Financial Fair Play in the Football League; Problems Ahead?

Our Football Finance Expert Rob Wilson and Ph.D. student Dan Plumley outline their take on what Financial Fair Play will mean (if anything) for the English Football League clubs in response to the regulations approved on April 25^th.

With the pressure of league clubs facing a cumulative £2billion debt, yesterday (25^th April), Championship clubs in England voted in favour of bringing in new regulations to limit investment from owners and to curb total spending. It is a move that follows the FIFA Financial Fair Play regulations that will be implemented across top-level European teams during the 2012-2013 season (see our previous entry for more on this by clicking here). The news has been welcomed by club directors including Don Rowling of Barnsley who expects the decision to approve the regulations to herald a new era of ‘sensible owners‘.

The highlights of the regulations are as follows;

• Owners are allowed to invest a maximum of £6million in the 2012-13 season
• The above investment drops to £5million the season after (2013-14) and then to £3million for 20014-15
• From 2015-16 clubs are entitled to make a £2million loss + £3million investment from their owner, equating to £5million as an acceptable loss.
• Assuming there is no length of expiry for the £5million loss from the 2015-16 then clubs would be able to make a cumulative £15million loss over three years
• Clubs in breach of these regulations will face fines or placed under transfer embargos
• Any club promoted to the Premier League that fail to adhere to the amendments must pay a fair-play tax on their losses ranging from 1% on the first £100,000 to 100% on anything exceeding £10 million
• Clubs relegated from the Premiership will not be subject to the sanctions in their first season providing that they have met their financial commitments under EPL rules
• No mention of any points deduction as we see with clubs placed in administration

It is worth mentioning here that as those interested in financial management any move to regulate the football industry must only be viewed as a good move. Such regulations will force clubs to act more sensibly, stop chasing dreams and act in a manner that befits the business that it operates within. However, there are some clear implications for the member clubs in the Football League that are worth outlining and, having applied our usual financial analysis techniques, a number of clubs that would be in breach of the regulations were they to have been implemented over the last year or so.

The ‘new’ finances of football (see figure 1) outline how the football landscape has changed since the 1990′s. Football has become big business, but continues to be hindered by spiralling expenses and debt levels. FIFA, UEFA and now the Football League have decided it is time to intervene and the FFP regulations will require many clubs to reinvent their business models, whether in a period of economic uncertainty or not.

Figure 1 – The New Finances of Football

	Yesterday….	Today….
Revenues	Spectators (Matchday receipts)	Broadcasting Income
Costs	Player Registrations	Wages
Investment	Public Money/Funding	Private funding
Ownership	Public (Stock Market)	Private
Regulations	None	UEFA Club Licensing, FFP

The key implications then. Firstly, as with any move to regulate, these rules must be measured by the Football League. They will need to have a series of checks in place to ensure that there is no room for creative accounting or that they allow spurious deals to go through which are marked as ‘income from football related activity’. By way of an example we can look at the way Manchester City have flouted FFP rules by securing stadium sponsorship.

Secondly, with so many clubs in the Championship crying out for new investment one could argue that these regulations will put off potential suitors. The main motivation for the ownership of a professional football club seems to be that of having a ‘Trophy Asset’, and /or the promise of commercial and broadcasting revenue (assuming you reach the Premier League) (see Hamil and Chadwick, 2010). These revenues are only ever realised in the Premiership and history tells us that clubs have to spend to realise them. Given the levels of ‘acceptable loss’ it seems appropriate to conclude that investors will be less interested in what will become a long term project as opposed to a short term game.

Finally, players and agents may get a surprise when they go to renegotiate contracts. The last survey compiled in 2006 by The Independent and the Professional Footballers Association indicates that the average salary of a Championship player is in the regions of £195,000 per year or, between £3,500 and £4,000 per week. Logic tells us that with price and wage inflation post 2006 that these figures will have appreciated significantly to perhaps £7,000 per week (c.£350,000 per year). With players wages traditionally the largest component of expenditure for a football club, it is reasonable to assume that these regulations will give clubs the confidence to drive down player salaries over the long term.

