I came away from our recent fans' forum with some mixed feelings. It was so pleasing that those fans that turned out wanted to be constructive. It was right that the immediate crisis and the share issue should be the main focus of the evening. But...without a clearer strategy for the medium term there is a danger that having baled out the water from one end of the ship, we may be looking at another leak in a couple of years' time, one that a share issue won't plug! Some major decisions have to be made pretty soon, most importantly how and when we regain control of our ground. There was a reluctance to engage with this issue on the night; other than to say that a debate would be needed once we're free from the risk of administration. Unfortunately, for a lot of fans, the issue of the freehold will, to a certain extent, determine how they respond to the share issue in the first place.
Well, when feelings and thoughts are mixed, do some reading! Supporters' Direct have produced a fascinating research document: The State of the Game. The Corporate Governance of Football Clubs 2002. By Simon Binns, Sean Hamil, Matthew Holt, Jonathan Michie, Christine Oughton, Lee Shailer and Katie Wright. (Available from Supporters' Direct). It doesn't offer all of the answers, corporate governance (or a lack of it) being only one aspect of the crisis the game is facing nationally and internationally, but it does provide a strong, clear framework for looking at and trying to understand our situation at Watford.
The immediate cause of our current crisis may be a combination of the collapse of ITV Digital and the gamble taken last season but it would be foolish to assume that once the effects of these two disasters wear off it will be business as usual. Football's crisis goes much deeper and will last much longer than just a couple of seasons. Supporters' Direct observe that prior to the collapse football was experiencing significant financial difficulties. In spite of increasing turnover of 170% between 94/95 and 01/02, operating profits for that period declined by 332%. In the 01/02 season, only 14 out of 72 Nationwide League clubs and 7 out of 20 Premiership clubs made pre-tax profits. Everything in the garden was far from lovely!
Supporters' Direct explain the paradox of rising revenue and falling profitability in terms of the three inter-related features of football clubs:
- Clubs are not just businesses, they are cultural and community assets. They have both commercial and sporting objectives, as well as community ones as in our case.
- The relationship with the supporter is not a customer/company relationship. Supporters contribute to the club actively and financially and in spite of the product!
- Football relies on competition between and co-operation with other clubs. It has to re-distribute income in order to achieve competitive balance. This doesn't happen in the washing machine industry!
The creation of the Premiership 10 years ago, the formation of the Champions League and the consequent growth in TV revenue has led to a huge wealth gap between the top division and the rest and within divisions. Competitive balance has been compromised as income re-distribution has declined.
"The emergence of income gaps within and between leagues provides a financial structure that encourages clubs to gamble on promotion." [Binns et al 2002].
In other words, the current structure of football creates incentives to gamble on success, especially in the First Division, which is so near and yet so far. Those incentives have not been eradicated by the collapse of ITV Digital.
At this point in time the Premiership and First Division response to this structural crisis has been to make proposals that would repeat the mistakes of the last 10 years and deepen and intensify their effects. Our club has been actively engaged in the current review of the Football League and Haig Oundjian, who is our representative, has been quoted as being in favour of the proposal to break up the League and allow each division to go it alone. This proposal is based on the notion that TV money should still be seen as the major source of revenue for football and that each division should compete for the spoils. The fact is that the bubble has burst and football clubs from all divisions are going to have to go back to the premise that their major source of revenue will be from fans going through turnstiles, good cup runs and some good merchandising initiatives. TV money should be seen as an extra source of revenue, not the major one. A broken up football league will add to the lack of competitive balance and increase the incentive to gamble all on promotion to the Promised Land of the Premiership. In the meantime of course, the Premiership itself is moving closer and closer towards the formation of a European super league. The promised land may not even exist for much longer and for a lot of clubs who remain there it is far from green and lush as the costs of maintaining a toe hold spiral.
So, the ground is shifting from under us and we will need firm foundations if we are to come through as a club and contribute to the survival of football as a competitive sport, located within communities. In my view, securing the future of our ground is absolutely essential to our long-term survival.
"The ground on which a football club plays represents the most fundamentally important and yet often the most vulnerable asset relating to a club's medium and long term future". [Binns et al 2002].
Supporters' Direct note an increasing trend to transfer the ownership of the ground into a holding company or for grounds to be owned by individual investors and property development companies. This separation of the ground from the club is extremely dangerous because holding companies and property development companies are not within the jurisdiction of the FA, which has regulations to protect grounds as community and sporting assets. FA rules do not require football clubs to own the freehold or leasehold on their grounds. However, they do have a rule [Rule 1 (2) b], which is designed to preserve clubs from property speculators winding up clubs in order to realise the value of the land. We are no longer protected by it.
Supporters' Direct also comment on an increasing use of sale and leaseback deals such as the one we have entered into.
"The degree of security this gives the club will depend on both the specific contractual arrangements in place and also the identity of the landlord. For example, should the landlord be the local authority, it is more likely that the club will secure both preferential terms and the security of the ground as a long-term community asset. Alternatively, should the landlord be, for example, a property development or management company, it is likely that the terms of the tenancy would be more commercially driven and long-term tenancy less secure". [Binns et al 2002]
They go on to point out that whilst sale and leaseback may be appropriate for certain businesses it is a very dangerous practice for football clubs and puts their long-term security at serious risk for some of the following reasons:
- Football stadiums are only of value to the football club. It is the land on which the stadium sits that is ultimately of value to other organisations. This is the bottom line. Even where the club has the pre-emptive right to re-purchase the freehold they will have sold it for far, far less than the value of the ground to themselves.
- The club may have real difficulties in both paying their rent and saving to re-purchase the freehold. In other words its re-purchase may become an impossible dream.
- The club may default on the rent.
- The club loses a valuable asset and may have few others to secure loans against in the future.
- The lease may not be renewed.
"...the scheme weakens the club's long-term financial and sporting stability…..Ownership of ground and freehold remains a symbol of long-term financial health. It denotes the future location of the club as an institution and secures the ability of the club to fulfil its fixtures within the local community it serves. Club ownership of the ground also allows the football club to maximise the use of the stadium as a strategic commercial asset."
"The high profile developments at Wimbledon FC illustrate the inherent dangers of forfeiting the ownership of one' ground……The hazards associated with loss of control may be irreversible". [Binns et al 2002].
The fact is that no one is going to give us the £6m plus that we need to get our ground back. We have to build it into our plans. I am sure that a clear fund raising strategy that includes and involves supporters and that guarantees that the money raised will be used to buy the freehold will be successful. At the moment, however, what we have is a vague commitment to re-purchase but with no indication of how we are going to go about it nor when it is likely to be achieved. It ought to be at the centre of all current planning and it may well prove to be crucial to the success of the share issue. The immediate crisis is resolvable. Supporters can get behind the share issue and give the Trust a strong mandate to represent their views and interests. Personally I feel that this is the only course of action open to us. We can support the share issue and continue to press for clear commitments on the ground. We can do so more forcefully if we support the issue sufficiently to give the Trust a seat on the board! However, without a clearer commitment on the priority we are going to give re-purchasing the ground, the board do run the risk of losing the support of many fans who might have dug deep into their pockets had those commitments been forthcoming now.
Watford Supporters Trust