How will sports and leagues survive the coronavirus lockdown?
Rumours have begun circulating that the Championship, the top division of the English Football League, are considering an unprecedented group or collective administration involving each of their 24 member clubs.
This would mean that as well as some of the most storied and famous names in English football such as Leeds United, Nottingham Forest, Sheffield Wednesday, West Bromwich Albion and Middlesbrough potentially folding and reforming as new entities, while releasing every single one of their players, managers, coaches and match-day employees.
They would then look to re-employ them on new but reduced terms. Alternatively, they could exit from administration via a Company Voluntary Arrangement (CVA) and retain the previous ownership and identity.
Regardless what method is chosen, the rationale for what would still be a unique and staggering move, is that it would be a way of reducing outgoings and debt.
It’s also important to remember that these scenarios are being discussed at the same time as the players PFA union are in negotiations with the EFL to agree to league-wide wage deferrals or reductions which would alleviate some of the immediate pressure on the clubs.
Under current EFL rules, any team going into administration or suffering any other kind of insolvency event during the season is immediately liable for a ten point deduction, which as the season only has nine matches left to play, could be pivotal in promotion or relegation scenarios.
The league would either have to waive the penalties in this case or apply them to every club in the division simultaneously so that nobody would be at a competitive advantage.
Currently all football creditors such as players, are entitled to receive 100% of what they’re owed before any new club can be launched whereas other employees or non-football creditors, such as the St John’s Ambulance or HMRC, would only receive 25p in the pound following the takeover of the club’s assets, although this could rise to 35p if repaid over a longer period.
One of the main hurdles to this plan would be reaching an agreement against the poaching of players from other teams as every player would be a free agent and legally entitled to sign for whoever they wanted, regardless of the status of their previous contract and that their registrations would fall outside of the usual transfer window periods.
This would only apply to clubs within the EFL and there could be nothing to stop Premier League or foreign teams poaching them. Football is notorious for being based on a series of “gentlemen’s agreements” rather than contractual law so this could see previous loyalties and alliances broken forever.
1,500 EFL footballers are out of contract at the end of May or June and usually leave or are free to leave or renegotiate new deals but if the season is artificially extended into July or August then this creates obvious difficulties.
It also raises questions of professionalism – if a star striker knows he is leaving at the end of the season regardless, then how motivated will they be to risk injury and put their body on the line in a vital relegation battle?
Several sports leagues have collapsed in the UK before including the National Basketball League and the British American Football League but none as high profile or consequential as the Championship or any EFL division.
Other sports such as county cricket and rugby league and rugby union are also trying to find funding formulas to keep as many clubs functioning as possible so will be looking at developments within football with interest.
Formula One, possibly the most expensive sport in the country, is also facing an existential crisis.
Chief Executive of McLaren Zac Brown has warned that as many as four of the ten teams set to contest the 2020 season could fold if no agreement is reached between teams and staff if racing restarts at some point later in the season.
Nine of the 21 grand prix’s have already been cancelled or postponed and their rules state that at least eight have to be completed for a meaningful championship to be awarded.
While the clock is ticking, Eamonn Wall, Managing Director of Business Rescue Expert is sceptical that the clubs would pursue their doomsday strategy.
He said: “As we’ve seen previously this season with Bolton Wanderers and Bury, administrations are not unknown in the EFL and sadly there may be more to come especially if the enforced lockdown means that the season is elongated or even declared null and void.
“What would be highly unlikely is that all the clubs would enter administration at the same time. As well as the contractual chaos it would cause, there’d be lots of objections – especially from their creditors and would likely be led by HMRC.
“The PFA and EFL are still negotiating for a mutually agreed settlement which would require 75% of clubs to agree to change the EFL rules and allow this or any other collectively agreed changes to the players contracts to take place.
“Each side is looking to gain leverage over the other – it’s a business negotiation after all – and the potential threat of multiple administrations might be enough to get the PFA and players to renegotiate their contracts, which is the main outcome that the clubs are seeking.
“It’s certainly a lot easier and cheaper for them to conclude the issue this way than by looking to launch a unilateral group administration before the season has formally concluded.”
We’ve written previously about sporting administrations and insolvencies and while they may look the same as other businesses and sectors they also have the added complexity and interconnectivity of being part of a wider association or league.
They also have a disproportionate emotional hold on supporters and communities.
We’ve all got a favourite shop or beer but not many of us have got that name or logo tattooed on our bodies, or can reel off the names of the previous 12 CEOs like a stanza.
But they are businesses with employees to pay and debt repayments to meet and like any business if they can’t meet these obligations then they’ve got to make some serious choices – and quickly.
If you contact us one thing we can guarantee is that you’ll be listened to.
One of our team of expert advisors will arrange a free virtual initial consultation with you to understand what you’re facing and to work with you to come up with an effective response.