Too Big to Fail? When Football Clubs Suffer Financial Meltdown
Given the eye-watering sums currently involved in football, be it ever-increasing broadcasting deals or clubs being taken over by oil states flush with capital but morally bankrupt, the notion of clubs experiencing financial distress seems absurd.
In February 2021, it was confirmed TEAM Marketing and Relevent Sports agreed on marketing deals for UEFA’s club competition from 2024 to 2027 when the Champions League will expand to 36 teams.
The revenue is projected to reach five billion euros (£4.26bn) per season across those three years — an increase of around 40%.
In chasing these riches, along with prestige and trophies, football is littered with clubs that have brushed perilously close to financial Armageddon….and an unfortunate few who were wiped out completely.
Parma
Remarkably, Parma have diced with death not once, not twice, but three times.
A powerhouse of 90s football, Parma were originally formed in 1913 as Verdi Foot Ball Club, changing their name later that same year.
Perennial members of the Italian lower leagues bouncing between Serie B and C until 1968 when they were relegated to the 4th tier, Serie D.
The first flirtation with financial ruin came after relegation to Serie D in 1968, when after being ordered into liquidation by the Court of Parma, another local club, Associazione Calcio Parmense, bought the sporting licence of the liquidated club formed in 1913. With this licence, they also obtained the rights to the original Parma’s shirts, badge, and name.
Again, bouncing between the 2nd and 3rd tiers, a first promotion to Serie A was achieved in 1990. A debut in UEFA competition soon followed in 1991, and owners Parmalat were convinced to finance Parma to even greater success.
Widely regarded as one of the best teams ever, with iconic players such as Gianluigi Buffon, Fabio Cannavaro, Hernan Crespo and Lilian Thuram, the superstars of 90s Parma announced themselves by winning the Coppa Italia 3 times, the Supercoppa Italiana, the UEFA Cup 2 times, the European Cup-Winners’ Cup, and the European Super Cup. They also consistently finished within the top 6 in Serie A since promotion to the top tier.
By April 2004 however, fortunes had changed drastically. Reliance on funding by owners Parmalat meant that when they suffered a financial meltdown with debts of €20 billion, Parma were again declared insolvent.
Reforming for a 2nd time in June 2004, this time as Parma Football Club SpA, rather than fighting for European trophies and the Serie A title, focus was placed on avoiding slipping down the leagues.
Turbulent ownership changes, late income tax payments on salaries and failure to secure a UEFA license foreshadowed yet another financial meltdown. Declaring bankruptcy in March 2015 with total liabilities of €218 million, including €63m in unpaid salaries, Parma were liquidated for a 3rd time. Administrators auctioned off the impressive trophy haul won in the 1990s to alleviate the spiralling debt.
Re-founded yet again in July 2015, this iteration was called S.S.D. Parma Calcio 1913. Taking advantage of an Italian law called Art.52, Norme organizzative interne della FIGC (“Article 52 of the Italian Football Federation regulations for internal organisation”), the phoenix club was placed in Serie D.
A historic 3 successive promotions ensured their place again Serie A for the 2018–19 season. A period of relative stability followed as they consolidated their top-flight status, however by 2021–22 they were again battling for survival in Serie B.
Rangers FC
Arguably the biggest club to fall foul of financial difficulties, the unthinkable happened to the Light Blues in 2012, when they were plunged into administration and their holding company entered liquidation.
Much like Parma, Rangers were a powerhouse of 90’s football. Before the injection of obscene Champions League money and the explosion of the riches of the English Premier League broadcasting deals, the Gers were one of the biggest clubs in the UK, perhaps matched only by Manchester United.
Littered with star talents such as Ally McCoist, Paul Gascoigne, Brian Laudrup and led by the steely Walter Smith, Rangers dominated Scottish football in the 1990s, racking up 9 titles in a row from 1988–89 to 1996–97. Season 1992–93 was a particular highlight, with the club achieving a clean sweep of a domestic treble and at one point one goal away from securing a spot in the first UEFA Champions League final.
However, despite their domestic dominance, apart from their run in 1992–93, Smith and his team rarely threatened in European competition.
Rangers narrowly missed out on a historic 10 titles in a row in the 1997–98 season, and Smith having already announced his intention to leave Rangers earlier in the season, was accompanied out of Ibrox by a slew of influential first-team members such as Ally McCoist, Richard Gough, Brian Laudrup, Andy Goram and Ian Durrant.
