Warning that modest profit cannot paper over financial cracks in SPL

THE Scottish Premier League remains in a precarious economic state despite making a modest overall profit for the fifth time in six seasons, according to the latest Annual Financial Report from Pricewaterhousecoopers (PwC). The figures, for the 2009-10 season, show a profit of £1?million, which compares with a loss of £22m from the previous season.

But report author David Glen, head of tax at PwC in Scotland, warned that the improved position masks some worrying weaknesses in our leading clubs. "My main message is that Scottish football is not immune from what is going on in the rest of the economy," Glen said yesterday. "The overall figure does show a profit of 1m, but that includes certain items which will nor recur."

Both Hearts and Kilmarnock benefited from "forgiveness of debt", by 8m and 1m respectively. "These are one-off items and don't represent a true flow of income for the clubs," the report said.

Rangers made an operating profit of 12.4m compared to a loss the previous season of 8.5m, but that was largely due to a far better performance in Europe - something which neither the Ibrox club nor any other Scottish teams should factor into their thinking, according to Glen. "We need to dismiss the Champions League from our calculations, because Scottish teams no longer qualify for the group stages automatically so we're not going to get into them so regularly," he said.

"So by making reasonable adjustments for these two factors (the Champions League and the forgiveness of debt], the reality is that the SPL generated an underlying loss of around 16m. Adjusted turnover was about 156m, representing a fall of six per cent, and the underlying operating loss was 6m, with only the Old Firm and Dundee United producing an operating profit - every other club was loss-making at this level."

And worryingly for clubs hoping to become more profitable, attendances fell in the season under review and have continued to go down since. The average drop in season 2009-10 was ten per cent, with Celtic and Aberdeen showing the biggest falls, of 21 per cent and 19 per cent respectively. Only Hearts (one per cent), Kilmarnock (three per cent) and St Johnstone (34 per cent) reported improved numbers.

"The threat of double-dip recession, job insecurity and rising unemployment has meant the decision whether to renew season tickets has been a difficult choice for many," Glen said. "Add to that diminished discretionary spend, corporates reducing entertainment budgets, and the absence of lucrative TV deals and it's clear to see why the SPL is in the financial state it's in.

"Put simply, the SPL has not been able to escape the grip of the recession. Clubs need to manoeuvre the financial model and find alternative income streams - finding ones that keep fans happy is the difficult part."

The tried and trusted method of increasing income remains selling players to bigger clubs, and SPL members have raised 53.5m that way over the past three years.

The gain of 12m in the season under review was largely due to the sales of Scott McDonald (3.5m) and Barry Robson (1.5m) from Celtic to Middlesbrough and David Murphy (1.5m) from Hibernian to Birmingham.That flow of talent from Scotland to England is unlikely to diminish, according to Glen. "The lure of the affluent Premiership and top Championship sides south of the Border are proving difficult to resist for some of the SPL's top talent, which in financial terms is no bad thing for a club. Clubs such as Hibs have been particularly skilled at nurturing home-grown talent and selling it on for pure gain.

"For fans it may feel like the quality is being stripped from their club, and I'm sure that this is another contributing factor to the fall in attendance figures. Losing customers is a dangerous situation for the SPL to be in.

"We know that the SPL cannot compete financially. It can't match transfer fees, or pay for top talent and it can't draw the audience figures that would win major media contracts. Sure, we've witnessed some cost efficiencies in clubs, but some fancy footwork around the financial model in the form of player trading is just not enough. Change is what's needed."

Yet, while convinced of the need for reform, Glen said he had yet to find conclusive evidence that any one alteration in the size of the SPL, for example, was sure to produce dividends. "Discussions continue around the prospect of league reconstruction. Suggestions include the creation of an SPL2 to reduce the financial gap between SPL and First Division and change from the current SPL split league system to a ten, 14 or 16-team top flight.

"Until detailed financial modelling takes place it's anyone's guess whether any of the options can excite fans and, importantly, attract broadcasters."