975e479f-a4d3-4cc2-9fdf-21432c4e0255_Eredivisie169Last week first division club HFC Haarlem filed for bankruptcy, no longer being able to fulfill its financial obligations. This should come as no surprise. Several clubs are in dreadful financial condition, mostly on the back of poor management and unfavorable economic conditions. Hence we expect more casualties along the way. We briefly explain and suggest some solutions.

Dutch footbal clubs facing difficulties. Last week, one of the oldest Dutch football clubs, the HFC Haarlem, filed for bankruptcy and hence this household name will disappear from Dutch professional football. In spite of several attempts, the club could not be saved. We are not surprised, Haarlem has been facing financial difficulties for quite a while and the club was placed on the watchlist (category 1) of the Dutch Football Association (KNVB). The problem is that Haarlem is no exception. Its situation is exemplary for many other clubs in particularly the lesser important first division (Jupiler League). It is believed that some 9 other clubs are on the same watchlist, with several more far from safe. At the moment Veendam seems to be the primary candidate to be next with a liquidity shortage of some EUR 600mln. Besides Veendam other clubs having difficulties seem to be AGOVV, RKC, RBC, Fortuna Sittard, MVV, Eindhoven and Cambuur. However, it is not only the first division which is facing difficulties, there are also problems in the Dutch Premier League (Eredivisie), where losses amounted to EUR 34m last year. Feyenoord, Willem II, Roda JC and Ado Den Haag are just a few names, which face a huge financial burden.   

Is this a surprise? No, not really. In our article Dutch Football: financial difficulties of Dutch clubs no surprise, we explained the problems behind the financial crisis. The main reasons for the financial disarray can be explained as follows: 

1. Poor management. In many cases Dutch football clubs are not properly managed. Professional football should be run like a business, not like a hobby. In a period of stagnating sales and rising costs, cash flow management is essential. I wonder, apart from the positive exceptions, whether all clubs have even heard of this. It is utterly irresponsible to buy new players or increase salaries by 25% in a period of economic crisis, particularly as income of many clubs is largely dependent on discretionary items like sponsoring, TV and ticket sales. In an environment of declining revenues, it is surprising that many clubs are working with flat or rising budgets. No wonder that problems arise. This is particularly the case for the first division clubs. If one realizes that clubs in the Jupiler League are largely dependent on sponsoring income (51% of total revenues), it is plain stupid and irresponsible to keep budgets flat. No wonder, casualties emerge, certainly in a high fixed cost environment such as in football. Football clubs should be run professionally. It means proper revenue management and proper cost management (remember that in many cases salaries and rent of the stadium already account for some 75-90% of sales!). It means creativity and contingency plans and it means accountability! If I still hear management of clubs saying “ I am sure many clubs largely depend on transfer sums” or “ why always look at finance, it is good players which are important and subsequently financing automatically will be allright”. Brrrrh,  it is exemplary for the limited mindset of some, which tend to be short term. Clearly there will always be friction between the technical and financial aspects of a football club but in the right setting (more long term oriented) they should peacefully co-exist.                  

2.  Limited viability for current number of football clubs. There are several ways to look at this, but the conclusion should be the same. The Netherlands is just not big enough to host 38 professional football clubs. Let’s first look at the map of The Netherlands. The Netherlands has a population of 16.3mln, which implies one professional football club per 429,000 habitants, which intuitively already seems not that many. However, it gets worse. These clubs are not spread properly over the country. For example Brabant counts 9 football clubs or 24% of total clubs, whereas Brabant only counts 15% of the total Dutch population; it means one football club per 268,000 habitants. No wonder many clubs in Brabant have financial difficulties. Hence mergers could be a solution here. Looking at a more financial angle, it is amazing that some clubs even still exist. Looking at the Jupiler League again, there are 8 clubs with annual turnover below EUR 2.5 mln. With a required minimum of 18 players under contract on say the average salary of EUR 35,000 and with additional staff and management, it means that the salary bill already accounts for some EUR 1.5-1.6mln.Come to think of it! And this is before stadium rental costs, variable costs, depreciation, selling costs, media costs etc. No wonder clubs are having difficulties to survive.