In an attempt to examine how many clubs in the Championship would be in danger of not meeting the acceptable loss requirement at present, the table below shows the annual and cumulative losses of 21 clubs who have been part of the Championship over the previous 3 seasons. Only 4 clubs made an aggregate profit (Leeds United, Watford, QPR and Reading). It should be of note here that we are unable to obtain figures for Portsmouth, Crystal Palace or Doncaster Rovers and that the figures for Coventry City in 2011 are also omitted. Moreover, our analysis is based on football ‘club’ accounts rather than ones from ‘holding companies’, firstly to provide consistency in the comparative analysis and secondly because much of FFP is based on football related activity.

Key

Clubs making profit and clear of break-even regulations

Clubs making a loss but within the threshold

Clubs making a loss and outside the threshold

Retained Profit/Loss figures
Championship Clubs (season 2010/11) (figures in £’000)
	2009	2010	2011	Total (Cumulative)
Leeds	15	2,072	3,504	5,591
Watford	-1,788	-3,689	9,469	4,172
QPR	418	176	343	937
Reading	3,744	1,866	-5,026	584
Scunthorpe	-1,059	-481	1,443	-97
Burnley	-7,514	10,247	-4,021	-1,288
Barnsley	-3,640	-1,021	-257	-4,918
Millwall	-3,736	-2,885	23	-6,598
Swansea	-552	602	-8,254	-8,204
Sheffield United	9,790	-5,328	-13,319	-8,857
Coventry	-7,610	-3,071		-10,681
Norwich	-5,045	-5,757	-3,941	-14,743
Cardiff	-6,599	914	-11,821	-17,506
Preston	-8,024	-5,495	-5,964	-19,483
Bristol City	-4,389	-8,785	-9,650	-22,824
Middlesborough	-9,649	63	-13,818	-23,404
Derby	-14,930	-2,164	-7,679	-24,773
Hull City	1,397	-6,831	-20,472	-25,906
Leicester	-6,194	-7,530	-15,216	-28,940
Ipswich	-12,674	-14,736	-3,175	-30,585
Notts Forest	-8,524	-12,344	-11,378	-32,246

A further eight clubs meet the criteria of an aggregated £15m loss over three seasons, based on the assumptions outlined above. These are the clubs highlighted in amber in the table. Interestingly, in this group two of the clubs (Swansea and Norwich) gained promotion to the Premier League last season whilst two of the other clubs in the group were relegated to League 1 (Sheffield United and Scunthorpe). With promotion to the Premier League estimated to be worth in the region of £90m to a football club it is reasonable to suggest that both Swansea and Norwich will report improved figures in the next few seasons particularly seeing as both clubs look set to avoid relegation this year and have not overspent on players and player wages. Contrastingly, the two clubs relegated to League 1 would have anticipated a drop of around £4.2m in revenue due to decrease in centrally funded payments to teams and a further decrease in television revenue.

The remaining nine clubs (highlighted in red) are those considered most at risk from the forthcoming regulations in relation to their financial performance over the last three seasons. These clubs would need to seriously consider adapting their respective business models over the coming seasons. An interesting example here is Cardiff City, and to some extent Middlesborough and Hull City who have been consistent in qualifying or almost qualifying for the play-offs in recent years, but always falling short of reaching the promised land of the Premier League. If these clubs were to be promoted to the Premier League then revenues would increase substantially but the evidence here points to a number of clubs who are still ‘chasing the dream’ in the Championship and over-extending themselves financially to do so. It is also worth noting that a high number of clubs in the Championship report fluctuating turnover figures ranging from considerable profits one season to substantial losses the next. Often this is due to parachute payments from the Premier League for clubs which have recently been relegated from England’s elite division (note Sheffield United, Reading and Hull City in 2009). Each club’s annual profit/loss swing is highlighted in the graph below.

In summary, analysing clubs directly against FFP is difficult without internal access. Furthermore, the break-even analysis is essentially the only factor considered, meaning that there are inherent shortcomings within Financial Fair Play. Alternatively, it would be more prudent to consider the financial performance of clubs in relation to a number of key indicators of business performance. This is definitely a step in the right direction for the Championship however, and the Football league will be hoping that it will herald in a new era of sensible owners and sustainable financial management in English football.

Crouch, Touch, Pause, Disengage?

This blog entry was prepared on behalf of www.runningrugby.com by David Barrett, Research Fellow, SIRC.

Most eyes will be focussed on a small corner of East London this summer, as the self-proclaimed ‘Greatest Show on Earth’ comes to town.  The 2012 Olympic Games promise to inspire a new generation of young people to take up sport and physical activity.  Indeed, the much hoped-for legacy of increased participation was cited by many observers as one of the key reasons why the IOC opted for London over Paris back in 2005.

