Dissertation document

Finances of lower league football, focusing on League

Two and the Conference Premier

Michael Richard Turner

21207606

A research project submitted in part fulfilment of the requirement for

award of the BA (Hons) Football Business and Finance of UCFB in

partnership with Buckinghamshire New University

April 2015

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Acknowledgements

There are people who I wish to thank for their help during the writing of this research

project. My supervisor Dr. Glenn Hitchman, for the feedback he has provided to help

constantly make improvements and alterations. The support staff at UCFB, for

answering all of my questions, no matter how trivial they may have been. And finally

my friends, for constantly bugging me when I was trying to procrastinate.

Cheers guys.

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Abstract

The purpose of this research project is to determine the financial performance of

football clubs, to see where improvements can be made and what the contributing

factors may be. The scope of the study is the English Football League Two and

Conference, as well as two clubs in lower leagues to act as comparative measures.

Ratio analysis was the foundation of the study, providing an objective view of the

financial performance based on public information gathered from Key Note. The

results indicate that the financial performance of the football clubs featured could be

cause for concern, pointing to Szymanski’s theory of irrational exuberance being a

main factor of insolvency, rather than negative shocks. There is an ever expanding

basis of literature around this subject, although it has been noted that it is often

directed at the elite level of European football, with the lower leagues often ignored.

By conducting the research at this level, the results point towards the need for more

knowledge around the area, in order to establish experts in the area to provide

sound financial management for the football clubs.

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Contents

1.0. Introduction 6

2.0. Literature Review 8

2.1. Introduction 8

2.2. Economics 8

2.3. History of Football and Economics 9

2.4. Wages 12

2.5. Sport Management 13

2.6. Football Club Corporate Governance 14

2.7. Financial Fair Play 17

2.8. Football Finance 19

2.9. Further Reading 21

3.0. Methodology 23

3.1. Data Collection 23

3.2. Data Analysis 25

4.0. Findings and Discussion 29

4.1. Return On Capital Employed 29

4.2. Net Profit Margin 30

4.3. Gross Profit Margin 31

4.4. Operating Costs To Revenue 32

4.5. Asset Turnover and Non Current Asset Turnover 33

4.6. Working Capital 34

4.7. Main Discussion 35

5.0. Conclusion and Recommendations 40

6.0. References 44

7.0. Appendices 53

7.1. Figures

7.1.1. ROCE 53

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7.1.2. Net Profit Margin 54

7.1.3. Gross Profit Margin 55

7.1.4. Operating Costs to Revenue 56

7.1.5. Asset Turnover 57

7.1.6. Non-current Asset Turnover 58

7.1.7. Working Capital 1 59



7.1.10. Wages to Turnover 63

7.1.11. AFC Wimbledon 64

7.1.12. Bristol Rovers 65

7.1.13. Forest Green Rovers 66

7.1.14. Grimsby Town 67

7.1.15. Morecambe 68

7.1.16. Oxford United 69

7.1.17. Portsmouth CFC 70

7.1.18. Scunthorpe United 71

7.1.19. Southend United 72

7.1.20. Wycombe Wanderers 73

7.1.21. York City 74

7.2. Tables

7.2.1. Working Capital Key 62

7.2.2. League and Final Position 2012/2013 75

7.2.3. Available Data from Key Note 76

7.3. Appendix

7.3.1. Barnet FC Email 78

7.3.2. Cambridge United Email 80

7.3.3. Return on Capital Employed 82

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7.3.4. Gross Profit Ratio 83

7.3.5. Net Profit Ratio 84

7.3.6. Operating Costs to Revenue 85

7.3.7. Asset Turnover 86

7.3.8. Current Ratio/Working Capital 87

7.3.9. Current Ratio 88

7.3.10. Z Score 90

7.3.11. Wages to Turnover 92

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1.0. Introduction

“It may still be a beautiful, but clearly is an ugly business” (Beech, Horsman and

Magraw, 2008). The generally accepted view of football fans, experts and academics

is that the football industry is not run in a profitable way, apart from football clubs at

the elite level. The purpose of this research project is to look at football clubs within

the Football League Two and Conference to determine if they are run in a way that

could be deemed financially stable. This project tests this and tries to look for the

cause for this lack of profitability, with there being a wide range of contributing

factors, from the historical impact and how English football is set up, to the

philosophy of the football clubs featured and what they are trying to achieve. Based

on quantitative, secondary data, one of the main limitations found in this study is the

lack of comparable data that football clubs have published in the public domain. Out

of forty six clubs looked at, eleven of these had an adequate amount of information

readily available to measure. This does of course, allow for the research to be built

upon in the future, with a number of avenues being feasible. The study is based on

the Statement of Financial Performance (Profit and loss statement) and Statement of

Financial Position (Balance sheet) of football clubs and carries out a number of

profitability and liquidity ratios to provide an objective view of how well the clubs are

performing. Some of the main themes present throughout are based on the views of

profit maximisation vs win maximisation, first proposed by Sloane in 1971 and built

upon by a number of other authors (Andreff, 2011; Dobson and Goddard, 2011;

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Szymanski, 1997). Competitive balance is a theme featured, with comparisons of the

open de-regulated European leagues to the closed and regulated North American

leagues, with the questions being posed that the American model needs to be

emulated in order to create a more economically proficient industry. Insolvency is an

issue addressed in this research project, with it being relevant to the clubs analysed.

There is only one case of a football club in the Premier League entering into the

administration process, Portsmouth FC, and it is fitting that they also feature in this

paper, being in League Two in the 2012/13 season. Also Szymanski could be

considered one of the key figures regarding this topic, having a number of his articles

being cited throughout this paper. Some of the foundation literature that this

research project is based around is Rottenberg (1956) and his theories of competitive

balance, Sloane (1971) and the already mentioned theory of profit maximisation vs

win maximisation, and Neale (1964), with his views on the nature of the sports

industries and the needs for the survival of competition in order to create a better

product for the consumers.

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2.0. Literature Review

2.1. Introduction

“Football has a very poor record of translating strong revenues into bottom line

profitability (Marshall and Tomlin, 2011).” Football club sustainability is all

encompassing and is relevant to a variety of aspects within a football club.

Economics (Neale, 1964), sport management (Guzmán and Morrow, 2007) and

finance are key areas both in general and sporting terms while the recently

introduced Financial Fair Play (FFP) regulations are also important. The history or

football is a common theme when looking at the financial landscape. As well as that

the ownership models (Fallon and Srodes, 1987) and corporate governance of clubs,

in particular for lower league organisations, which is the focus of this study. The Elite

Player Performance Plan (EPPP) could also have an impact on the sustainability of a

club, although this can be considered a separate topic. “Financial sustainability is

achieved when a business is able to deliver products and services to the market at a

price that covers their expenses and generates a profit” (SmallBizConnect, n.d.).

2.2. Economics

The literatures based around economics all mention the ‘peculiar’ nature of the

football industry in a business sense (Guzmán and Morrow, 2007; Neale, 1964).

Ordinary businesses try to create a monopoly in the industry in order to maximise

their revenues. Sporting industries however, require the competitors to be

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challenging in order to make the product, the sport, as attractive to customers as

possible. Neale’s 1964 article is considered one of the pillars of this area of research,

with it being heavily cited in articles related to the issue. The level of readership of

the article could be an indication of its importance, although that is not always the

case. The article involves creating a competitive balance, meaning there is little or no

unfair advantages for companies, which while being universally accepted by sports

economists, has not been thoroughly examined (Nauright and Ramfjord, 2010;

Gratton, 2000; Rottenberg, 1956; Avgerinou, 2007; Wicker, 2014; The Economist,

2007; Dobson, 2007), with Gratton (2000) using evidence from the North American

sports leagues as evidence of the leagues thriving despite relative competitive

imbalance such as the National Football League (NFL). While this is not directly linked

to sustainability, it does have an impact. If audiences do not feel the outcome of a

match is obvious, they are more likely to attend and invest rather than if it were a

forgone conclusion. Comparisons with the open, de-regulated sports leagues of

Europe and the closed and heavily regulated leagues of North America are

commonplace (Nauright and Ramfjord, 2010; Gratton, 2000), with Gratton’s article

suggesting emulating the American model to form a European ‘Super league’, backed

up by findings from Hoehn and Szymanski (1999) to restore the competitive balance

of the leagues. The findings however suggest this would not be the case. Dobson and

Goddard (2011) address competitive balance and apply standard deviation to analyse

the amount of variation within the league, looking at North American sports. This

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focusses more on the sporting performance than the business performance, looking

at aspects such as home-field advantage. Another key comparison between the two

is regarding stadiums, and by extension relocation of teams. While in the USA it is

common for public money to be used to build stadiums to attract teams to the cities

(Gratton, 2000), this does not happen in the European market with Berument et al

(2006) looking at the Turkish league to examine the link between a city’s economy

and the performance of a football team and saying “public expenditures to finance

professional sports cannot be justified”. The relationship with sustainability is

obvious with building a stadium being a very costly and time consuming venture

although the long term benefits are substantial, with the commercial and matchday

growth of Arsenal being an indicator (Populous, 2006). The link to insolvency and

stadiums is also apparent, with Beech, Horsman and Magraw (2008) 42.9% of the

clubs in their study had issues with their stadiums when it came to insolvency, if the

football club owns it, and problems if it does not.