3. Declining community support. Whereas in the past many clubs always counted on community support (hundreds of millions have been invested) coming to the rescue, support for such action is rapidly declining. In the case of Haarlem, the local municipality was not prepared to bail-out the club and this seems increasingly the trend. In some cases there are still municipalities granting loans to clubs (which often is only temporary respite), but subsidies seem to be no longer in vogue, although in view that the European Union does not allow for such action (although there are always ways around). Although one can argue whether this is right or not, in the end a club should be able to survive on its own, also in view of creating a level playing field.

4. Economic crisis. Finally there is the economic crisis, which is leading to lower sponsor and tv income. But this is an easy one to hide behind. It is just proper business sense to build up a proper reserve for more difficult times. For many clubs the contrary has taken place, which brings us all back to management again I guess. Luckily there are good exceptions such as Heracles, Twente and several others. It is good to see that FC VVV is not immediately spending all the millions received for Honda on all kind of expensive players. The club is saving a large part of the money for its youth academy, the new stadium and possibly some players to be bought in summer.

So what could be the solutions? Clearly the current model is not sustainable and sooner or later more clubs will go down. In order to avoid this there are several alternatives (or rather a combination of them to accomplish this:

1. Bundling/merging of clubs; although not easy to realize (given the example of FC Limburg), mergers should be considered in some parts of the country given that the sheer number of professional football clubs is not sustainable in those areas.

2. Introduction of semi-professionalism in the first division. Salary bills are too high, whilst minimum wages are often not a viable option for professional players. The result is that many opt for a semi-professional career at a top-amateur club. With the introduction of semi-professionalism the first division could possibly merge or cooperate with the top amateur leagues.

3. Cross-border competitions. With the rich getting richer and the poor getting poorer, competitive balance seem to have long gone. Combining for example the Belgian and Dutch leagues should lead to a better balance and stronger competition. However, it should be realized this will not be acceptable to many clubs that would not be able to participate in this league as well as their supporters. Food for thought.

4. Improve quality of management. It seems many clubs are not managed properly, supervisory boards should carry part of the blame.

5. Salary adjustments. Wages are by far a club’s biggest fixed cost item. With the recent rise in salary costs this has become a heavy burden to many football clubs. Re-adjustment will take time, partly depending on the duration and mix of the contract portfolio.

6. Creativity and innovation. Many of the current clubs tend to think in the old traditional way rather than out of the box. New business concepts, flexibility of costs, revenue management, a new (longer term oriented) business model are just a few principles where improvements may be made.

So it is clear something has to be done! Sales are stagnating, costs are rising! This has to be turned around, one cannot always count on the community (government money) coming to the rescue….Is management in Dutch football capable of doing it? I sincerely hope so. I hope they will find creative ways to grow the top-line, I hope they will be able to reduce costs (recent reports at least suggest that clubs like Ajax and Feyenoord are going to reduce salary costs), I hope they will implement contingency planning procedures. The proof of the pudding will be in cash flow management. I am sure some clubs with good management will be able to do this properly but there are also examples of clubs where I have my severe doubts. This is also the reason why I expect more clubs to go bankrupt.

I do realise that better players will lead to better results and greater recognition, but reality tells us that we just will not be able to match the budgets of European clubs in the bigger leagues, which is a function of scale. Equal competition and a level playing field can only co-exist through rules of the regulators. In the mean time we have to start thinking longer term as in the end players are better off with a solid health of the clubs they are playing for. Holland has always been a producer of talent, our football schools are often examples for many clubs, this is a strength we should focus on. Financially it is also much more attractive then buying expensive stars from abroad. The youth is relatively cheap and by treasuring and growing talent in the right way and with the right values, the financial outcome will also be more attractive, a win win situation in my opinion.

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