Is football facing a financial crash?

Is football facing a financial collapse? This week, Rangers and Portsmouth have gone into administration, leading some commentators to draw comparisons with the banking collapse. Consultants AT Kearney warned that this could be the start of a financial crisis for European football. Some of the same ingredients are there, such as huge debts and a financial bubble, in the form of rapidly rising salaries and transfer fees.

If the collapse of small institutions was an early warning of the banking crisis, there may be similar signals coming from the lower leagues. Fans of top flight clubs rarely pay attention to what is going on further down the table but, over the past five years or so, a number of former league clubs, and those which once had league aspirations, have quietly gone to the wall. Names which were once read out at five o’clock are now no more. Chester City (2010), Halifax Town (2008), Nuneaton Borough (2008), Rushden & Diamonds (2011) and Scarborough (2007) have disappeared. Among others, Darlington, Kettering and Accrington are struggling to avoid the same fate. Usually, when major clubs go into administration, a rescue package is put together. Most fans assume that this will happen somehow but the experience of the lower leagues clubs shows that football clubs can, and do, collapse completely.

But, compared with other business sectors, football is unusual because so few of its firms have gone bust. Stefan Szymanski of Cass Business School notes that, of the 88 league clubs that existed in 1923, 85 (87%) still existed in 2007. Over a similar period, only 50 percent of the top 100 companies survived. Compared to other industries, the survival rate of football clubs is remarkably high. In some respects, says Professor Szymanski, football is in rude health. Thanks to sponsorship, TV rights and merchandise, the top flight clubs have, despite lower attendances, seen a rapid increase in revenue over the past two decades.

But the distribution of this revenue has been uneven, to say the least. Many clubs have relied on rich businessmen to cover their ever-increasing costs. Without these sugar daddies, the clubs would be insolvent.

Thanks to UEFA’s financial fair play rules, which will limit the loss a club is allowed to make, the era of the sugar daddy may be drawing to a close. The rules are an attempt to regulate the system, prevent a financial bubble and avoid a meltdown. However, as Professor Szymanski warns, things might get worse before they get better:

Sugar daddies have been the salvation of insolvent clubs since time immemorial. Anything that makes it less attractive to play the Sugar Daddy, as Financial Fair Play does, must make bankruptcy more likely. It’s ironic, but the regulations created by UEFA to ensure the financial stability of European football might just be the push that tips the whole industry over the edge.

A.T. Kearney agrees:

Running as normal companies, the leagues in Spain, England and Italy would be bankrupt within two years.

The report also warns of contagion as “a systemic failure similar to that seen in the banking industry” causes the crisis to spread from club to club and league to league.

Most football fans know, intellectually, that football is now a business. Emotionally, though, few of us have accepted the implications of this. In most business sectors, a number of companies go bankrupt from time to time. For an industry with 116 firms (the Conference is now almost all professional) to have no business failures would be very unusual. Yet, as football fans, we are saddened when any club goes under, especially if it is the one we have supported since childhood.

But the evidence suggests that it’s something we are going to have to get used to. Sooner or later, bankruptcy will work its way up from the lower leagues and start to infect the major players. Big clubs with proud traditions will go under. Football fans may weep outside stadiums but, by then, there will be little they can do about it. Football teams are companies and companies go bust. It may be sad but, hey, that’s just business.

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One Response to Is football facing a financial crash?

  1. Pingback: Is football facing a financial crash? - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

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