2.3. History of football and economics

When considering the state of the football industry financially, it is important to look

at the history to examine the key factors that have developed the industry into what

it is today. The formation of the Premier League in 1992, the restructuring of the

Champions League in 1995, the collapse of the ITV Digital TV deal in 2002, the

Bosman ruling in 1995 and the conversion of top flight stadiums to all-seater due to

the Taylor Report in 1990 are all contributing factors (Emery and Weed, 2006; Hamil

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and Walters, 2010; Platts and Smith, 2010; Gratton, 2000; Szymanski, 2014;

Avgerinou, 2007; Dobson, 2007; Szymanski, 2010; European Commission, 2013;

Dobson and Goddard, 2011). These peaks and troughs in the overall health of the

football industry has led to the current situation, with the Premier League getting the

majority of TV money and the lower leagues getting a small fraction of the prize

money (Dobson and Goddard, 2011). It is also worth noting that there has been an

aversion to the business side of football, with the impact on its culture being

contested by fans (Szymanski and Kuypers, 2000). A quote from Nauright and

Ramfjord (2010), backs this up: “Fears of foreign investment running the traditional

game persist. Some are tied up with xenophobia, while others are genuinely

concerned about the future of the game…”.

Insolvency of companies is something that would normally benefit competitors, but

as previously explored with competitive balance of the leagues, could weaken the

product that football offers, with the potential loss of rivalries of heavily supported

teams and games being un-played which would reduce the value to spectators. Again

because of the ‘peculiar’ nature of the football industry, clubs that do go through the

insolvency and administration process rarely cease to exist. The analysis of Lincoln

City in Emery and Weed’s 2006 article shows that the process of administration

benefits clubs although is published a year after the club and therefore cannot take

into consideration the long term effects. An analysis of the restructuring of the club

after a longer period time would have shown if it was successful or not. The

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European Commission (2013) report highlights the upsurge of football finance,

showing the increase in total number of player transfers and the total value of these

transactions. The comparisons to basketball give a different viewpoint rather than

the comparisons to other leagues and country’s football regulations. This adds to the

argument due to the fact that clubs need to be more cautious with how they invest

their money in particular with player transfers and transfer spending and wages

compared to revenue.

Portsmouth FC are one of the most high profile cases in recent times, dropping from

the Premier League to League Two and going through the administration process

twice (Semke, 2013; DiBella, 2013). The lessons learnt from Portsmouth’s trouble are

certainly about extreme irrational exuberance (Szymanski, 2012) and over-prioritising

the win maximisation (Sloane, 1971) and a look into their recent history confirms this

(Moxley, 2013). In 2013, the club were bought out by a Supporter’s Trust which is

backed up by Supporters Direct, who are strong advocates for greater supporter

influence within football clubs (Supporters Direct, 2013).

2.4. Wages

The escalation of player wages in often linked to the financial landscape of the

football industry with Stewart (2015) noting that “In 2013 Barcelona FC had the

highest salary scale of any professional sporting club in the world, with players on

average salaries of more that USD 8 million.” The impacts of wages is also highlighted

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in Dobson and Goddard’s 2011 literature, both in terms of profit or utility

maximisation and win maximisation (Sloane, 1971). Aspects such as a payroll cap are

common in the North American leagues but are less relevant to European football,

although as mentioned in this literature review, FFP and SCMP are in their infancy

and expected to reduce the effect of wages on turnover. The mention of a salary cap

enforced by the G14 group has little impact as the group disbanded in 2008 although

the principles of a 70% wage to turnover cap were on the right track. Avgerinou

(2007), Emery and Weed (2006), House of Lords (2013) and Marshall and Tomlin

(2011) all talk about the impact of wages on the football industry and how the

increasing wages to turnover figure needs to be addressed. Beech, Horsman and

Magraw, (2008) associate high wages with insolvency saying that when a club is

relegated, it wrongly prioritises wages when costs need to be cut down.

2.5. Sport management

Because of the peculiar nature of the sports and football industries in particular

(Guzmán and Morrow, 2007), it is important for those at the helm of the different

organisations to be experts and for sound management to be in place. Stewart

(2015) backs this up with the growing demand for staff with experience and expertise

in finance and funding being key. Amar (1999) makes a note of this, pointing out the

large gap in academic research surrounding the area and noting that the application

of standard theories around management would have little effect because “players,

coaches, managers and other sport staff” may not be motivated in similar ways. This

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links to sustainability because of the win maximisation versus asset maximisation

theory put forward by Sloane in 1971. With this article being quite dated, the

breadth of research will have no doubt expanded, although there is still the influence

of former players and coaches at management level, something that Amar says

should not necessarily be the case. Winland et al (2012) looks at the need for non-

profit sporting federations need financial models in order to survive and grow.

Although this is not directly linked to the sustainability of clubs, if the federation that

is running the league is not managed properly, there could be ramifications that

affect all of the member clubs. If the governing bodies do not have a sustainable

model in place, it does not set a good precedent for clubs to follow.

2.6. Football club corporate governance

Szymanski (2012) looks at two theories regarding insolvency in English football and

favours the effect of ‘negative shocks’ rather than ‘irrational exuberance’. This means

insolvency does not necessarily happen because of financial mismanagement but

rather through sudden and unexpected problems. The collapse of ITV Digital in 2002

is an example of this, which caused twelve clubs to go through insolvency

proceedings within a year. Relegation could be classed as a ‘negative shock’ as a

football club never goes into a season expecting to be relegated. This lack of planning

and management could be attributed to insolvency as well relegation itself has an

impact. Beech, Horsman and Magraw (2008), note that in their study of clubs going

through insolvency proceedings, 48.5% of the clubs went through the process after

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relegation. The example of Portsmouth CFC is relevant here, with a long list of

creditors being owed close to £100 million (Guardian, 2010).

This is backed up by his claim that in the decade before insolvency the issue seems to

be more of “stagnation and decline, rather than crash and burn” (ibid.), with clubs

suffering lower league positions and relegation before the financial difficulties took

hold. This means that the regulations brought in by UEFA may not have the desired

impact and unpredictable events being the main catalyst for the majority of

insolvencies.

The ownership model of football clubs is a contemporary issue with different

ownership structures having different priorities for the club, its stakeholders and

shareholders (Wilson, 2013; Emery and Weed, 2006; Marshall and Tomlin, 2011; Bi,

2015; Millward, 2012). While not directly linked to the sustainability of football clubs,

it has a relevance to the issue as each ownership model has a different impact on the

financial sustainability of the club. Hamil et al (2000) focusing on the role supporters

play in terms of financial support and how their influence needs to be formally

recognised so that clubs do not ignore the influence that they have. The Football

Governance Research Centre report (2005) looks at the impact of stakeholders on

clubs as well as different ownership structures available to clubs (Fallon and Srodes,

1987; Trenberth, 2011; Hamil et al, 2000). Supporter ownership is becoming

increasingly significant, especially for clubs at the level looked at, with The Guardian

(2015) noting there are “around 40 clubs” in the UK being supporter owned. Holt

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(2007) focusses on how the industry is moving away from a traditional hierarchical

model of governance, towards a more stakeholder centric model where elite clubs in

particular are growing in influence. Robson (2006) points out the challenges of

setting up sporting governance, using the example of setting up a women’s soccer

league. The relevance of this to club sustainability is the link Robson explains

between the quality of the sport and the economics of the league. Juventus have

published a sustainability report which talks about the way the club is run financially

and highlights the things that they do to be self-sufficient and to reach the needs of

the stakeholders. The ownership structure of Barcelona FC is an interesting case and

Hamil and Walter’s (2010) article takes an in-depth look at the governance model

and the management of the club, in particular the development of the ownership

structure and an analysis of four strategic areas. It is important to note that with all

the changes Barcelona have made on a corporate level, they are still one of the

wealthiest clubs in the world. With the study focussing on lower league football the

impact of ownership structure is perhaps less significant, as clubs at that level have

similar standards of financial performance , as the results from this research project

show, and are less likely to attract wealthy foreign owners that would drastically alter

the fortunes of the club.

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2.7. Financial Fair Play

One of the findings of Platt and Smith’s (2010) paper is that the first steps for clubs to

becoming sustainable is damage limitation, by trying to eliminate the high levels of

debt and reduce the highest creditors, which is largely attributed to player wages.

