Neil Patey: It needn’t be Armageddon for Scottish football – if clubs live within their means

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The Scottish Football League issued a statement in 2010 saying football clubs had to realise they couldn’t treat their obligations to HM Revenue and Customs as something akin to a credit card.

It is a little over two years from that pronouncement, but already we have seen HMRC take high-profile action against Rangers and Heart of Midlothian for non-payment of VAT and PAYE, while Falkirk were issued with a winding-up order that was later rescinded.

These situations may represent current financial issues being faced by some clubs, but not, in my opinion, Scottish football as a whole. They are historical problems specific to each of those institutions. Undoubtedly, other clubs will be struggling to pay HMRC and other creditors, but they are no different to many other businesses that are facing the difficulties posed by wider economic turmoil and the resultant cash-flow problems.

In general, the finances of Scotland’s clubs are being managed better now than a decade ago, with club owners and management well aware of the need to control costs within manageable, budgeted revenue levels. Annual financial results show improvements in profitability and reductions in debt levels compared with the early 2000s. Furthermore, fans are now far more understanding of the potentially dire financial consequences of demanding more money is spent on players.

This, of course, wasn’t always the case. Cast your minds back ten years and you’ll remember a time when the desire to chase success led to financial stability being compromised at many levels within the game.

Today’s issues are more reflective of the external pressures facing clubs and the subsequent drop in attendances, reduction in the value of media and sponsorship agreements and inflationary pressures impacting on salaries driven by the commercial success of the game south of the Border. Do those external influences point to a financial meltdown in Scottish football, with other clubs hurtling headlong into oblivion? Perhaps, but financial Armageddon can be avoided by sound management and the appropriate cost controls on squad sizes and wages.

Companies in the corporate world regularly experience difficulties due to factors beyond their immediate influence or the inefficient financial controls at the hearts of their organisations. Football is facing those same challenges.

Clubs need to budget prudently, take a conservative view of likely revenue levels and act should it become apparent they have a pool of players they can ill afford. Those experiencing cash-flow issues must realise any discretionary expenditure has to be cut and squad sizes rationalised during the January transfer window.

However, it wouldn’t be surprising if we had more instances of HMRC taking court action this season to recover monies due, even as a forceful prompt to those who have fallen behind with payments.

Then comes the equally unenviable task of making attendance on matchdays more attractive to a wider fan base.

• Neil Patey is a partner and football finance expert with Ernst & Young, based in Edinburgh.