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BLIND, STUPID AND DESPERATE
 
Editorials:
Football finance review
By Ian Grant
 
First of all, you might like to sit down. And have a stiff drink to hand.

The seventh annual review of football finance, undertaken by the Deloitte and Touche team and based on club accounts for the 1996/97 season, has recently been published. Once again, it provides a comprehensive overview of all monetary matters in the game from a clear, objective perspective. Once again, it does not make for particularly comfortable reading.

Let's begin at the end. The final sentence of the main section is blunt enough - "England cannot economically support 92 full-time professional clubs".

The picture for lower division clubs remains extremely bleak. Income for the Third Division actually fell during the study period, blackening an already grim picture. In the bottom league, clubs' assets are out-weighed by their liabilities to the tune of £1.8 million. Although this does not include the value of playing staff, the increasing impact of the Bosman ruling (remember that the 1996/97 accounts reflect a time before the adoption of free movement for players over twenty-four in the UK) will make that ever more meaningless.

Trading losses are increasing, the transfer fees to fill the gap are decreasing. The recommendations are hard to swallow. You've heard them before, no doubt - mergers, feeder clubs, part-time status - and you probably feel the same way I do. But this, remember, is not a report written by romantics.

Watford fans would do well not to gloat. The gap between the Premiership and Division One, which we are currently trying to bridge, grows and grows. When financial consultants start using words like "chasm" and "abyss", it's probably worth taking notice.

The average Premiership club makes an operating profit of £4.3 million. The average Division One club makes an operating loss of £500,000. Although First Division clubs have managed to reduce their day-to-day losses, those in the top flight have had another year of massive income growth. As a consequence, the gap in average operating profits between the top two divisions has grown from £3.8 million in 1995/96 to £4.8 million in 1996/97.

You want some juicy figures? Okay. The combined turnover of the top five financial performers in 1996/97 - Manchester United, Newcastle United, Arsenal, Liverpool, Aston Villa - was greater than all seventy-two Football League clubs put together. Manchester United receive more income on an average match-day (excluding television revenue) than twenty-two of the Nationwide clubs manage in an entire year.

Unlike days of old, transfer fees are doing nothing to change that picture. For the first time, the proportion of trading losses not funded by transfer revenue exceeded 100% for Division One clubs. The Premiership's obsession with overseas imports saw £100 million in transfer fees leave these shores in 1996/97, compared to just £5 million in 1992/93. The impact of the World Cup is likely to accelerate the trend. This reduction in transfer income, soon to be exacerbated by the Bosman ruling, means that the average First Division club now spends £600,000 more on transfers than they receive.

The Premiership gamble, spending in the hope of gaining promotion to the top flight and staying up, is the subject of much concern. As the report says, "Admittance and then consolidation in the Premier League continues to be the exception, rather than the rule.". One of Deloitte and Touche's key indicators of poor financial management - two thirds or more of revenue being spent on wages - is still being ignored by a number of clubs, including Watford (85%). That we're not the worst offenders (Wigan's wage bill costs the club an astonishing 178% of turnover) is hardly cause for celebration. In the report's words, "Escalating wage costs are the key issue for most Football League clubs as it becomes apparent that current and likely income streams cannot match the wages growth" (their italics).

Nor can losses be piled up indefinitely. Sustaining losses of over £1 million per season is unviable - "No business can continue to generate operating losses of this magnitude and survive unless there is substantial outside financial support". Again, this applies to Watford.

Ironically, considering the undignified and risky scramble for promotion, arrival in the top flight brings no guarantees of financial success. Although, as previously mentioned, the average Premiership club makes a very healthy operating profit, all of this is spent on transfer fees and a £219,000 loss is incurred. Those nearest the bottom of the Premiership tend to spend most on transfers - indeed, two of the top five spenders in 1996/97, Middlesbrough and Nottingham Forest, were actually relegated. Despite occasional success stories, the likelihood of sustained promotion "has diminished in the last few years".

So there it is. Bearing all of this in mind, particularly the low probability of Premiership success and the potential damage done by sustained losses, the report concludes that "The only way to make sustainable profits outside the Premier League remains organising yourself well and operating sound financial discipline".

Don't have nightmares!

(The report is available from the Deloitte and Touche website - http://www.deloitte.co.uk/)