Rugby will remain on the touchline this time around, taking its bow (in abbreviated form at least) in time for the Rio games in 2016.  And there is the small matter of the World Cup in 2015 to deal with before then.  The RFU will no doubt be hoping for a boost in participation from something known as the Demonstration Effect.  This applies to people who take their inspiration from performances by elite athletes at high profile events such as the Olympics, to increase their own levels of involvement.

A good example of a sport which is thought to have benefitted from the demonstration effect is cycling.  Sir Chris Hoy’s hat-trick of gold medals may have caught the imagination of the public in 2008, but the steady increase in interest and participation in cycling can actually be traced back to Jason Queally’s 1km time trial success in Sydney.  Some might say that it goes back even further, to Chris Boardman’s individual pursuit gold medal in Barcelona.

Rugby Union’s authorities will certainly be grateful for any boost to participation as they attempt to reverse a decline which has seen over 50,000 players leave the sport since 2007, 15,000 of whom gave up in the last year alone (see fig.1, below).  As a result, Sport England have reduced their annual funding to the RFU by £1 million, and the two organisations have agreed to prioritise the grassroots game.

Figure 1 – Rugby Union Participation, 2007-2011

The government measures participation by means of an annual survey, conducted by Ipsos-MORI on behalf of Sport England.  The Active People Survey is now into its 6^th edition, and provides comprehensive participation statistics on the full range of sports practiced in England, from Athletics to Zumba.  The size of the sample (over 166,000 at the last count) allows detailed breakdowns of participation by age, gender, ethnicity, income and geography.  The preferred measure of participation is once a week for 30 minutes.

Figure 2 – Weekly Rugby Participants by Region

When the figures are broken down by region, some particularly startling variations emerge.  In the south west for example, there has been a significant increase in the full, 15-a-side version of the game, with 14,300 more players participating once a week in 2010-11 than in the previous year.  In contrast, the South East lost 20,600 players over the same period, while London lost 6,100.  It seems reasonable to ask where these players have gone.

Figure 3 – Rugby Union, Weekly Participation in the South East

Drill down to county level and the falls in participation are even more startling.  The most significant falls between 2009-10 and 2010-11 were in Hampshire and Kent, with over 5,000 players lost in each county.  In London, only one county sports partnership – London South – saw an increase in participation, while in London East, where the Olympics will be staged, the survey data suggests that the game has all but disappeared.

The overall picture is not an encouraging one, but Rugby Union is far from being an isolated case.  Participation in most sports funded by Sport England fell significantly between 2007-8 and 2010-11.  Football lost nearly 28,000 players over the period, while in Golf (115,000) and Tennis (112,000), the reduction was even more severe.

Figure 4 – Rugby Union, Weekly Participation in London

If times are hard for Rugby Union, they are no easier for Rugby League.  The Active People Survey suggests that the 13-a-side code has lost 31,000 players since 2007-8, with 1,400 giving up in the last year.  Figure 5 shows that In London, where the presence of the Broncos might have been expected to have given a boost to participation, there were 1,000 fewer players in 2010-11 compared with the year before.  Most of this drop was accounted for by London Central, which had the highest number of regular participants in the region in 2009-10, but had lost 1,200 players by the following year.

In Kent, Surrey and Sussex, Rugby League appears to have made some gains, but these are offset by falls in Hampshire and (more significantly) Essex.  In truth however, these are marginal changes, and it would be unwise to get too excited – the weekly participation rate for Rugby League in the South East is 0.03%, equating to 1,600 players out of an adult population of nearly 7 million.  Even with the recent changes, there are still seven times as many people playing Rugby Union in the region.

Overall then, while there is no denying that Rugby Union has lost a significant number of players over the last few years, it cannot be said for certain the Rugby League has closed the participation gap to any significant extent.  While the 13-man code has maintained some presence across London and the South East, it has not yet achieved consistent and sustained growth.  At least according to the official figures.

For the first time however, doubts are beginning to emerge about the effectiveness of the Active People Surveys in tracking changes in sports participation.  Sports Minister Hugh Robertson MP recently admitted in a Westminster Hall debate that,

“The measurement system is very tough and people have to play three separate instances of sport…we are not convinced that enough young people are being picked up.”

