|CLUB RECONSTRUCTURE DEBATE
(Friday 4th June 2004)
The professional advisors to Wycombe Wanderers are suggesting that "poor financial management" is the underlying reason why many football clubs are insolvent. George Davies Solicitors have been advising the Wycombe Board on the proposed reconstruction since the turn of the year and made the comments in a news item issued via their website shortly afterwards.
The article states "In simple terms, directors have allowed their clubs to spend more than they earn and have too often been guilty of chasing the dream of Premier League football and the so-called riches it brings."
George Davies are solicitors and insolvency advisors to the PFA and have assisted more than 40 Football League and Premiership Clubs in the last four years on rescue and restructuring, both inside and out of insolvency procedure. They have also acted as Adminsitrators for Oldham Athletic, Huddersfield Town and Chesterfield.
The article, published in March 2004, goes on to warn of Clubs who have mortgaged their futures by taking out extended loans and running credit to a maximum. It states "Any traditional assets, such as grounds, are mortgaged to the hilt. By the time the directors consider administration, there is often little left. These clubs have been grossly mismanaged and their creditors have little option but to accept rescue plans that offer little, if any, return."
George Davies partner Chris Wilkinson is working with the Wanderers Board on a reconstructure exercise that is intended to allow investment but also a degree of control by the existing membership. This control centres around a series of 'key matters' that would require 'Founder Shareholder' approval. However, Wilkinson warned at a presentation to Club members on 18th May 2004 that there would be a certain loss of power from the membership, commenting ”I think taking way is inevitable in as much as we are trying to strike a balance here in taking the Club forward and trying to provide investment. The idea of ring fencing certain key areas that the company couldn’t implement without you, the supporter, wanting that, is for your benefit.” The 'key matters' would require a majority voting from the exisiting membership to be passed and include such area as proposals to dispose of the Football Ground but do not include any reference to the highlighted problems associated with mortgaging land owned by the Club or taking out other loans secured on the major assets of the Club.
The George Davies website goes on to make reference to The All Party Parliamentary Football Group’s report published in February 2004 with particular comment on the concept of salary capping. The All Party report concludes that salary capping should be proven before a wider implementation across professional football. Third Division Clubs have already been instructed to spend no more than 60% of turnover on player wages but the Manchester based solicitors are particularly critical of the idea, which it claims is a "knee-jerk reaction to a financial mess." They add "Nobody needs to set a certain percentage. Clubs simply shouldn’t spend more than they earn – it is basic economics. It also overlooks the fact that some clubs allow their owners to take high salaries for themselves, while others need to pay large amounts of revenue to service high levels of debt. In other terms, clubs could adhere to the salary cap and still easily spend more than they earn. It is because clubs are paying huge amounts of interest and costs merely trying to service their sale and leaseback or securitisation deals." Their point has been proven at Wycombe where total player wage bill to turnover for 2003/4 was around the 40% mark yet for the same period a net trading loss of around £500,000 is being reported.
The Business Plan coupled with the reconstructure proposals will attempt to turn these type of year on year losses into profit. It's understood that the Buisness Plan is currently being finalised and will be key in persuading investors that the proposal is not simply another 'pie in the sky' scheme. Wanderers Financial Director Rod Tomlin commented via the matchday programme in May 2004 "We shall be using it to support an appeal for new investment. Not the sort of investment which will attract capital growth and a high dividend yield but the sort of investment which could bring not just a stake in the Club but a share in future success. Believe me there will be success." The comments assume that the Board will get the necessary 75% approval from the membership at an EGM scheduled for 12th July 2004.
George Davies Solicitors - external website link
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