Although Smith was well-backed by chairman Sir David Murray, in response to the failure to achieve ten in a row and the relative failure in Europe, Murray appointed the first foreign manager in the club’s history in Dick Advocaat and backed him with unprecedented ferocity, infamously declaring ‘for every £5 Celtic spend, Rangers will spend £10’
Advocaat quickly set about lavishly assembling a cosmopolitan squad designed to storm Europe. In his first season, he was entrusted to spend an unheard of £35.9m on players such as Dutch left-back Arthur Numan for £4.5m, his compatriot Giovanni Van Bronckhorst for £5m, a sum only eclipsed by the then record Scottish signing Andrei Kanchelskis for £5.5m. Other initial signings by Advocaat included £4m for 33-year-old centre-back Colin Hendry and while the £750,000 paid for ‘keeper Stefan Klos seems paltry in comparison, it has been revealed that his basic salary of £4.5m, a loyalty bonus of £1m, win and appearance money totalling £500,000, meant that he earned as much as David Beckham and Ronaldo.
Season 2000–01 again saw a huge outlay provided by Sir Murray, with meagre funds brought in via sales. Transfers totalling £30.9m were spent by Advocaat, including the Dutch trio Bert Konterman, the late Fernando Ricksen, and Ronald de Boer for a total of £12.4m. Advocaat also sanctioned the eye-watering acquisition of Tore Andre Flo for £12m, obliterating the Scottish transfer record in the process, a record which still stands 22 years later.
Advocaat achieved a domestic treble in his first 1998–99 season, however, was halted in the 3rd round of the UEFA Cup by Parma. Another league title and Scottish cup followed in 1999–00.
Optimism that Rangers were finally going to make their mark in Europe reached fever pitch when, in what has been called one of the best atmospheres ever at Ibrox, they exacted revenge on Parma and dumped them out of the final qualifying round to reach the UEFA Champions League 1999–00 group stage. However, the Gers failed to progress from the group stage, dropping down to the UEFA Cup where they were eliminated from European competition by Borussia Dortmund, albeit on goal difference.
To compound the European misery, a rejuvenated Celtic under Martin O’Neil romped to the 2000–01 league title.
An inconsistent start to the 2001–02 season, including two defeats to Celtic, meant that Advocaat resigned in December 2001. Despite winning multiple titles and cups, the sheer extravagance of the transfer funds afforded to him and the bluster of Sir Murray in an aim to crack European success set in motion the events that would nearly lead to the annihilation of Rangers.
When Alex McLeish succeeded Advocaat, Sir Murray made clear that the luxury of free-spending would not be afforded to him. Instead, any acquisitions would have to be free agents or funded by off-loading stars. Remarkably in the season he took over from Advocaat, McLeish won the domestic Cup Double. Even more remarkably given the constraints he was placed under; he secured the domestic Treble in his following 2002–03 season.
However, spooked by the demands of the Bank of Scotland following years of spending and the creeping realisation that Scottish football was being left behind financially in a global football aspect. Sir Murray made a decision that would have severe consequences for Rangers.
Unable and unwilling to commit vast amounts of cash to fund lucrative transfers, McLeish was instructed to work under a tight budget. Compared to the Advocaat years, in season 2003–04 McLeish spent just over £1m on eleven players, comprising of older injury-prone players such as Egil Østenstad, Paolo Vanoli, and Henning Berg and ineffective youngsters Hamed Namouchi and Bajram Fatai. Meanwhile, the club sold influential players such as Lorenzo Amoroso and captain Barry Ferguson, while letting Arthur Numan go due to budget constraints. Unsurprisingly, the club failed to win any silverware in 2003–04.
To mitigate the financial losses posted by the club, Sir Murray instructed the use of employee benefit trusts (EBT) from 2001 to 2010. Essentially this meant prospective players would be signed on the provision that a portion of their wages would be paid via the EBT as a ‘loan’, meaning that no tax would be due on this portion and the player received a larger salary than they would if EBT’s were not utilised. Players such as Jean-Alain Boumsong, Marseille captain Brahim Hemdani, and Dado Pršo were signed as free agents.
A legal practice at the time, and used by clubs such as Arsenal, HMRC felt the practice amounted to tax evasion. Assessing the case, they entered into a dispute with Rangers in 2010, asserting that a tax bill running up to £49m could potentially be due, on top of the £25m debt already owed to Lloyd’s bank.
In the 2006–07 season, Walter Smith returned to the helm, and frugal business practice combined with unprecedented success under the circumstances meant that the club was consistently eating away at the debt owed to the bank. Three successive titles from 2008 to 2011 were won, multiple Cups, and the unprecedented reaching of the 2008 UEFA Cup final.
However, HMRC’s EBT tax liability dispute alarmed any prospective buyers, and Sir Murray sold the club to Craig Whyte in 2011 for £1. This was done under the provision that the club’s remaining debt was paid off, and responsibility would be taken for any EBT tax judgement and reinvestment in the playing squad. What would follow next for Rangers was a near decade-long nightmare of epic proportions.
