Survey reveals financial concerns among British clubs

The fifth-annual PKF survey of top English and Scottish club directors revealed that precedence has become success on the pitch, with financial concerns taking a back seat.

"Many football clubs are multi-million pound businesses with high levels of debt," said Charles Barnett, a partner for PKF. "Although there has been an improvement in the relationship between clubs and their bankers, this has not yet led to a meaningful reduction in the levels of personal guarantees, and there is an indication that levels of bank debt are clearly still too high."

Players' wages remain the foremost concern for 48 percent of finance directors this year, but that has dropped from 55 percent in 2005. Clubs are more concerned about the threat of lost income following relegation, up from 28 percent in 2005 to 36 percent.

The concern for the related ability to continue to attract sponsorship has also risen to 30 percent in 2006 from 21 percent in 2005. More than a fifth of English Premier League and Scottish Premier League clubs expect to increase the size of their first team squads, but 44 percent and 80 percent respectively will spend more on the payroll.

England's Championship League has only one in ten clubs planning to increase the squad with 50 percent looking to shrink numbers, suggesting that many consider winning promotion beyond them.

"The report illustrates the conundrum that club finance directors at all levels face; success on the pitch is key to a healthy balance sheet but the price of failure is severe," said Philip Long, head of corporate recovery at PKF and a football sector specialist.

The economics of competition in football means that as upward pressure is exerted on wages in order to reduce the risk of failure downward pressure is exerted on profitability.

Six of ten clubs surveyed do not expect to make a pre-tax profit in the next accounting period. While 67 percent English Premier League 60 percent of Scottish Premier League respondents expect to remain in the black, 70 percent of English Championship League clubs and every Scottish First Division clubs anticipate taking a loss.

"Clearly there are a number of clubs in the Premier League with major backing and very deep pockets and it is incredibly difficult for less fashionable clubs to compete either financially or on the pitch," Long said. "Football finances are increasingly becoming a gamble; clubs need to spend more to earn promotion or avoid relegation but they risk upsetting their financial stability if they invest too much or in the wrong players. This problem is likely to get worse with the increase in the value of television rights from the next Sky and Setanta deals."

"The danger for clubs who continue to put up the price of their tickets to finance their ambitions is that they will price themselves out of the market," Long said. "With alternative avenues for their sponsorship budgets, there is widespread evidence that corporate supporters are not renewing their boxes because of steeply rising costs and more competitive offers from rugby clubs."

All four of the Scottish First Division clubs questioned said they would not turn a profit in the next financial year, while three out of five SPL directors said they expected their clubs to make a profit during the next accounting period.

SPL clubs continue to live on the edge of financial hardship as 40 percent had increased their bank facilities within the past year, an option none of the First Division boards had utilised.

Sixty percent of SPL respondents have directors' guarantees on their borrowings, the highest percentage in Britain.

The vast majority of SPL clubs surveyed admitted their wage bills will increase in the coming season, but half of the clubs questioned in the First Division said their salary budget will drop.

The inflexibility of players wages, loss of income due to relegation and ability to attract sponsorship money head the list of concerns over the next 12 months. One SPL club fears a drop in television income is a bit surprising after Setanta announced a new deal just last season.

The biggest increases in revenue for Scottish clubs recently has arrived from ticket sales, television and radio deals and merchandising, while English clubs lean toward new media, ground naming rights and alternative uses for stadiums on non-match days to meet costs.

Source: euFootball.BIZ © Copyright 2006 - All rights reserved.