Game on the brink of bankruptcy

‘THERE isn’t a lot of good news in this, is there?” asks David Glen as we take a seat in the PricewaterhouseCoopers boardroom in Glasgow. It is a rhetorical question.

Scottish football’s leading clubs have got themselves in a terrible pickle. But then we already knew this. Glen’s report merely illustrates how, and by how much, and attempts to ask why. But any accountant in the world would be bamboozled by the figures; just as the greatest spin-doctor would fall flat if he tried to justify them. Glen runs out of words time after time.

Which is fine, because it is more an issue of numbers. 132 million of debt shared by 12 clubs. 100 million paid in one year to those players we watched on Sportscene every Saturday night, and so often tired of.

1996: the last time Scotland’s top flight teams clubbed together a profit. 39 million: cast into the burn by 12 clubs just to stage one instalment of the now-renamed SPL. 436,000: the average annual salary of a Rangers player.

And what of the latest instalment, now rumbling around our ears? In spite of Motherwell’s refreshing triumph the other night, there seems only doom and gloom ahead. For all the extra security the BSkyB coverage was supposed to bring, record losses ensued in 2000/01, when Celtic amassed the treble and we witnessed the pleasing rejuvenation of Hibs and Dundee.

As Glen says: “We estimate that despite increasing revenues from TV and sponsorship the SPL has required to raise 148 million of new finance since its formation, to fund the development of playing squads and stadiums.”

And now, after the BBC secured its cut-price package for the rights to broadcast the league, the coffers are even tighter, the debts have stockpiled up and there are fewer and fewer escape routes.

This time last year, Glen’s warning that Premierleague clubs could fold over the coming season would have been given short shrift, because history had no precedent. But now there is Motherwell. The Lanarkshire club had to shed 19 players in April in order to stave off closure. Should Dundee and Dunfermline continue to spend as unwisely as they are, it would be negligent to ignore Glen when he says they are meddling with the Grim Reaper.

Dundee and Dunfermline are the worst felons of the 2000/01 season because, along with Motherwell, they spent more on paying their players than they earned altogether. Gate receipts, sold players, 1m from Sky, sponsorship deals, hospitality, replica shirts, scratch cards … these things didn’t even cover the wage bill.

One of an accountant’s favourite words is sustainable. Another is viable. “We believe a sustainable wage/turnover ratio would be between 60 and 70 per cent,” recommends Glen in the latest PwC review of Scottish football, a glossary of mismanagement which is entitled: “The search for a viable playing field.”

Dundee’s ratio in 2000/01 – when they signed Claudio Caniggia et al – was 126 per cent. Dunfermline’s was 131 per cent. On the final day of the season Dundee scraped ahead of the Pars into the top six, but were never going to claw back that money. The sale of Caniggia to Rangers for 900,000 had a diluting effect, as did income from South American TV. But the club still lost 2.5 million.

Glen is as confused as anyone as to Dundee’s secret to security, and is only able to conclude that the application of the Marr brothers’ personal wealth – plus that of their shareholders – prevents them having to run despairingly to the bank.

“I would expect to see Dundee’s ratio come down [from 126 per cent], because they actually did quite well out of the Caniggia deal,” reflects the auditor. “Most people would say they were quite shrewd. But last season there wasn’t even any tangible success at the end of the road.

“The financing is unusual, because there is a holding company on top of the football club, and it is not easy to determine where all the financing is coming from. With Dundee, the thing that seems to be supporting them is the shareholders but it’s a question of how long that backing continues. Because it’s not sustainable.”

The Marrs would rebuff the idea of fallibility quite comfortably, and supporters would have little choice but to believe them because they have well-known business interests in Dundee, and are rich men. Yet so was John Boyle at Motherwell. Like Chris Robinson of Hearts, the Marrs probably consider it laughable that their official annual audits perennially come back with a label saying “fundamental uncertainty”, or “technical insolvency”. Yet they have been afflicted with this stigma just as long as Motherwell had.

And what of Dunfermline? When the evidence of a 3 million loss (and near-10 million debt) first emerged in April, chairman John Yorkston said the loss was due to a unique year in which several players’ fees came through, and various “historic problems were wiped out”. Yet these factors have nothing to do with wages or turnover.

It is hard to see how Dunfermline’s wage bill of 3.9m can have been greatly reduced over the past two seasons, or even since the collapse of SPL TV. Income this season will be greatly reduced, yet it appears the same outlay will remain.

“This season is going to be a bit touch-and-go,” says Glen of the situation as a whole. “The clubs have been cutting back, but have they done enough, and have they done it soon enough?”

The Pars don’t seem to have done anything at all.

“I think Dunfermline’s ambition is to invest in a hotel complex, which is then going to generate an income which will fund the football club,” he adds. “But they can’t rely on that alone, and I don’t see how they are going to generate the kind of net income from the hotel to finance what they have got. A hotel in Dunfermline doesn’t strike me as being particularly attractive.”

Dunfermline possess a shrewd backer. Gavin Masterton, former treasurer of the Bank of Scotland, is on the board. But by the summer of 2001, Dunfermline were 200 per cent “geared”. This means their debt doubled the value of their total assets. Motherwell, on the cusp of disaster, stood at about 150, with nobody else in the SPL over 80. “It’s an unusual position for any business,” says Glen. Eccentric? “Yes.”

Other clubs, of course, are not immune from the perils that await. Hearts, Hibs and Aberdeen all made a proactive effort to get rid of any expensive staff when the loss of significant TV income became apparent. Woe betide those who did not.

“It’s a case of ‘have they really taken account of that? Have the clubs been able to rein in their costs?’ I really think it is going to be touch-and-go. What is certain is that they are going to have to keep a closer eye on their bank balances than their league positions.”

The banks remain the key to clubs’ survival. New finance has dried up, and banks’ willingness to lend even more money is diminishing. It is more a matter of how long the banks will continue to underwrite debts that clubs look unable to repay. Worryingly, Glen expects clubs will search for “more creative financing methods” which often translates as “more risky”. Sale and leaseback of assets, and securitisation of ticket sales, are possibilities. In an ideal world, clubs would run a mile from such strategies.

As ever, there is a note of poignancy amid all the damning indictments. It concerns two clubs now dormant in the First Division – yet on the evidence of 2000/01, undeservedly so.

"One club makes a profit, St Mirren, and get relegated. One club has got no debt, St Johnstone, and they get relegated the next year,” Glen reflects, with a shake of the head. “So if you want to be financially prudent, don’t expect to win anything.”

The ultimate mantra, surely, of this screwed-up business.