Betfred Sport

Poor financial advice or economic misfortune? Evaluating clubs in administration

In a perfect footballing world, all clubs would be on the same level, both on the field and financially.

Would be equal competition, no advantages in revenue and transfers would basically be resolved by the player choosing the club he liked the most, and not by who could pay the most for him.

Obviously this is far from a reality but it is something worth thinking about. Would equality across the board prevent certain clubs from running into financial woes or would nothing change?

As it stands, there is a massive gulf between the so called “big” teams and the middle to lower level clubs and the strain is beginning to show.

Clubs like Real Madrid and Manchester City can spend exorbitant amounts of money on player fees and wages, and it puts pressure on the other teams just to survive in the league. However that is only the football side of it. On the other side lies the business aspect. 

How revenue is handled

Large clubs have massive sponsors and initiatives which keep them running steadily. Gates from ticket sales and shirt sales also factor in, but the major thing that keeps these clubs in the clear is how their revenue is handled to offset costs in the club. Granted many of the big clubs also have serious debts but still manage to sustain themselves.

This brings me to the main issue. Do smaller clubs have more trouble offsetting their costs due to the economic strain? Or is it down to bad business decisions and equally bad financial advice?

In late 2011/early 2012, three clubs in Britain went into administration: Rangers, Port Vale and Portsmouth. Of these three, two of them; Port Vale and Portsmouth are in administration for the second time.

Portsmouth going into administration for the second time was unfortunate, but expected. The continual shifting of owners and lack of financial stability has ultimately proven to be the club’s demise.

Before point deductions were implemented, clubs were known to use administration as a way to clear their debts, restructure and start again. Now that there is a clear penalty for going into administration, there is an argument that the financial situation will hinder clubs’ on field successes as well. 

Administration woes

Constant borrowing of funds is one of the main reasons for administration woes, but this borrowing and inability to repay also affects the employees, especially the footballers. If footballers aren’t paid in time, as was the case with Portsmouth, doubts begin to creep in. These doubts have an adverse effect on the club’s results.

So we’ve established that Portsmouth’s administration was self inflicted. But what about Port Vale?

Port Vale struggled to pay a hefty income tax bill and as a result, are now in administration for the second time in nine years. As with Pompey, the players haven’t been paid their wages but have received hardship payment.

A club in League Two going into administration isn’t surprising but still begs the question as to how these things are allowed to happen.

The parent companies of these clubs normally have financial difficulties themselves; therefore putting added pressure on the club. Rangers’ case is a very odd one. The club owes large sums of money, ironically, from efforts to reduce tax. 

Shoddy sales and questions about ownership

Their tax bills remain unpaid and interest as well as any fines accrued will also have to be factored in. Rising wage costs, shoddy sales and questions about ownership only further serve to blight the club’s situation.

The most puzzling find by the administrators was that $24million, which was lent to the club, has yet to be sourced. The advisers to the club and the ownership have to shoulder the blame as clearly many discrepancies exist.

On the football side, however, the situation doesn’t seem to have affected the club as much. The players have agreed deals to restructure their contracts and despite the points penalty, they are still second in the league. The win over their rivals Celtic this weekend, that prevented the Bhoys from clinching the title at Ibrox, serves to show that the football hasn’t taken a hit despite the financial issues.

Long term, club administration is a second chance for clubs to handle their affairs better; a clean slate if you will. Whether a team can survive from it is another story but it is a necessary stumbling block for some.

Based on the recent evidence, it all comes down to the way a club handles its resources to offsets costs and debts. The potential buyers found while in the administration period act as a lifeline to improve the club.

However, if certain actions aren’t changed and better care taken with the business that is a football club, administration will be the least of their worries.

By Kai Maynard

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