Economic Factors Affecting UK Non League Football Clubs

Economic Factors Affecting UK Non League Football Clubs An investigation of the economic factors affecting the commercial success and sustainability of UK non league football clubs Introduction Football clubs are traditionally not the strongest or most profitable businesses. This is supported by Deloitte’s (2007) annual report into the state of football finance, which stated that, outside of the Premier League, UK football as an industry recorded a net operating loss. Even in the Premier League, where clubs benefit from higher levels of sponsorship, media exposure and TV revenues, four clubs posted an operating loss in the 2005 / 2006 season. This implies that, the lower the division a club is in, the harder it is for them to survive and become commercially sustainable, let alone successful. Indeed, there is an argument that many football clubs will not survive without some form of outside financial support, such as a rich benefactor or owner. However, with increasing pressure from fans to spend money on securing the best players and challenging for success, whilst not increasing ticket prices to cover any additional expenditure, many wealthy businessmen, and even mu lti millionaires, are finding that bankrolling a football club is beyond their means. This is reflected in the view of Henk Potts, a strategist at Barclays who claims that â€Å"Any business model that revolves around 11 overpaid players kicking a piece of dead cow around on a wet November evening is no place to put your money† (Tomlinson, 2004). Issues such as these are exacerbated at the non league level. Not only must non league clubs put up with similar demands for success, but they often find themselves within the catchment area of a league, or even Premier League, club. In addition, with the rise of cable and satellite television, many people who would have previously watched their local non league teams on a regular basis can now choose to watch a variety of league matches from the comfort of their own home. This has put downward pressure on attendances for a number of non league clubs, making it even harder for them to survive and succeed. Ashford Town is a prime example of such a struggling club. As can be seen from the six years of accounts in the appendix, Ashford Town’s level of debt has increased from less than  £40,000 at the end of 2002 to more than  £90,000 at the end of 2007. In the same period, the club’s losses, and hence net worth, has fallen to - £70,000, with the club posting a net lo ss in every single one of the last six years. Attempting to address issues such as these is something which has been the subject of significant amounts of research and discussion over the past few decades. As such, this dissertation will not attempt to reach a solution to all of the numerous issues affecting the modern UK football industry. Instead, it will attempt to determine the extent to which contemporary management theories and techniques can be used by non league football clubs aiming to improve their sustainability. This aspect has been chosen because, in spite of the significant amount of research carried out into the sustainability of football as a business model, there has been little attention paid to smaller non league clubs. As such, the initial investigation will entail a detailed and structured review of the existing literature, around how the commercialisation of football has developed and what useful lessons this can provide. This will be followed up by a questionnaire survey of ten non league football clubs, i ncluding Ashford Town, to determine the extent to which they have followed contemporary business practices, and the extent to which said practices have aided their commercial sustainability. Finally, the results of these investigations will be used to attempt to put together a business plan for Ashford Town, in an attempt to demonstrate how the club may be able to turn its current, loss making, performance around. Aim and objectives As discussed above, the main aim of this dissertation will be to carry out an investigation of the economic factors which impact on the commercial success and sustainability of non league football clubs in the UK, and how contemporary management theories may be able to assist in boosting said success. In order to achieve this, it will be necessary to examine how football has developed as a commercial enterprise, and how this has impacted on the divisions of revenue and profits within the industry. As part of this, it would be useful to analyse the main revenue streams of football clubs, as well as the main parts of their cost base, and how these can best be managed. One of the main sources of revenue for most clubs will likely be gate receipts, however many clubs will likely make a significant amount of revenue from marketing, commercial activities, and sponsorship, particularly in the upper leagues where commercial opportunities are likely to be larger. However, it is expected that commercial and marketing opportunities will also exist in the lower leagues, and even for non league sides. As such, this piece will also investigate the extent to which non league teams take advantage of these opportunities, as well as the need to control for factors such as on pitch performance and success, with the associated potential prize money and increased takings. The following objectives will be addressed as part of this study: To assess the factors which underlie the commercial success of football clubs, and hence also the factors which could lead to clubs going into administration, and potentially ceasing to exist. To examine some of the most successful football clubs and football business practices in the UK, and identify how these clubs and practices can contribute to maintaining commercial sustainability. To examine the extent to which contemporary models of business organisation and competitive strategy are relevant to football clubs. To identify and analyse the role broader business opportunities can play in increasing the stability of football clubs. To identify areas of financial savings and cost efficiency which can be used by football clubs without adversely affecting their on pitch performance. It is expected that, in answering these objectives through the literature and primary research, sufficient insight will be obtained to allow the formulation of conclusions and recommendations