(Westminster Hall debate on community sports facilities, 1^st February, 2012).

Evidence from the Sport and Recreation Alliance’s latest biennial survey of sports clubs suggests that far from losing players, the majority of grassroots clubs in both codes are growing.  Indeed, this was the case when SIRC conducted the survey on the SRA’s behalf in 2009.  So if clubs are increasing their membership, why isn’t this translating into tangible increases in participation?

Figure 5 – Rugby League, Weekly Participation in selected County Sports Partnership Areas

At club level, the persepective is slightly different.  Jarrod Lawrence is the chairman of Dartfordians RFC.  Based at Bexley in south east London, this Kent 1 club is proud to number Mike Friday and Topsy Ojo among the professional players who have graduated from its substantial junior section.  The club is a Saracens partner club and the Bourne Road ground played host to a number of Super League clubs when London Broncos were based nearby at The Valley.  He is clear that ultimately, the disappearance of so many players can be blamed on one thing.

“We’ve lost players because of the recession, rather than competition from other sports.  Last season we were fielding five sides out on a Saturday, easily.  This year we’re struggling to get three out regularly, and I’d say it was a similar story at most clubs in Kent and south east London.”

Jarrod says that his club are aware of an increased presence from Rugby League, but doesn’t regard this as out and out competition.  “We haven’t lost any players to League.  At least I’m not aware of us having done so.  Some of our players play a bit in the summer or do a bit of training with Greenwich Admirals.  There’s a complimentary set of skills, so cross-fertilisation benefits both sports.  But there hasn’t been any demand from our members to set up our own League side.”

This awareness of Rugby League’s local presence almost resulted in a groundshare with Kent Ravens in recent years.  “They asked us about using the ground in the summer.  I think they were using a ground in Dartford at the time, which was costing them a lot of money.  But we had to say no in the end because our cricket section would have been squeezed out.”

When pressed a little further on the impact of the recession, Jarrod reveals that it’s not just the cost of subs and match fees which increases the pressure on players.  “More and more of our players have had to work on Saturdays, especially the younger ones.  They prefer to play for the colts on Sundays, when they’re playing with their own age group, but that makes it harder to put a team together on the Saturday.

Dartfordians’ response to the loss of players in recent years is indicative of the likely direction of sports development after the Olympics.  Work will begin soon to implement phase one of a wholesale redevelopment of the clubhouse, to improve and expand the number of changing rooms.  In particular, the club will be able to offer women’s rugby for the first time.  “We’ve dabbled in the past, but the changing rooms have held us back.  Once the building work has finished, we’ll have separate ladies changing rooms, and better facilities for the juniors.  We already get upwards of 400 kids here every weekend, with a steady stream of kids from local primary schools.”

This battle to attract funding for the development highlights a paradox faced by many amateur sports clubs, not just those in Rugby. To be able to offer the sport to women and young people requires facilities of a sufficient standard, but the cost of putting these in place is often prohibitive.  And yet, without being able to demonstrate participation across genders and age groups, it is increasingly difficult to tick the equity box in order to secure the necessary funding.

It remains to be seen whether the drop in Rugby Union participation is a permanent one, or whether the eventual end of the economic hardships of recent years will see a recovery in the numbers turning out for clubs like Dartfordians.  Hugh Robertson feels that “the sport governing bodies who now have responsibility for the matter have not worked out the consumer behaviour changes that are required to make it work”.

That both codes of rugby have lost players since the start of the recession is beyond question.  This is not however due to a fundamental shift in the balance between the two.  While Rugby League has made some progress in attracting players, we cannot say with any certainty that additional participants are ex-union players trying their hand at playing the ball.  There may be some scepticism over the extent to which official figures capture the true extent of participation in sport in general, and in rugby in particular.  The fact remains that unless and until an alternative participation measure is introduced, in the words of the Sport Minister, “getting it shifted is absolutely at the centre of what we are trying to do.”

From Mashies to £Millions

From humble beginnings and spurious names for golf clubs, the sport and golf tourism is a global industry.   Here at SIRC we have undertaken numerous evaluations of major golf events over the last decade and have strengthened our links with major golf organisations over the last two years with economic impact studies at some of the major championships held in the UK and Ireland, including:

• The Irish Open 2010 at Killarney, for Failte Ireland;
• The Open 2010 at St Andrews, for the R&A and EventScotland;
• The Open 2011 at Sandwich, for the R&A and Dover District Council; and
• The Ricoh Women’s Open 2011 at Carnoustie, for the LGU, IMG and EventScotland.

