Insolvency Events among English Football Clubs

Article excerpt

Executive summary

The seeking of protection from creditors by turning to the courts is perfectly legal, but for a conventional business would normally be 'clutching at a last straw'. Increasingly since 1986, with the introduction of new insolvency legislation, it has been a regular feature of business activity in English football. Among members of Football League Division 1 and Division 2 for the 2008-09 season, more than half have suffered an insolvency event in recent years. This paper reports on the second phase of a major research project into insolvency events in English football clubs, both professional and semi-professional. Through a review of the development and commercialisation of football, the difficulty of applying theory developed for conventional profit-seeking sectors is identified, as is the need for a methodology that incorporates both aggregative quantitative approaches and qualitative approaches that recognise the uniqueness of each club.

From the findings of both the first phase of the project, reported initially as Beech, Horsman and Magraw (2008), and the more intensive second phase, a series of five types of insolvency are identified: clubs that have failed to cope with relegation; clubs that have failed to pay monies due to the UK government (in the form of taxes, National Insurance contributions etc); clubs that have seen 'soft debts' become 'hard debts'; clubs that have lost the ownership of their stadium; and the 'repeat offenders'.

The paper concludes with an indication of the lines of research to be undertaken in the third and final phase of the wider research project, and an indication of the implications of the research findings so far for other professional sports.

Introduction

Facing financial difficulty is not a problem unique to English football (i.e. Association Football) clubs. The scale at which English football clubs now enter Administration (court protection from their creditors), however, is now so great that it might almost be seen as a legitimate business tactic. Although clubs have, since 2003, faced points deduction for following this course of action, there are increasing calls for automatic relegation from the chairmen of some clubs, including Graham Turner of Hereford United and Barry Hearn of Leyton Orient. They argue that clubs entering Administration have been 'spending money that they have not got', thereby gaining an unfair advantage. While this is not a universally held view, the fact that it is promulgated is evidence that some see a scandal in the way that many English football clubs are run.

Football clubs facing financial difficulties are certainly not a new aspect of the game. After the Football Association reluctantly allowed professionalisation in 1885, and indeed for some years before this, when illegal payments to supposedly amateur players had become almost the norm in a number of the clubs who would come to dominate the professional game, cashflow (and profit and loss) became an inevitable issue. Most clubs changed their legal format to become limited companies because the responsibility of maintaining payments to their employees, the now openly professional players, and to suppliers, placed the owners of the clubs in a financially vulnerable position.

In the early days of the professional game the challenge to balance the books, let alone make a profit, proved too much and some clubs were wound up, unable to continue as viable businesses. By the time of the resumption of professional football at the end of the First World War, however, the professional game had shaken down to a reasonable level of stability among the surviving clubs. It was not until 1962, when Accrington Stanley resigned from the Football League because of debts of 63,000 [pounds sterling] which could not be met, that insolvency reappeared as a real threat to English clubs.

From that time until the mid-1980s, the threat of insolvency remained a rarity. …