for non league football clubs wishing to boost their income, or control their costs. These conclusions and recommendations will be used to analyse the commercial business potential of Ashford Town, as a key example of a struggling non league football club. As such, part of the final report will include recommendations for inclusion into sustainable business plans detailing how the club can learn from other clubs, and economic and management theories, to ensure future economic stability. Ideally, in addressing the various objectives above, and looking at the ongoing performance of Ashford Town, it should be possible to gain an understanding of the critical factors which can affect the commercial sustainability of the football club. As such, the findings can then be applied to Ashford Town, helpin g to contribute to the recommendations around the formation of a sustainable business plan. Methodology Research is defined as the collection of data in order to answer research questions or address research objectives. As this obviously presents a significant range of potential data to collect, and numerous ways to collect it, there are various defined theoretical approaches, the most important of which will be assessed in this section. These are: action research, surveys, case studies, experimentation, grounded theory and ethnography (Saunders et al, 2007). The first of these, action research, involves researchers actively collaborating and working with practitioners in their chosen field in order to investigate a well defined issue or problem, with the aim of finding practical solutions to said issue. As such, action research is a highly involved research methodology, which enables researchers to examine an issue in significant depth, investigating the root causes and creating detailed cause and effect chains. However, it can cause the researcher to have too narrow a focus when exam ining the problem, leading them to ignore contributing factors from outside their field of study. Indeed, in a study such as this one, where the aim is to determine what the factors affecting football club commercial success are, action research is likely to be unsuitable. Surveys, on the other hand, are more often used for descriptive and exploratory research, as they enable the researcher to cover a wide scope and thus make recommendations for future research and study. In addition, surveys allow researchers to collect significant amounts of both qualitative and quantitative data, thus supporting a broad range of qualitative and quantitative analysis techniques. This is because surveys can include questionnaires and various types of interviews. Of course, the counter to this is that the broad reach of surveys makes it hard for researchers to gain much depth to their research, and surveys are unlikely to reveal the root causes of the phenomena they observe. Case studies represent something of a middle ground, combining the best aspects of action research and surveys, and thus allowing for both depth and breadth to be obtained. This is because they carry out research at a distance from an organisation, thus avoiding the researcher becoming too involved with the organisation, and developing a narrow view. However, the attempt to achieve both depth and breadth means that the research will not actually achieve full depth or full breadth, rather it will fall somewhere in between (Saunders et al, 2007). The other three approaches, experimentation, grounded theory and ethnography, do not actually refer to the collection of data, but to the methods used to observe and categorise said data. Of these, experimentation is based on setting up specific scenarios, in order to determine how said scenarios occur, and then compare the results to theoretical predictions. As part of this, certain external factors can be controlled, whilst others are allowed to vary, hence making it easier to observe and categorise certain factors as either causative or non causative, and also to rank the impact of each factor. Unfortunately, such experiments are often difficult to set up, particularly when attempting to observe large and complicated phenomena. In addition, there is an argument that the level of control implied in experimentation creates unrealistic environments, within which individuals do not behave as they do when not being observed or where nothing is controlled (Saunders et al, 2007). In cont rast, grounded theory focuses on observing scenarios naturally, observing what the factors are affecting said scenario, and attempting to use theoretical perspectives to explain what occurs. These theoretical perspectives are then tested against other scenarios, and refined until they describe the behaviour of the phenomenon as well as possible. Finally, ethnography is more inductive, and involves simply observed the phenomenon, looking at the factors which have combined to cause it, and attempting to decide which key factors and behaviours have caused the phenomenon to behave as it did. In contrast to grounded theory, ethnography does not attempt to objectively define the various factors and theoretical models affecting an observed phenomenon. Instead, ethnography focused on the qualitative effects which both the factors and the individuals concerned have on a phenomenon, and also looks at the perceptions the actors have of the key causal factors (Saunders et al, 2007). In this case, because this dissertation is attempting to analyse a more general phenomenon,: the factors affecting the commercial success of football clubs, a broad research perspective should be taken. As such, this piece will use a survey, to help frame and investigate said factors, as well as using a limited case study of Ashford Town, to examine the fact ors which specifically impact on this club. Ethnography will be used as a guiding principle when analysing the results and attempting to determine which factors are most important to non league football clubs. This is because football clubs are not renowned for their use of specific management theory and techniques, and hence any attempt to directly fit their behaviour to the theory would likely harm the relevance of the results to other clubs looking to make use of them. In addition, the nature of football, where success is defined by on pitch results rather than profitability, means that existing theory is unlikely to be an exact fit to the football context. As such, ethnography