Financial News

From the football pitch to the race track, banks retain their love affair with big-audience sports, despite a punishing recession.

Just as UK football clubs’ success on the pitch have waxed and waned since the first team turned professional in the late 19th century, so their relationship with their banks and the tax authorities have ebbed and flowed.

While some banks have often acted harshly against clubs in trouble, their behaviour has become more tolerant as clubs’ survival rates were improved by the 2004 Football League rule amendment that required football creditors, such as players and managers, to be paid before others such as HM Revenue & Customs in case of financial difficulty.

HMRC has made several attempts to get this overturned. So far this year, it has pursued several clubs for non-payment of tax, including Portsmouth, Crystal Palace and Cardiff City, but last month Portsmouth won a High Court case which threw out the HMRC’s claim that its Company Voluntary Agreement, which sets out the way creditors are paid, was unfair. Had the club lost it would have gone into liquidation.

The pivotal role banks play in the fortunes of clubs is illustrated in the fate of two teams 20 years apart.

In the early 1990s, North London club Tottenham Hotspur was in dire financial straits. Spurs had made history in the 1960s when it became the first club in the 20th century to do the double – winning the English First Division and the FA Cup. And it entered the record books when it became the first football club to float on the stock market and become a public limited company in 1983.

But by 1991 it owed £10.5m to Midland Bank (now part of HSBC), a debt which reportedly made the bank transfer the account from the Smithfield branch to its casualty unit in Cannon Street and demand a series of changes including a new chairman and the sale of its then best player Paul Gascoigne.

Midland’s intervention angered Spurs fans, leading to high street protests, but in 1991 the club was sold to Alan Sugar, founder of electronics company Amstrad, and the then Spurs manager Terry Venables, with the pair fighting off media magnate Robert Maxwell for the prize.

Fast forward to August 2010 and Sheffield Wednesday. The club owed £550,000 in unpaid PAYE, national insurance and VAT, according to court documents, and HM Revenue & Customs had filed two petitions in the High Court to wind up the club, to be saved at the last minute by the Co-operative Bank.

The club owes the Co-op £22m, according to sources close to the situation. Its debt could rise by £3m as relegation to League One will reduce its income from broadcast fees, but the bank stepped forward to provide a fresh loan and help defeat HMRC.

The Co-op also has a long-standing presence in Scotland, sponsoring the Scottish League Cup to help sustain its trading relationships in the region. In recent years it has also tried to encourage the Football Trust and development of co-operative, fan-involved ownership of clubs, the support here being seen as more intellectual than purely financial.

The Co-op is not the only bank to appear generous when it comes to football club debt. Liverpool’s bank RBS has been as measured. The club owes RBS £237m, according to company statements. But, while the bank has encouraged its American owners George Gillett and Tom Hicks to sell the club, it has extended the terms of the debt rather than call in the loan.

Nor have banks lost their belief that sport can be useful in promoting their brand, as was demonstrated when Standard Chartered took over this year from Carlsberg as Liverpool’s sponsors, paying £20m a year, more than twice what the brewers were paying.

Gavin Laws, Standard Chartered’s group head of corporate affairs, said: “We looked at a number of sports. Basketball is big in our markets, but the NBA in America wanted too much money. Formula 1 had three problems for us: it is a ‘boys toys’ sport, there is the environmental question of supporting a gas-guzzling sport and even the final Formula 1 race does not attract the sort of television audiences that football provides.

“We wanted a sport which would take us from a major regional player to a big global brand and nothing matches football, in particular one of the top four Premier League clubs: Manchester United, Chelsea, Arsenal and Liverpool. In our markets Liverpool is huge with 69 million followers in China alone. The opening match of the season – Liverpool versus Arsenal – our first match of the sponsorship, was ideal for us.”

It did not bother Standard Chartered that last season was one of the worst for the Merseyside club, failing to qualify for the Champions League, for as Laws said: “Fluctuation in form is not that important because as a Premier League club it has tremendous exposure in our markets and that is crucial.”

With Standard Chartered saying Asia provides 70% of its profits – add Middle East and Africa and this rises to 90% – the strategic focus of the Liverpool sponsorship was a no-brainer.

The sport Standard Chartered discarded, Formula 1, has since been picked up by UBS, whose markets have an overlap with Standard Chartered in Asia and the Middle East although it is also strong in Latin America. Unlike Standard Chartered, UBS was convinced by the sport’s sales pitch that, with a global television audience in 2009 of more than 520 million people across 187 countries, it was one of the most watched sports in the world.

Also the deal brought the bank highly visible coverage in its main growth markets and was just the brand UBS wanted.

All this suggests that, while the global recession is forcing changes, there has also been a flight to quality when it comes to sports. The old days of sponsorship being decided on the 18th hole have gone. But high-profile sports still sell as banks seek sporting brands that can be crucial to their markets.

From Financial News, the online daily news service and weekly newspaper, the leading source of information about the investment banking, fund management and securities industries.


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