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English football clubs bitten by credit crunch

From the Premiership down, football clubs in the English League are under increasing financial pressure, according to an in-depth survey of football club finance directors just published by PKF Accountants & business advisers.

Under Pressure, PKF's seventh annual survey, shows that as more Premiership teams anticipate making a loss this season, there has been a dramatic rise in those using over 90% of their overdraft - up from 46% in 2007 to 89% this year - and a third have faced problems sourcing finance.

Philip Long, head of corporate recovery at PKF and a football sector specialist, says: "Clearly, the credit crunch is being felt across all clubs in the English League - even the Premiership is not immune. Given the present economic climate, it is understandable that banks are more reluctant to lend, but this may also reflect a deep-seated unease about the financial viability of some Premiership clubs.

"So far we have only seen the beginnings of the credit crunch ripple effect. It is proving to be a reality check for the big teams who are having to look at tightening their belts, which should ensure the long term future of the game."

Salaries cause greatest concerns

English Premiership clubs are demonstrating a massive change of heart over performance-related pay. Due to mounting financial pressures, three quarters of Premier League sides are now applying performance-related criteria to between 10% and 25% of the first team squad's salary, which will almost certainly help clubs gain control over their finances and focus resources on their best players. Last year, less than a third of clubs in the Premier League were doing this.

The survey reveals that the inexorable increase in player payroll costs continues and for the fifth year running the inflexibility of salaries continues to top the list of financial directors' concerns. The survey also shows that 14% of financial directors rate their financial situation as in need of attention, or worse. One way, it appears, that teams across all leagues are combating this is by reducing their first team squad sizes - two thirds of Premiership clubs are reducing their first team squads this year compared with only 15% in 2007.

According to Marilyn Martin, partner at PKF East Anglia, which has offices in Ipswich, Great Yarmouth and Norwich: 'Excessive spending has created a false economy in football. While some clubs with huge financial backing can buy their way to the top, others are being forced to try and compete by spending money they don't have.'

She continues: "On the basis that 17% of all clubs have reported they will be spending more than 65% of their turnover on player wages this year, it is not surprising that many anticipate making a loss."

Credit crunch eats into profits

Financial pressures are being felt from the top down. Ticket price hikes are slowing, alluding to the recognition by football clubs that fans are reluctant to pay high ticket prices - an issue which is likely to become more pressing next season with continued inflationary pressures being felt across the country.

Sponsorship revenue also decreased for many Championship clubs this year: three quarters have seen a decline. Conversely, for many across the rest of the League sponsorship has increased and the majority of football clubs surveyed are confident of sustaining and growing that revenue in the 2008/09 season.

'The optimism reported by clubs who expect their sponsorship to grow next season is likely to be short-lived,' explains Ms Martin. "The current deals are based on existing three or five-year sponsorship deals that have some years to run, and once they are complete it is doubtful that new deals will be easy to secure."

She adds: "It will be an interesting season to see how clubs manage escalating financial pressures when faced with demands for top-end league positions. The current pressurised climate is here for some time to come, so it is imperative to the long-term stability of the industry that clubs tackle their money concerns with a matter of urgency."

Free copies of the PKF survey Under pressure - the annual survey of football club finance directors 2008 are available from the PKF Football Industry Group via parita.patel@uk.pkf.com or from the firm's website - www.pkf.co.uk

Article by BDO LLP

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