Cash, Sinkholes and Sources. How are Community Sport and Recreation Organisations Funded and What are the Implications for Their Future Viability? Research Report 2: Football Clubs

Abstract

Despite the many millions of dollars that are received by sports clubs annually from memberships, grants and sponsorships, many sports organisations struggle financially at grass roots level, making deficits or only just breaking even. The objective of this research was to analyse football clubs’ capacities, specifically their key sources of funding and their financial sustainability. Further, we used a model to find out what non-financial resources might strengthen football clubs’ financial sustainability and contribute to organisational effectiveness.

This research was made possible through funding from Sport NZ, the cooperation of New Zealand Football, the research participants, and our research assistant. The research reported in this study continued with the development of a model integrating both financial and non-financial items in the vulnerability analysis. This New Zealand model may be capable of alerting clubs to the relative significance of continuing losses. The synthesis in this model has the potential of making a unique and important contribution, and may be found under the same authorship on SSRN.

Key Findings:

The greatest risk facing football is its high dependence on external sources in a market where availability of external grant and sponsorship funds is very tight. This may mean that clubs have to think about increasing funding from members (for example by raising their membership subscriptions). The potential impact on the number of members attracted to the sport should also be considered. Football is a growth sport, with consistently more people participating since 1996. The need for volunteers as membership grows and the lack of availability of suitable people with the time to commit is another area of high risk.

Financial vulnerability:

Using a series of financial ratios we found out whether clubs could finance the achievement of their goals, their financial sustainability and maintenance of inter-generational equity.

We found:

• Member fees comprise, on average, 37.17% of football clubs’ income (median 35.09%); with charges to members being higher in large clubs and lower in small clubs;

• External sources provide the next greatest proportion of revenues for football clubs (mean 29.57%; median 16.35%).

• A significant percentage of clubs reported declining revenue (43%). To supplement funding, 84.4% of clubs applied for at least one grant in the last year.

Few clubs have highly diversified funding sources.

• Football clubs’ greatest expenditure is on playing (mean 39.06%, median 38.08%) followed by property (mean 32.34%, median 29.53%). However, the size of clubs is important, with small clubs spending a greater percentage of their funds on administration than medium-sized and large clubs. This suggests there is room for these clubs to share administration services to redirect funds towards players.

• While some clubs are technically insolvent, most are relatively liquid according to the acid ratio. The average club’s acid ratio score was 11.21, but there was wide variation in this measure. • Clubs also had varying levels of reserves, from negative to more than fourteen years worth, with a mean of seven months. Clubs’ financial positions are not improving overall, as inter-generational equity is only marginally above 0 and 41.8% of clubs are returned net deficits after four years of operations.

• Clubs are rightly concerned about financial viability as, according to the model we developed, only 11.1% of football clubs were financially strong. Infrastructural capacity (membership, facilities, human resources)

• Over half (59.5%) of clubs reported that their adult and junior membership numbers had increased, with only 9.5% reporting declining membership. These increases reflect the overall growth of football as a team sport in New Zealand, but raise issues of clubs’ capability to deal with growth.

• Clubs are generally satisfied as to the availability and costs of their grounds/ facilities, but were more concerned about the quality of the facilities.

• Very few clubs employed full time staff, but a number employ part time staff. On average bar/catering, cleaning and maintenance staff represent 39% of paid staff, and 40% of paid staff are involved in playing support (coaches and instructors, team management, officials, etc). Staffing issues were generally not a problem for any clubs. • Recruiting and retaining volunteers is more of a challenge than training them. Volunteers are essential to the operation of all football clubs. Strategic capacity (business planning, satisfaction with the board, attitudes).

• A majority (73%) of clubs did not have a business plan beyond an annual budget. Large clubs were more likely to have a plan than small and medium-sized clubs. A lack of planning is likely to be one reason for the poor financial sustainability of clubs.

• The main reason given for a lack of strategic planning was a lack of time, as clubs’ volunteer governors/managers struggle to manage the day-to-day administration of clubs.

• Generally clubs perceived their governing bodies to be effective, efficient and responsive but many clubs are run by a small number of very active governors. Clubs struggle to attract busy parents into volunteer positions to reduce others’ workloads.

• A minority of clubs (18.64%) listed more challenges than opportunities.

• Obtaining sufficient income was a significant challenge for large and medium-sized clubs, as was maintaining financial viability.

• Small clubs found training volunteers to be a significant challenge, as well as recruiting paid staff and dealing with funders.

• Football clubs source advice from New Zealand Football, and other local sources, including their Regional Sports Trust and their local authorities.

Overall capacity:

• There is a relatively strong linkage between financial capacity and infrastructural capacity, as membership directly impacts the club’s revenues.

• Further, due to a focus on the near term, negative sentiments about facilities and the board (infrastructural issues) are likely to be directly related to increased calls on external funders to assist with clubs’ finances (a financial capacity issue).

• Strategic capacity was more loosely coupled to financial capacity but slightly more coupled to infrastructural capacity. This is due to a lack of long term planning and the existence of items for which the financial impact has not been measured.

This research sought to find out what are the indicators of the threats facing sports clubs and how other resources assist sustainability or otherwise. Financial vulnerability is a very real issue in all sports, but there appears to be little local research that has measured this, or determined financial benchmarks. As described in the full report, the research included literature reviews, financial analysis, a survey of football clubs, focus groups of managers and board members, and interviews of stakeholders in order to reach a number of conclusions.

Keywords: amateur football clubs, Sport NZ, financial vulnerability

JEL Classification: G32, Q56, D71