Football: Football clubs failing the asset test: John Shepherd on a lesson in sporting accountancy within a changing financial world

FOOTBALL clubs are in danger of under-selling themselves as they prepare to approach lenders for finance to comply with the Taylor Report on ground improvements, warns Touche Ross, the accountancy firm.

Touche says better presentation of accounts will enable clubs to project a more commercially realistic value of assets, particularly with regard to players who in most cases are not included on balance sheets.

Football is undergoing great financial change and clubs, according to Touche, will face major challenges as they strive to pay their way as businesses, and comply with onerous safety legislation.

There is also the burden of the tougher line being adopted by the tax authorities on the compliance and settlement of debts.

Clubs, after all, are by no means exempt from the financial constraints facing all businesses in the recession, as Aldershot discovered last season when the receivers knocked on the door.

According to the survey, nearly 90 per cent of the clubs in the top two English divisions are failing to take advantage of the financial benefits of balance sheet treatment of players.

The findings showed that many clubs were showing losses simply because they put transfer fees directly through the profit and loss account, rather than showing players bought as assets in the accounts and writing off their individual values over a number of years.

For instance, the cost of buying a 25-year-old player for pounds 2.5m would usually be written straight off the profit and loss account, which could effectively wipe out all the money taken by a club through the turnstiles, programme sales, souvenir shops and sponsorship fees.

However, if the club making the purchase decided instead to treat the player as an asset, then the financial implications would be starkly different.

Assuming the player was on a five-year contract, and worth pounds 500,000 at the end of his term, then the club would only need to write-off pounds 400,000 a year from the profit and loss account instead of pounds 2.5m in one go.

This, at a stroke, eliminates wild swings from profit into loss as each season passes, regardless of whether a club decides to take a holiday from the transfer market.

Touche, however, points out that transfer fees are just one half of the equation, as many clubs are failing to show a true value of grounds in their accounts.

'There is something commercially illogical about spending money on valuable players, and on some types of ground improvement, and writing these off to the profit and loss account when incurred,' Gerry Boon, of Touche, said. 'Recognising these items as assets can give a much better idea of the 'real value' of the club.'

And if clubs do not change their accounting policy, he warns: 'Profits over the next few years will be significantly reduced at the time of high expenditure on grounds to comply with the Taylor Report.'

Touche found that one-in-three of the clubs had an overall deficiency on their balance sheets, which hardly forms the best basis for arguing for additional funds. And, largely because transfer fees are almost always written-off as they occur, nearly half of the clubs lost money before tax in the 1990/91 season.

---------------------------------------------------------------------- FIRST DIVISION ---------------------------------------------------------------------- Club Turnover Profits* Assets pounds 000 pounds 000 pounds 000 Manchester Utd 17,816 5,375 13,440 Aston Villa 7,208 1,530 2,585 Wimbledon 4,634 1,270 1,270 QPR 2,939 1,102 2,970 Chelsea 5,636 757 1,749 Arsenal 11,295 748 4,526 Norwich City 4,331 331 3,237 Manchester City 6,469 209 2,146 Southampton 5,711 175 1,540 Sheffield Wed 4,572 168 6,284 Notts County 1,858 132 (1,421) Oldham Athletic 2,970 112 516 Crystal Palace 5,860 (46) (1,181) Luton Town 4,620 (254) (1,774) Coventry City 3,604 (745) 3,073 Liverpool 7,117 (783) 2,560 West Ham 6,638 (1,064) 8,982 Everton 7,057 (1,179) 4,807 Nottm Forest 7,601 (1,325) 325 Sheffield United 3,528 (1,543) 2,643 Tottenham 18,173 (1,781) 12,068 Leeds United 3,727 (3,078) (5,384) ---------------------------------------------------------------------- 1990-91 figures. * Pre-tax profits. Net assets. Brackets denote losses. ----------------------------------------------------------------------

---------------------------------------------------------------------- SECOND DIVISION ---------------------------------------------------------------------- Club Turnover Profits* Assets pounds 000 pounds 000 pounds 000 Watford 4,713 774 (1,491) Barnsley 2,064 756 1,767 Derby County 3,670 727 (692) Swindon Town 3,970 514 (233) Bristol City 1,666 504 1,039 Bristol Rovers 1,142 155 1,138 Middlesbrough 3,331 140 (368) Blackburn 1,776 106 918 Sunderland 4,165 34 1,201 Grimsby Town 761 (60) 55 Plymouth 2,056 (98) (134) Southend 962 (99) (1,023) Charlton 1,776 (239) (3,317) Cambridge 1,072 (343) 260 Port Vale 1,427 (388) (311) Tranmere 1,142 (547) (1,054) Brighton 1,339 (594) (604) Leicester City 2,584 (638) 3,169 Ipswich Town 2,078 (751) 108 Portsmouth 1,960 (815) 5,706 Oxford United 2,002 (911) (1,709) Millwall 8,768 (2,667) 2,505 Newcastle 4,191 (2,998) 2,081 Wolves - - 629 ---------------------------------------------------------------------- 1990-91 figures. *Pre-tax profits. Net assets. Wolves filed Small Company Status accounts; pre-tax profits not known. ----------------------------------------------------------------------