County Cricket’s Financial Crisis
Unsustainable deficits, massive cuts needed, disagreement over what caused the problem, arguments over the way forward.
No, not a précis of what George Osborne’s been going through for the last year, but a summary of the financial position that county cricket is in at the start of the 2011 season.
Overview
Only four counties reported operating profits for 2010. Of the three results awaited, Durham are expected to announce losses of £1 million, Rod Bransgrove, Hampshire Chairman, confirmed at a recent Fans Forum that “they are not likely to show a surplus” while Lancashire warned they expect to announce the biggest loss in their history of around £2 million. This will just exceed the £1,859,000 lost by Yorkshire, while another Test county, Warwickshire, reported an operating loss of £2,103,000. Perhaps most chilling of all, at Leicestershire the auditors qualified the accounts because of the “existence of a material uncertainty which may cast doubt on the club’s ability to continue as a going concern”.
SPIN reviewed several county annual reports to identify the root causes of this annus horribilis and, although the Test counties encountered specific problems, some clear trends emerged.
1) Most obviously, cricket, a leisure industry, could not escape the impact of the economic downturn with hospitality, advertising and catering significantly affected in many cases (one county’s catering receipts slumped by nearly 70%), memberships in many others.
2) The extension of Twenty20 (T20) from five to eight home games was not a success. Derbyshire’s takings fell by £37,000 which, with the costs of hosting the extra games, reduced profits by £57,000. Kent’s T20 group stage total crowds were down by around 13%, while even Middlesex, with the highest T20 crowds and gate receipts in the country, were disappointed and will play fewer Twenty 20 games at Lord’s in future.
3) Most counties blamed the football World Cup. Kent cited a game at Beckenham which started 45 minutes after an England match and took £40,000 less than average.
Middlesex had a different complaint. They understood from the ECB that the 2010 T20 would be very high profile, with England players available, all supported by significant central marketing investment so – with MCC support – signed Adam Gilchrist to “encourage the casual cricket fan to come to Lord’s”. In 2004 Lord’s sold 21,000 tickets for their T20 match v Surrey. In 2010 average crowds of just 12,800 would have covered the year’s deficit, but as a result of the proximity of games, the unavailability of England players and the “lackluster ECB marketing campaign” the crowds simply didn’t materialise. To quote the Middlesex Treasurer: “If the golden goose is not dead, she is ailing badly and is in need of some strong medicine”.
T20 Format in the future…..
Nevertheless the ECB’s decision to revert back to the 10 game T20 format for 2012 is fraught with problems for some counties. And for the ECB if the 2011 competition is a success; there’s no World Cup this year, after all.
At Essex, who must be eternally grateful to whoever decided not to include T20 in their membership package, 82% of their gate receipts come from T20. They rose by 38% last year, meaning their receipts were more than Durham, Warwickshire and Yorkshire combined. Essex expect the reduction in games to cost them a minimum of £180,000.
Meanwhile, Somerset’s Chairman Andy Nash’s view was that the proposed changes do nothing to lead county managers to “conclude that the substantial operating losses being wracked up by most counties will be reduced”. Sussex’s Jim May was even more direct: “Some clubs are sleepwalking into financial disaster. Without one-day pay-days I can foresee two counties going to the wall and we will end up with 14 county championship games through natural wastage.”
All three counties feel strongly – and with justification – that they have made every effort to make a success of the T20 format, but others have not, and that they are being penalised for their marketing success. The Lancashire Chairman, Jim Cumbes’, comment that “6,000 for Essex is a success. 6,000 for us is actually failure” goes to the heart of the T20 problem. But it isn’t unreasonable to suggest that analysing why some counties succeeded rather than catering to the failure of the rest might have been an option.
Test-hosting counties
The Test-hosting counties had their own unique issues. Surrey’s £502,000 loss was blamed on a combination of market conditions, particularly affecting hospitality, a Test starting on a Wednesday and the World Cup, all resulting in a reduction in turnover of £5 million and the laying off of some 20 employees. Warwickshire bluntly stated that their record operating loss was “a consequence of a number of events largely beyond the control of the cub” which included the challenges posed by the domestic tournament and fixture schedule, the Pakistan Flood disaster and the cluttered international programme. Glamorgan’s first retained loss since 2006, despite a second £1 million operating profit in a row, was largely due to losses on the two T20 games involving Pakistan in September 2010, played as the match-fixing allegations were emerging, as well as £1,200,000 in loan, interest and lease payments; they also pointed out the problem of paying fees for international cricket based on historic bids – for example the fees they will pay in 2011 will be based on submissions made in the vastly different economic environment of 2008.
