Report warns of threat to clubs

Football Clubs are so badly run that seven out of 10 admit that they are struggling to stay solvent, according to an influential report published yesterday.

It blames poor corporate governance and bad management for the crisis - and calls for a radical overhaul of how the money from broadcasters, including Champions' League revenue, is distributed to prevent clubs, such as Leeds United, recklessly gambling with their future.

The annual report - "The State of the Game", produced by Birkbeck College in London - also demands more transparency in the appointment of directors and a code to help manage clubs properly and examine the risks they are taking. Many are simply unaware of Company Law and their duties to shareholders. The Football Association again reiterated its promise to introduce a "fit and proper person" test for football directors and owners.

One of the report's authors, Professor Christine Oughton, said: "Look at the financial performance of companies. If they are badly run they go out of business. But if you look at football clubs they are nearly all making losses but never go out of business. Most are operating at the edge of viability. When they have a crisis someone always bails them out and that inevitably leads to lax management."

Thirty-four Football League clubs have become insolvent in the past 11 years. Professor Oughton added: "Football clubs are not normal businesses - they are sporting and cultural as well and that conflicts."

The establishment of the Premier League and the Champions' League, she said, has opened up "whole new pots of money" which has encouraged clubs to take greater risks. "There is pressure and a financial incentive." The money should be re-distributed - with more going to the national associations to hand out evenly - something the European Commission may examine as part of its investigation into the sale of rights. There is also concern expressed over the "friction" between the "dominance" of the Premier League and the "weakened" Football Association who operate different agendas.

The report also points out that many so-called benefactors - most clubs still have more than 50 per cent of their ownership in the hands of one person - are in fact only loaning cash. This is the case at Reading, Fulham and Portsmouth and means that if the clubs face difficulties, the benefactor becomes a creditor.

Nevertheless the report found there was a willingness to improve, with some clubs requesting training in risk analysis especially in the wake of ITV Digital's collapse and the "waning of the transfer market" which has left 65 per cent of clubs "concerned about their levels of debt".

The fans are also playing a more central role especially as supporters' trusts have saved several clubs - ploughing in £6.5m over the past three years. They now have majority stakes or outright ownership of three - Chesterfield, Lincoln City and York City. One way ahead, the report argues, could be for more clubs, because of their losses, to take "mutual" status - run by its members and not for a profit - although this would require a league rule change. Clubs could then use the stadium as a community asset and secure grants.