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Last Updated: Thursday, 20 March 2008, 08:08 GMT
Football administration
Gordon Farquhar
By Gordon Farquhar
BBC Radio 5 Live sports news correspondent

Rotherham United have become the third Football League club to go into administration this season, following in the footsteps of Bournemouth and Luton.

Gretna are in the same position in the Scottish Premier League and all have been hit with a 10-point penalty.

How big a threat is administration to Football League clubs, why does it happen and who suffers most when the men in suits move in?

HOW MANY CLUBS ARE CURRENTLY IN ADMINISTRATION OR THREATENED BY ADMINISTRATION?

It's tempting to say there are 72 under threat in England, because the Football League clubs still lag way behind their Premier League counterparts in funding terms. Many sail pretty close to the wind for all sorts of reasons when it comes to managing a successful business off the pitch.

WHY DO CLUBS GO INTO ADMINISTRATION?

In simple terms it is a miscalculation of the cash flow.

Whatever the underlying causes, administration generally follows the point at which someone, (usually the taxman) says, "you owe us, and we'd like to be paid," and the club's head of finance says, "oops, we haven't got the money".

A check of the balance sheet of the average Football League club still shows far too much money as a percentage of turnover goes on wages.

The financial model isn't great, propped up by fans who keep on buying the product no matter how bad it is, but then football is a business full of people making irrational decisions with their money.

Chairmen get seduced by the promises of managers that buying another decent centre-back and a forward will turn the club's playing fortunes around. Yet the reality is, nothing can ever be guaranteed.

IS ADMINISTRATION A GROWING TREND?

Not really. Ever since the leagues introduced a 10-point penalty for going into administration, it has been seen as the last resort before liquidation. Chopping 10 hard-won points off your season is highly unlikely ever to make your business more attractive to a potential buyer, so clubs don't do it lightly.

The ones that have gone into administration this season haven't had a lot of options. In the past it was manipulated and abused as a way of shedding debts then restructuring, and borrowing again once the hapless creditors had been fobbed off with their 8p in the pound. The sporting sanction has changed that.

WHAT IS ADMINISTRATION
AND WHAT DO ADMINISTRATORS DO?

They're accountants whose job is to try and get the best deal for the business and the creditors, by trying to find a buyer, or minimising the losses. Going into administration is a legal move, which carries legal obligations.

Responsibility for running the club goes to the men in grey suits, instead of the sheepskin coats. They look at how to improve revenue streams, often by selling off assets, and using their contacts to try and pull in new investment, and do deals with the creditors.

It's an admission of failure by the club's board, and once the administrator's in, he's in charge of pretty much everything apart from coaching the players and picking the team.

WHO SUFFERS WHEN A CLUB GOES INTO ADMINISTRATION?

Often it's the small local businesses who provide goods and services to the club: the man who supplies the pies or the electrician whose bill hasn't been paid. Those guys aren't exactly millionaires, and the club's failure to pay them can really hurt.

Football League rules state that in terms of paying off the debts, it's the football creditors who get priority, so any outstanding transfer fees and so on have to be paid in full before the rest share what's left.

The biggest hit is usually taken by the Inland Revenue, so that's every single one of us taxpayers who end up a bit worse off.



SEE ALSO
Rotherham go into administration
18 Mar 08 |  Rotherham Utd
Rotherham facing financial crisis
18 Feb 08 |  Rotherham Utd
Bournemouth enter administration
08 Feb 08 |  Bournemouth
Luton suffer 10-point deduction
22 Nov 07 |  Luton Town
League closes 10-point loophole
09 Jun 07 |  Football
Relegated Leeds in administration
04 May 07 |  Leeds United


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