UEFA have introduced regulations to try and tackle the sustainability and financial

health of European football clubs, with the Financial Fair Play (FFP) regulations being

implemented for all clubs wishing to compete in European competitions such as the

UEFA Champions League and the UEFA Europa League. Since its introduction in 2012,

there has been a growing amount of literature surrounding the area (Szymanski,

2012 and 2014; Evans, 2014; Geey, 2012; Jemson, 2013; Dimitropolous, 2011;

Wilson, 2013; Lammert et al, 2012; Madden, 2014; O’Toole, 2014; Marshall and

Tomlin, 2011). Many papers surrounding FFP ask the question of whether the

regulations brought in are enough to mitigate insolvency; with Hamil and Walters

(2010) saying effecting measures of governance and monitoring manager’s decisions

are needed in order to maintain its impact. Szymanski’s 2012 piece notes the first

theory of irrational exuberance leads to regulation systems such as FFP. It is worth

noting the UEFA regulations will have little impact on clubs outside of the top division

in the European leagues.

With the focus of the report being on lower league football, it is vital to look at

regulations that will have an impact on League Two and Conference clubs. The

Football League have brought in their own Financial Fair Play regulations known as

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Salary Cost Management Protocol (SCMP) (Financial Fair Play, n.d; Geey, 2012,

Football League, 2012). This involves limiting a clubs “spending on player wages to a

percentage of club turnover” with the overall aim of the club becoming self-

sustainable, much the same as its UEFA counterpart. It is also meant to encourage

investment in infrastructure and youth development, so that clubs are more reliant

on talent they produce rather than bringing players in with large transfer fees. This

all relates to the Elite Player Performance (EPPP), which is a separate topic. Because

both sets of regulations are still in their infancy, it is difficult to determine the success

on the long-term sustainability of clubs, but the general aim is to reduce the

percentage of wage to turnover and for clubs to try and develop revenue streams to

maximise profit. If clubs in the Conference wish to get promoted and compete in

League Two, they would have to comply with the regulations as well.

Many of the pieces of comparative literature between European and North American

soccer suggest the regulation of the open European league, with aspects such as the

draft system and wage caps being brought in to try and create a more financial stable

environment (Nauright and Ramfjord, 2010).

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2.8. Football finance

There are various articles that analyse the stability of the football industry

(Dimitropolous, 2011; Szymanski, 2010), with it being referred to as a bubble that is

ready to burst and requiring an overhaul of the regulatory system in order to

proceed (Hamil and Walters, 2010), Szymanski (2010 and 2012), says the external

financial crisis is not an issue to the football industry although in the 2012 piece,

examines if the industry is in crisis due to the imbalance of income and expenditure

and the rising levels of debt, which is also referred to in other sources (Platts and

Smith, 2010), with mention of the growing commercialisation of the game being

significant. The Economist mentions Szymanski, although not a particular paper,

saying that despite the European leagues being unbalanced, the popularity of the

sport has not been affected, with features related to the open league structure such

as promotion/relegation, local rivalries and the chance for underdogs to embarrass

their superiors being able to generate interest for those that do not have the chance

to win the championship. This again refers to the impact of competitive balance and

the need for competition in order to create a product that fans will pay to see.

Szymanski (2010) points out that club have ‘enlightened self-interest’ often giving

support to clubs in financial difficulty because a team needs competitors in order to

operate, and that there is a link between the relative spend on players and the

success of the team, while Avgerinou (2007) highlights the challenges clubs in Europe

face financially, in particular player wages and expenses of the club. Andreff (2011)

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gives an excellent explanation for this, with the combination of the win-maximisation

philosophy (Sloane, 1971) and impact of promotion and relegation meaning clubs

enter into ‘arms races’ for the best players, which may not work out’, which causes

player’s wages and transfer fees to continue to increase. The main difference to

American leagues is that the focus on profit mean clubs will not overpay for a player

to enhance the quality of the team for the win maximisation aspects. Dobson and

Goddard (2011) note a link between competitive balance and profit maximisation

saying if teams are rational about maximising profit the competitive balance of the

league will be more or less equal while Szymanski (1997) notes the relationship

between profits and performance linking to the win maximisation and profit

maximisation theory already mentioned (Sloane, 1971). Beech Horsman and Magraw

(2008) talk about the impact of this in terms of spending to achieve promotion and

therefore perform better financially, or selling or releasing players in order to reduce

costs. When looking at football at the elite level, you can see this may not be the

case, with teams such as Manchester City spending a net total of -£631,427,000 since

the Premier League began (Transfer League, 2015). A common study when looking

at football finance is to compare the sporting performance of a club against its

financial performance (Wilson, 2013; Emery and Weed, 2006; Platts and Smiths,

2010; Szymanski, 2010).There is a direct correlation between the relative spend of a

club and their on field successes. This stems from Sloane’s 1971 article highlighting

win maximisation and utility maximisation. Clubs need to decide whether short term,

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on field success, win maximisation, is a priority, or if long term, off field success and

sustainability or utility maximisation is.

2.9. Further reading

Sustainability in football has an impact on all areas of a football club. Because of this

and with Stewart (2015) saying there are many gaps in financial knowledge, the topic

has many avenues of research to go down, with the financial impact of EPPP being

important. According to Avgerinou (2007) saying the financial innovations of “stock

market listings, strategic media investment, securitisation, player sale and leaseback

arrangement and stadium naming rights deserve more research”. The majority of the

articles researched are looking at the elite level of football rather than the lower

tiers, which this research paper will be focussing on. There are some areas that are

transferrable, such as the Salary Cap Management Protocol regulations brought in by

the football league (Football League, 2012; Geey, 2012), and the financial analysis

carried out by Emery and Weed (2006) being directly linked to this research, albeit at

a different level. Further research into the ownership models of football clubs and

the financial impact of this would also be beneficial. More studies around these areas

are bound to have a positive impact, due to the current lack of shared knowledge

available. As well as that, comparing the English league structure to that of other

countries would be beneficial, with comparisons to the American model being

common because of the stark contrasts between the league formats. By looking at

the financial data of football clubs you can see that there is need for better revenue

21

streams, which could be influenced by factors such as an external investor or a

restructuring of the entire league format, although this latter suggestion is unlikely.

The issues covered in Marshall and Tomlin’s 2011 piece also bring to light the

political influences on the football industry with claims that a reformation of the

Football Association is required to overcome mismanagement and poor

representation. Szymanski (1997) backs up the claim of reform by looking at the

football industry before the Taylor Report and the formation of the league in

comparison to the current format.

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3.0. Methodology

3.1. Data Collection

The purpose of this investigation was to see how well clubs in the Football League

Two and Conference Premier, as well as two teams in lower leagues, performed

financially, and to see if there are any clear problems that need to be addressed. This

was done using quantitative data obtained from Key Note

(http://www.keynote.co.uk/) and assessing the data using profitability and liquidity

ratios. These enable an overall view of the financial performance of the football clubs

to be established, and gives a format for which the clubs can be compared to one

another. KeyNote was used rather than Companies House directly solely for the

reason of funding. While there is a charge for documents from Companies House, the

service from KeyNote is free for academic use, and provides the same information.

All of the data analysed was from accounts posted in 2013 following the 2012/13

seasons. This is the last year where all accounts are published by all of the clubs

involved in the study, although more up to date information may have been released

since. This allowed the majority of data to be collected, as a lot of the clubs had not

posted more recent information. Initially, direct contact was attempted with the

clubs involved in order to get the company details directly. This turned out to be an

extremely time consuming task, providing little success, with a limited number of

clubs replying to the emails. This also points towards a more objective measure of

the financial performance rather than a subjective comparison. If this study were to

23

http://www.keynote.co.uk/

be carried further, interviews could be conducted to test if the same results were

produced and more qualitative findings could be found. During the initial research

into Football League Two and Conference clubs, a number of clubs were not used.

After a secondary search the missing accounts were sought and the results updated

to provide a more full view of the clubs in League Two and the Conference. The study

does include two clubs in lower leagues to act as comparisons, Histon Town in the

Southern League (Levels 7 and 8) and Ely City in the Eastern Counties Football League

(Levels 9 and 10). Of the 46 clubs whose documents were obtained, Aldershot Town

had dormant accounts so could not feature in the ratios. As well as that, only eleven

had all the necessary information, the statement of financial position (balance sheet)

and the statement of financial performance (profit and loss account). There was no

up to date information for Nuneaton Town, Fleetwood Town or Chester while only

the Community Trust accounts for Chesterfield were available online (see Table 7.2.1

for a full list of clubs used). Hartlepool United, Bury, Scunthorpe United and

Portsmouth were relegated to League Two at the end of the 2012/13 season while

FC Halifax Town and Histon were in the Conference North and Welling United and

Salisbury City were in the Conference South. By knowing this, it is easier to judge

whether or not the results in the study can be deemed a success or not, especially

when applied to Sloane’s (1971) win maximisation theory. As shown in the literature

review, there is a limited amount of analysis at football away from the elite level.

