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NEWS REVIEW
IS FOOTBALL TO BE THE ULTIMATE LOSER?
HOW INSOLVENCY IS RUINING THE BEAUTIFUL GAME
Amid the current economic downturn, with major worldwide financial
institutions folding there is an increased focus on management's
financial decisions and a greater need to financial scrutiny.
ven some of the so-called 'rich' clubs of the
of insolvency. There are clear indications that something was
E
Premier League carry enormous debts which,
wrong in the sector as early as the 2000/01 season, and for the
with the present credit crunch may be difficult
ten clubs that failed in 2002/03 the collapse was but one of a
to sustain.
series of financial problems.
Already we are seeing reports that fans will not buy
The CIBS team's research is beginning to reveal a number
season tickets because of the high prices and pubs will not
of complex and perhaps contentious issues.
renew licences. Whether this will actually happen remains to
Stadium matters
be seen, but the assumption that the price of football is 'price-
Arrangements regarding a club's stadium have proved
inelastic' only holds good over a particular range - could it
problematic. The research project has identified a variety of
just be that the bubble has finally burst?
problems, which include (with examples in brackets):
However, to date these concerns are having little affect on
• Disputes over the ownership of the stadium (Barrow) small size, especially if viewed as comprising only the top
the way that football clubs are being run, or how they are
• Problems of proposed relocation (Boston) four, or even five, tiers, a surprising number of cases of
penalised for their financial failure.
• Sale and lease-back issues (Bournemouth) alleged and proven criminal activity by directors of insolvent
Today, insolvency carries no significant stigma, and for
• Potential conflict of interest through ownership by a clubs were identified. These include fraud, conspiring to
many English clubs going into administration has become a
club's director (Cambridge United) cheat the public revenue, personal finance offences, and arson
legitimate business tactic. English football companies (for
• Stadium of inappropriate size (Darlington) of the club's stadium.
they have been companies, rather than clubs, in most cases
• Sale of stadium without finalising an alternative To this must be added the numerous examples of breaches
since shortly after professionalism in 1885) are - from a
(Margate) of Football League rules for what are generically termed
managerial perspective - no longer 'a beautiful game' but an
• Dispute with previous club owner who retained 'financial irregularities'.
'ugly business'. In no other sector would such high levels of
ownership of stadium (Rotherham) Future prospects
insolvency, frequently prompted by incompetent
Renaissance Under present rules, a club going into Administration
management, or management driven by self interest, have
Renaissance is the process of rebirth from the remains of faces a points penalty, and will face further points deductions
been tolerated.
an earlier manifestation. As a phenomenon it is far from new for failing to negotiate a CVA as a way out of Administration.
Ongoing research by a team based at Coventry
in English football. One well-known example is that of Leeds This results in dysfunctional outcomes for two reasons:
University's Centre for the International Business of
City, who, in 1919, disappeared in a wave of accusations 1. Instead of helping a club recover financially, it pushes
Sport (CIBS), led by the author and including Simon
regarding financial irregularities, only to reappear the it further towards a downward spiral of relegation,
Horseman and Jamie Magraw, is beginning to untangle
following season as Leeds United, without any penalty, either reduced revenues, and thus an increased likelihood of
the complex and interacting causes of insolvency in
financial or with respect to league position. having to seek protection through going into
English Football and its interim findings have been
It is important to distinguish between what exactly is Administration, sparking a further round of problems
published and are available for free download from
being reborn in this process. On the one hand it is in sense and descent. For Halifax Town, for example, a third
http://www.coventry.ac.uk/researchnet/d/755 as Working
essential that the club, as a social focus and local icon, should round of Administration in nine years proved a round
Paper no.4.
be reborn. But the rebirth of the company is another matter, too many.
