Administration – The football graveyard?

Administration, similar to insolvency, is the procedure chosen when a certain club is unable to pay off any outstanding debts it may have. According to the Insolvency Act 1986, “a business will face a winding-up order, bringing them to court and if it is shown that a business cannot pay debts as they fall due or cannot repay outstanding debts, then the company will be classified as insolvent”. Under administration, accountants take over almost every working of the club except of course, the coaching. Another rule which applies during administration is the ‘football creditors rule’ which dictates that debts related to football should be paid off first, like staff wages and transfer fees owed to third parties.

History

Administration was formally defined back in the year 2000, when ITV Digital purchased the broadcasting rights to both the Football League and League Cup matches in a three-year, £315m deal. Two years later, the company declared insolvency and owed £180 million to the league. As a consequence, many clubs were affected and went in the same direction. Earlier, administration was an easy way to get debts out of the way, then focussing on restructuring to eventually return to the creditors for more money. To prevent such a fraudulent motive, a ‘fit and proper persons’ test was administered to determine the feasibility. When a team is under Administration, they are docked 9 points in the Premier League and 10 points in the Football League, as teams play 8 games more in the latter. This was eventually confirmed to 10 points in any case. In the case of insolvency, the ‘football creditors rule’ means that ‘debts to other clubs or players are prioritized and must be paid in full before the club is eligible to compete again in the league.’

Clubs in Administration

On 26 February 2010, Portsmouth became the first Premier League club to enter administration, for the first of three times. Other teams of note include Crystal Palace, Rangers, Southampton, Leeds United and Queens Park Rangers. Portsmouth were docked 10 points, and they plummeted to just above the relegation zone, before eventually getting relegated. Later, it was revealed that Portsmouth owed £2 million to creditors, plus unpaid tax. Even though their golden parachute came much early, Portsmouth were sliding quicker than they had hoped for.

Similarly, Queens Park Rangers headed in to administration in the April of 2001, when they put up a message on their website reading, “The decision has not been taken lightly and is a direct result of the losses incurred by the Group, currently running at £570,000 per month, over a sustained period of time”. Recently, Rangers took the wrong turn and entered Administration after they bit off more than they could chew. The club ran in to a £10m deficit in annual running costs, plus a tax tribunal dispute running in to £49 million. This move also effectively ended their hope of a shot at top honours in the Scottish Premier League.

The Alternative

Not every club is out there to make a quick buck and run in to Administration, as there are some clubs who fight their inability through truly cruel circumstances and find a way to stay afloat. The best way to get rid of creditors is to pay them, and the cash flow can only be augmented either though angle investments or through an outright sale of the club. Something similar came about at Swindon Town Football Club, when they were stuck under over £13 million in debt. £9m of the said amount would have been erased once the club chose administration, but instead the club put itself up for sale, to avoid losing points, which would automatically affect any chances of a promotion. The main reason for such moves is the docking of points, which has clearly formed a real deterrent for clubs. These formalities too run in to weeks and months, affecting not only the clubs’ value but even their goodwill. Overall, Administration may be the last resort, but ensuring that the business end runs as smoothly as the football, is the best way to stay out of the muck.