Football supporters are accustomed to failure, invariably bemoaning the inability of their club to win trophies (notwithstanding that such disappointment often has more to do with unrealistic expectations). However, failure has another dimension and sadly one that has been familiar to followers of all but a small number of clubs. The world of football has played its part to enhance public understanding of corporate insolvency procedures given the frequency of news headlines about financial crises in the game. Financial failure is a situation where a club is unable to continue operating as a business in the absence of a financial rescue or restructure, representing a potentially terminal state of affairs.
In November, 2017 Playing Pasts published my feature ‘Another Origins Debate’
https://goo.gl/B7uTDY – Part 1
https://goo.gl/Rge7B8 – Part 2
which introduced a conceptual framework based on the origins of Bradford FC to consider the evolution and development of football clubs as commercial organisations by defining the principal economic factors impacting on their growth. It emphasised the need to recognise such clubs as emergent business entities whose existence was dictated by financial constraints and the core requirement to remain solvent as the basis of survival.
In this feature I offer a similar model to study the dynamics of financial failure of football clubs. The approach allows the experience of different clubs to be compared and in turn provides the basis to contrast circumstances in different eras, in different football codes (ie to compare soccer with rugby) as well as to compare the experience in different geographies.
The analysis is derived from practical experience as an accountant specialising in working with under-performing businesses. It also comes from my research into what has happened in Bradford during the last 140 years where an ongoing theme has been the recurrent financial failure of its football clubs. The Bradford phenomenon dates back to the final quarter of the nineteenth century when the district witnessed the emergence of numerous junior rugby clubs and their equally dramatic disappearance within two decades, a consequence of financial collapse. Bradford saw the two extremes of football capitalism given that by 1890 the town club, Bradford FC based at Park Avenue was considered the richest in the land. Yet having originally established a reputation as a centre of sporting enthusiasm and success, after World War One Bradford became better known as an epicentre of football failure and tragedy – each of the three senior soccer / rugby clubs have been involved in some form of financial crisis in every decade since, not to mention the fire disaster of 1985 that was ultimately attributable to financial failings. No other city has had such a dismal record and for that matter neither has the modern history of its sporting representatives been particularly successful. It begs the question are some clubs more prone to failure than others?
Business failure is recognised as an inevitable occurrence in any industry and in that regard, commercialised sport is no exception. It arises in a situation where an organisation is unable to generate sufficient revenue to cover its commitments, whether its operating expenses or debt repayments. By its very nature sporting activity may not be conducive to financial stability and there are a number of generic factors that contribute to this. For instance, income generation is confined to seasonal activity and there is a fine dividing line between attaining sporting success or otherwise. Success may be a matter of chance and something that can neither be taken for granted nor enjoyed by all. Financial management is further compromised when decisions are made according to emotion as opposed to more rational criteria. One could be forgiven the belief that financial good fortune in sport has more in common with casino luck than the sort of behaviour associated with successful commercial enterprises.
The insolvency of any company is said to arise when it has a surfeit of debts in relation to assets and/or it is unable to pay its liabilities as and when they fall due. For practical purposes it arises when the business runs out of cash and failure can be said to crystallise from the enterprise being over-committed. Clearly no individual or commercial organisation can survive indefinitely if the collective burden of cost, investments or borrowings exceeds its income generating capabilities or means to secure new funding. However financial failure is also about the timing of cash flows and crucially the ability or otherwise of business management to respond to issues as they arise. In this respect there is a necessary distinction between events within the control of an organisation and those environmental factors about which it is powerless to act. The proposed framework therefore distinguishes between internal competencies and environmental themes impacting on a football club.
My approach incorporates five distinct perspectives to the examination of football club failure:
- It begins with a review of environmental (economic) themes and an assessment of the competitive structure in which the club participates (present, or maybe past, tense).
- The organisational structure determines in no small way the ability of a football club to withstand financial challenges or setbacks.
- Collective skills and experiences in the form of management competencies ensure that a club has appropriate levels of control and direction.
