Covid-19 threatens to push football clubs in Scotland to the brink

The latest Football Distress Report hinted at a bright future for football clubs in Scotland. Published last year by Begbies Traynor, the report showed that for the first time in six years there were no professional clubs in Scotland experiencing severe financial distress. However, the current coronavirus outbreak has caused unparalleled levels of disruption to businesses across the country, and thrown the future health of football clubs across Scotland into danger.

The pause button has been pushed on sport around the world and the SPFL has been officially suspended until June 10; however, whether the season will be given the go ahead to restart on this date is still unconfirmed. While the necessity to protect the health and wellbeing of both players and spectators has to be the primary concern, this prevailing sense of uncertainty is leaving clubs in a state of limbo.

Income streams cut off

With finances already tight, clubs might be able to withstand the hiatus for a short while, but if it gets to late spring or early summer without the season resuming, there are real fears a number of cash-strapped clubs could be pushed close to the brink of insolvency. Every match that isn’t played represents lost income from ticket sales and a missed opportunity to bring in additional revenue from spectators.

With television broadcast rights worth £160m over the next five years, compared to the £4.55bn three-year deal brokered by the Premier League teams in England, Scottish clubs are heavily reliant on match day ticket sales when it comes to generating revenue. This has the knock-on effect of making them much more susceptible to financial difficulties if the remainder of the season is ordered to be played behind closed doors.

In particular, it is those moderately sized clubs that lack wealthy investors or lucrative television and sponsorship deals, yet have significant wage bills and a fanbase large enough to allow them to be reliant on match day receipts, which are in the most dangerous position.

Stemming the losses

The majority of SPFL clubs have negotiated temporary pay cuts or wage deferrals with their playing and managerial teams, while many backroom and support staff have been furloughed using the government’s Coronavirus Job Retention Scheme in an effort to plug the cash flow gap, which several clubs have estimated could run in the millions.

The current pause in play is something that was almost unthinkable at the start of the season. It is not just the drop in income that presents challenges, but more so the sudden and unplanned nature of the situation. The money which has been lost is income that was expected to be generated and as a result has already been allocated to cover outgoings – without it many clubs are going to find themselves in a perilous position.

With several matches left to play across all Scottish leagues, this represents hundreds of thousands of pounds in lost income – income that those clubs already operating on small budgets can scarcely afford to lose. To further compound matters, strict social distancing restrictions have also put paid to previously profitable non-football revenue streams such as corporate functions and other stadium events.

Where does this leave the remainder of the season?

There are two main options: either playing out the rest of the season behind closed doors, or continuing with the current break until matches can be safely resumed in front of spectators at some as yet unknown point in the future.

Playing out the remainder of the season behind closed doors would allow the season to complete without infringing on the upcoming campaign, as well as averting any potential legal challenges which could arise if matches were left unplayed. However, while this solution would provide closure from a footballing perspective, it would also see revenue streams badly hit.

Conducting remaining matches without a crowd means ticket sales would be lost as well as additional match day revenue from food, beverages, and hospitality packages. While larger teams attract a significant portion of their income from sponsorships and television deals, for smaller clubs this match day revenue is their lifeblood. It is the money which is taken on the turnstiles and inside the ground that is used to pay salaries and cover other essential outgoings, and without it many will struggle.

If the season is suspended or ordered to be completed behind closed doors, this money is lost to clubs forever – it cannot be recouped by alternative means, nor is it income which is simply deferred until a later date as would be the case if the season was allowed to return as normal at a later date.

How to tackle cash flow challenges

While income may have ground to a halt, outgoings continue to fall due with fixed costs and interest payments still needing to be paid. Cash reserves can only go so far and for those clubs without the backing of a wealthy investor, the next few months could be extremely challenging.

While very few football clubs in Scotland have folded for good, a number have previously entered formal insolvency procedures and have accordingly had penalties imposed on them.

However, clubs who are currently experiencing financial difficulties are doing so as a result of external and uncontrollable circumstances rather than through deliberate or sustained mismanagement practices. This calls into question whether the strict rules surrounding football clubs entering restructuring and business recovery proceedings should be revisited in light of this unprecedented situation. 

Cash flow pressures will need to be eased somehow as more and more clubs will struggle to make the books balance the longer the situation continues. Many clubs will be forced to look at ways to restructure their operations and refinance existing liabilities in order to safeguard their long-term future.

For further information on how we can support football clubs and guide them through the COVID-19 related challenges, please contact:

Thomas McKay
Partner

T: 07980 837 146
E: [email protected]