As big money spending in football continues to dominate the media headlines, there are much more worrying stories emerging from the other end of the financial scale. Recent research suggests that the number of football clubs in financial distress has risen dramatically this year in the English Football League. It was reported that just 1% of clubs were struggling with finances in 2018 but this figure has risen to 8% in 2019…but I suspect that this figure is in fact significantly higher!
In the North West, former Premier League side Bolton Wanderers entered administration last month. Newly promoted League One side Bury also appear to be struggling financially too with the threat of a winding up petition and administration looming if the club is not sold.
So, what does it mean for a football club to go into administration? As a football club is a business, the process is very similar to a corporate insolvency.
What Does Administration Mean?
When a company or football club can no longer pay its bills, the company enters administration. In administration, all control of the company is passed to an administrator. Essentially creditors can’t take action against the club as there is then a statutory moratorium in place – like an embargo on anyone taking legal action against the club.
What Does an Administrator Do?
Administrators will handle every part of the day to day running of a club other than what happens on the pitch. An administrator’s role is to try and stop a company (football club) being wound up (liquidated) either by finding someone who will take the club on or by repaying creditors where possible through the sale of assets. In the case of football clubs, this can mean players, grounds, training pitches, or merchandise.
Similar to company administration, there is a hierarchy of creditors who will be paid in a certain order. However; companies must pay Preferential Creditors first but, in football, there is a higher tier of creditors known as Football Super Creditors who will receive monies owed first. These are;
- Other football clubs
- The Professional Footballers Association (PFA)
- The Football League
- The Premier League
If it is found that the club/company does not own any/enough assets to pay creditors, the club can be closed down through liquidation. Clubs that have suffered this fate over the years include Chester City, Scarborough, and Darlington. Sometimes a club will be reformed under a slightly different name; Chester City reformed as Chester FC and Scarborough as Scarborough Athletic FC.
What Can the Punishments be for a Football Club Entering Administration?
Entering administration is not an easy option for a football club, not only because they may be forced to sell some of their best players but also because the team could face points deductions in the league too. Currently a club can be deducted up to 12 points for entering administration. This points deduction is used to preserve the integrity of the league and act as a deterrent to clubs entering administration to clear their debts without any real repercussions.
Is There Life After Administration?
Administration doesn’t necessarily mean the end for a football club. In recent years, clubs such as Southampton and Huddersfield have entered administration following serious financial difficulties. Southampton went into administration in 2009 after suffering relegation to the third tier of English football and Huddersfield went into administration in 2003. Both clubs have come out of the other side of those financial difficulties and have enjoyed time back in the top flight recently.
Balancing the books at any business is never easy, particularly in today’s economic climate, and sometimes there is no other option but to enter administration. Farleys’ insolvency experts are on hand to support businesses through the insolvency process and try to find a solution to recover the business where possible. Call us today on 0845 287 0939 or email us through our online contact form.