere near to sending January's total near to last year's record mark. Premier League clubs such as Middlesbrough have battened down the financial hatches to the extent that they cannot buy unless they sell. And a club such as Middlesbrough do not want to sell an asset as valuable as Stewart Downing, their England winger who has been targeted by Tottenham, even if Redknapp comes calling with an offer of £15m.

Shopping for bargains from abroad is also out in the new austerity era. Sterling's fall means that players from the Continent are 20pc more expensive this January than they were last, according to the foreign exchange trading company Currencies Direct.

That will not stop Manchester City's owners in Abu Dhabi opening their gilded chequebook. But City, and a lucky (or desperate) few aside, football's coffers are looking increasingly bare. For some of the 72 Football League clubs and the dozens of teams in the Blue Square Premier and lower leagues, Santa brought little but big bills and final demands this Christmas.

Many are cushioned because they pre-sold their season tickets nine months to a year ago and the money is banked. But the shock is still to come.

The sales fever that swept the high street in the past few days has reached the turnstiles, with clubs slashing ticket prices, and Brian Mawhinney, the English Football League chairman, has warned that season tickets for 2009-10 will be harder to shift than for years, to the extent that he plans to visit Football League clubs in March to check for any signs of looming problems.

"Things look calm now," he said. "But the crunch comes in the run-up to next season. Crowd numbers have held up so far, but they won't as things go on. The next three years are going to be terrible and football is not immune to the problems in the wider economy."

As a high-ranking member of the UK governments of Margaret Thatcher and John Major, both of which wrestled with deep economic problems, Mawhinney has a better insight than most into what is coming. He started warning Football League clubs seven months ago to cut costs and prepare for the worst.

"Clubs will have to slim down," he said. "The sensible club chairmen will have put downward pressure on their costs. The big problem is player contracts, which have to be honoured. We have seen the result of soaring wages in the Premiership having the effect of dragging up pay in all the other leagues, right down to the Conference (Blue Square Premier)."

Mawhinney has suggested a salary cap, an idea that split the Championship clubs down the middle. But even the top clubs could be forced to address the new reality, with the Premier League wage bill bursting through the £1bn mark last year.

Unfortunately, the new reality has already arrived in the wooden corridors of the poorest clubs. A week before Christmas players at Worcester City, the Blue Square South club, agreed to a pay cut, following in the footsteps of Eastleigh and Fisher Athletic. Players at Grays Athletic survived having their pay cut in half only after making it into the first round of the FA Cup in November.

Even a well-run and relatively wealthy club such as Stevenage Borough, the FA Trophy winners last year, are suffering badly. Phil Wallace, the Blue Square Premier club's chairman, warned fans that year-end profits to May '08 had been transformed into staggering losses.

"In September, October, November and the first half of December income fell off a cliff and we have lost more in those three or four months than we made in the previous two years," he said.

"Anyone supporting lower-league clubs should be concerned. If we don't change, the chances of surviving what I expect to happen in '09 and 2010 will be greatly reduced."

They are words of warning that should echo in the boardrooms the length and breadth of English football, not only in the tiny clubs that are struggling, and might convince the high and mighty of the Premier League to think twice this January before they are tempted to spend, spend, spend again. (© The Times, London)