While it has been said that a common study is to compare the turnover to the league

24

position (Szymanski, 1997; Wilson, 2013; Emery and Weed, 2006; Platts and Smiths,

2010; Szymanski, 2010), there have been few studies of the overall financial health of

clubs at this level. Any results found from this study are more likely to have an

impact than at the elite level.

3.2. Data Analysis

The ratios used were Return On Capital Employed (ROCE) (Appendix, Net Profit

Margin, Gross Profit Margin, Operating Costs to Revenue, Asset Turnover, Non-

current Asset Turnover and Working Capital. For a list of the ratio definitions

according to Jones (2013), and Elliot and Elliot (Jones), refer to Appendices 7.3.3. to

7.3.7. These profitability ratios are included to “establish how profitably a business is

operating” (Jones, 2013). The inclusion of the Working Capital Ratio is also used to

see “how easily a firm can pay its debts” (Jones, 2013). Since this study is looking at

the overall financial health of football clubs, looking at both profitability and liquidity

ratios is important to get a more comprehensive view of how the clubs are

performing. During the study it became apparent that a lot of the previous analysis

around football financial health is centred on wages with Financial Fair Play (FFP) and

Salary Cost Management Protocol (SCMP) being two instances of regulations brought

into English football to limit the rising wage, amongst other things (Stewart, 2015;

Avgerinou, 2007; Emery and Weed, 2006; Beech, Horsman and Magraw, 2008;

Marshall and Tomlin, 2011; House of Lords, 2013). With that in mind, a further study

was conducted to determine the wages to turnover ratio to see how much of an

25

impact on a club’s resources the player’s wages were having. This was done simply

by dividing the wages figure by the turnover figure. As is the case with the other

ratios, some areas of data was missing, meaning with more data, more trends could

have been established. Some problems encountered when calculating the ratios

included Welling United and Portsmouth CFC only having 2013 data. Grimsby Town,

Morecambe, York City and Bristol Rovers did not have a figure for gross profit

meaning the Gross Profit Ratio could not be calculated. For Bristol Rovers, the

administrative expenses figure was not available either, meaning the Operation Costs

to Revenue ratio was not calculable. While the profit and loss statement and balance

sheet were available for FC Halifax Town, it was presented with the majority of

necessary figures missing, the main instances being revenue and any recognition of

liabilities, both fixed and current. These ratios were calculated on a club by club basis

in an effort to present a snapshot of the financial health of each club. Because the

information was available in the public domain, consent was not needed although if

the statement of financial performance for all forty clubs were sought, they would

have to be attained from the clubs directly. The fact that only a small portion of the

clubs had all the required data impacted the study as the more data there is to

analyse; the more generalizable the results and the more conclusions can be made.

Another analysis that could have been carried out is Altman’s 1977 Z-score (Elliot and

Elliot, 2013). This is a more comprehensive analysis and can be used to predict future

success and failures. The literature by Beech, Horsman and Magraw (2008) brings up

26

the fact that these analysis models are self-fulfilling and that many bankruptcies are

down to unforeseen circumstances. It was not included in this study as not all the

information was readily available on the data collected, although if the study was

carried further, it would be beneficial to include this, as it provides a collective

analysis using more than one ratio, rather than each ratio being analysed

individually, as is the case here.

Secondary research was chosen as the main source of data for this project as

because the nature of the research project is financially based, any interviews and

questionnaires would likely have pointed to the same data. This is backed up an

email conversation with the Finance Director of Barnet FC who immediately referred

to the documents available on Companies House (See Appendix 1.1). Also, the

analysis of quantitative data is better suited to this study, as it allows the

comparisons of the different football clubs in a standard way whereas qualitative

research would have proven difficult to analyse based on the opinionated nature of

interviews. Beech, Horsman and Magraw note the differences between a

quantitative and qualitative study in this sector and states a mixed method approach

would yield more information to analyse and set up to see if there is any correlation

between what the hard data from the company accounts show, and the response

from any potential interviews.

Because the data is collected from Key Note, and to a degree Companies House, you

can guarantee the reliability of the information, as the statement of financial position

27

needs to be submitted to Companies House as a legal requirement. There may be

some unreliability in the ratios calculated, as determining the figures for each

calculation can differ, as some clubs post figures under different headings. An

example of this would be the Gross Profit Margin ratio. While the eleven clubs used

had the Statement of Financial Performance, four of these clubs did not have a figure

published for the Gross Profit, while as is the case throughout the study, there was

no data for Portsmouth CFC, as it is a phoenix club and 2013 is the first year of the

new club’s published accounts. The clubs missing from this calculation are Bristol

Rovers, Grimsby Town, Morecambe and York City. This impacts the study as over a

third of the clubs analysed had to be omitted from this particular calculation. This has

been avoided where possible with any outliers in the graphs being recalculated to

see if a mistake had been made. This can be considered the ‘test-retest’ method

posed by Bell (2010) as it could be seen as ‘administering the same test sometime

after the first’.

28

4.0. Findings and Discussion

The aim of this study was to determine whether or not the football clubs in the

Football League Two and Conference Premier are run in a way that can be deemed

sustainable. Based on the ratio analysis of the clubs and then applied to the relevant

literature discussed, any areas that are not up to standard are brought to light to see

if there is an adequate explanation for this. See Figures 7.1.1 – 7.1.21 for the full

results of the study including a club by club comparison.

Based on Saunders et al point (2012) on deductive reasoning, where the theories are

developed first and then tested with research, it is clear that the football clubs

analysed are not run in a profitable way. This is based on the point made by Marshall

and Tomlin (2011), that “financial debt and instability within the game have reached

unsustainable levels”. By carrying out the profitability and liquidity ratios featured in

the study, we are able to determine if this is in fact true and to see if action is

required to ensure the long term sustainability of football at this level is protected.

4.1. Return On Capital Employed

Figure 7.1.1 shows that if a club is making a return on the capital it has employed,

that return is minimal, with only three clubs having a positive return in 2013. Only

Forest Green Rovers experienced over 1% return. Forest Green Rovers and Wycombe

Wanderers are the standout performers for ROCE in comparison to 2012 with Forest

Green Rovers having a 5.9% increase with Wycombe Wanderers having a 3.1%

29

increase. This goes against the trend set by the other clubs who have similar results

for both 2012 and 2013. In this study, the ROCE was calculated by measuring the

profit and loss before taxation against the total assets minus current liabilities figure,

to serve as the figure for capital employed. This has allowed a comparable figure for

each club to be produced. The large differences for Forest Green Rovers and

Wycombe Wanderers can be put down to the difference in profit/loss before

taxation for the two years. Forest Green Rovers had lost £600,000 in a year while

Wycombe Wanderers had lost a vast amount more, a sum of around £4,600,000.

As well as this, the total assets minus current liabilities also has had an impact, with

Forest Green Rovers paying around £2,000,000 more to creditors in 2013 and

Wycombe Wanderers having £500,000 less coming in from debtors the same year.

One other aspect to note regarding the ROCE is that four out of the eleven clubs

featured posted a positive percentage return in 2012 and then a negative return the

following year. While the difference is as little as 0.2% decline it is still a negative

return so should be monitored accordingly.

4.2. Net Profit Margin

From Figure 7.1.2 we can see that only two of the eleven clubs had a positive net

profit margin, and that was in 2012, with no clubs posting a net profit margin in the

following year. With that being said, AFC Wimbledon and Grimsby Town only posted

positive net profit margin percentages of 0.03% and 0.1% respectively so there is still

30

room for improvement. This is because both clubs had an operating loss for 2013

compared to the operating profit the year before. Jones (2013), notes that the

calculation for net profit margin varies because of the different figures that can be

used. Throughout the study, the figure for operating profit/loss was used to

represent a true and fair representation of the clubs. The statistics for Portsmouth

CFC do not reflect reality as there was no data for 2012 and thus the data counts as

zero, although having -1% is still not desirable for a new company as it is one of the

worst clubs financially in the study. Portsmouth CFC and Forest Green Rovers are the

only clubs in the study to have a higher operating loss than turnover, which stands to

reason, as they are two of the worst clubs in terms of net profit margin. Forest Green

Rovers shows the worst net profit margin for both years, which is also reflected in

their gross profit margin percentage explained later on. Of the eleven clubs involved,

only Southend United and York City posted an improvement in 2013. This is down to

both an improvement in operating loss and turnover for both clubs.

