Financial crunch time for football clubs

FOOTBALL clubs in the English League – from the Premiership down – are under increasing financial pressure, according to an in-depth survey of football club finance directors published by accountants and business advisers PKF.

PKF’s seventh annual survey, entitled Under Pressure, shows that as more Premiership teams anticipate making a loss this season, there has been a dramatic rise in those using more than 90% of their overdraft – up from 46% in 2007 to 89% this year – and a third have faced problems sourcing finance. 

Charles Escott, corporate recovery partner at PKF in Leeds and a football sector specialist, said: “Clearly, the credit crunch is being felt across all clubs in the English League – even the Premiership is not immune.  Given the present economic climate, it is understandable that banks are more reluctant to lend, but this may also reflect a deep-seated unease about the financial viability of some Premiership clubs.

“We have so far only seen the beginnings of the credit crunch ripple effect.  It is proving to be a reality check for the big teams who are having to look at ways of tightening their belts, which should ensure the long term future of the game.”

Mr Escott said that despite the estimated £60m that Hull City will gain from its debut season in the top tier of English football, it is facing an uphill struggle.

“When you see that the average Premiership club is spending 65% of its income on player wages – how on earth are Hull going to compete with that? It’s not a level playing field.”

The survey says the predominance of the role of TV and radio deals in football is even stronger this year with 41% of those who responded to the survey – and 78% of English Premier League respondents – saying that TV and radio deals generated the biggest percentage increase last season – up from 20% last year.

The growth in the rate of increases in ticket prices continues to weaken – from 48% in 2006 to 32% in 2007 to just 14% in this year’s survey.  This, says PKF, may reflect both the recognition by clubs that fans are reluctant to pay high ticket prices and that the steep rises in fuel and food costs mean that fans cannot afford the ‘luxury’ of a ticket.  The income generated by conferences and catering also appears to have been adversely affected.

“Although clubs remain heavily reliant on media, ticket and sponsorship revenues, the relative importance of different revenue streams is less polarised than in the past as clubs have responded well to the challenge of broadening their resources,” said Mr Escott.

Mr Escott said it was important for Leeds United to get a good start to its second season in League One to encourage fans to attend games as it is not going to attract a substantial number of corporate guests.

“The more time they spend there (League One) the more their income will reflect the hardcore fan. They need an exciting start to encourage the local populace to attend matches,” he added.

English Premiership clubs are demonstrating a massive change of heart over performance-related pay.  Due to mounting financial pressures, three quarters of Premier League sides are now applying performance-related criteria to between 10% and 25% of the first team squad’s salary, which will almost certainly help clubs gain control over their finances and focus resources on their best players. Last year, less than a third of clubs in the Premier League were doing this.

The survey reveals that the inexorable increase in player payroll costs continues and for the fifth year running the inflexibility of salaries continues to top the list of financial directors’ concerns. 

The survey also shows that 14% of financial directors rate their financial situation as in need of attention, or worse. One way, it appears, that teams across all leagues are combating this is by reducing their first team squad sizes – two thirds of Premiership clubs are reducing their first team squads this year compared with only 15% in 2007.

Mr Escott said: “Excessive spending has created a false economy in football.  While some clubs with huge financial backing can buy their way to the top, others are being forced to try and compete by spending money they don’t have. 

“On the basis that 17% of all clubs have reported that they will be spending over 65% of their turnover on player wages this year, it is not surprising that many anticipate making a loss.”

Free copies of the PKF survey Under pressure – the annual survey of football club finance directors 2008 – are available from the PKF Football Industry Group via parita.patel@uk.pkf.com or from the firm’s website – www.pkf.co.uk