By AD
March 9 2010

With football finances back in the spotlight due to the ongoing financial crisis at Portsmouth, the Mungo Finance Fiasco at Notts County and administration/winding up orders pending for Crystal Palace, Cardiff City and Bournemouth, once again people are pondering where does all the money in footvall go and what can be done to stop it?

As Coventry City fans, we have this subject quite close to our hearts, being just 20 minutes away from administration ourselves until Ray Ranson and his SISU consortium took over.

The difference in management styles from the previous regime is astounding, especially considering they’re a venture capital firm, usually associated with big risks and big rewards. Favouring low cost, sensible (if unspectacular) investments aimed at steady, manageable growth rather than selling the family silver to try and compete with the big boys has been the order of the day and the club is slowly reaping the benefits. Unfortunately most other clubs (including ourselves prior to the takeover) prefer the brash, all or nothing method and many are suffering for it.

Of course a major problem is the stupid wages some players receive, meaning despite the huge sums of cash entering the game most leaves almost as quickly in players pockets to be spent on some other gaudy fashion accessory. www.thefootballnetwork.net/main/s262/st135192.htm (I’ve covered that subject before though!) - so what else can be done?

One of the buzzwords in business is accountability, but the banking crisis shows there seems to be precious little evidence of it and this also rears itself in football boardrooms.

So how can accountability be improved?

Well for a start, the removal of ‘undisclosed transfer fees’ would help – how can anyone ascertain if those in charge are acting responsibly when one of the main expenses/revenues can’t be scrutinised due to unnecessary confidentiality. If a player’s been sold on the cheap or bought at an extortionate price, the public should be allowed to know to keep the chairman on his toes in the future. It does provide competitors with more information, but you receive the same benefit about them.

Introducing a maximum debt ratio or ‘gearing cap’ so that clubs can’t run up massive debts with almost unserviceable interest payments would also make a massive difference. We’ve seen Manchester United bought by the Glazers and saddled with massive debts because of it, and takeovers in such circumstances shouldn’t be permitted. The problem is ensuring the accountants don’t find a loophole and classify debt as some other form of capital making the ratio meaningless.

However, my biggest bugbear is the ‘football supercreditor’ rule, whereby any debts owed to other football clubs, players and managers will automatically be paid ahead of anyone else if a club should go out of business.

How can this be legal? How can the governing body of a sport overrule the law of the land? Surely football creditors are just trade creditors, and should be forced to wait in line like everyone else as Insolvency Law states? If you’re an electrician and you sell some of your materials to another electrician on credit who then goes bust, you can’t claim supercreditor status, so why can football clubs?

Allowing them preferential creditor status promotes massive risk taking and irresponsibility.

Of course this problem could be fixed by ruling all transfer fees are payable immediately in cash or players, and no credit is permitted. Clubs could still get the cash by lending from other institutions or individuals, but as these wouldn’t benefit from supercreditor status they’d be much more likely to be careful in who they provide funds to. Before any deal could proceed the funds would have to be placed into a holding account managed by the governing authorities to show that the club has the funds available before swapping the players registration. This could favour the bigger clubs though, who tend to have more cash due to higher attendances and TV money, even if fundamentally they’re in a much worse financial state.

The other option is just to get rid of the ridiculous supercreditor status.

Whereas in most businesses you would perform credit checks to try and ensure payment, in football this isn’t necessary as you’re guaranteed payment.  Contracts which in other trades would be rejected for fear of defaulting are welcomed with open arms in football. The consequences don’t matter as you’re unaffected, unlike the supporters, employees and small businesses working for the club.

If anything such a deal benefits you – the more the other club struggle to keep up payments to you, the less they can spend elsewhere and become less of a competitor. If things get really bad for them you can pick up their players extremely cheaply, or even for free should they go out of business.

Why wouldn’t you accept an over-inflated fee on credit? You can’t lose.

Now imagine that instead clubs had to wait to get hold of transfer monies owing along with everyone else, and were likely to only get a small percentage of what was owed.

Clubs would act more prudently, perform credit checks like everyone else and those clubs being run sensibly would be looked upon much more favourably, giving those in charge an incentive to run a tight ship. Cash or swap deals would become much more attractive in case they missed out if things went wrong, making fees much more realistic.

I reckon the legal case against football supercreditors could be as big as Bosman, and one which I think has a high chance of success.  Any lawyers out there want to take on the challenge?