4.3. Gross Profit Margin

The main thing to note from Figure 7.1.3 which covers the gross profit margin is the

lack of data compared to the other ratios. Bristol Rovers, Grimsby Town, Morecambe

and York City did not have figures for gross profit in the statement of financial

position while, as in the case for all the ratios, there is no data for Portsmouth CFC in

2012. This means that only seven of the clubs have comparable information, with the

majority of the clubs posting similar results for 2012 and 2013. AFC Wimbledon,

31

Forest Green Rovers, Wycombe Wanderers and Scunthorpe United had a worse 2013

than the previous year, while five of the seven had a positive gross profit margin

percentage. In comparison to the net profit margin, you can see the results are more

spread out, although all clubs have recorded between 1% and -1% gross profit

margin. Jones (2013) states that the gross profit margin is a useful ratio when

examining businesses where inventory is purchased and resold at a marked-up price.

This does not necessarily apply to football clubs as the main product on sale is the

football itself. It could however be interpreted as the investment in young players

who are then resold for a large profit margin. This links into the Elite Player

Performance Plan (EPPP) which is contemporary and relevant topic, but is perhaps

too far from the core topic to be included in this discussion. This is reflected in the

relatively low performance of the clubs involved.

4.4. Operating Costs to Revenue

Figure 7.1.4 shows the operating costs to revenue percentages and as you can see,

none of the football clubs featured posted a positive result apart from Oxford United

in 2012. There are no results for Bristol Rovers as there were no ‘administrative

expenses’ figure that could be used to compare to the other clubs. The worst

performers were Grimsby Town and Portsmouth CFC. This could be alarming for

Portsmouth CFC as they are a new club and to have an operating costs to revenue

ratio of -1.59 and therefore is very inefficient. Put into practical terms, this means

that £1.59 is spent to achieve £1 of sales. Most football clubs had like for like results

32

for both years although Oxford United had the biggest drop from 0.38 in 2012 down

to -0.45 in 2013. While it has already been stated that the results are negative, since

they are all relatively close together, it could be assumed that these results are

common for football clubs and not a cause for concern since each industry differs in

the necessary costs (Taylor, n.d.).

4.5. Asset Turnover and Non-current Asset Turnover

Figures 7.1.5 and 7.1.6 show the asset turnover and the non-current asset turnover.

As you can see, some clubs have done exceptionally well in comparison to others

with three clubs having an asset turnover of five times and four clubs having a non-

current asset turnover of around ten or above for at least one of the years. The main

point to note is while the asset turnover for each club is similar for both years

analysed, there are large differences for the non-current asset turnover for some

clubs. Bristol Rovers improved by thirteen times, Oxford United by twenty nine times

while Wycombe Wanderers decreased by nine times. This shows that football clubs

have low amounts of fixed assets, as the majority of the business comes from match

day revenue in terms of both attendances and commercial revenue from TV

broadcasting. In terms of Asset Turnover, player movement could be a factor.

Football players can be deemed as assets as they are bought and sold on the transfer

market and are certainly current assets as their tenures at football clubs only last a

limited amount of time. One reason why some clubs have high Asset Turnovers

33

compared to others could be down to a busier transfer window where a lot of

players were bought or sold.

4.6. Working Capital

Figures 7.1.7, 7.1.8 and 7.1.9 are the only graphs including all forty six clubs in the

study and show the working capital ratio, also known as the current ratio. There are

two clubs not involved in the study Aldershot Town and FC Halifax for reasons

already mentioned. There are a few outliers in these results, both positive and

negative. The clubs with the best current ratio are Southport Rugby and Grimsby

Town, although Grimsby’s 2013 result is more in line with the other clubs. Southport

have an incredible working capital of 5.23 for 2012 and 8.79 for 2013. This means

that they are able to pay their current liabilities using their current assets 5 times and

8 times respectively. This is shown in the Statement of Financial Position with the

current liabilities for Southport Rugby totalling £36,393 for both years. When you

compare that to Hartlepool United who have total liabilities equalling £26,894,939

for the same period, it is no wonder Hartlepool’s working capital is only 0.04 for 2012

and 0.03 for 2013. While Grimsby Town and Southport Rugby experienced the

highest declines by 2.30 and 3.56 respectively, the club that improved the most is

Rochdale, rising from 0.20 to 1.46.

34

4.7. Main Discussion

From looking through these ratios, we can see that the majority of football clubs do

not run in a way that can be deemed profitable. When comparing these results to

the theory formed by Sloane (1971) and expanded by Wilson (2013), Emery and

Weed (2006), Platts and Smith (2010) and Szymanski (2010) you could assume that

the clubs are pointing towards a win maximisation model rather than profit

maximisation. However, when looking at the club’s league positions for the 2012/13

season where the financial accounts are from, you can see that win maximisation

was not achieved in every case (Table 7.2.2)(Statto, 2015; Statto, 2015; Statto, 2015;

Football League, 2015). It could be argued that Grimsby Town achieved the best on

field performance, getting fourth in the Conference Premier, although clubs in

League Two could be considered to have performed better, as they are in a higher

division. Kearney (2004) backs up the distinction between win and asset

maximisation; “To be successful, football clubs must balance sport and business.” He

goes on to emphasise the importance of competition and competitive balance. With

the structure of English Football having the impact of promotion and relegation,

competitive balance is ensured with the best and worst performers leaving the

league at the end of each season to compete at a more appropriate level. This

competitive balance does not guarantee profits however, as the results have shown

that the clubs largely do not run at a profit. This contradicts Gratton’s 2000

suggestion of creating a European Super League to restore competitive balance.

35

Because the study is targeted at lower league football, the results may differ when

analysing the elite level, although there is evidence from North American sports that

the leagues can thrive without the competition being balanced.

The theories posed by Szymanski (2012) of irrational exuberance and stagnation and

decline could suggest that a lot of the clubs analysed are stagnating because of their

lack of financial performance. None of the clubs performed well when looking at the

Return On Capital Employed, Net Profit Margin, Gross Profit Margin or Operating

Costs to Revenue. A look at the amount of clubs that have gone through the

administration process (Hereford United, 2014; Salisbury City, 2014) also lends itself

to the theory of stagnation and decline and Szymanski (2012) with Table 7.2.2

showing the league movement for the 2012/13 season. Within the literature by Jim

(2010), there are 23 of the 66 cases of the football clubs that have gone through the

administration process. Since this was published in 2010, the likes of Hereford

United’s 2014 (Hereford United, 2014) and Salisbury City’s 2014 (Salisbury FC, 2014)

financial trouble are excluded. Emery and Weed back this up by noting a high wages

to turnover ratio being a key contributor to financial insolvency. Upon this literature

and others pointing to the impact of high wages, the calculation was tested against

the clubs involved in this study (Figure 7.1.10). Forest Green Rovers had an

alarmingly high wages to turnover ratio for both 2012 and 2013, with an increase in

2013 while all clubs with available data had over 50% of their turnover going directly

to players in terms of wages. In 2012, three out of eight results had a 75% of their

36

revenue towards wages while in 2013, seven out of nine were over 75%. Considering

that the G14 group at the elite end of football were trying to enforce a 70% cap

before they disbanded, this is a worrying issue especially since the revenue levels are

much lower in League Two and the Conference. York City had the worst year on year

comparison, with the ratio increasing by 60%, while Grimsby Town improved by 16%.

Competitive balance does not seem to have an impact on sustainability with the all

eleven of the clubs analysed in the open and deregulated leagues of the Conference

and League Two posting a loss for the financial year in at least one of either 2012 or

2013. As already noted (Gratton, 2000), the establishment of a more ‘Americanised’

league to establish competitive balance and to promote economic returns does not

seem necessary as there is already relative competitive balance due to promotion

and relegation. The findings from Gratton also point out that there is little evidence

that the American model will improve the financial performance of clubs. One way

for the economic performance to improve for clubs at this level is through the prize

money awarded to teams. As already stated by Dobson and Goddard (2011), by

increasing the amount of prize money that trickles down (Marshall and Tomlin,

2011), particularly TV money, lower league clubs will have an increased source of

revenue and will obviously be more financially stable.

Beech, Horsman and Magraw (2008) mention the impact of stadium ownership on

insolvency. From looking at the Statement of Financial Position for the eleven main

clubs involved in the study, six of the clubs have fixed assets over £1.3million, with

37

Morecambe having fixed assets over £8million. This could reasonably be the

ownership of the stadium, and if any of these companies were to enter into

insolvency proceedings, the sale and leaseback of these assets could be a viable

option.

High wages have already been identified as an issue throughout football, including in

League Two and the Conference. Salary Cap Management Protocol has already been

implemented to try and restrict the impact of wages to turnover (Geey, 2012).

