Accounting in football

Despite experiencing big jumps in revenue, Finbarr Bermingham outlines why the accounting practices of Europe's top football clubs need to change
Commercial awareness

As the dust settled on 2011, the financial reports from almost every industry made for miserable reading. Those released in 2012 have been equally bleak, with the banking sector being the latest to report huge drops in profit. Football isn't like any other industry, though, as Deloitte's latest Football Money League report helped to confirm. The combined revenue of Europe's top football clubs in the 2010-11 season was up 3 per cent year on year. For the seventh year in succession, Spanish giants Real Madrid take the top spot, with revenue of �402 million - �23 million more than their rivals and reigning European champions, Barcelona. The announcement comes at a time at which unemployment in the Iberian country is at a massive 22.8 per cent, with almost half of all those aged 16-24 out of work. Europe's biggest football clubs, it would seem, are immune to the recessionary winds sweeping across the continent.

Deloitte partner Dan Jones credited �loyal supporter bases" for the continued success of the teams. �Continued growth of the top 20 clubs during 2010-11," he said, �- emphasises the strength of football's top clubs, especially in these tough economic times." And while English football has been hitting the headlines for all the wrong reasons, it is represented in the top ten by Manchester United (�307 million), Arsenal (�210 million), Chelsea (�209 million) and Liverpool (�170 million). Nouveau riche Manchester City landed in 12th place, just behind Tottenham Hotspur.

Much of the success of the biggest teams can be attributed to their early embrace of globalisation. Over the past decade, East Asia has been a popular destination for lucrative commercial tours, cultivating billions of fans for the top clubs in emerging markets. So while fans and consumers in Europe and the UK are feeling the pinch, revenues from overseas continue to pour in. In summer 2012, Arsenal will become the first English club to make a pre-season visit to Africa when they tour Nigeria and, over the next few years, others will be scrambling for ways of supplementing their revenue streams, with the shadow of the Financial Fair Play regulation looming large.

What's wrong with this picture?

While the picture looks rosy for the richest clubs, the reality is that many are bankrolled by individuals, or small groups of individuals, whose financial management is considered unsustainable. UEFA, the governing body of football in Europe, announced new rulings around club's accounting practices in 2009 and they come into force at the end of 2012. Under the Financial Fair Play regulation, clubs will only be allowed to enter European competitions if their generated revenues - money from sources such as television rights, gate receipts, competition prize money and sponsorship - is equal to or greater than their expenditure. Furthermore, clubs will also be barred from owing money to other clubs, players, tax authorities and social service departments.

Teams like Manchester City, owned by Sheikh Mansour, an Arab billionaire whose family's fortune is estimated to be more than $1 trillion (�633 billion), are set to fall foul. Since buying the club, Sheikh Mansour has spent almost �1 billion on new players, with the club's revenues being only a fraction of this figure. Despite being the bookies' favourites to win their first league title since 1968, they could be expelled from European competition. Chelsea, bankrolled by Russian oligarch Roman Abramovich, are in a similar situation. If these owners were to withdraw tomorrow and call in their debts, the chances are the clubs would fold.

Even England's most successful club, Manchester United, could be penalised. The club was saddled with debt when the Glazer family purchased it in 2005 and has since tried to relist itself on the Singapore Stock Exchange in an effort to increase revenue. The murky waters of football's accounts will be coming under the microscope for intense scrutiny this year. Deloitte's Football Money League list in 2013 will make for interesting reading.