Steve McCarthy (Blues Trust Chairman) and I recently attended a training session on assessing the financial health of a football club. It was led by Dr John Beech, Honorary Research Fellow Coventry University, with Kevin Rye, of Supporters Direct.
John Beech’s research interests include insolvency and indebtedness of football clubs, commercialisation of sports and corruption in professional football. He discussed several key concepts, such as the three overlapping versions of what people mean when they talk about ‘the club’. It can mean the pride, identity and history that its supporters uphold. It can also mean the company/owners that run the club. And thirdly it can mean the playing staff.
Football is a business but it is not run like other businesses. For example, businesses don’t reward failure so parachute payments to relegated clubs are an absurdity from a business standpoint. It would make more sense to have rocket payments for promoted clubs.
Most clubs, including Birmingham City, are potentially at financial risk. Big money flows into football and very big money flows out, mainly to players and their agents. For a club to be financially sustainable, no more than 60% of the money coming in should be spent on salaries. Birmingham City’s 2012/13 accounts showed a ratio of 95%. Some clubs spend more on wages than they receive as revenue so need benefactors to keep them going.
Football clubs that depend on benefactors face long term uncertainty. Benefactors can lose interest and they can also die; there is no guarantee that someone who inherits a club will want to continue to support it. Money that is given to a club as a loan may have to be paid back.
I thought that the training session was a day well spent. It was interesting to hear about some of the strange goings on in the football business and to hear John Beech’s analysis of the problems caused by the way that football has been commercialised. For me, the most thought provoking parts were those that touched on the different perspectives of owners and supporters. Owners run clubs as businesses and good businesses make more money than they spend. According to John Beech, to be healthy financially, a club should do the following:
- Maintain a steady position in the centre of the table of a league that is appropriate for their potential fan base, avoiding relegation, and, to some extent, promotion.
- Develop a committed local fan base.
- Develop a long-term relationship with a sponsor that is itself financially stable.
- Avoid the longer-term uncertainty of benefactor dependency.
- Own its own stadium, one that has been built since the Taylor report and that has appropriate facilities for matchday hospitality and non-matchday activities that generate revenue streams.
- Have performance-related contracts with its players. (Salaries should go down if club is relegated.)
- Maintain a squad that reflects its current league position in terms of performance and wages.
- Employ a manager who is successful on the pitch and appreciative of financial constraints.
Birmingham City supporters would be in favour of some of these aims, but not all. I would guess that most would support no. 6 after the club’s experience with Zigic’s salary. Opinions seem to be split on no. 4. Some fans want owners who would bring stability and steady progress; others want the club to be bought by a Russian oligarch or a rich oil sheik.
What I learned during this day reinforced my belief that there needs to be a change in the way that football clubs are run. It helped me to see that fans’ expectations need to change too.
Margaret Decker[Go to John Beech’s Football Finance Scoop.it account for the latest news on this topic]
Number 6 is a minefield as a player should not be punished for a managers bad signings ,..or the boards lack of backing causing relegation so a player must be offered a chance in a transfer os long as the clubs valuation is paid or a drop in wages..
Bigger question for me is no.1 – where do we fit? Premier League or Championship, if you stacked up all 92 clubs, our natural place is probably right on the edge of the top 20, maybe just in, maybe just out. I think that causes quite a few of our difficulties – as you say its promotion and relegation that are really unsettling for a club and where it can all go wrong, like it has for us. But how can we avoid it when it’s our natural place in the order of things?
We’re doing a pretty good job of it right now by punching below our weight, and with loads of other teams with benefactors, but I wouldn’t want this to be our future though.
imho there is absolutely no reason why our club could not be run profitably and have success on the pitch, its just having professionals in the board room simple as.KRO