‘Meltdown’ in vogue at today’s football clubs

WITH the news today that Aston Villa has appointed a new manager and as the 2010/11 football season gets into its stride, Dr John Beech, head of sport and tourism at Coventry University, examines some of the business issues affecting the region’s clubs.

EACH year I pick a word or phrase that seems most in vogue on my Football Management blog, and ‘meltdown’ is certainly the current one.

A number of high profile cases brought by HMRC (targets include Cardiff City, Crystal Palace, Preston North End, Rushden & Diamonds, Sheffield Wednesday and Southend United as well as the deeply troubled Portsmouth) make clear that, not only is football ‘a funny old game’, it is also ‘a funny old business’.

Take the recent story of Martin O’Neill’s resignation from Aston Villa as an example. Mr O’Neill, an employee in a senior position, seems to have been at odds with Randy Lerner, the club’s American owner, over how much should be spent on growing the business.

In short, he wanted to spend more than Mr Lerner thought sensible. How often do people resign in other sectors because the company is failing to spend money?

Mr Lerner is an unusual example of what is becoming almost the norm in Premier League clubs – an overseas owner. In his case, he does not as clearly fit into the traditional benefactor owner model as exemplified by, for example, Jack Hayward at Wolverhampton Wanderers.

While, in general, injecting money into a football club with little concern for achieving a profit tends to produce success on the pitch, it is only too clear that such injections are no guarantee of success.

The trend today is away from old-style ‘sugar daddies’ to new-style ‘investors’, but this has not proved as particularly successful model for those concerned, as the present troubles at Manchester United and Liverpool clearly demonstrate.

There is then an ambiguity on how a football club should operate as a business. The normal assumption of trying to profit-maximise in the business does not sit well in today’s football sector.

Inevitably, it can lead to lack of goal congruence (pun entirely incidental!). An interesting example of this is to be found at Halesowen Town, where the new owners, the Ingram brothers, find themselves at odds with the supporters trust.

Both parties want what they see as the best for the club, but differ in how they think that should be achieved. This provides an insight into how football differs from other businesses – fans are not mere customers; they see themselves as stakeholders, and increasingly look to achieving fan ownership.

Fans tend to expect owners to demonstrate their ‘ambition’ for the club through, for example, the building of a new stadium. Given that football clubs can go down as well as up, if they fail to perform on the pitch, this is a high risk strategy.

Coventry City have had to face up to life in the Championship, with a great new stadium, but one which they do not own, without the additional revenue streams that had been hoped for. The progressive redevelopment of an existing stadium, as has been followed at Villa Park, is a safer strategy.

This season sees a very high number of West Midlands clubs in the Premier League – Aston Villa, Birmingham City, Stoke City, West Bromwich and Wolves (25% of the total).  In the Premier League, the potential revenues are far higher than in the Championship, the league beneath.

The particular challenge facing these clubs is how to spend wisely, and how to avoid letting their costs as a percentage of revenues drift to an unsustainable level.

The track record of Premier League clubs operating sustainable businesses would suggest that the challenge is a particularly difficult one.