Bankruptcy fears hit football

By BBC News Online's Briony Hale

City analysts have long predicted that the sharp rise in footballers' wages will lead to bankruptcy for many clubs.

But up until now, there have been few signs of this becoming a reality, with a host of wealthy benefactors seemingly happy to dip into limitless bank accounts to bail out their favourite team.

It is inevitable that more clubs will fall into receivership...we are going to see many more QPRs

David Poole
Director, Singer&Friedlander

But this month, Queens Park Rangers has taken the first step of declaring itself bankrupt by going into administration, and has even been desperate enough to suggest a merger with rival London club, Wimbledon.

Some analysts say this could be the first of many clubs to face bankruptcy and that this year could see the willingness of the UK's football donors start to dry up.

But others are hoping that the success of clubs such as Ipswich Town - which sticks to budget and develops many players from scratch - will inspire more clubs to cut back the wage packets.

Hopes for a saviour

There is no denying that Loftus Road which owns Queens Park Rangers is in a financial mess - its £11m debt mountain is escalating by about £570,000 a month.

In an industry such as football, corporate logic flies out of the window

Jeremy Batstone
Natwest stockbrokers

The club was quick to say that its hope was that a rich fan would emerge to solve its problems.

"My greatest wish would be for the right individual with ready funds, energy and ideas to step in and secure their future," said ex-chairman and majority shareholder Chris Wright when the club went into administration in early April.

Loftus Road finances

Debts £11m

Losses in 2000 £4.735

Players wages £8.4m

Turnover £8.05m

Although it may seem unlikely that anybody would like to give the club a large cash-injection, with virtually no prospect of returns, many football clubs have survived like this for years.

And a city-based consortium is reportedly preparing a £12m bid to maintain the club's separate identity.

"In an industry such as football, corporate logic flies out of the window," said Jeremy Batstone at Natwest Stockbrokers.

Balance sheets

Unsurprisingly, it was the problem of wages that led to QPR's troubles.

Last year, Loftus Road spent £8.4m on player and management wages, more than its total revenue of £8.05m. It then ran up losses of £4.735m.

QPR's finances have got a red card

The club continued to pay premiership salaries even when it got demoted, in the hope that this would help them on the road to a recovery and win a higher share of the television monies granted to leading clubs.

Wimbledon meanwhile spent 110% of its total turnover on the wages of its players.

With balance sheets like that, breaking even is a distant dream.

"It is inevitable that more clubs will fall into receivership...we are going to see many more QPRs," said David Poole of Singer & FriedLander which runs a fund, which invests in football clubs.

Too many clubs?

Some clubs in the lower divisions have been hovering on the brink of bankruptcy for some time.

My greatest wish would be for the right individual with ready funds

Chris Wright
48% owner of QPR

And some believe that there are just too many professional clubs - 92 to be precise - to be supported financially by benefactors and local businesses.

This would mean that the weaker clubs would wither and new talent would not come up through the league.

Just seven out of the 20 premiership clubs reported a profit last season, although it is "the best league in the world in economic [turnover] terms" and on track to be the world's first £1bn league, according to consultants Deloitte & Touche.

Reckless investment?

Football clubs do not act like businesses: They splurge money on players in order to win even if this is beyond their means.

And a few bankruptcies might help to curb the demands of fans.

The Wimbledon-QPR merger suggestion is certainly a commercial solution to the problem of profitability.

But the fans - the main source of income of any clubs - are outraged. And the decision has been left with them.

Few large scale mergers have gone through in the football world over the last years, with talks collapsing between Sheffield United and Sheffield Wednesday, and the Swindon, Reading and Oxford United trio.

Falling shares

Clubs have tried other strategies such as launching financial services and listing on stock markets to raise money.

But, with the exception of Manchester United, football shares have not performed well.

As an investment proposition, the answer has to be no

Jeremy Batstone

Institutional investors have tended to stay clear, while the share holding base is held by proud fans wanting a share certificate to stick on the wall as a souvenir.

"As an investment proposition the answer has to be no. If you're a fan, buy a scarf instead," said Mr Batstone

And offering financial services and other branded products are unlikely ever to be able to offset the huge outlay on wages.

Success stories

But some clubs such as Ipswich Town have stuck to a better model, ensuring that players are brought up from the ranks rather than bought at cost.

Both Charlton and Ipswich Town are success stories of the Premiership, showing that it is possible not to spend vast sums of money on foreign players and perform well on the pitch.

Many clubs and fans are locked in the belief that key revenue from television coverage can only be achieved through spending huge amounts of money on the top players.

Analysts hope that the example of these clubs may help soften the belief of rival clubs that huge wages - and a suffering bank balance - are essential to staying on top.