01 Oct 2009

GAME OVER?

Going into administration doesn’t always mean the final whistle. It can be a fresh start for the business and, for a manager like Eddie Howe, valuable experience.


Waterford Wedgwood, Coffee Republic, Woolworths… compiling an up-to-date list of failed businesses in 2009 would be a futile task. Faced with falling revenue, rising costs and dour prospects, businesses are finding it increasingly difficult to pay their creditors and many are heading into administration. The football industry has not escaped unscathed, Southampton, Darlington and Stockport County among the clubs hit by insolvency so far in 2009.


As Andy Taylor, an insolvency lawyer with southeast-based asb law, points out, football clubs face additional pressure to stay afloat: “Unlike most businesses, sports clubs have an important community dimension and it can take considerable time and money to assemble something of quality. For the fans, the idea of their club going out of business is abhorrent.” But, he adds, “Administration can be the best chance of long-term survival.”


Insolvency, he explains, can go one of two ways: “Liquidation is like a hearse, because the business is dead with no hope of revival. Administration, on the other hand, is an ambulance – for the company inside there are all sorts of prognoses. It may die, it may recover quickly or it might need to undergo some kind of surgery before emerging in better shape.”


Administration effectively provides a breather, freezing any action from creditors and winding up proceedings from HMRC, who may be trying to recoup unpaid taxes. “Having taken control, the administrator must come up with a rescue strategy that will secure the best possible return for all stakeholders,” says Taylor. “That includes not only creditors, but staff and anyone who deals with the company on an ongoing basis.”


Hold tight


While existing management, directors and stakeholders might be consulted during the administration process, they are out of the loop when it comes to decision-making. For football managers and other club employees, the impact of the administration process will depend largely on the agreed rescue package. They are unlikely to find themselves the subject of investigation.


Company directors, meanwhile, would be wise to seek professional advice the minute insolvency looms. Make the wrong decisions and they could face personal liability or, worse, disqualification from acting as a director in the future. Unless the administrators report back that they have acted in the interests of the creditors, they could incur the wrath of the regulators. This can mean having to cash in or loan out players or make staff redundancies to cut running costs.


For some clubs, the implications of that can be serious. Darlington entered administration in February, eventually buckling under financial pressures that had been evident since the club’s move to a new arena in 2003. Poor attendance, partly due to the recession, was the nail in the coffin, leaving the club kneedeep in debt.


While the administrator sought a buyer for the club, it was forced into desperate cost-cutting measures, releasing players from their contracts and making coaching and administration staff – including caretaker manager Martin Gray – redundant.


On the flipside, where administration results in employees being able to remain in an organisation, the outcome can be very positive. Once back to business, staff will often find themselves in a company with far greater financial stability, and purged of its previous debt and uncertainty.


Down to penalties


Of course, unlike in other business sectors, administration brings an extra kick in the teeth for football clubs – a ten-point deduction. After a valiant fight to avoid the drop, it was this points penalty that sent Bournemouth into League Two for the 2008/09 season. Once there, the club was hit by a further 17-point deduction, due to unresolved issues with its creditors. According to manager Eddie Howe, the impact on the team was severe. “Morale was the lowest it has ever been and it was a major factor behind our disappointing start to the season.”


When former boss Jimmy Quinn lost his job in December 2008, Howe, then assistant manager, took over as caretaker. Just two games later, the position was made permanent, which at 31 made him the youngest manager in English football. He faced an uphill challenge. “We were in the middle of a massive relegation fight and there was a lot of negativity in the club, which I needed to turn around,” recalls Howe. “I set the players a series of targets to hit in order for us to escape relegation, and used team-building and bonding sessions to lift their morale. It was important that the team spend as much time together as possible to lift their team spirit and hopefully transfer that onto the pitch.”


Since a transfer embargo was placed on Bournemouth in January 2009, Howe’s biggest hurdle has been an inability to bring new talent to the club. “In this kind of situation, you’re met by financial barriers at every turn,” he says. “It can be frustrating when you can’t do the little things, like organising team events or a massage for the players.”


However, Howe adds that there are plenty of positive things you can do that don’t rely on money and it’s these he has focused on. It worked. From a precarious position at the bottom of the table, Howe led the side to a series of impressive results and safety from the drop. “How you train and communicate with your players is free,” he says. “It has been a huge challenge, but one that my assistant Jason and I have relished. We’ve tackled it head-on rather than feeling sorry for ourselves.”


What doesn’t kill you…


With potentially very positive long-term consequences, it would be a mistake to speak about administration with a sense of finality. After the short-term trauma and change, there is often a fresh injection of capital, backers with enthusiasm and a solid strategy and a sense of security that may have been lacking for some time.


For Southampton, whose holding company went into administration in April, a knight in shining armour rode in at the 11th hour. Fans and stakeholders will have been buoyed by Swiss businessman Markus Liebherr’s confident words about rebuilding the club and planning for the long term.


Bournemouth’s future also looks more stable following its takeover by a consortium led by local businessman Terry Murray. Howe remains positive and determined. “People can be quick to write you off, but that’s motivational; it’s been a good opportunity to prove them wrong,” he says. “Things can’t get much tougher than they have been, so if we can come out the other side, we’ll be much stronger for it.”