Because the regulations are in effect from the beginning of the 2012/13 season, the

same season that the club accounts featured are from, there is a leniency to the first

year of results. Further study into more recent years would provide a view of if the

clubs are complying with the regulations and if any have been sanctioned. The SCMP

only applies to the Football League so the results of the Conference clubs is not as

relevant, although clubs with Football League aspirations will have to be compliant if

they were to be promoted.

The theory of win maximisation vs profit maximisation (Sloane, 1971) is present

throughout this paper and it has been noted that looking at League Two and the

Conference, there are few clubs who are exemplary examples of either. It has

already been mentioned the lack of profits that clubs are posting, which points

towards the theory of win maximisation, but as Table 7.2.2 shows, there are few

clubs who can be considered to have achieved this. This could be down to the points

made by Andreff (2011), saying clubs are pressured into an ‘arms race’ for players,

38

which obviously affects profits and also contains the risk that the transfer may not

work out, which would adversely affect the win potential.

There are views of the football industry as a whole (Szymanski, 2012; Dimitropolous,

2011), suggesting that the industry is a ‘bubble ready to burst’ and that the rising

levels of debt are a concern. The figures point to this with Hartlepool being one of

the main examples, having creditors falling due within a year being over £13 million

for both 2012 and 2013.

39

5.0. Conclusion and Recommendations

From this study we have found that while the financial performance of the football

clubs is not great, the industry percervers and carries on regardless. There are often

case of clubs having large amounts of short term debt, such as Hartlepool United, yet

are still able to compete on the football pitch. You would expect Portsmouth CFC to

be one of the standout performers thanks to the phoenix club being supporter

owned and in its infancy since going through administration, yet this is not the case.

More current information shows signs of improvement (BBC, 2014) yet without a

comparative analysis to go alongside this study, just posting an operating profit does

not guarantee profitability.

If this study were to be carried further, interviews could be conducted to test if the

same results were produced and more qualitative findings could be found. Beech,

Horsman and Magraw (2008) note that a mixed study would be beneficial as a

quantitative study, such as this one or that of Emery and Weed (2006), would be

complemented by the qualitative data as well as individual data to provide specific

cases highlighted from the aggregated data. The example of Buraimo et al (2006) was

given, although that literature was not featured in this project. Some problems

highlighted by Beech Horsman and Magraw (2008) carrying out interviews include a

reluctance to talk about failure which could be present regarding this study, and a

persistent bias by the participant. This could be resolved by posing the questions as

40

“attempts to save the club” rather than the failure to do so, and to have the records

of your data at hand to assess the views posed in the interviews.

In order to have a stronger set of results, more club accounts could have been

gathered, looking at different leagues, both domestic and internationally but, given

that less that 25% of the accounts used had both the Statement of Financial

Performance and the Statement of Financial Position, there may still be this issue if

the scope was widened. As well as that, if more years were looked at, trends for each

club could be established to determine if they were improving or declining year on

year. This would link to Szymanski’s (2012) theory of irrational exuberance and see if

the clubs are perhaps in a period of stagnation and decline and if action needs to be

taken. While carrying out the profitability and liquidity ratios did provide an

adequate view of the financial performance of the football clubs, a more

comprehensive view would allow for more analysis. Altman’s 1977 Z score is a metric

that has been developed to predict future success and failures. This can again be

linked to Szymanski’s 2012 theory, because one issue with the Z score is that a lot of

causes of bankruptcy are Szymanski’s ‘negative shocks’ and are therefore difficult to

predict. Nonetheless, it does provide a good measure for how each company is

performing. More background information into the clubs, such as the ownership

structure and the transfer history would enable the analysis to look at win vs

maximisation theory in more detail (Sloane, 1971).

41

There are a number of avenues to pursue following this research project. As already

established from the literature review, the issue of football club finance has many

contributing factors. Certainly the literature in general around lower league football

needs to be developed. Emery and Weed (2006) backs this up by noting that almost

all journal articles are focused on the ‘elite’ end, the FA Premier League. Specifically,

football club valuation is something that can be adapted, with Markham (2013)

looking at the existing valuation models, before developing a new model. Although it

has not been touched upon in this research project, stadium utilisation is an area

that lower league football clubs could certainly improve on, with the amount of

home matches being played making up a small portion of the year. If there are able

to use the stadium for the remainder of the year, the establishment of new revenue

streams would improve the financial health of the club. Elite Player Performance Plan

that has not featured in this project because it diversifies from the core issue. Having

said that, there is a strong financial impact, especially for clubs at League Two and

the Conference so an analysis into if the costs out way the rewards would be

beneficial. As mentioned, the Salary Cap Management Protocol (SCMP) is still its

infancy, so further analysis into the impact of the regulations would be needed, as

well as the impact on wages and in turn, future insolvency problems. As Amar (1999)

noted, the management of sports companies is largely made up of coaches,

managers and former players, whose motivation and goals may differ from industry

experts. By installing these experts, the profitability of may improve, without

42

hindering the on-field performance. A quick example at the Oakland Athletics and

Moneyball show the impact a business professional could have on a sporting

environment. At the time of writing (2015), The Labour Party manifesto says that

“Labour will give football fans a voice in club boardrooms”. Supporter influence is a

contemporary issue, especially for the clubs in the study, with Portsmouth CFC being

a prime example. A look at the 2014 for Portsmouth CFC shows that supporter

ownership is a sound business model, with the club recording an operating profit for

the first full year after exiting the administration process. Supporters Direct are

strong advocates for more fan responsibility within football clubs and these are two

example that will strengthen their claims. The Guardian (2015) shows the positive

influence of supporter ownership and states “The entire ecology of football benefits

from this kind of activity”.

Word Count: 9,643

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6.0. References

Accrington Stanley Football Club Limited (2013) Unaudited Abbreviated Accounts 2013. Available at: https://www.keynote.co.uk/business-intelligence/company-information/list_documents?companyNo=01287721 (Accessed 20/01/2015).AFC Wimbledon Limited (2013) Report and Financial Accounts 2013. Available at: https://www.keynote.co.uk/business-intelligence/company-information/view?regdNo=04458490&searchId=5857266&perPage=50&position=1&page=1 (Accessed 20/01/2015).Albion Football Club Limited (2013) Abbreviated Audited Accounts 2013. Available at: https://www.keynote.co.uk/business-intelligence/company-information/view?regdNo=00488096&searchId=5857392&perPage=50&position=1&page=1 (Accessed 20/01/2015).Aldershot Town Football Club Limited (2013) Dormant Accounts 2013. Available at: https://www.keynote.co.uk/business-intelligence/company-information/view?regdNo=08362929&searchId=5857278&perPage=50&position=1&page=1 date accessed 20/01/2015Alfreton Town Football Club Limited (2013) Abbreviated Unaudited Accounts 2013. Available at: https://www.keynote.co.uk/business-intelligence/company-information/view?regdNo=02011224&searchId=5857286&perPage=50&position=1&page=1 (Accessed 20/01/2015).Amar, A. (1999) ‘Sports management: budding profession needs theoretical foundation’, The Mid-Atlantic Journal of Business, 35(2) pp. 73-74Ames, N (2015). The Guardian. Supporters Direct celebrates growing list of fan ownership success stories. Available at: http://www.theguardian.com/football/2015/apr/16/supporters-direct-fan-ownership-supporter-ownership-week (Accessed 16/05/2015). Andreff, W. (2011) ‘Some comparative economics of the organization of sports: competition and regulation in north America vs. European professional team sports leagues’, The European Journal of Comparative Economics, 8(1) pp. 3-27Avgerinou, V. (2007) ‘The Economics of Professional Team Sports: content trends and future developments’, Choregia, 3(1) pp. 5–18.Barnet Football Club Limited (2013) Abbreviated Accounts 2013. Available at: https://www.keynote.co.uk/business-intelligence/company-information/view?regdNo=01239681&searchId=5857291&perPage=50&position=1&page=1 (Accessed 20/01/2015).BBC Sport (2015). Portsmouth: Club announce operating profit in first full year. Available at: http://www.bbc.co.uk/sport/0/football/32131249 (Accessed 10/04/2015).Bell, J. (2010) Doing Your Research Project. 5th edn. Maidenhead. Open University Press.

