An eye on the ball
There's no getting away from football
at the moment. But whatever your views on the intellectual and
aesthetic merits of the beautiful game, the business of football is
bigger – and more precarious – than ever before.
That's a fact that was thrown into sharp relief earlier this year when Portsmouth Football Club became the first ever Premiership side to go into administration, much to the delight of their South Coast rivals Southampton, who had themselves suffered the same fate a year previously.
These days, lawyers and accountants are doing a lot more than negotiating transfer packages and image rights. As the commercial pressures of involvement in football have become more acute, directors of clubs in financial difficulties are not only relying on their professional advisers to try and save their operations, they are also protecting their own personal positions. And this is where it can get complicated.
"The football authorities' 'Super Creditor' rule, which is once again subject to legal challenge, tends to get a lot of attention in business media," says Andy Beckingham of BDO's Business Restructuring team, who has been consulted on several football insolvencies. "That basically says that if a club wants to stay in the league after undergoing administration, they must be able to pay back 100% of their debts directly related to football – players' wages, money owed to other clubs and so on. Clubs will always make this a priority.
"But that causes a problem," he continues. "It means HMRC and other unsecured creditors are put at a disadvantage in trying to recover money owed to them. So they'll do what they can to recover money by other means, and one place they may start is looking to have the underlying football company, even if not the football club itself, placed into liquidation after the administration work has been done to facilitate a thorough investigation."
This can result in the liquidator going after the directors personally, and investigating whether they knew (or ought to have known) that there was no prospect of avoiding insolvency. It is of paramount importance that directors are seen to be complying with their duties at all times – and this is where professional advice is critical.
"On the one hand, an eventual insolvency should be easy to predict if you look at the context," says Andy. "You can see what salaries clubs pay, predict their gate receipts, TV revenues and so on, and if there's a lack of viability you'll see it.
"But there is an element of uncertainty in football that can tempt directors to try to keep operations going in the hope of gaining an unexpected cash bonus: a good cup run, a televised match, a player sale, a windfall from an on-sale clause in a former player's contract – all these can inject crucial funds into a struggling club, and in some circumstances it may be appropriate to hold on."
Insolvency does not necessarily mean operations must cease immediately. But under the terms of insolvency legislation, it does mark an important change in the duty of care owed by the directors. Where previously they were obliged to act in the best interests of their shareholders, they must now apply their efforts on behalf of the club's creditors.
"It's here that they need expert professional advice," concludes Andy. "The directors must be able to show that they are correctly discharging their duties throughout – whatever happens to the club, they have their own futures to think about too, and this is not something that can be left to chance."
So while the rest of the world is thinking about on-pitch heroics in South Africa, it's a good time for club directors to ensure that their affairs off the field are as secure and well-organised as the legendary Arsenal back four. Any problems could cost a lot more than three points…