To finance his takeover Whyte illegally secured loans against future Rangers season ticket sales, before he was even owner, to clear the club’s debt. Once confirmed as owner, he failed to pay tax on employee and player PAYE earnings. By February 2012 Whyte announced his intention to place Rangers into administration, incurring a 10-point deduction that effectively ended the 2011–12 season as a contest.
In June 2012 HMRC rejected Rangers leaving administration via a Company Voluntary Agreement (CVA). This meant that the holding company administering the club would be directed into liquidation, and the club’s business and assets, including Rangers F.C., Ibrox Stadium, and the Rangers Training Centre were sold to a new holding company.
Suffering demotion to the Scottish 4th tier as a result of their financial meltdown and new corporate entity, worse was yet to come as years of financial mismanagement followed.
Malignant characters such as Charles Green, who wrestled control from Craig Whyte, and Mike Ashley conspired to arrange suspect deals and install puppet directors to run the club in Ashley’s vision.
Ibrox was allowed to fall into disrepair under this stewardship and rather than even meagre investment, deals were set up to take funds out of the club. This included Ashley’s Sports Direct being handed exclusive merchandise rights, club trademark rights, and Ibrox renaming rights.
Following a lengthy battle, a consortium led by a former director under Sir Murray, Dave King wrestled control from the shambolic board.
Upon promotion to the top flight, the Gers struggled to compete with Celtic. Liverpool FC icon Steven Gerrard was appointed in 2018. In an ironic twist considering it was Sir Murray’s brash attitude to chasing European glory that set in motion the club’s downfall, Gerrard oversaw unprecedented success in Europe under a limited budget.
From becoming the first team to qualify for the UEFA Europa League group stages from the 1st qualifying round, to achieving a record points total in the group stage for a Scottish club, Gerrard restored Rangers’ name on the international stage.
His greatest achievement however was an invincible league season, defeating Celtic with a record points total and record fewest goals conceded, something unthinkable even a few seasons before.
Rangers’ resurgence doesn’t end there, however.
Following Gerrard’s departure in November 2021, former player Van Bronckhorst was appointed.
Under his management,10 years since their financial implosion, and 150 years since their foundation, Rangers unbelievably reached the 2021/22 UEFA Europa League final against Eintracht Frankfurt in May 2022.
AC Fiorentina
What do Rangers FC and AC Fiorentina have in common? Aside from contesting the first Cup Winners’ Cup final in 1960–61, the legendary Brian Laudrup gracing their teams in the 1990s, and the clubs contesting for a UEFA Cup final spot in 2008, they both suffered financial mismanagement.
In 1999 optimism for I Viola was sky high. Under the command of Giovanni Trappatoni and powered by the consistent double-digit goal return of star striker Gabriel Batistuta, they recorded impressive European results such as beating Arsenal 1–0 at Wembley and humbling UEFA Champions League holders, and previous season treble winners, Manchester United 2–0 in Italy.
Rather than building upon this success, within two years AC Fiorentina would cease to exist. Despite occasionally challenging for the league and making impressive inroads in Europe, Trappatoni left to manage the Italian national team at the end of the 1999–00 season. Even more troublingly, Batistuta also left for Roma.
Despite losing their star player and experiencing managerial upheaval (Trappatoni’s replacement Fatih Terim would also resign after a year), AC Fiorentina fans expected they would be slipping down to, at worst, mid-table mediocrity for a period while they consolidated.
However, by June 2001 the state of the club’s dire finances could no longer be hidden. Saddled with $50m in debt, players were unable to be paid and entered administration.
After a dismal 2001–02 league campaign where they were required to let go or sell the majority of their first team, they finished the season in the relegation spots. Due to the severity of their situation however, they were forced to file for bankruptcy, meaning they were denied a place in Serie B for the 2002–03 season and subsequently liquidated in July 2002, ceasing to exist.
When entering administration owner Vittorio Cecchi Gori was investigated for money laundering by Rome’s public prosecutor’s office. When declaring bankruptcy for AC Fiorentina he was placed under house arrest in connection with his further charges: embezzlement and fraudulent bankruptcy concerning AC Fiorentina.
In 2006 Gori was found guilty of channelling $32m in funds directly from AC Fiorentina and divested to his other struggling companies to keep them afloat at AC Fiorentina’s expense.
The club was re-founded in August 2002 under the name Associazione Calcio Fiorentina e Florentia Viola and admitted to Serie C2, Italy’s 4th tier, with the only player staying from the old club being Angelo di Livio. Di Livio guided the club to Serie A before retiring in 2004–05.
Leeds United FC
The advent of the English Premier League and the UEFA Champions League at the beginning of the 1990s sparked Leeds downfall. This seems peculiar considering that Leeds were the last champions of the English First Division in 1991–92.