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http://www.bbc.co.uk/sport/0/football/32131249

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7.0. Appendices

54

AFC W

imbled

on

Bristo

l Rove

rs

Fore

st Gre

en Rove

rs

Grimsb

y Town

More

cambe

Oxford

Unite

d

Portsmouth

CFC

Scunth

orpe U

nited

South

end U

nited

Wyc

ombe Wan

derer

s

York

City

-6

-5

-4

-3

-2

-1

0

1

2

Figure 7.1.1 Return On Capital Employed

20122013

Team

ROCE

55

AFC Wim

bledon

Bristo

l Rove

rs

Forest

Green R

overs

Grimsb

y Town

More

cam

be

Oxford

Unite

d

Portsm

outh CFC

Scunth

orpe U

nited

Southend U

nited

Wyc

ombe W

anderers

York City

-2.5

-2

-1.5

-1

-0.5

0

0.5

Figure 7.1.2 Net Profit Margin2012

Team

Net

Pro

fit M

argi

n

56

AFC Wim

bledon

Bristo

l Rove

rs

Forest

Green R

overs

Grimsb

y Town

More

cam

be

Oxford

Unite

d

Portsm

outh CFC

Scunth

orpe U

nited

Southend U

nited

Wyc

ombe W

anderers

York City

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

Figure 7.1.3 Gross Profit Margin2012

Teams

Gro

ss P

rofit

Mar

gin

57

AFC Wim

bledon

Bristo

l Rove

rs

Forest

Green R

overs

Grimsb

y Town

More

cam

be

Oxford

Unite

d

Portsm

outh CFC

Scunth

orpe U

nited

Southend U

nited

Wyc

ombe W

anderers

York City

-12

-10

-8

-6

-4

-2

0

2

Figure 7.1.4 Operating costs to revenue2012

Teams

Ope

ratin

g co

sts

to r

even

ue

58

AFC Wim

bledon

Bristo

l Rove

rs

Forest

Green R

overs

Grimsb

y Town

More

cam

be

Oxford

Unite

d

Portsm

outh CFC

Scunth

orpe U

nited

Southend U

nited

Wyc

ombe W

anderers

York City

0

1

2

3

4

5

6

7

8

9

Figure 7.1.5 Asset turnover2012

Teams

Ass

et tu

rnov

er

59

AFC Wim

bledon

Bristo

l Rove

rs

Forest

Green R

overs

Grimsb

y Town

More

cam

be

Oxford

Unite

d

Portsm

outh CFC

Scunth

orpe U

nited

Southend U

nited

Wyc

ombe W

anderers

York City

0

5

10

15

20

25

30

35

40

45

Figure 7.1.6 Non-current Asset turnover2012

Team

Non

-cur

rent

ass

et tu

rnov

er

60

1 2 3 4 5 6 7 8 9 10 11 12 13 14

-4

-3

-2

-1

0

1

2

Figure 7.1.7 Working Capital 12012

Teams

Wor

king

Cap

ital

61

16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

-2

-1.8

-1.6

-1.4

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0


Teams

Wor

king

Cap

ital

62

32 33 34 35 36 37 38 39 40 41 42 43 44 45 46

-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0


Teams

Wor

king

Cap

ital

AFC Wimbledon 1 Exeter City 24Bristol Rovers 2 Gateshead 25Forest Green Rovers 3 FC Halifax 26Grimsby Town 4 Hartlepool United 27Morecambe 5 Hereford United 28Oxford United 6 Histon Town 29Portsmouth CFC 7 Hyde United 30Scunthorpe United 8 Kidderminster Harriers 31Southend United 9 Lincoln City 32Wycombe Wanderers 10 Luton Town 33York City 11 Macclesfield Town 34Accrington Stanley 12 Mansfield Town 35Aldershot Town 13 Newport AFC 36Alfreton Town 14 Northampton Town 37Barnet 15 Plymouth Argyle 38Braintree 16 Rochdale 39Burton Albion 17 Salisbury City 40Bury 18 Southport Rugby 41Cambridge United 19 Tamworth 42Cheltenham Town 20 Torquay United 43Dagenham and Redbridge 21 Welling United 44Dartford 22 Woking 45Ely City 23 Wrexham 46

Table 7.2.1 Working Capital Club Key

63

64

AFC W

imb...

Bristo

l Ro...

Fore

st Gre

e...

Grimsb

y ...

More

c...

Oxford

Un...

Portsmout...

Scunth

orpe..

.

South

end ...

Wyc

ombe W...

York

City0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

Figure 7.1.10 Wages to Turnover

20122013

WA

ges

to T

urno

ver

rati

o

65

ROCE

Net Pro

fit Marg

in

Gross

Profit M

argin

Operating co

sts to

reve

nue

Asset T

urnove

r

Non-curre

nt ass

et turn

over

Worki

ng Capital

-12

-10

-8

-6

-4

-2

0

2

4

Figure 7.1.11 AFC Wimbledon

Axis Title

Axi

s Ti

tle

66

ROCE

Net Pro

fit Marg

in

Gross

Profit M

argin

Operating co

sts to

reve

nue

Asset T

urnove

r

Non-curre

nt ass

et turn

over

Worki

ng Capital

-10

-5

0

5

10

15

20

25

30

35

40

Figure 7.1.12 Bristol RoversAxis Title

Axi

s Ti

tle

67

ROCE

Net Pro

fit Marg

in

Gross

Profit M

argin

Operating co

sts to

reve

nue

Asset T

urnove

r

Non-curre

nt ass

et turn

over

Worki

ng Capital

-6

-5

-4

-3

-2

-1

0

1

2

Figure 7.1.13 Forest Green Rovers

Axis Title

Axi

s Ti

tle

68

ROCE

Net Pro

fit Marg

in

Gross

Profit M

argin

Operating co

sts to

reve

nue

Asset T

urnove

r

Non-curre

nt ass

et turn

over

Worki

ng Capital

-4

-3

-2

-1

0

1

2

Figure 7.1.14 Grimsby Town

Axis Title

Axi

s Ti

tle

69

ROCE

Net Pro

fit Marg

in

Gross

Profit M

argin

Operating co

sts to

reve

nue

Asset T

urnove

r

Non-curre

nt ass

et turn

over

Worki

ng Capital

-7

-6

-5

-4

-3

-2

-1

0

1

Figure 7.1.15 Morecambe

Axis Title

Axi

s Ti

tle

70

ROCE Net Profit Margin

Gross Profit Margin

Operating costs to revenue

Asset Turnover Non-current asset turnover

Working Capital

-5

0

5

10

15

20

25

30

35

40

45

Figure 7.1.16 Oxford United

71

ROCE

Net Pro

fit Marg

in

Gross

Profit M

argin

Operating co

sts to

reve

nue

Asset T

urnove

r

Non-curre

nt ass

et turn

over

Worki

ng Capital

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

Figure 7.1.17 Portsmouth CFC

Axis Title

Axi

s Ti

tle

72

ROCE

Net Pro

fit Marg

in

Gross

Profit M

argin

Operating co

sts to

reve

nue

Asset T

urnove

r

Non-curre

nt ass

et turn

over

Worki

ng Capital

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

Figure 7.1.18 Scunthorpe United

73


Gross Profit Margin



Working Capital

-2

0

2

4

6

8

10

12

Figure 7.1.19 Southend United

74


Gross Profit Margin



Working Capital

-4

-2

0

2

4

6

8

10

12

Figure 7.1.20 Wycombe Wanderers

75

ROCE

Net Pro

fit Marg

in

Gross

Profit M

argin

Operating co

sts to

reve

nue

Asset T

urnove

r

Non-curre

nt ass

et turn

over

Worki

ng Capital

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

Figure 7.1.21 York City

Table 7.2.2 League and Final Position 2012/2013

Table 7.2.3. Available data

from Key Note

76

Club League 2012/13 Final Position 2012/13AFC Wimbledon League Two 20th

Bristol Rovers League Two 14th

Forest Green Rovers Conference Premier 10th

Grimsby Town Conference Premier 4th

Morecambe League Two 16th

Oxford United League Two 9th

Portsmouth CFC League One 24th

Scunthorpe United League One 21st

Southend United League Two 11th

Wycombe Wanderers League Two 15th

York City League Two 17th

Club Statement of Financial Position

Statement of Financial Performance

Accrington Stanley AFC Wimbledon Aldershot TownAlfreton Town Barnet Braintree Bristol Rovers Burton Albion Bury Cambridge United Cheltenham Town Dagenham and Redbridge Dartford Ely City Exeter City Forest Green Rovers Gateshead Grimsby Town FC Halifax Town Hartlepool United Hereford United Histon Hyde United Kidderminster Harriers Lincoln City Luton Town Macclesfield Town Mansfield Morecambe Newport Afc Northampton Town Oxford United Portsmouth CFC Plymouth Argyle Rochdale Salisbury City Scunthorpe United Southend United Southport Rugby Tamworth

Appendix 7.3.1 Barnet FC Email

Andrew Adie <[email protected]>Wed 04/02/2015 15:48InboxMichael All the information requested is publicly available at Companies House. Good luck with your project. Kind regards Andrew AdieThe Barnet Football Club Group of CompaniesThe HiveCamrose AvenueLondonHA8 6AGWeb site: www.barnetfc.comwww.thehivelondon.com **********The information contained in this message is confidential and is intended for the addressee only. All contents should be viewed as without prejudice and any offers whether intentional or implied are subject to contract. If you have received this message in error or there are any problems, please notify the originator immediately. The unauthorised use,

78

disclosure, copying or alteration of this message is strictly forbidden. Internet communications are not secure and therefore the author does not accept legal responsibility for the contents of this message. ********** From: [email protected] Sent: 04 February 2015 15:43To: Andrew AdieSubject: FW: Dissertation help NatashaREPLYREPLY ALLFORWARDMark as unread

Michael TurnerThu 29/01/2015 11:25Sent ItemsTo:[email protected];Dear Sir/Madam,

I am a student at the University and College of Football Business (UCFB), studying Football Business and Finance and would like to ask for your help with my dissertation. My research project is based around the sustainability of League Two and Conference football clubs and to do that I would need access to the club's balance sheets and profit and loss statements. I am looking at data from the 2012/13 season. Would it possible for you to allow me access these documents, as it would be of great help into my research. All the results from my research will be kept confidential to protect all the club's identities and I will allow access to my results upon completion if you wish.

