Football clubs warned over business models

FOOTBALL clubs face "severe" financial difficulties as they struggle with high wages and flat-lining income, an accountancy firm said today.

The warning also highlights growing concern from HM Revenue and Customs (HMRC) on the "untenable" business model used by some clubs.

Charles Barnett, a partner with accountants PKF, said: "Revenues remain flat, yet costs continue to rise due to players' wages increasing and the willingness of some owners to fund ever-higher demands.

"The impact of this on clubs will be severe if action is not taken soon to control expenditure more effectively."

Mr Barnett, from the firm's football industry group, said clubs are too reliant on "benevolent" owners whose interest may wane.

He added: "A further issue is that lenders are becoming increasingly unwilling to be involved in clubs operating in this way as they have all become much more risk averse since 2008.

"They also believe that no other business would be run in this way, so why should football be treated as an exception?"

He said HMRC is looking at changing the rules on insolvency if a team gets into trouble.

Rules differ in the UK, with England and Wales giving preferential treatment to players and managers before assets are divided among unsecured creditors. In Scotland there is no such arrangement.

Mr Barnett said clubs are being given less leeway to operate, adding: "This has seriously impacted on cashflow for many clubs and many survive on a week-to-week basis.

"If HMRC is successful in getting changes to the insolvency rules regarding preferential creditors, then this would result in many players and managers feeling less secure in signing their contracts."

He added: "Whatever the outcome of the HMRC case, all clubs face a daunting 2010-2011 season as money continues to cast a cloud over the game."