The economic impact studies assess the expenditure patterns of event specific visitors and the spending by organisers using monies originating from outside a particular host economy and have increased our understanding of the likely impacts of major golf events.  The approach to each study has been compliant with the economic strand of the national event evaluation framework which SIRC designed for UK Sport and partners in 2009 (see eventimpacts.com) and the data provides rights holders, organisers and event partners/funders with valuable information on what their events are worth from a return on investment perspective.

Scotland as the home of golf is particularly interested in research of this nature as it uses golf tourism as a vehicle to promote Scotland’s tourist offer.  Organisations such as Visit Scotland and EventScotland recognise the significance to the Scottish economy of events such as The Open and Women’s Open and in conjunction with Scottish Enterprise and local councils are incredibly supportive of such events.  The 20 year plan to promote Scotland as a major tourism destination has golf as one of its major pillars and there is no coincidence that events such as the Curtis Cup (2012) and The Ryder Cup (2014) will be staged at Nairn and Gleneagles respectively.

Although SIRC did not undertake the Ryder Cup research in 2010 at Celtic Manor, the impacts ran in to tens of millions of pounds and in 2014 we expect the Scottish economy to benefit significantly from visitor spending on accommodation, food and drink and local travel in particular.  Moreover, anyone who wants to play golf has the access to some of the finest courses in the world which will also contribute to the impact upon Scotland.

The direct economic impact on Scotland (prior to the application of any multipliers) linked to The Open in 2010 was £28.7m which included £22.7m by visitors to Scotland and £6m in organisers’ spending; the direct economic impact of the Women’s Open was £2.8m to Scotland.  The Open generated close on £9m for the paid accommodation sector in Scotland.

The 2011 Open held at Royal St George’s generated a direct economic impact on Kent of almost £20m.  This information coupled with the 2010 data from St Andrews and our understanding of the North West regional economy led SIRC to predict £22m of direct economic impact in England’s North West linked to The 2012 Open at Royal Lytham (before the application of any regional multipliers).

Apart from the economic impact associated with major golf events; they also have the potential to generate significant place marketing effects by showcasing what a host economy has to offer for those attending and also to those watching on television around the world.  Indeed, research undertaken by Repucom International revealed that The 2010 Open Championship was broadcast globally for more than 3,000 hours, by 43 broadcasters via 86 channels, and to 363 million viewers.

According to the media evaluation, exposure of brands and vignettes related to Scotland generated some 283 hours of time on screen, which represents a media equivalency value of £52.6m relative to the cost of such exposure had it been purchased in the commercial marketplace.

Although economic impact and media equivalency values are often grouped together for PR purposes; they are two entirely different concepts.  However, the economic impact figures alone confirm the potential significance of major golf events for any host economy considering a bid to host a prestigious championship.

For information about SIRC’s economic impact studies and other event evaluation work please contact Richard Coleman or Girish Ramchandani.

Problems Ahead? UEFA Financial Fair Play

Ph.D. student Dan Plumley outlines his take on what Financial Fair Play will mean (if anything) for English Premier League clubs.  This is an edited version of a paper submitted to Sport Business and Management Journal.

In an attempt to combat spiralling debt levels and excessive spending European governing body UEFA have implemented measures that seek to address the way football clubs operate financially by introducing their Financial Fair Play regulations.  Financial discipline is an essential element of the measures which, among other things, attempt to curb the spiralling transfer fees.

The main component of the regulations – the ‘break-even’ requirement – will come into force for financial statements in the reporting period ending 2012.  Under the break-even requirement clubs may not spend more than the income they generate.  Clubs will also be assessed on a risk basis, in which debt and salary levels are taken into consideration and they will also have to ensure that liabilities are paid in a punctual manner (UEFA, 2010).

Such regulations would require many clubs to reinvent their respective business models, whether in a period of economic uncertainty or not. UEFA state that the financial fair play measures are not a means of punishing clubs but a way of helping them and to help improve financial standards in European football.  Anecdotally at least, it would appear that many clubs – particularly in England – would struggle to reach the break-even requirement at present.

