League clubs insolvency levels 'soaring'

01-08-2008

League clubs insolvency levels 'soaring'
The number of professional Football League clubs slipping into bankruptcy is increasing every year, according to a new report.

Research published by the Centre for the International Business of Sport (CIBS) at Coventry University suggests relegation, bad management and an inability to cut back on costs like players' wages are all factors which can lead to insolvency.

And the investigation also revealed clubs in the top four tiers of English football between the 2001/02 and 2005/06 seasons made an aggregated loss of more than £1 billion.

"Our research into insolvency in English football clubs is revealing not so much a 'beautiful game' as an 'ugly business'," said Dr John Beech, the lead author of the report.

"In spite of the Football Association's efforts to deter clubs from following the path of going into administration, it remains an all-too-common choice."

In order to crack down on financial mismanagement among football clubs the FA introduced a ten-point penalty for going bankrupt.

Nevertheless, it has emerged that 56 clubs in the English leagues went bankrupt between the Insolvency Act's introduction in 1986 and June 2008.

And a total of 68 incidents of insolvency have been identified during this period, demonstrating that some clubs (Bournemouth and Luton Town, for example) have entered into insolvency on more than one occasion.

The Premier League - which was established in 1992 - has never had any clubs going into insolvency whilst they were in that league.

However, the report highlighted a distinct pattern of clubs being relegated from the top tier and very shortly becoming insolvent, including Middlesbrough in 1982, Wimbledon in 2000, Bradford City in 2001 and Leeds United in 2004.

There were also three instances in 2002 - Leicester City, Ipswich Town and Derby County.

Referring to the points deduction tactics being employed by football's governing bodies to deter them from entering administration, Dr Beech says it is "dysfunctional and counter-productive".

"In the recent case of Luton Town, a total of 30 points has been deducted - 20 of them as a result of becoming insolvent. This punishes the club for the misdemeanours of the previous owners," he said.

"More significantly though, it also greatly reduces the chances of the club recovering, which is supposed to be a primary objective of seeking the protection of administration in the first place.

"HM Revenue and Customs losing their preferential creditor status, combined with the Football League's insistence that football creditors - other clubs owed money for transfer fess, for example - remain preferential creditors is proving increasingly problematic in establishing CVAs, which the League themselves want as a first step out of insolvency.

"Any other industry sector riddled with CVAs would have been heavily regulated into line. If English football doesn't put itself into order, there is a danger that it will be forced to, on terms not of its making or preference."

Professor Simon Chadwick, the director of CIBS, added: "We will be continuing to monitor the practice of administration around football clubs in this country.

"Hopefully, from the data we gather, we will be in a better position to identify what gets clubs into trouble in the first place and what then is going to get them out of trouble.

"As such, our team believes that we can make a strong contribution in helping to establish a more constructive approach to the issue of football club administration in the future."

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