Thank you very much for your help,

79

Michael Turner

80

Appendix 7.3.2 Cambridge United Email

Dear Michael

More than happy to help. Presumably you have already obtained copies of our accounts from Companies House for the last few years. Last years accounts are being finalised and will be distributed to our shareholders at the AGM next March.

I am more than happy to give you an overview of the sustainability and financial challenges facing this club.

Regards

Dave Doggett

From: Michael Turner <[email protected]>Sent: 17 August 2014 17:48To: Dave DoggettSubject: Dissertation Research Hi Dave,

Would you and Cambridge United be able to help me with my dissertation research for university please?

RegardsMichael Turner

81

Below is a sample of the email attachment sent to the football clubs:

Dear Sir/Madam,

I am a student at the University and College of Football Business (UCFB), studying Football Business and Finance and would like to ask for your help with my dissertation. My research project is based around the sustainability of League Two and Conference football clubs and to do that I would need access to the club's balance sheets and profit and loss statements. I am looking at data from the 2012/13 season. Would it possible for you to allow me access these documents, as it would be of great help into my research. All the results from my research will be kept confidential to protect all the club's identities and I will allow access to my results upon completion if you wish.

Thank you very much for your help,

Michael Turner

82

Appendix 7.3.3 Return on Capital Employed (Jones, 2013)

This ratio considers how effectively a company uses its capital employed. It compares net profit to capital employed. A problem

with this ratio is that different companies often use different versions of capital employed. At its narrowest, a company’s capital

employed is ordinary share capital and reserves. At its widest, it might equal ordinary share capital and reserves, preference

shares, long-term loans (i.e., debentures) and current liabilities. Different definitions of capital employed necessitate different

definitions of profits.

The most common definition measures profit before tax and loan interest against long-term capital (i.e., ordinary share capital

and reserves, preference share capital, long-term capital).

The calculation for Return on Capital Employed is:

Profit before tax and loan interest / Long term capital

In this study, the calculation used was:

Profit and loss before taxation / Total assets minus Current Liabilities

83

Appendix 7.3.4 Gross Profit Ratio (Jones, 2013)

“The Gross Profit Ratio (or gross profit dividend by revenue) is a very useful ratio. It calculates the profit earned through trading.

It is particularly useful in a business where inventory is purchased, marked up and then resold. For example, a retail business

selling car batteries may well buy the batteries from the manufacturer and then add a fixed percentage as a mark-up. In the case

of pubs, it is traditional to mark up the purchase price of beer by 100% before reselling to customers.

The calculation for Gross Profit Margin is:

Gross profit / Turnover

84

Appendix 7.3.5 Net Profit Ratio (Jones, 2013)

The net profit ratio is another key financial indicator. Whereas gross profit is calculated before taking administrative and

distribution expenses into account, the net profit ratio is calculated after such expenses. Be careful with net profit as it is a tricky

concept without a fixed meaning. Some people use it to mean profit before interest and tax, others to mean profit after interest

but before tax, and still others profit after tax.

The calculation for Net Profit Margin is:

Net Profit before taxation / Sales

In this study, the calculation used was:

Operating profit / Turnover

85

Appendix 7.3.6 Operating Costs to Revenue

The calculation used for Operating Costs to Revenue is:

Administrative Expenses / Revenue

86

Appendix 7.3.7 Asset Turnover (Jones, 2013)

This ratio compares revenue to total assets employed. Businesses with a large asset infrastructure, perhaps a steel works, have

lower ratios than businesses with minimal assets, such as a management consultancy or a dot.com business. Once more, where

the information is available, it is best to use average total assets. There are many other potential asset turnover ratios where

revenue is compared to, for example, non-current assets or net assets. If we take these three ratios together, we can gain an

insight into how efficient our cash cycle is. Some business can manage to receive their cash from customers before they pay

them.

The calculation for asset turnover is:

Sales / Average total assets

The calculation for non-current asset turnover is:

Sales / Non-Current Assets (Fixed Assets)

87

Appendix 7.3.8 Liquidity ratio – current ratio/working capital

Liquidity ratios are derived from the statement of financial position and seek to test how easily a firm can pay its debts. Loan

creditors, such as bankers, who have loaned money to a business are particularly interested in these ratios. The current ratio

tests whether the short term assets cover the short term liabilities. If they do not, then there will be insufficient liquid funds to

pay current liabilities if they fall due.

The calculation for the Current Ratio is:

Current assets / Current liabilities

88

Appendix 7.3.9 Current ratio (Elliot and Elliot, 2013)

The rationale behind the ratio is that the current assets are a short term source of cash for the entity, while the current liabilities

are the amounts that need settling reasonably quickly.

It is very difficult to give a general level for this ratio which analysts would regard as ‘satisfactory’ because different entities vary

so much in their working capital cycles. In most cases you would expect this ratio to be well in excess of 1 for analysts to feel

comfortable. However, entities that generate cash easily are often able to operate with current ratios well below 1.

It is better to monitor whether or not there has been significant change from one period to another and compare with the

industry average or peer group. comparing it with the previous year we can see that it is virtually unchanged – this does not

mean, however, that it is acceptable, we would need to look further at the trend over the past four years and also at

competitors current ratio.

An increase in the current ratio beyond the company’s own normal range may arise for a number of reasons, some beneficial,

others unwelcome.

Beneficial reasons include

- A build-up of inventory in order to support increased sales following an advertising campaign or increasing popular

demand as for, say, a PlayStation. Management action will be to establish a cash budget that the company will not

89

experience liquidity problems from holding such inventory, e.g. there may be sufficient cash in hand or from operations,

short-term loans, extended credit or bank overdraft facilities.

- A permanent expansion of the business which will require continuing higher levels of inventory. Management action will

be to consider existing cash resources or future cash flows from operations or arrange additional long-term finance, e.g.

equity or long term borrowings to finance the increased working capital.

Unwelcome reasons include

- Operating losses may have eroded the working capital base. Management action will vary according to the underlying

problem, e.g. disposing of underperforming segments, arranging a sale of non-current assets or inviting a takeover.

- Inefficient control over working capital, e.g. poor inventory or accounts receivable control allowing a build-up of slow-

moving inventories or doubtful trade receivables.

- Adverse trading conditions, e.g. inventory becoming obsolete or introduction of new models by competitors.

90

Appendix 7.3.10. Z score

What are Z scores?

Inman describes what Z-scores are designed for:

Z-scores attempt to replace various independent and often unreliable and misleading historical ratios and subjective

rule-of-thumb tests with scientifically analysed ratios which can reliably predict future events by identifying benchmarks

above which ‘all’s well’ and below which there is imminent danger.

Z-scores provide a single-value score to describe the combination of a number of key characteristics of a company. Some of the

more important predictive ratios are weighted according to perceived importance and then summed to give the single Z-score.

This is then evaluated against the identified benchmark.

Altman’s Z-score

The original Z-score equation was devised by Professor Altman in 1968 and developed further in 1977. The original equation is:

Z = 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.999X5

Where

X1 = Working Capital/Total Assets

91

X2 = Retained Earnings/Total Assets

X3 = Earnings Before Interest and Tax/Total Assets

X4 = Market Capitalisation/Book Value of Debt

X5 = Sales/Total Assets

Altman identified two benchmarks. Companies scoring over 3.0 are unlikely to fail and should be considered safe, while

companies scoring under 1.8 are very likely to fail. The value of 3.0 has since been revised down to 2.7. Z-scores between 2.7

and 1.8 fall into the grey area. The 1968 work is claimed to distinguish between successes and failures up to two or three years

before the event. The 1977 work claims an improved prediction period of up to five years before the event.

92

Appendix 7.3.11 Wages to Turnover

The calculation for Wages to Turnover is:

Wages / Turnover

93

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