will be used to help explain the techniques used, and how these could fit to management theory and observations. The surveys themselves will include both a questionnaire and an interview with the club officials, either the club Secretary or Chairman, regarding the commercial realities confronting the club, as well as the existing financial situation including any handouts from wealthy club benefactors, loans, grants, and sponsorship. Unfortunately, details of the income and revenue streams are not available, and thus it is impossible to complete a full and detailed analysis of income streams and expenditure analysis, with the exception of those of Ashford Town. As such, the findings will be used to analyse the revenue and costs of Ashford Town, with the aim being to assist in assessing the clubs overall position; and whether it is under performing, or whether a business and financial saturation point has been reached. Given that only the financial accounts, and not the management accounts, of Ashford Town are available, detailed analysis of the revenue streams and costs will not be possible. As such, and as discussed above, the quality and depth of data is likely to limit the extent to which specific recommendations can be made. In addition, this dissertation will attempt to make use of both qualitative and quantitative data, as both of these types of data can make positive contributions to a study. Qualitative data methods aim to gather data which is difficult to represent in a numerical form. As such, qualitative data gathering tends to focus more on asking people their opinion around certain topics, as well as their perceptions of various factors. As such, qualitative data tends to be richer than its quantitative equivalent, although it is usually not as easy to analyse and represent it in graphical forms or through statistical analysis techniques. This is because qualitative data can help to explain why relationships occur between data, as well as helping to explain relationships that are not as unclear when examined from a quantitative point of view. In contrast, quantitative data collection methods tend to based on simply gathering and analysing quantitative observations and data, or data which can be represented in a numerical form. This is usually achieved through actually observing quantifiable phenomena, such as the profits made by football clubs or the number of clubs going into administration. However, it can also be gathered by asking individuals to assess qualitative factors from a quantitative point of view, such as by asking them to rank factors on a Likert scale, like the importance of their sources of income (Saunders et al, 2007). As a result, whilst this piece will look to use some quantitative data, the primary research and data analysis will be performed via qualitative data, analysis, and interpretation. As a consequence of the above discussion, this dissertation will use one main method of primary data collection, and one secondary method, to address the research questions. This will thus help increase the value of the dissertation, by providing more depth and insight to the analysis, as well as allowing triangulation with the results from the literature review, which will increase the validity of any conclusions and recommendations (Saunders et al, 2007). The main method of primary data collection will be the questionnaire survey of ten non league football clubs. This data will be used to assess the various factors impacting on these clubs, and their relative importance, as well as looking at the key income streams and costs incurred by the various clubs. As such, this data will be both qualitative and quantitative, and will act as the survey part of the methodology. The secondary set of primary data will be obtained from the financial accounts of Ashford Town, which will be provid ed. Whilst these accounts are not likely to be very detailed, they will help add depth to the study, and will demonstrate the actual financial situation the club is in as well as help contextualise the possible additional revenue streams the club is able to generate. As such, this section will represent the case study part of the study, whilst being driven and directed by the results of the survey discussed above. This will enable the provision of additional depth, through an in depth look at the actual accounts of a non league football club. This will help provide the ideal balance of breadth and depth. In addition, the collection of data from two distinct sources, the internal survey of staff and the financial results intended for external use, will help create a more accurate and independent triangulation between the various results, as well as a better analysis of the factors underlying them. This cross sectional data collection and analysis is critical in facilitating the use of both quantitative and qualitative analysis, as discussed above, and will help to further increase the value and the academic impact of this dissertation. However, given that commercial sustainability is not a concept which can be easily described through simple quantitative data, the qualitative part of the report is likely to be more important when attempting to determine the factors which underlie the commercial success and sustainability of non league football clubs. Regarding the sample size, it was necessary to find a balance between the need to have a large sample size, and the need to maintain a manageable quantity of data, as well as to fit all of the data collection and analysis in what is a very short period of time. As such, it was decided to collect data from just ten selected non league football clubs. These clubs are Ashford Town FC, Bromley FC, Burscough FC, Chatham Town FC, Corinthians FC, Croydon Athletic FC, Dartford FC, Ebbsfleet United FC, Whitstable FC and AFC Wim. These clubs have been selected as they were most responsive to initial attempts to contact them, and are also within reasonably close geographic proximity thus making the collection of data somewhat simpler. As such, they also represent teams from a fairly close geographic area, and thus should be affected by similar factors and economic effects. When carrying out questionnaires with the clubs, no club requested complete anonymity, and indeed all expresses an interest in seeing the final results of the study to see if it would be of use to them in determining how to best improve their