Rather than building from this position of strength however, Rangers knocked Leeds out of the first Champions League in the early stages in a Battle of Britain, and they struggled in the Premier League, narrowly avoiding relegation by finishing 17th.
It took until the late 1990s for Leeds to again establish themselves, regularly finishing in the top 5 in the league and reaching the semi-finals of the UEFA Cup in 1999–00 and UEFA Champions League in 2000–01.
However, in a desperate attempt to keep this level of success, in 2001 owner Peter Risdale took out a substantial £60m against the prospect of the share of the TV rights and sponsorship revenues from UEFA Champions League qualification and subsequent progress in the competition. Manager David O’Leary was also afforded transfer funds of £100m during his tenure.
This gamble to keep pace with the explosion of potential financial riches on offer backfired catastrophically as Leeds failed to qualify for the UEFA Champions League for successive seasons. As a result, they did not receive enough income to repay their debts.
To keep afloat, captain Rio Ferdinand was sold to Manchester United for £30m in 2002, resulting in outraged manager O’Leary being sacked. Influential first-team players such as Robbie Keane, Jonathan Woodgate, and Robbie Fowler soon followed as Leeds struggled to avoid relegation to the 2nd tier, taking until the penultimate game of the season to secure safety.
The following season, 2003–04, amid the ongoing turmoil Leeds were finally relegated, just 3 years after appearing in the UEFA Champions League semi-final.
Such were the deep implications of the disastrous deal taken out in 2001, Leeds continued to struggle in the Championship. Amid managerial turnover and squads consisting of free agents, Leeds voluntarily entered administration in May 2007, were subjected to a 10-point deduction, and sealed a further relegation to League One.
A messy legal battle with HMRC ensued. As Leeds had voluntarily entered administration, administrators were then able to sell the club and assets to a company headed by Ken Bates, a businessman who owned 50% of Leeds since 2005. HMRC and other prospective buyers objected to this, and due to the protracted legal wrangling, Leeds were days away from complete liquidation.
Eventually, HMRC dropped their legal challenge, and the league sanctioned the sale to Bates without the club going through a Company Voluntary Arrangement (CVA) under the “exceptional circumstances rule” but imposed a 15-point deduction due to Leeds not following football league rules on clubs exiting administration.
After 16 years in the lower leagues, Leeds returned to the top tier in 2019–20.
Gretna FC
A fairy-tale that rapidly turned into a living nightmare is best to describe Gretna FC’s rapid rise and even quicker crash and burn.
An anomaly of a club in that despite being based in Scotland, Gretna FC for years competed under the English pyramid. In 2002 the club was elected to the Scottish leagues at the 3rd time of application.
Taken over by eccentric local businessman Brooks Mileson, funds were pumped into Gretna FC on a relative scale unheard of before in the Scottish lower leagues.
With the financial might of Mileson Gretna FC achieved three straight promotions from 2005 to 2007. During this time, they also reached the 2006 Scottish Cup final, becoming the first team from the Scottish 3rd tier to do so. Remarkably they finished runners-up only to top-tier Heart of Midlothian FC, who needed extra time and penalties to dispose of their plucky lower-league foes.
Such was their rapid ascent, that when they reached the Scottish Premier League (SPL), their ground Raydale Park was deemed unsuitable as it did not meet top-flight regulations, meaning that Gretna FC had to groundshare with Motherwell FC for the 2007–08 season.
Gretna FC struggled on the pitch, amassing only 4 points from their first 12 games. However, rumours of financial struggles also came to fruition when it was announced that in their blitzing of the lower leagues, they had accumulated debts of £4m. To compound the dire news, Mileson fell ill and withdrew his financial support. He would never recover and would pass away in November 2008.
Failure to pay players soon occurred in February 2008 and the management team soon after resigned.
The inevitable collapse into administration followed in March 2008, incurring a 10-point deduction for the already doomed club, meaning they had accumulated a paltry 6 points from 28 games. So serious was the situation, that the SPL board announced they would pay for the player’s wages to ensure the beleaguered club could finish the season.
Still, most players were made redundant, and a skeleton squad soldiered on to achieve the unwanted record low attendance for a SPL match, 431 against Inverness CT.
Due to the extent of their financial struggles, Gretna FC were demoted to the 4th tier after the season ended and all remaining employees were made redundant.
Due to their debts, provincial status, and demotions, they struggled to attract a buyer. After a final bid fell through in June 2008, their Raydale Park ground was sold by administrators and Gretna FC officially withdrew from the Scottish league system.
The final nail in the coffin, now with no ground, staff, players, or a competition to play in, the club’s dissolution was inevitable, and the club was formally liquidated.
A successor club, not related to the original club, Gretna 2008, was founded in 2008 and completes in the Scottish non-league system.