Yorkshire aim to clear their substantial debt by the end of 2019. This money, as their domestic cricket breaks even, must come from internationals; but, with fewer than 25% of the seats sold for the neutral Test between Pakistan and Australia in 2010 and a consequent £1,400,000 loss, they inevitably ran into cash flow problems. To obviate this, they obtained an upfront payment (estimated at over £3 million) from the ECB for long-term advertising, released equity in their replay screen through sale and leaseback and renegotiated repayment schedules to HSBC and Leeds City Council. The county has also made the momentous decision not to bid for an Ashes Test until 2019.
Yorkshire have a guaranteed Test every year from 2012-2019 at what they consider reasonable prices but, with the cost of an ashes bid estimated at £1,500,000 – £2,000,000 are, in the words of their Chairman, Colin Graves, ”not prepared to put this club and ground at risk to get the Australians to come and play here”. As part of a raft of economies, all staff have suffered a 1% pay cut, eight employees were made redundant and there will be no more ground development for at least four years. They will also have no overseas player this season, although the signing of Ryan Sidebottom has caused anger at the counties outbid for his services. Is it, they ask, an appropriate use of the advanced ECB payment?
At Lancashire the picture is perhaps the murkiest, exemplified by the recent unprecedented postponement of the AGM as “yet another legal action poses a question mark over the future of the club.” Derwent Holdings’ ongoing battle against Old Trafford’s redevelopment plans is not only draining the county finances – they have spent about £2 million fighting the case and delays have lost around £3 million in grants so far – but may end up putting their ability to bid for a vital Ashes Test in 2013 at risk. While this remains to be resolved it is poignant to see Murali join Gloucestershire and few signs of recently departed players of the quality of Law, Flintoff, Cork, Loye, Du Plessis and Sutton being replaced.
Other Counties
Kent made an operating loss of just over £595,000 (2009 – £784,000). Their Treasurer commented “an accounting qualification is not needed to understand that repeated operating losses must cease” (nevertheless they assume a 2011 operating loss of £400,000). While they cut costs by £338,000, they experienced a “catastrophic” decline in match receipts, commercial revenues and retail of £465,000. In addition to the World Cup, they blamed a lack of a cricket narrative for the summer; with no major Test series until July keeping the game off the back pages with a direct impact on the casual fan. The major revelation in their report was that the county spent more on cricket – over £2 million – in 2009/10 than in any year in the club’s history; players’ salaries reached a record high of £1,486,000, a rise of 90% since 2002. Relegation and failure to reach the knock out stages in either one day competition was scant reward.
Kent also revealed that, at a meeting of County Treasurers in 2010, the overriding sentiment was that the costs of the game must be brought under control and that “players salaries would, as a result, come under significant pressure in 2011 as contracts come to an end… we may find a different salary environment in 2011 and 2012”. Perhaps with this in mind, contract negotiations with Joe Denly and Sam Northeast have recently ended with neither batsman having signed new deals while it’s expected the county will monitor the progress of several other players out of contract this season, including Simon Cook, Robbie Joseph, Azhar Mahmood, James Goodman and Dewald Nel before deciding whether or not to offer extensions.
At Leicestershire the Annual Report said it all. “In almost every area costs are either over budget or income targets have not been achieved. The club needs rebuilding from the bottom… the position is serious and in order to guarantee the Bank Overdraft, the club needs to increase its commercial income significantly”. While the rebuilding process has begun, with the board revamped, new suppliers, a new company secretary etc., their cash flow forecasts show they will fully utilize their agreed bank facility and will need to secure further funding over the cricket season.
This, legal disputes with the former Chairman and the year end net current liabilities of £233,000 form the basis of the auditors going concern qualification. One major cloud over the club is a covenant restricting any sales value of Grace Road to the club to £24,000 which affects their ability to offer security for loans. Talks with the County Council to ease this restriction are ongoing – and the good news is the county expects to return to profitability in 2011.
Two other things became apparent during the review.
