Survey - Financial health of English Football League clubs improves while Scottish clubs face ‘unprecedented distress’

The Begbies Traynor Red Flag Alert Football Distress Survey, which twice a year scrutinises the corporate health of football clubs, reveals a widening chasm between the financial fortunes of English and Scottish football league clubs. While English clubs in the Championship and divisions one and two of the Football League demonstrate an encouraging up-turn in financial health, clubs in Scotland’s top three divisions are displaying escalating signs of corporate distress, the survey finds.

The Red Flag Alert Football Distress Survey shows that of the 68 English clubs playing in the top three divisions below the Premier League, only two (3%) including Portsmouth which is already in administration, are displaying signs of corporate distress indicative of poor financial health.

This compares with 13 clubs (19%) that displayed signs of distress when the survey was last carried out, six months ago.

In marked contrast, the research shows that six clubs (19%) in Scotland’s top three divisions are displaying financial distress: two more than the first time the survey was conducted in April 2012. Scotland’s top three divisions include 32 clubs, one of which is Hearts that was this week issued a winding-up petition over an unpaid HMRC tax bill.

The latest Football Distress Survey has been carried out during the period when, financially, most clubs are at their strongest, having recently received the majority of their season ticket, sponsorship and television payments.

Business distress levels, as measured in the survey, comprise a range of significant financial problems that include clubs with serious court actions against them, including winding up petitions and high court writs; clubs that have been issued with striking off notices for late filing of accounts; those with county court judgements against them; and those with serious negative balances on their balance sheets.

Gerald Krasner, a partner at Begbies Traynor, who has experience of working with troubled clubs and is a joint administrator of Port Vale, along with colleagues Bob Young and Steve Currie, said: “There are still concerns over the financial health of English football clubs, however the failure of clubs like Portsmouth have provided salutary lessons for other clubs who may have been spending too much, principally on players’ wages.”

Krasner continued: “The after shock from these big-name clubs being put into administration has also been bolstered by measures being taken to improve football’s finances.

“It is likely that we will see HMRC take a tough look at those clubs with tax arrears ahead of the January transfer window. We may well see more winding-up petitions issued as we have with Hearts this week before this window to prevent clubs spending what little cash they have on players rather than repaying their tax arrears,” he added.

This season the Football League has introduced the Financial Fair Play framework which aims to reduce the levels of losses being incurred at some clubs and eventually establish a league of financially self-sustaining professional clubs.

“All the clubs have signed up to Financial Fair Play and we are starting to see the beginnings of a sea change in clubs’ attitudes to finance. That can only be a good thing for the game, but we won’t know just how much of the recent improvement is due to seasonal factors until April 2013 when we can compare the figures taken at the point in the year when clubs are under most financial pressure,” said Krasner.

He added: “Foreign takeovers of increasing numbers of Championship clubs are also having an effect on those clubs’ finances. Cardiff, Derby, Nottingham Forest and Leicester are all now under foreign ownership, and their new owners are putting money into buying new players who they hope will help propel then into the riches and glory of the Premier League.”

Commenting on the more austere picture in Scotland, Ken Pattullo of Begbies Traynor in Scotland said that such a grim state of clubs’ finances at this time of year was particularly worrying. “Distress has actually risen since the peak of last season’s problems, and the plain fact is that if a club is in trouble at this stage, it looks very bleak for the prospects of financial survival when cash flows are really put under pressure in the spring and early summer.”

The Football Distress Survey figures show that while just 2% of UK businesses show such pronounced symptoms of distress, a massive 19 per cent (one in six of the Scottish clubs surveyed) show the same degree of financial ill health, a level three times higher than the average across English league clubs.

Pattullo said: “The relegation of Rangers has had some impact but lower attendances and falling revenues, especially reducing TV money, has given rise to the distress that has spread across the SPL and divisions one and two.

“Unfortunately, with the recent upheaval in Scottish football’s structure, following Rangers’ relegation to the third division, it appears that we have considerably more pain to go through before we see the improvements that have started to be seen south of the border,” he concluded.