Admittedly, there are areas of Financial Fair Play that will take time to implement and there are also considerable grey areas within the proposals. Clubs will have a three year window from the 2011/12 season in which to target break-even and risk being excluded from European competition if aggregate losses total more than €45 million (around £39 million) over the same three year period.

There is also scope within the requirements for clubs to enhance future sponsorship deals to increase revenue streams and to commit funds to enhance training facilities and talent development in accordance with UEFA’s licensing requirements on youth development.  Manchester City is a particularly relevant case with respect to the issues raised above.  The club recently recorded an annual loss of £194.9m, the biggest in English football history, and a £73.9m increase on the previous year (2010) where the club lost £121m.

However, this figure does not take into account the club’s sponsorship deal with Etihad Airlines, worth an estimated £400m over ten years, or the income from this season’s Champions League campaign. City continue to work closely with UEFA and insist that Financial Fair Play will not be an issue for them and the losses sustained in the meantime are necessary for the club to become sustainable and grow in the future.

There is more concern that certain clubs in other European leagues – where the brand is weaker than the EPL and television revenues and media exposure are not as high – could be in danger in relation to the new regulations.  Italian club Juventus announced recently their plan to raise €120m through a share sale to combat the worst financial loss in the club’s history (losses of €95.4m were revealed for the year ending June 2011; see Cutler, 2011), whilst the financial problems Valencia have encountered in recent seasons has been well documented, highlighting the dominance of Real Madrid and Barcelona in La Liga and the financial gulf between these two clubs and the rest of the Spanish clubs.

The Bundesliga’s club ownership model and the 50+1 rule (see Dietl and Franck, 2006) has been praised in recent years.  Nevertheless, clubs such as Schalke 04 and Borussia Dortmund are currently in financial trouble and the way in which clubs are run in Germany may need to be revised in the near future.

In an attempt to examine how many clubs in the EPL would be in danger of not meeting the break-even requirement at present, the table below shows the annual and cumulative losses of the 15 clubs which have been part of the EPL for each of the last three seasons 2008-2010. Only four EPL clubs made an aggregate profit (Arsenal, Blackburn, Manchester United and Tottenham).

Club	Ownership Model	2008 (£m)	2009 (£m)	2010 (£m)	2008-10 (£m)
Cumulative profit over 3 years
Arsenal	Stock Market	36.59	36.44	92.32	165.35
Manchester United	Foreign	16.19	67.45	13.54	97.18
Tottenham Hotspur	Stock Market	6.56	29.87	-5.16	31.27
Blackburn Rovers	Domestic	3.03	3.58	-1.90	4.72
Cumulative loss over 3 years, within FFP threshold
West Bromwich Albion	Domestic	7.61	-11.62	2.28	-1.73
Everton	Domestic	0.03	-6.92	-3.09	-9.99
Wigan Athletic	Domestic	-11.21	-5.84	-4.00	-21.04
Liverpool	Foreign	8.37	-14.03	-19.94	-25.60
Fulham	Foreign	-7.54	-6.88	-16.94	-31.36
Cumulative loss over 3 years, outside FFP threshold
Sunderland	Foreign	-2.27	-24.16	-26.18	-52.61
Bolton Wanderers	Domestic	-8.25	-13.39	-35.44	-57.08
Aston Villa	Foreign	-0.77	-30.14	-27.71	-58.62
West Ham United	Foreign	-38.54	-16.25	-21.49	-76.27
Chelsea	Foreign	-70.94	-47.02	-70.44	-188.40
Manchester City	Foreign	-29.66	-89.69	-117.79	-237.14

More alarmingly, six clubs have aggregate losses that exceed the £39 million threshold, two of which (Chelsea and Manchester City) competed in the 2010/11 Champions League. The cases of Chelsea and Manchester City stand out as both these clubs have received capital investment from wealthy benefactors in recent years.  Roman Abramovich’s contribution to Chelsea of over £700m is the largest sum paid to a club by a single investor in English football history.

Profit Loss Graph

A further five clubs meet the criteria of an aggregated £39m loss over three seasons, but clubs such as Fulham and Wigan, who struggle to attract larger attendances and lack the greater commercial appeal of their EPL competitors, fall towards the higher end of the aggregated loss scale.  If that figure continues to rise (as is the case with Fulham) then these clubs will find it difficult to compete financially.

