New Report on English Football Insolvencies

From the Coventry University (England) website, August 1, 2008:

Football: A beautiful game but an ugly business

Relegation, bad management and an inability to cut back on costs like players’ wages are all factors which can lead to insolvency – according to new research published by the Centre for the International Business of Sport (CIBS) at Coventry University.

The research has found that insolvency can also be linked to external events, like the collapse of TV providers. Perhaps more worryingly, it also has demonstrated that cases of insolvency appear to be increasing. In the five seasons from 2001/02 to 2005/06 the 92 clubs in the top four tiers of English football made an aggregated loss of £1,014,000,000.

Click here for full article.

After having read the full report, it appears that the findings of the researchers at Coventry University support my findings (at least implicitly) in my analysis of sport organization bankruptcies in the United States and England (available here). The researchers clearly place a lot of the blame for the financial troubles of English football teams on the relegation system and its effects on club finances. Although the analysis was financial and not legal in nature, it implicitly supports the proposition that reform is needed in the English insolvency system. The report even goes so far to state that entering administration (essentially the equivalent of Chapter 11 in the United States) "has become almost a legitimate tactic in a football club's business strategy." From a legal perspective, this seems almost counter-intuitive. Any system governing bankruptcy and insolvency procedures (be it the United States or England) should strive to discourage filing for bankruptcy protection as it will help ensure that businesses do not seek to avoid their creditors. If entering administration has become a legitimate tactic in a football club's business strategy, then non-payment of all creditors has also become a legitimate tactic in a football club's business strategy. If the structure of the English insolvency system lends itself to football clubs seeing administration as a legitimate business tactic, then the system is in need of reform. Reformation of the system will help eliminate the ability of football clubs from engaging in financially irresponsible and irrational behavior and then be excused from repaying all their creditors in full. As I stated in my previous analysis of sport organization bankruptcies in the United States and England, the high rate of English football club insolvencies will persist as long as these problems exist in the English insolvency system. This new report from the CIBS further confirms this.

(Originally written 08/11/08)