The most startling, if not entirely unexpected, finding is
as is the question of whether there is a change in ownership. 2. In cases where, during the period of Administration,
the sheer scale of insolvency in the period since 1986, when
The Football League now requires that clubs in new owners have stepped in, it is the new owners who
new legislation changed the procedures for companies
Administration seek a Company Voluntary Arrangement face the penalty of points deduction, in effect being
becoming insolvent. A total of 69 instances have been
(CVA). This is a negotiated arrangement for the company to punished for the poor management of their
identified, involving 56 clubs. Of the 69 instances, 59
repay some or all of debts against future profits, and allows predecessors. This is not only unfair, but it deters new
occurred to clubs which have at one time been in the top 92
directors to resume control of the company from the backers coming forward to attempt a rescue. Luton in
clubs of the Football League, and 67 to clubs which have at
Administrator. In the meantime, the company retains a particular have suffered from this, which is to say the
one time been in the top five tiers of the League.
measure of protection from court actions over debts. On paper least ironic as it was the whistle-blowing by their
The legal process of Administration is not randomly
this is a sensible idea, but changes in the law have produced manager that provoked the penalty. Their punishment
spread across English football's pyramid - no club has gone
a significant complication. From September 2003 the Inland contrasts strongly with that handed out to West Ham
into Administration while in Tier 1, and at Tier 6 and lower
Revenue and Customs & Excise (now merged to form HM for the 'Tevez affair', where the Football Association
levels there are few instances; it is the blight of Tiers 2, 3, 4
Revenue and Customs (HMRC)) lost their legal status of did not deduct points, reportedly on the grounds of “the
and 5 clubs in particular. The table of League Division 2 (tier
'preferential creditors'. Under Football League rules, this club's guilty plea and the fact that they are under new
4) at the start of this year's season exemplifies this point with
meant that football creditors (for example, other clubs owed management and ownership”.
Luton, Rotherham and AFC Bournemouth already sitting in
transfer fees) became de facto 'preferential creditors'. Not Unless this policy is reviewed, the number of
the relegation zone with minus points. This situation has
surprisingly HMRC took a dim view of this, especially with Administrations will continue to rise, and the prospect of
arisen as a direct result of the problems the three clubs have
respect to debts for VAT, which they see as their money, clubs failing to achieve renaissance will inevitably increase.
had with insolvency (except for ten of Luton's points which
collected by the clubs but not handed over. This has meant The CIBS research has, unfortunately, painted a bleak
were deducted for other reasons), and the reaction of the
that clubs now face a significant stumbling block in view of the future for English
Football League to their plight. Luton, with -30 points, face a
establishing a CVA, and failure to do so leads to further points Football, with the number of clubs going into
long uphill battle, with Rotherham and Bournemouth, each
deductions. Administration on the increase again. Although the various
beginning the season with -17, locked in a struggle to see who
Fighting off HMRC is not inevitably a losing battle. governing bodies have introduced 'fit and proper person tests'
can avoid the second relegation slot.
Southend (2000) and, since the loss of preferential creditor to make sure only the right people are allowed to manage
One objective of the research project is to identify
status, Grimsby Town (2005) and Rochdale (2007) are all football clubs this clearly isn't working. What is needed is an
'archetypes' of clubs which have been insolvent and thus
reported to have successfully negotiated a settlement with acceptance that bringing the game into disrepute is a charge
identify the circumstances in which clubs become insolvent.
HMRC, but they are the exceptions that should be brought when appropriate against owners,
Eight clubs have become insolvent following relegation from
Another area of concern is the process of 'phoenixing', chairman and debtors and not just against team managers and
the 'top flight' since 1986, to which Middlesbrough might
where a significant number of those previously involved in players. Failure to address the problem before it grows to the
almost be added, becoming insolvent in 1985. The peak
the ownership and/or management of the company become point where large numbers of major clubs reach financial
season for this was 2002/03 and is associated with the
the new owners/management. meltdown may lead to the death knell of the English game as
collapse of ITV Digital, although the research suggests that
Irregular activities, alleged and proven we know it.
FSA
this collapse was more often a catalyst of rather than a cause
For what is essentially a business sector of a relatively By Dr John Beech
8 | FOOTBALL & SPORTS ARENA | September/October 2008
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