Avoiding the Drop

Today we present the first in a multipart series of articles focused on some of the financial problems facing football leagues across the world- especially those in smaller countries. By the end of the series it will become clear that many of these financial problems are the result of a century and a half old organizational model that simply cannot cope with the realities of the modern football and the modern financial world. Having highlighted the ways in which this model has increasingly come up short when faced with the unique problems presented by the sporting and financial landscape of the twenty-first century, we will offer a number of possible solutions which will help to ensure the future stability of the game, both on and off the pitch. As always, we here at Avoiding the Drop look forward to your comments, questions, and criticisms.

Scottish Football: An Example and a Re-imagining

World football is in crisis.

The drive for success on the pitch and notoriety off it has caused club after club, in league after league, in country after country to engage in business practices that would make even Wall Street’s shadiest bottom-feeders and Ponzi-schemers blush. Many of these practices might be justified if they were the “means to an end,” but that is the problem- there is no “end.” There is nothing inherently wrong with selling a player, securing the most lucrative sponsorship deals, building new stadia, or trying to expand into new markets if these actions have the end result of keeping a club’s balance sheet in the proverbial “black.” One might even be willing to accept these and other financial maneuverings if they at least kept a club from falling further into debt- if they “held the line,” so to speak. Unfortunately, the reality is that the vast majority of clubs are not achieving either of these ends. Rather, they are looking to bring in every possible dollar, pound, or Euro simply to slow down the pace at which their debt increases and to keep the club in business for another season. Even before the recent economic crash, this “system” wasn’t working. (Ask any club owned by an Icelander or an Icelandic consortium what happened when the system stopped working?) Thus far, the richest of the rich clubs have been able to limp along, maintaining success on the field, even while their debts continue to pile up off of it. This, despite the clubs making every effort to raise revenue through foreign tours, churning out new kits for every possible occasion (anniversaries, European competitions, “third” kits, “alternate” kits, etc.), selling naming rights for their stadia (new or old), seeking new ownership, and on and on and on. In short, the measure of success for most clubs- big or small- is no longer profit, prosperity, stability or on-field achievement. Success is now continued existence- “getting by.” A sport where “getting by” becomes acceptable can only be headed for disaster. The sporting landscape is littered with the corpses of franchises and leagues that offer ample proof of this. Worse yet, leagues are, in my opinion, greatly diminished by teams that are able to “get by” year after year without any hope of improvement on or off the field. Even when they manage to remain financially afloat, nobody wants to watch- much less pay to watch- the footballing equivalent of the Los Angeles Clippers or the Washington Nationals. My apologies to the dozens of people who still support Portsmouth.

What I am proposing is a solution that may work for one country and that may offer some ideas that could be used in others. I’ve chosen as my case study the footballing nation about which I know the most- but certainly not everything- Scotland. Despite its decline in the last generation at both the club and international level, Scotland remains one of the quintessential “footballing nations.” If you want to know how mad Scots are for their “fitba” you need only look at the city of Dundee. Dundee has a population of 150,000 people- it’s the same size as Springfield, MA if that helps you- and has two senior teams and seven junior teams. Dundee F.C. and Dundee United F.C. have spent most of their histories in the top two tiers of Scottish football and, as you may know, are located on opposite sides of the same street- at least until I hatched my plan…

Introduction

Football as we know it has existed in Scotland since at least July of 1867 when Queen’s Park were founded in Glasgow. In the 140+ years since the founding of club football in Scotland scores of teams have come, gone, merged, risen in status, fallen in status, and generally undergone all manner of transmogrification. There is nothing even remotely unique about this situation- it has been much the same in every other country where football is played. What is different about Scotland is that, in footballing terms, it is a “hot house”- change, for better or worse, tends to happen here first. Scotland is a nation of just over five million people that has a premier league of 12 clubs, a league of 30 clubs (in three divisions) and three “senior” non-league regional leagues (the Highland League, the East of Scotland League, and the South of Scotland League) totaling 55 clubs, and three “junior” non-league regional leagues (West, East, and North) totaling 158 clubs. (For purposes of this discussion we’ll set aside the Scottish Amateur Football Association and the 50 regional associations and 35,000 players it oversees.) Those numbers add up to 255 professional or semi-professional clubs, or 1 club for every 20,269 citizens. If this were the case in the United States, there would be 15,159 professional and semi-professional clubs. The point being, that there are too many clubs in Scotland for all of them to remain well-supported and, more importantly for our purposes, too many to remain financially viable in the best of times- and these are not the best of times.

