A study has looked at the impact of how corporate governance impacts a football clubs firm performance.
The study was undertaken due to the fact that since 2000 there has been 44 football clubs enter into administration.
Football clubs are the hubs of communities and their wider context
has not gone unnoticed, when Ian Holloway was at Blackpool he stated that:
If people don't understand, we're right on the end of the M55 and you have to go through
everywhere else to get to us.
The only reason you're going to come there is to have a holiday and I
want everyone to come there from the Premier League and have a holiday, for all the businesses
up and down the front and for everybody in the town.
Football clubs can bring vitality to a local area however, when a football club goes into
administration, local businesses are impacted especially if a local business supplies a
service to the football club.
An example of this is if a football club cannot pay for the newspapers it receives each
day from a local business.
When the club goes into administration the biggest creditors get paid first
and the smallest creditors get paid last.
Even though the non payment of a bill could have a significant impact on the local business.
The study looked at whether the level of corporate governance within a club affected whether
the club performed financially well or bad.
The belief is that good corporate governance would mean
better financial performance in a club and therefore, there would be less likelihood
for a company to go into administration.
The top, middle and bottom teams from the English and Scottish leagues at the time of
the study were picked for analysis.
Questions were prepared to which the answers could be marked on a
binary scale of good or bad corporate governance.
A good example of corporate governance would be awarded a 1 a bad of example of corporate
governance would be awarded 0.
The following questions were obtained from three years worth of financial accounts of the football clubs and were
the questions to be used to determine good corporate governance:
Is the football club a public limited company Full set of accounts delivered
25% of the board women Top 10 audit firm auditing their accounts
Top 50 audit firm auditing their accounts Director is not the company secretary
Dividends paid more than 2 to shareholders over four years
Majority shareholder is not a director The company has not been in administration
in the last four years From asking these questions it became apparent
that the public limited companies had prominent corporate governance with Manchester United
scoring 6 out of nine and Celtic and Berwick Rangers scoring five out of nine.
All three clubs are public limited companies and therefore, have to comply
with more stringent rules due to the markets that they operate in.
An interesting result from the study was that Luton town had the worst corporate governance,
along with Ross County and Stenhousemuir, scoring zero out of nine.
This is significant as Luton Town went into administration in 2007-08 and this would
highlight that poor corporate governance could potentially lead to administration.
Profit is essential to any business and football clubs should not be an exception.
Profit will decrease as it goes down the leagues due to lower attendances
and less opportunity for tv rights.
However, it​ is possible to see that within the leagues
the clubs which have better corporate governance generally usually do better with profit.
For example, Ross County.
Who had a very poor governance score, have had huge fluctuations in their profit year on year.
Where as a Public Listed Company like Berwick Rangers have maintained the same level of
profit and therefore have stability within the club.
Manchester United are not listed on the below chart due to the huge sums of money which
was made by the club during the time.
In an ideal world football clubs would have corporate governance at the standard of Public
Limited Companies.
This would mean there would be more information to publish into the football clubs
accounts and would highlight if there are was any danger of the football club going
into administration.