business performance and sustainability. As each questionnaire is relatively straightforward, it was decided to only use one questionnaire for each club, to keep the data set simple and consistent. In order to analyse the qualitative data which is produced from the surveys, it will be necessary to use a research strategy to interpret and validate the data. Positivism has been selected as the research strategy for this piece because, of the four main research philosophies, or paradigms, which can be used to guide and interpret qualitative research, positivism is the one which is most concerned with the facts, rather than the impressions arising from the research (Saunders et al, 2007). This makes positivism ideal for analysing the subject of health and safety in the oil industry, as this can be an emotive and important issue for many workers in the oil industry, as has been shown in the literature review. As such, it will be necessary to avoid forming impressions when carrying out the research, and particularly when analysing the results of the questionnaires. Positivism can help avoid such subjectivity by ensuring that the researcher takes a scientific approach to the research, and minimises the impact of impressions and judgements. Indeed, positivism is based in the original work of Comte, who argued that knowledge can only even be relative, and hence will always be affected by the method used to gather it (Sellars, 1939). This implies that any attempt to interpret the motivations of a respondent in a research project will be affected by the method of data collection, and thus will be blurred. As such, the researcher should concentrate solely on the observed facts, rather than attempting to contextualise or rationalise their observations. However, the main disadvantage of positivism is that, simply be observing or recording an event, such as someone’s views on health and safety, can tend to influence the motivations of the subject, and hence their responses. As a researcher using a positivist paradigm cannot speculate on any potential changes in motivation, this may mean that the actions observed will not be wholly consistent with the actual behaviour in the absence of observation. For example, if a senior manager at an oil company were asked their opinion about health and safety legislation, they may give a different answer to their true opinion of the subject, as they may feel that their public persona needs to be displayed in a certain way. This can hopefully be avoided, to a certain degree, in the questionnaires by not revealing the overall purpose of the survey; assuring the respondent of neutrality; and ensuring that the questionnaire is as neutral as possible. This is based on the argument that if the su bject is unaware of what their responses will be used for, they will be less likely to change their behaviour accordingly. Caldwell (1980) also argues that the face that positivism is based on observations, and not on the fundamental motivations behind said observations, means that it is incompatible with financial and economic viewpoints. This is because economics is based on the study of people’s motivations and decisions in situations where everyone is seen as either a buyer or supplier, and hence everyone acts according to a motivation. For example, when asked if they would prefer additional health and safety legislation, oil executives would naturally answer no, as the cost of compliance would decrease their profits. This occurs because the oil executive’s salary depends on their financial performance, hence they are motivated to avoid anything which may have a negative effect on said performance. Whilst this incompatibility and bias has not been empirically proven; Caldwell (1980, p. 53) argues that it has â€Å"been sufficiently robust to cause many contemporary analysts to turn to alternative approaches†. This implies that such factors need to be addressed when constructing the questionnaires, and that questions which will have an innate connection to, or dependence or, economic and financial factors should be avoided. This implies that, as discussed above, the financial impacts of the health and safety legislation will need to be studied as a secondary priority. Literature Review The history of professional football and commercialism Wray (1982) argues that the late nineteenth century, when significant riches were brought into the UK by the Industrial Revolution and during the Victorian era, was the start of true commercialisation of sport in the UK. This assessment is based on a study of the economics of the gate receipts taken by the football industry in Scotland between 1890 and 1914. This analysis showed that, not only were some entrepreneurs looking to profit from football by commercialising its, but others were looking to do so with the aim of winning more matches, tournaments and hence glory and status. Indeed, whilst the majority of the companies involving themselves in sports such as cycling and horse racing were simply looking to use the sport to create wealth for themselves and their shareholders, the majority of football clubs in Scotland were converted to business principles purely to enhance sporting success. As such, conventional profit and shareholder utility maximisation goals arguably applied mu ch more to other sports than to football, where supporter utility maximisation took precedence. However, Wray (1982) also claims that there was a significant focus on supporter and team utility in other team sports such as cricket, and this was again due to the motives behind the owners, directors and shareholders in many cricket teams. It appears that the British affinity with sports such as football and cricket meant that they developed with the aim of satisfying the fans, whilst the other sports, with less of a spectator following, developed more with the aim of providing financial returns. In addition, the drive towards commercialisation, and in an attempt to assure competitive success, Wilders (1976) reported that, in 1976, all the 92 clubs in the English League, except for Nottingham Forest, had become limited liability companies. This allowed the owners to spend large amounts of money; with no fear of debtors looking to their personal funds should the club fail to break even. In addition, of those companies, more than half the boards of directors held enough shares to make it virtually impossible for the other shareholders