That wasn’t easy for me to write: one of the greatest things about football in Scotland- maybe the greatest thing- is that it is so local and so personal. Below the SPL, almost every Scottish club is a “community club.” One of the reasons I love Ross County F.C. so much is that it is a “people’s club.” Dingwall, County’s home, is a town of 5,000 people, with a First Division team with a stadium that holds 6,300 people. One reason that this works is that County are the northernmost fully-professional team in Scotland (and therefore, in the United Kingdom) and as such they make it their business- literally- to cater to fans not just in the Highlands, but also in the Shetland and Orkney Islands as well as the Outer Hebrides. This “catering” includes everything from conducting youth clinics to playing preseason matches against “select” teams drawn together from the local amateur leagues in these areas. In addition to the goodwill these actions generate for the club, it also allows County to have a very strong youth program (not just for a smaller club, but for any club in Scotland) and to produce the players who form the core of the senior team- a necessity for any team with limited resources. County’s youth players are also required to participate in job training classes run by the club in the event that they never make the senior side and need to have jobs skills other than football. To lose a single club like this would be a tragedy, but to lose dozens of them would be a catastrophe- and that is a catastrophe that looms large if Scottish football as a whole is not reorganized radically and immediately. It is a catastrophe that, while it cannot be prevented, can be mitigated. After covering a few more of the relevant and ugly truths below, I would like to outline a plan that I think could do just that. In a nutshell, what I am suggesting for Scottish football- and for any nation with similar problems- is that sacrifice now can bring strength and stability later.

Before we begin in earnest, it is worth noting that the financial problems that are detailed below, while “ordinary” in their kind, are normally not this prevalent or this severe. As mentioned above, all of these things happen in all leagues, in all countries, all the time. They do not all usually happen in one country, in all of its leagues, and over such a short period of time as has been the case in Scotland in the last decade or so. I am not talking about the financial hurdles clubs face on a year-to-year basis (relegation, a bad run of form leading to reduced attendance, the loss of a kit sponsor, etc.), but rather, problems that most clubs only face once or twice in a century, being faced multiple times in a decade or less, and in some cases, by the same clubs. This is the “hot house” scenario I mentioned above: because Scotland has so many teams competing for so few people and so little money, the “cracks” begin to show there first- and worst. Let us first look at the finances of Scottish football clubs over the last decade or so, starting with those that should be the most stable and most profitable of the teams- those in the Scottish Premier League.

Since the SPL was founded in 1998 four clubs have entered administration, or, as we call it here in the States, bankruptcy. These clubs were:

2002: Motherwell F.C.

2003: Dundee F.C.

2004: Livingston F.C.

2008: Gretna F.C.

It is important to note that these are only the clubs where official action had to be taken, that is, where an outside party (governmental or non-governmental) had to step in and “administer” the club in order to put its finances back in order . During the last decade there were also financial problems- other than administration- that affected clubs in the SPL- let’s add those in the hope of getting a better look at the “big picture.” The new additions are in red:

2002: Motherwell F.C.: Administration.

2003: Dundee F.C.: Administration

2003: Dundee F.C.: Declared financially insolvent by Pricewaterhouse Coopers.

2003: Dunfermline Athletic F.C.: Declared financially insolvent by Pricewaterhouse Coopers.

2003: Heart of Midlothian F.C.: Declared financially insolvent by Pricewaterhouse Coopers.

2003: Hibernian F.C.: Declared financially insolvent by Pricewaterhouse Coopers.

2003: Livingston F.C.: Declared financially insolvent by Pricewaterhouse Coopers.

2004: Livingston F.C.: Administration.

2004: Rangers F.C.: The club attempts to lower its debt with a “rights issue,” where those already owning a stake in the club are offered additional shares in order to raise revenue. This can be thought of as an Initial Private Offering.

2004: Dunfermline Athletic F.C.: The club is forced to cut the wages of several top players to avoid entering administration.

2008: Gretna F.C.: Their loss of revenue following the death of their sole benefactor, Brooks Mileson, sends them into administration and they are subsequently dropped from the SPL to the East of Scotland League where they reformed as “Gretna F.C. 2008.”

2009: Livingston F.C.: The club enters administration for a second time and is relegated to the Scottish Football League’s Third Division after a lengthy appeals process.

2009: Rangers F.C.: The club is threatened with receivership by Lloyd’s of London over their outstanding debts.

