Club FDs face tighter financial regulation of football

Manchester United’s debts of about £716m and Liverpool’s £240m have led to concerns being raised by, among others, former prime minister Gordon Brown. He said this January that he thought the management teams of football clubs urgently needed “to look very seriously at their responsibilities to their supporters” – and that, while they have high levels of income from supporters, “the debt levels have been at a leverage level that is too high”.

The debts of the two clubs named above in particular may have caused a frenzy, but they are not alone. Last year, all but one of the 20 Premier League clubs had negative balance sheets and combined debts of £3.15bn. That compares with their combined turnover of £1.84bn.

The indebtedness of English football has attracted the attention of Uefa, the sport’s governing body in Europe, which has responded by formulating its Financial Fair Play rulebook. Expected to come into force from the end of this month, Uefa intends to force clubs to break even without relying on debt or cash injections from wealthy owners for survival. The rules will be phased in from 2012 and be fully in force by 2015 and should prevent clubs from gaining a competitive sporting advantage from poor financial management by fielding players they haven’t paid for – buying success without actually paying for it.

The finance directors of English football clubs will be the ones charged with rolling out Uefa’s rulebook and ensuring their clubs are compliant, which will make their jobs even more challenging. But how do their roles differ from their counterparts in other industries? For West Ham United’s finance director Nick Igoe, it is the unpredictability of the game itself that poses the greatest challenge.

“You can have sudden changes that carry hugely significant financial consequences – relegation from the Premier League for example – but even single matches can have a major impact,” Igoe tells Financial Director. “We were looking at the last game of the season and there were three league places up for grabs, which are worth £2.4m because of the step payments of the Merit Award [the amount of money a club is given by the Premier League at the end of the season – which having been increased by five percent in 2010 meant winners Chelsea were handed £16m]. Conversely, you can drop two or three places and no matter how carefully you prepare your budgets, you cannot legislate for that kind of change.”

For Tottenham Hotspur’s finance director Matthew Collecott, it was the penultimate game of this season that carried potentially massive financial consequences. When Tottenham played Manchester City, a Spurs win was guaranteed to land them a lucrative Champions League place by virtue of finishing fourth in the Premier League.