Of note here is that the two clubs currently listed on the stock market (Arsenal and Tottenham) feature in this bracket, whilst Manchester United only de-listed six years ago and plan to raise capital through a proposed floatation in Singapore in coming months, thus reflecting the results found in this study that clubs that float on the stock market return better financial performance.

Even this sizeable investment looks set to be dwarfed in the future by Sheikh Mansour’s input into Manchester City as the club continue to grow both on and off-the-pitch.  This analysis emphasises that the foreign ownership model is empirically related to ‘win’ or utility maximisation principles whilst clubs that float on the stock market place a greater emphasis on profit maximisation and producing a return on investment for their shareholders.

There is an argument, however, that Financial Fair Play will actually achieve very little, other than to further widen the gap between the top six in the EPL and the rest of the clubs. Financial Fair Play is directly related to clubs who wish to apply for a UEFA license and qualify for European competitions, yet all clubs in the EPL wish to conform to the regulations.

This makes sense, as running the club as a sustainable business should be a priority, but the spending power and commercial appeal of the top five or six clubs in England will make it very difficult for the so called lesser clubs to catch up and level out the financial playing field.

Even then, the top clubs will continue to generate more revenue from maintained on-pitch success and driving commercial revenues off-pitch meaning that they will have more money to invest in player talent than other clubs under the ‘spending within your means’ principle outline by UEFA in the Financial Fair Play regulations.

Dan Plumley is a Ph.D. Student based at the Sport Industry Research Centre, in the Hallam Academy of Sport and Physical Activity at Sheffield Hallam University.  The title of his thesis is, ‘The English Professional Football Industry: A Financially Stable Business?’.

Dan is supervised by Robert Wilson and Professor Simon Shibli.

Should they stay, or should they go? Different club, same issues.

Professional football teams often consider relocation to improve financial wellbeing.  Our football finance expert Rob Wilson and resident stadium buff David Barrett examine why.  This blog entry was prompted by an interview request by BBC Radio Lincolnshire following the recent suggestion by Lincoln City FC’s Chairman Bob Dorian, that relocation may be the only way to secure the club’s long term future.

We’ve never fully understood why some people think that a stadium move is the only way to secure financial wellbeing.  On the contrary, our view is that the significant costs involved can actually lead to the opposite.  Look no further than what happened to Southampton Leisure Holdings Plc for evidence.  The company that owned Southampton Football Club went into administration as a result of cashflow problems which were caused in part by the financing of the move from The Dell to St Mary’s Stadium.  Of course this particular case was borne out of more than the £32million build cost for the development of the 32,000 all seater stadium.  Relegation from the Premier League to the Championship certainly didn’t help and attendances dwindled.

The rationale for relocation is frequently based on restricted options, confined space or new opportunities.  Restricted access (in the form of car parking), limited space to rebuild stands to post-Taylor standards, planning restrictions and opposition from local residents affected by matchday congestion, noise and litter (known as negative externalities) may push a club out of their home.  A new site, with sufficient space for a new (all-seater) stadium, including retail outlets, conference and banqueting facilities, road access car parking for 1,000s of spectators may be enough to pull the club away.  But even with both of those boxes ticked, relocation may not always be the best bet.

Attendance is the key point here, and particularly in evaluating Lincoln City’s case.  While Southampton increased their attendances from an average of 16,000 at the Dell to more than 20,000 at St Mary’s, Lincoln City attracted crowds to Football League matches in the region of 3,500.  They now play in a league 3 tiers below the Saints and don’t have a fan base sufficient to generate the crowds required to pay back the capital outlay required for a purpose built stadium.

The likelihood is that Lincoln would look to build a stadium following a similar model to the Keepmoat in Doncaster (i.e. a 15,000 all seater stadium).  This would provide the commercial possibilities that the Chairman seems keen to secure; improved sponsorship deals, better catering and retail outlets, maybe even an innovative income stream such as a hotel or casino.  It would also comply with the all seater rules outlined in the Taylor Report. Notwithstanding the positive benefits that could be included in a purpose built stadium, there are some clear pitfalls for a club like Lincoln but, by definition, some clear solutions;