These totals are frightening. Eight teams (several on multiple occasions) of the eighteen clubs that have been in the SPL since 2002 have been in severe financial trouble during that period, including five SPL clubs being decared insolvent in a single year, and this in a twelve team league Now lets look beyond the SPL, for logic dictates that if the “richest clubs” in the country’s “richest league” are struggling to remain viable, the picture can only be worse in the lower leagues- and it is. Again, the additions are in red.

2002: Motherwell F.C.: Administration.

2002: Airdrieonians F.C.: The club collapses under its debt and goes out of existence.*

2002: Clydebank F.C.: The club fails to build a new stadium, ground-sharing causes support and revenue to decline.*

2003: Dundee F.C.: Administration

2003: Dundee F.C.: Declared financially insolvent by Pricewaterhouse Coopers.

2003: Dunfermline Athletic F.C.: Declared financially insolvent by Pricewaterhouse Coopers.

2003: Heart of Midlothian F.C.: Declared financially insolvent by Pricewaterhouse Coopers.

2003: Hibernian F.C.: Declared financially insolvent by Pricewaterhouse Coopers.

2003: Livingston F.C.: Declared financially insolvent by Pricewaterhouse Coopers.

2004: Livingston F.C.: Administration.

2004: Rangers F.C.: The club attempts to lower its debt with a “rights issue,” where those already owning a stake in the club are offered additional shares in order to raise revenue. This can be thought of as an Initial Private Offering.

2004: Dunfermline Athletic F.C.: The club is forced to cut the wages of several top players to avoid entering administration.

2008: Gretna F.C.: Their loss of revenue following the death of their sole benefactor, Brooks Mileson, sends them into administration and they are subsequently dropped from the SPL to the East of Scotland League where they reformed as “Gretna F.C. 2008.”

2009: Livingston F.C.: The club enters administration for a second time and is relegated to the Scottish Football League’s Third Division after a lengthy appeals process.

2009: Clyde F.C.: The club terminates all first team contracts to avoid going into administration.

2009: Stirling Albion F.C.: The club is on the brink of administration for the second time in the calendar year and could be “wound up” as soon as this Saturday, despite being in first place in the Scottish Football League’s Second Division.

*the remnants of these two clubs were eventually cobbled together into a new club called “Airdrie United F.C.” They currently play in the SFL’s First Division and offer a hint as to the source of future stability in Scottish football- mergers.

The most worrisome thing about the financial problems detailed above is that they are so diverse. Were there only one factor which caused all of the clubs to have financial difficulties- say, overspending on players- a solution would be easy enough to discover. Clubs are spending too much on players? Fine, the league could limit the percentage of a club’s revenue or budget that could be spent on player salaries or a salary cap like some American sports leagues use- case closed. The case, unfortunately, is not so straight forward. The factors that have led so many clubs to ruin- or at least the brink of it- are varied: Livingston and Clyde rented their stadiums and, frankly, signed bad leases, so when their revenues declined their rents, in essence, skyrocketed and they had no way to pay them. Clydebank abandoned their old stadium before their new one was built, their financial backers pulled out, and they then shared grounds with other clubs for six years before succumbing to the twin blows of declining support and revenue- unavoidable given that they didn’t have any home matches for six years! The entire SPL has been the victim of two bad deals regarding their television rights, one of their own making (SkySports) and one not (Setanta). Dunfermline, one of several “yo-yo” clubs between the SFL First Division and the SPL were, at one point, spending 95+% of their annual turnover on player salaries. Livingston still exist in the Third Division, but only because the SFL chose not to kick them out of the league this summer after they went into administration for the second time in five years. Gretna chose to hitch its wagon to the fortune and ego of English millionaire Brooks Mileson, and when he and his money went away (terminal illness caused him to withdraw his financial support of the club), they dropped from the SPL to the East of Scotland League in the blink of an eye. And these are only the clubs where we can confirm problems. Recently there has been much talk of new money problems at Heart of Midlothian and it is also clear that belts have been tightened to the extreme at both Aberdeen and Motherwell. With so many clubs in trouble (and thus far we have only touched upon the lower divisions of the SFL where financial problems are a frequent issue even in good economic times) and for so many reasons- some self-inflicted, some not- it is clear, to me at least, that the finances are not the problem, but the result of other, bigger, systemic problems. Next we’ll take a look at these problems individually, but with the knowledge that none can really be disentangled from any of the others.

END PART ONE

In the second installment:

• The three big problems with Scottish football and their solutions.
• The “Four Rs”: Reorganization, regionalization, relegation, and reserve teams.