Professional sport, relegation and insolvency

Click here to view the published article in the Times.

The recurring themes of sport and insolvency continue to go hand in hand. In Scotland, football has been no stranger to the challenges of formal insolvency processes at the behest of HMRC, Secured Creditors and Directors.  The oval ball game, both in Union and League form, has also been affected recently with certain clubs suffering the financial consequences of relegations from their respective top flights.

London Welsh RFC, after 2 unsuccessful visits to the English Premiership, unfortunately finally succumbed to liquidation just prior to Christmas. After 2 unsuccessful seasons in the top flight (2012-2013 and 2014-2015), stadium relocations and a reported annual wage bill of £1.8 million, full time professional rugby simply could not be sustained. When one considers that they attracted crowds only equivalent to a lower league Scottish football club, coupled with  a meagre annual RFU grant in the region £530,000, it is easy to see that the business model was not sustainable. One suspects that London Welsh’s predicament is not uncommon in a difficult league where 12 teams chase the holy grail of the BT Sport Contract, European Rugby and the higher crowds that all English Premiership clubs benefit from. As the London Welsh example demonstrates, promotion in itself, does not lead to financial security, with the threat of relegation always lurking in the shadows for the league’s newest promoted clubs.

Bradford Bulls RFLC also gave way to liquidation following their relegation from Super League in 2014. Having previously entered Administration (and suffered a points deduction as a result), relegation became almost inevitable.  The drop in revenues following relegation are vast. The lack of financial input from the Sky Sports contract all Super League clubs benefit from, and a drop in income (most notably travelling support reductions), often forces relegated Clubs into a battle for survival and unfortunately it’s a battle that is too often lost.

So what advice can be offered to Directors of sporting clubs who may be facing the prospect of relegation and / or financial difficulties in the current season?

•  Get advice. The earlier the better. As always, there is no substitute for knowledge. Speaking with those in the insolvency profession (both accountants and solicitors) is not an acceptance that going out of business is inevitable. It is entirely sensible. Those who deal with the consequences of insolvency are best placed to provide the advice on how to avoid it.
• Review all the Club’s contracts and liabilities. Leave no stone unturned. Challenge all expenditure, both on the pitch and off it.
• Once you have taken advice, you are able to make well-informed decisions. Making difficult and objective decisions which affect a business one has an emotional tie with is not an easy process. Passions run high. However, the inability to make decisions in my experience has often been the key reason for an insolvency appointment 6-12 months after certain decisions should have been made.
• Be realistic. Don’t chase the stars. Relegation is not the end of the club/business/world (delete as appropriate!). Experience and history dictates that maintaining expenditure when turnover is significantly reduced on the gamble of an immediate promotion is rarely a successful strategy. Concerns that fans will desert a club following relegation can prove unfounded if an appropriate pricing and marketing strategy is put in place. Owners/directors and the paying punter will have common ground – a passion for the club. That passion persists no matter what league the team plays in. Have faith in your paying customer.
• Consider all business models. Common fan ownership or significantly increased common fan shareholding is on the rise. . There are great examples of these models working successfully in Scottish football. An ability to bring in new ideas with injections of capital can reinvigorate a clubs following relegation.
• Don’t be afraid of change – in most cases it is fundamental to ensure survival.

Gilson Gray recently acted for the St. Mirren Independent Supporters Association in connection with its acquisition of shares in St. Mirren Football Club.

Keith Anderson was the lead solicitor to BDO during the successful 12 month administration of Heart of Midlothian plc. In 2014, he was also seconded as in-house legal counsel for Rangers Football Club plc.

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For More Information Contact:
Keith Anderson
Mobile: 07886 432104
Direct Dial: 0131 516 5371
Email:kanderson@gilsongray.co.uk

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The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.