The cost of chasing the dream - sporting insolvencies

When a business becomes insolvent it affects many lives. Not just the shareholders, directors, owners and staff but customers too. 

They might have used the business for many years and feel emotionally connected to it but what happens if thousands of customers are used to turning up every fortnight to be served?


The cost of chasing the dream – sporting insolvencies

Bolton Bury

 

 

 

 

What if many of them regularly spend hundreds of pounds on having the same uniform as the staff or even have the company’s name or likeness tattooed on themselves?

 

What if the business is the primary reason the town is “on the map” and people cannot say the name of the town without adding the business’s suffix to it? Try talking about Accrington without automatically adding Stanley. Even Manchester doesn’t look right without United or City behind it. 

 

The businesses we’re talking about are sports teams. In many ways they are a business like any other and have incomings, outgoings, assets, liabilities, staff, shareholders and directors. In several other ways they are not businesses at all but community assets, focal points, standard bearers and ambassadors.  

 

One of the ways they’re similar is that they’ve still got to generate sufficient income to pay wages and bills or else they will become insolvent and this is where the first difference between a regular business and a football club exhibits itself. 

 

We wrote about the disaster area that the famous Bolton Wanderers have become earlier this year. Not only did they enter administration and face a winding up order along with owing millions of pounds in debt but they continue to suffer in sporting terms.   

 

Under English Football League rules, any club going into administration automatically incurs a 12 point deduction either taking effect immediately or if after March 31, being suspended until the following season. 

 

Bolton, already with the ignominy of relegation to League One, will now start on minus 12 points at least.  At least because the players, disgruntled at not being paid on time for the third time in as many months, took unilateral strike action and refused to play a match at home to Brentford. The league eventually awarded Brentford a 2-0 win rather than force the game to be played after the end of the regular season and Bolton are still awaiting the results of a disciplinary panel investigation for additional punishment for failing to fulfill a fixture. 

 

It’s in the league’s interest to take steps to ensure that each team fulfills its 46 scheduled fixtures to maintain the sporting integrity of the competition. Brentford were not in the promotion race but a scenario where Bolton were being liquidated would have been a nightmare for the league.  

In such instances, the results of the defunct club are expunged from the records and points won by other teams against them are taken away.  This can impact the promotion and relegation scenarios and ultimately cost a team promotion and forfeit the millions of pounds that entry to the premier league would bring. 

 

It’s because of these rewards that so many clubs end up gambling with their futures by paying exorbitant wages and transfer fees to try and access the financial bonanza that promotion would bring. Alongside the glamour of fixtures against the likes of Arsenal, Liverpool and Manchester United – a promoted team gets a minimum payment of £100m in TV rights every season just for being a member of the league.  

 

Even if they’re relegated, they’ll be due reducing “parachute payments” to help them mitigate the change in circumstances so clubs that are run within their means can survive and even thrive under a promotion/relegation/promotion cycle. 

 

The knock-on effect of this gold rush is that The Championship, the EFL’s top division and the one that has three promotion places to the Premier League on offer saw its members make a combined loss of over £500m last season alone. 

 

It’s not just football that is seeing financial fiascos engulfing famous names. Widnes Vikings and Bradford Bulls Rugby League teams and Cardiff Blues and Leeds Carnegie Rugby Union clubs are also in dire debt straits all in the pursuit of sporting glory.

 

They think it’s all over

 

Redundancies are also a different matter for a sporting club in insolvency. Star players are freed from their contracts and are able to sign with rival teams almost immediately, usually with a customary signing-on fee. Their livelihoods are secure and are also treated as football creditors when claiming back any owed wages which gives them preference over other member of staff. 

 

And what about the other members of staff? Ticket sellers, bar servers and Hospitality staff. Very often, they’re fans themselves and working for their club, while being a labour of love, is also a dream come true. 

 

They aren’t going to walk away and look for jobs with Wigan Athletic or Preston North End – Bolton are their club so it’s a double tragedy for them – personally and professionally. 

 

Sixteen professional football clubs have faced winding up petitions in the courts over the past two years alone. Bolton are still in administration while a sale is sought and Bury’s owner is hoping to strike a CVA deal with the club’s creditors. 

 

R3, the industry body for insolvency practitioners, have recently produced a briefing paper for Insolvency Practitioners on the special features and considerations of football insolvencies – recognising that they have broader dimensions than a regular retailer would for example.

 

R3 led a campaign in 2015 based on changing the “Football Creditors Rule” that saw the EFL amend its rules so that unsecured creditors of an insolvent club (local small businesses, service providers, St John’s Ambulance Service etc) were better protected.  

 

Before the amendment there was no requirement to provide any level of return to unsecured creditors, now any purchaser on an insolvent EFL club is required to pay them a minimum of 35p in the pound over three years or 25p on transfer of shares. If they fail to meet these stipulations the club would face a heavy sporting sanction – an additional 15 point penalty to be implemented at the start of the season following the insolvency. 

 

R3 said: “Any insolvency practitioner who takes on the insolvency of a club will be very aware of its value to fans and to the local economy, and will do their best to rescue the club’s business as a going concern. It is very rare for insolvency to mean the end for a club, which is good news for fans, local communities and towns across the country, and the sport as a whole.”

 

While the wait goes on for supporters of Bolton Wanderers and Bury, who will meet in an “insolvency derby” on 7 September, fans of other teams, especially in the lower leagues, will wonder who’s next. 

 

Insolvency Practitioners may operate under certain exceptions when it comes to dealing with sports teams in administration but they don’t operate with different rules

 

No matter who you follow, if your business is in the relegation zone then give us a call. We’ll give you our full support from our free initial call, helping you make the crucial tactical tweaks to tighten up your financial defence and scrap your way to survival if possible. 

 

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