• With average ticket prices of £16 and an average gate (this season) of 2,500  it would take decades to payback the initial investment.  However, they would be able to host other sport organisations and encourage leisure events and activities from pop concerts to charity days.  This avenue of development is not without drawbacks however.  The city’s proximity to Nottingham and Sheffield may limit the number of large scale big ticket events that could be hosted, and may entail compromise in the design of the stadium.  Fees from non-football events would have to be offset against staffing and licensing costs (among other things), and any profit for the club is likely to be outweighed by profit for event promoters.  Indeed, previous attempts to stage pop-concerts at Sincil Bank could be said to have caused more problems than they have solved.
• Financing construction will be a major hurdle.  Raising £500,000 has been difficult.  Raising £20+ million would be akin to playing in a different league.  Given the current depressed state of the property market, revenue from the sale of Sincil Bank may not be enough to seal the deal, and it may be that LCFC  would have to enter into an arrangement similar to St. Helens RLFC  whose soon-to-open Langtree Park was developed in partnership with Tesco.  The Keepmoat model is another one to consider however, and the club could consider asking entering into partnership with the local authority or another private financier.
• Transfer budgets and team funding will be significantly restricted and certainly should be.  Arsenal have almost, if not fully, recouped the money spend on their Emirates Stadium by limiting transfer activity and renegotiating player contracts, although this has not been a painless process.  Lincoln City should follow that path – the principles are sound but fan expectation is a major hurdle at any level.

Redevelopment may still be the best option. This often comes at a fraction of the cost and in Lincoln’s case could probably be done for one tenth of the capital cost associated with a new build.  The current ground holds just over 10,000 spectators, which is more than sufficient capacity for the Blue Square Bet Premier Division, and well above the minimum criteria for any possible re-entry into the football league.  A sequential redevelopment, following an overall masterplan, which rebuilds the three smaller stands one by one, might be more suitable.

Most of this should be common sense but when the numbers involved start to include lots of zeros and include a sport as passionate as football, rational thought is often the first casualty.  The club need to examine the options carefully, should not get carried away with moving being the only option and need to apply prudence in their financial planning so that they can control costs and maximise revenues.  Modern day football clubs are financed at the top level by more than just paying spectators, with television broadcast rights, sponsorship, merchandising and hospitality.  In the lower leagues this logic does not hold true.  The fans are those that keep the clubs going via their ticket revenue and their helping of pie and peas on a Saturday afternoon.  New stadia are wonderful, but there is nothing worse than an empty ground and empty grounds only lead to one thing – financial chaos.

One last point.  Regardless of the strength of the the push and pull factors in effect in Lincoln, there is one element without which all of the above is academic (if you’ll pardon the pun), and that is political will.  Southampton’s relocation would have happened years earlier (and to an entirely different site) had it not been for opposition from the local council.  Brighton and Hove Albion took the best part of two decades to complete their move to the Falmer Stadium because of delays in receiving planning permission.  Charlton Athletic‘s supporters had to form their own political party in order to persuade local councillors to let the club return to their spiritual home of The Valley.  Any football club considering relocation needs to factor in the attitude of local politicians before making their final decision.

SIRC Arrives in the Blogosphere!

Alright, so it’s a cheesy title, but this is SIRC‘s first ever blog post, and we have to start somewhere.

We are one of three research centres in the Academy of Sport and Physical Activity at Sheffield Hallam University.   We specialise in the use of applied economic evaluation techniques to the analysis of the sport and leisure industries.   In practice this means we cover a wide range of research, from measuring the economic impact of sports events, through the evaluation of physical activity interventions, to performance management appraisal of sports facilities and all points in between.

In the last 12 months we have worked at the Open Championship at Royal St. George’s, the Olympic Park, Crystal Palace and Eton Dorney (London 2012′s rowing venue).  Our recent client list includes England Athletics, Sport Northern Ireland, the R&A and UK Sport.

We present at national and international conferences and seminars across the UK and in Europe, and our staff are regular and frequent contributors to peer reviewed journals (including Managing Leisure, the International Journal of Sport Policy and Politics, and European Sport Management Quarterly).  In addition, we have made numerous appearances on radio and television, and in the print media.  Our 3 wise men, Professors Chris Gratton, Peter Taylor and centre director Simon Shibli are often called upon to advise on and contribute to national debates regarding sports participation, broadcast media and event impacts.

We have developed significant expertise in large scale and on-line surveys, innovative evaluation methods and spatial analysis using Geographic Information Systems (GIS)

In short, we know sport.  And we’ll be using this blog to share some of that knowledge, so come back soon (better still, subscribe)…