- Styles of leadership to dictate how the football club is/was run and its approach to the management of financial risks.
- The so-called demise curve identifies the different stages of financial failure, usually involving an escalation of issues leading to the eventual point of failure.
- ENVIRONMENTAL THEMES
By environmental review I refer to the social / cultural and economic circumstances in which a club operated. The study of financial failure requires consideration of how change in environmental conditions has implications for the commercial well-being of a football club. Previously the same factors may have had a benign influence or been insignificant but in a different state of affairs they can become constraints to viability, typically through impact on operating costs and the number of people willing and able to attend games.
A good example is the change in behaviours and patterns of customer demand. The Bradford case study demonstrates how rugby achieved ascendancy over cricket as the most popular sport in the third quarter of the nineteenth century and in turn, rugby fell out of favour to be eclipsed by association football at the beginning of the twentieth century. There have been numerous instances of alternative leisure pursuits emerging and in common with other cities, in the immediate aftermath of the last war, speedway was particularly successful at attracting large crowds at Odsal Stadium.
Rugby has also remained a commercial threat to soccer in Bradford during the last century but it was not just the substitute offering of Bradford Northern and Bradford Bulls that has captured the sporting interest of Bradfordians. During the 1920s a revived Bradford Rugby Union club regularly attracted five figure crowds to its games; it was this fragmentation of offerings that hindered the efforts of both Bradford City and Bradford Park Avenue to establish themselves as leading sides. Competition has also come from the phenomenon of televised football and the Premier League. Locally the rise of Leeds United in the late 1960s and 1970s attracted football followers who might otherwise have watched the two Bradford clubs, at that time struggling in the fourth division and a much less glamorous attraction.
Irrespective of business activity, changes in industry or competitive structures can become a handicap to participants and football has been no exception to this. For both rugby and association football, the issue of player rewards nowadays is no less sensitive than in the 1890s. There is a strong argument that the rationale of the Northern Union in 1895 had less to do with safeguarding the interests of players, rather it sought to protect the profitability of leading northern rugby teams by restricting the introduction of full professionalism. The example of what happened in Bradford in the 1890s is testament to the difficulty of junior rugby clubs accommodating the change in industry structure that redefined the inter-relationship that had previously evolved between big and small clubs. Cut-off from their larger brethren and unable to compete in a more commercialised environment most were wound-up. The Northern Union and the Rugby League have continually reorganised their own competitive structures to assist the finances of their clubs in the face of competition from soccer; little wonder that Bradford Northern was at the forefront of lobbying for the Super League in 1996.
The introduction in 1958 of a four tier league structure in English professional football had been intended to make lower division football more attractive. However, this initiative was undermined by the impact of legislation to abolish the maximum wage in 1961 and by the time of the Chester Report in 1968, it was generally recognised that most lower division clubs were not viable without the funding from supporter donations. Similar questions have been raised about the growing wealth differentials between the four tiers of the modern game and membership of higher divisions now has an even greater bearing on the financial prospects of English football clubs.
The Chester Committee (under the chairmanship of Professor Norman Chester, Warden of Nuffield College, Oxford) recommended that the two Bradford clubs should merge on the basis that co-existence was futile. As a business strategy, the merger of professional football clubs in Great Britain has been rare and in the modern era that of Inverness Caledonian Thistle has been the exception to the rule, going in the face of traditional fan rivalry. So too the supporters of the Bradford clubs resisted merger despite the strategic logic. In the 1890s the followers of junior rugby clubs in the district likewise rejected combining resources in the case of Saltaire / Shipley / Windhill as well as Liversedge / Heckmondwike.
The football industry is the same as any other in being sensitive to new legislation. A good example of this has been the impact of changes in tax. For many struggling clubs the Entertainment Tax introduced in 1916 and the imposition of VAT on admission prices after 1973 were considered major handicaps. Indeed the Bradford clubs were not unique in complaining about the effect on spectator admission prices.
Article © John Dewhirst
To read Part 2 Click HERE