12 August 2010: Football club finance directors are cautiously optimistic about their club’s financial position and the forthcoming season according to an in-depth survey of football club Finance Directors published today by PKF Accountants & business advisers. However, experts at PKF warn that the mix of a fragile economic environment and the impact of the recent Budget on consumer and corporate spending could mean the 2010/2011 season is just as tough as the previous season.
PKF’s ninth annual survey, Back on the Ball? reveals a combination of tighter controls on club finances, closer oversight from banks and HM Revenue & Customs (HMRC), but some cautious optimism for increased revenues next season.
Philip Long Philip Long, head of corporate recovery at PKF and football sector specialist, comments: “Overall, the respondents are fairly optimistic with a clear leaning towards stable or growing revenues for all income streams. It is good to see such optimism, but does the rose-tinted view adequately reflect the problems that could arise from the combination of a potential double dip recession and the austerity measures from the Government?”
Survey highlights
Less than a fifth of respondents are concerned about their financial position which is a marked improvement on the 2009 survey. However, profitability remains an issue with only 22% expected to make a pre-tax profit in the next accounting period.
John Cassidy, tax partner at PKF and football sector specialist comments: “Once again the overwhelming majority of clubs operate with the expectation of making a loss which may lead to increased scrutiny from HMRC. For instance, nowadays, HMRC is much quicker to take action against clubs which have failed to pay tax on time, as last season demonstrated, especially if this has happened more than once. Whilst HMRC does not take insolvency action lightly, it views repeated failures to pay on time as a high risk of tax being lost and needs to protect its position.”
The improved financial health of football clubs is reflected in the lower percentage of respondents who have experienced greater pressure from their banks this year – down from 35% in 2009 to just 15% this year. But, over a quarter of respondents (27%) admit to being late with their tax payments. This rises to 40% of FL1 respondents, while EPL clubs are the least likely to be late paying HMRC.
Philip Long says: “This is an ongoing problem as HMRC will be exercising tighter control in the coming months and is contesting the ‘football creditor’ rule in insolvency.”
A further, more worrying trend is the increasing percentage of clubs whose benchmarking range is above 65% for wages to turnover ratio. This has risen from just 17% in 2008 to 25% in 2009 and 38% this year. Two thirds of respondents use the wages to turnover ratio as a key performance indicator (KPI) of the club’s financial health.
The inflexibility of players’ salaries is once again the biggest concern for the overall sample, although it is not a top priority for all leagues. For the EFLC and the FL1 it does top the list, but for the EPL and FL2, it is relegation that is the largest concern, while sponsorship concerns are also high up the list for the EPL and EFLC.
Over half of clubs now think that it is important to attract external investors (up from 44% in 2009). Philip Long continues: “With the exception of the EPL, a significant proportion of respondents in every league are actively looking for new external investment – so most clubs are clearly still cautious about the state of their finances.”
Overall, stability reigns for the coming season, with just over half of respondents (51%) budgeting for the same squad size compared with 2009 when nearly two thirds of respondents were downsizing. The percentage of clubs prepared to spend more on payroll costs continues to fall: from 59% in 2008 to 32% in 2009 to just 24% this year. Only four out of ten EPL respondents and 12% of EFLC respondents will be spending more on players’ salaries compared with 75% and 44% respectively last year.
Ticket sales again scored the highest average mark across the leagues and are the most important revenue stream for EFLC, FL1 and FL2 respondents. Sponsorship is the most important income for EPL clubs while TV and radio deals are the most important for the SPL.
Stuart Barnsdall, audit partner at PKF and football sector specialist, says: “After ticket sales, sponsorship and broadcasting are again considered to be the most important revenue streams. My concern is that consolidation in broadcasting and tougher deals on sponsorship, particularly for the lower divisions, will increase the financial risks faced by the clubs. It would also appear that consumers have tightened their belts as the importance of merchandising revenue has fallen this year.”
