Financial instability continues to see David beat Goliath in Lower leagues

As has been well documented in recent years there are a whole host of league clubs who are seemingly operating on borrowed time due to season upon season of poor financial management.

Poor financial management usually stems from clubs trying to punch above their own weight – i.e. they’re spending more on player wages than they can afford in order to either challenge for promotion or, as is in some cases, to simply avoid relegation.

This has cost clubs dearly.

The net affect has seen a number of established league clubs (Cambridge, York, Luton, Oxford, Wrexham, Mansfield, Darlington and Grimsby) fall out of the league in recent years whilst a host of perennial non-league clubs (Stevenage, Cheltenham, Accrington, Morecambe and Barnet to name just a few) have replaced them. Some of the fallen league clubs have been fortunate and bounced back up (Oxford, Exeter and Torquay spring to mind) but others look set for a longer stay in the non-leagues.

Unfortunately this scenario doesn’t look likely to end anytime soon. Stockport County are the latest well-established league club who look destined to join the numerous others who’ve recently fallen out of the league whilst Bradford City, in the Premier League has recently as 2000-2001 are in danger of being dragged in to a relegation battle.

Whilst the news isn’t great for financially-troubled league clubs there are signs that those who have dropped in to the Conference are showing signs of rebuilding and coming back stronger. Luton are well-placed in the Conference (at the time of writing) whilst Wrexham, Grimsby, Mansfield & York are all in with a chance of a playoff place. They though, would have to be prepared to fend off challenges from the likes of Crawley, Fleetwood and AFC Wimbledon, the latter of whom are having a fantastic season having been re-formed in 2002.

So what’s the key differences between these clubs who are well run and those who aren’t?

Leaving a legacy

One of the primary reasons for those clubs who struggle is legacy debt. This debt could have been formed via a number of different expenditures but once clubs need a bank’s assistance to service that debt then they’re starting to get in to very dangerous waters. What highlights this point well is the fact that when Wrexham lost £1m in the financial year ending 2008, 20% of that loss could be attributed to interest on loans.

If you then look at some of the clubs coming through and making their way in to the Football League it’s clear that they’re not carrying any financial baggage (legacy debt) which means that they can afford to spend a higher proportion of their annual turnover on player wages. Whilst this is no doubt true, it must be said that one or two non-league clubs have also benefited from wealthy financial backers (Crawley, for example) in recent times.

Looking through financial accounts for either Football League clubs or former league clubs it’s clear that most are making some kind of loss on an annual basis. At some clubs this debt is being covered by funds or loans provided by a director or backer (sometimes referred to as “soft debt”) but not all clubs are fortunate enough to have these types of backers.

A recent interview with Barnet chairman Tony Kleanthous highlighted some of the problems League 2 clubs have trying to survive on both a financial and footballing level. In a statement of welcoming honesty, Mr Kleanthous told Barnet fans that the club could not survive on gates of 2,000 in League 2 and that commercial income was paramount to any club’s ability to improve as a football club and find financial stability.

In a fascinating example, Mr Kleanthous stated that Chesterfield make more money on a match day through income from their vice president’s club than Barnet make through gate receipts – a fact which highlights perfectly the reasons why so many clubs are seeking new stadiums which open up additional revenue streams through commercial ventures.

Revenue generated through gate receipts can make up for around 40% of a club’s annual turnover which is why you predominantly see those clubs with the higher attendances operating at the top of the table, although this clearly needs to coincide with responsible financial management. In League 2 for example, and excluding Bradford City, the average attendance table has an unsurprising symmetry to the actual league table.

But to get back to the footballing impact of poor financial management by league clubs…

The Conference is not an easy league to get out of. Many fans of many teams have uttered those infamous words upon being relegated, “I’d rather go down and win lots of games than stay up and fight relegation”, only to be set straight pretty soon into the new season. The Conference is tough – perhaps the toughest league to get out of.

Once upon a time people may have looked at teams within the Conference as a soft touch but these days the league is of a good standard. Yes, teams are physical and yes, you’ll be playing in some small grounds on bumpy pitches but the quality is higher and teams are well managed.

Add in to this the fact that there is only one automatic promotion spot and you’ll see why there’s a backlog of former-league clubs all struggling to get back in to the Football League. Football league chairmen, directors, managers, players and fans – you have been warned.

Simon Godfrey is a contributor to Just Football and the man behind coaching blog A coach’s journal.

(photo via jo.sau on Flickr)

English League Two, Football and Finance, Football League, Non-League Football