Firstly, the extent of support provided by County Executives. At Derbyshire the former Chairman, Don Amott, is a major sponsor and has given the county a £120,000 interest free loan, Paul Russell of Glamorgan is owed over £2 million by the club, while the Chairman of Kent and former Chairman of Leicestershire also provided substantial financial support during 2010. Meanwhile Yorkshire have been described as “utterly reliant on the benevolence of their chairman” – the level of backing provided by Colin Graves, Chairman is remarkable, including substantial loans, a £6 million bank guarantee and agreement to provide such cash flow support as is needed for the 2011.
Secondly, there is an unprecedented level of turmoil at the top in county cricket, which must surely reflect recent financial pressure; senior management changes have been, or are about to be made, at six counties recently while, at Glamorgan’s recent AGM, three committee members standing for reelection, with over 70 years’ combined experience, were voted out. In March, the Derbyshire Chairman, Don Amott, resigned because he couldn’t agree the way forward with three other club officers. “We’ve had one bad year and all of a sudden it’s all about costs this and cost that,” Amott said afterwards. His replacement, Chris Grant, has only been on the committee since November 2010 but the attractions of his successful background in finance (he was able to retire aged 38) are obvious.
So is there any good news out there?
Yes, if you look hard enough. At Sussex, Chief Executive, Dave Brooks explained how the focus should be on surplus before depreciation as this represents cash generated: at Sussex the book loss hid positive cash inflows of £63,000 while the county also increased memberships by £100,000 and commercial income by £244,000. Somerset reported that they represented “that most rare thing in sport, a successful team, supported by a sustainable business model”, the departing Derbyshire Chairman said that “this club is going to be financially secure for another 100 years” while, at profitable county champions Nottinghamshire, 2010 was seen as a “marvellous example of getting the balance right”.
There are also signs that the counties are starting to appreciate the vale of their members (customers) far more. Leicestershire have launched a “lapsed members drive”, Northamptonshire’s memberships packs (a record 9,000) went out accompanied by a personal letter from the captain, Andrew Hall, while Derbyshire’s first ever DVD “Celebrating 140 years” includes a roll of honour of fans names. Meanwhile, in their excellent members’ magazine, Warwickshire accepted “some members have felt a little alienated in recent times and we’ll have to work harder – and listen more – to rectify that”. The clearest sign of this is ticket prices which, at Test and county level, are returning to more realistic levels after years of constant rises.
The need for alternative revenue streams
Counties are also becoming increasingly innovative in their search for short-and long term revenues. Derbyshire’s decision to offer free membership to all under the age of 12 quadrupled their junior section (and won them Best Membership Campaign of the Year) while Northants’ raft of initiatives include an Elton John concert (hospitality sold out in January) as well as a Grease tribute event. Sussex are offering corporate team bonding sessions (where lucky Executives can face bowling machines set to Brett Lee pace) while Kent’s new mixture of early bid offers, new combinations and direct-debit payment options has seen memberships increase. Counties are also becoming more inventive in the use of their home grounds; the Kia Oval has hosted Australian Rules football, Gloucestershire are reported to make more form gym subscriptions than memberships, while county grounds as wedding venues are increasingly common.
Some glimmers of hope?
So what of the future? With a sluggish economy and no change from the oft derided 2010 domestic format the pain is likely to continue in 2011, although, the tour by India – expected to be the most lucrative ever – should lead to an increase in the ECB allocation to counties while, with Test ticket sales reportedly “at Ashes levels”, Test hosting counties should have substantially better years. Smaller squads, fewer overseas players and the economies already implemented at many clubs will also have an impact while, as Kent mentioned, the realignment of payers salaries to more sustainable levels will be an ongoing process.
Nevertheless, in some cases, it is likely to be a very, very long road back – at one county, for example, memberships and gate receipts were £240,000 in 2010 but cricket expenses alone were over £1,940,000.
Reacting to all this the ECB have appointed Gordon Hollins as MD of county business. His remit includes direct communication with all first-class counties as well as assisting and enhancing county business plans and he is expected to focus on long term solutions.
He has no mean task, not least because there is no one size fits all solution to the problems of 18 counties with 18 different business models, although he will be helped by the new reality in the game, exemplified by Somerset’s statement that “the generation of profit as an end in itself is a new activity for the club”.
Will a county go bust or will some counties merge? With some in the professional game feeling that one or two have given up even trying to be competitive, the ECB ambivalent as to whether it would be a lender of last resort, and some weak balance sheets out there, it certainly seems more possible than ever before.
Reporting on 2010, a county treasurer commented: “There are few trophies presented for the best financial results among the counties.”
Perhaps, for 2011, there should be?