to outvote them on any matter. In particular, in 1967, Wilders (1976) reported that there were 22 clubs where the chairman and board of directors owned more than half of the shares; and a further 55 where the board of directors owned over 25 per cent of the shares. In addition to this, in more than a third of said clubs approval was required by the board of directors if anyone wished to sell their shares. As such, the distribution of shares change d very little as the game commercialised, and the clubs continued to be run for the benefit of the directors and chairman, with ordinary shareholders having very little say in the running of the clubs or the returns they earned on their investment. Sloan (1969) also argues that football’s commercial development was driven largely by the significant non financial advantages and disadvantages of being employed as a professional footballer. The main argument appears to be that playing football is a source of great enjoyment for a significant number of people, as witnessed by the thousands of amateur and non league sides which pay without any financial reward. As such, football tends to give players a degree of satisfaction which few other jobs provide, as well as potentially allowing the best players to become national celebrities, with associated additional income and exposure from activities such as writing books; commenting on other footballers performances; and advertising various products and services. In addition, during the initial development of the sport, clubs tended to provide players with houses let at below market rents, as well as giving them significant freedom outside of training and match days. In addition, the fact that the season only covers around nine months of the year, excluding internationals, means that players tend to have significant amounts of free time during the summer break, and even when training they often have several hours free each day. This is countered by the fact that players require a high degree of fitness, and will often need to be away from home for several nights if their schedule demands it. However, Sloan (1969) concludes that football seems to confer more advantages to players than disadvantages, which has helped to raise the profile of professional and semi professional football, and thus contribute to the number of players, and hence number of clubs, in the modern game (Sloan, 1969). This obviously places pressure on the market, with it being difficult and expensive for supporters to follow more than one club, hence making it difficult for smaller clubs to attract supporters. However, countering this is the fact that, since early on in the evolution of the English Football League, the transfer system acted to restrict the movement of labour, to an extent that is rarely seen in other industries. The rules of the transfer system state that any player who wishes to appear for a league club must be employed by that club, in the case of professional players, and must be registered with the Football League, as well as the English Football Association. As such, the only way a player may move between clubs is if both clubs and both ruling bodies approve the transfer. As such, this procedure requires both clubs, the player, the Football League and the FA to consent, effectively giving clubs monopolies over the services of their players for the duration of their fixed length contracts. This is a situation which would not be accepted in other industries, and has regularly been compared with trading slaves, with players often having very little say in where their clu b makes them move (BBC, 2008). Indeed, the fact that transfers almost always involve the payment of a fee by the club who the player is joining further enhances the slave trade connotations. As such, whereas most businesses would attempt to attract new employees by offering higher wages or better working conditions, football clubs are forced to offer high wages, better working conditions, and pay a large fee to the club from which they source the new player. Given that the fees have risen from  £1,000 in 1905,  £10,000 in 1928,  £100,000 in 1961, and into the tens of millions by the present day, it is clear that the increased demand for the best players is forcing clubs to devote ever more funds to transfer fees and wages, particularly when bidding against other clubs to secure the best players (Sloane, 1969). However, in spite of the multi million pound deals which they have been charged with sourcing and carrying out, Wilders (1976) reported that the majority of managers still tended not to have any form of formal training. Indeed, in Wilders’ (1976) survey of 28 English League managers, 16 managers claimed that they would have benefitted from some sort of business and financial course when carrying out their duties and developing their careers. Wilders (1976) claims that this is not the most surprising aspect, the most surprising aspect is that twelve of the managers surveyed believed that they did not need any formal training, and that their experience as a player would be sufficient to help them discharge their managerial responsibilities. However, this belief that playing experience alone provides sufficient training and skills for the demands of football management is arguably one of the reasons why so many clubs have failed to develop as businesses: the skills of professiona l footballers do not tend to include financial and business dealings, or the need to balance budgets. Indeed, the results of the survey indicated a general belief that the majority of football managers knew about the footballing side of their job, but generally knew very little about the need to manage the financial side of the business. As such, the general belief that the best footballers tend to make the best managers has not necessarily been borne out, with many of the best managers having been mediocre footballers at best. In fact, Wilder (1976) claims that the technical gifts needed to make a footballer can often hinder the effective management of clubs. The rise of commercialisation Whilst commercialisation has been a significant trend in the football industry in the UK for the past few years, its only since the 1980s that football in the UK, and the whole of Europe, has truly developed as a major commercial industry. This is evidenced by the fact that, in 1986 the 22 First Division clubs in England had a combined annual tur