The sustainability index is welcome but does anyone consider risk factors?

IN A challenging season for the city of Liverpool’s clubs, there must be some consolation for the fans that both Liverpool and Everton are among the most sustainable institutions in the top two levels of English football.

Fair Game’s Sustainability Index ranks Liverpool at the top of the list, with an overall score of over 70. Southampton are number two, with a score of 69.75 and Everton (64.79) are in the top six alongside Arsenal, Spurs and Manchester United.

The index uses four different classifications to determine the most sustainable clubs: financial solvency; governance; fan engagement; and equality.

Financial solvency accounts for 40% of the score, underlining the importance of a sensible approach to financial management. While the amount of income Premier clubs earn allows them to be liberal with their outgoings, the Championship continues to live beyond its means.

The solvency aspect of the index is calculated by taking into account current assets and liabilities, short-term loans, loans repayable within one year as a percentage of income, and wages as a percentage of revenue. The club with the most sustainable financial model appears to be Arsenal, with Southampton, Aston Villa, Tottenham, Manchester United and Liverpool close behind.

One aspect that may need considering in the future is the risk management around revenue streams – for example, the Premier is very dependent on broadcasting and if that was to suddenly dry-up, it would surely cast doubt on the existence of some clubs. Is there not an element of concentration risk to consider here? Perhaps there should also be some sort of ratio analysis of the type of income clubs receive?

Interestingly, despite both clubs being owned by middle eastern states, the ranking of Manchester City and Newcastle United is very different. City are ninth, while Newcastle are 18th. Brentford, who are held up as a good example of how best to run a small-to-medium club, are 11th.

The Championship looks very worrying; 11 of the clubs have a financial sustainability score of 10 or below and there is a big gap between these clubs and the rest of the division. Queens Park Rangers, for example, have a score of just 1. The division has long been paying out more money than it earns, with wage bills of over 100%.

While Fair Game’s call for clubs to be rewarded for showing good governance has noble and practical intentions, it does seem strange to hand-out prizes for companies who follow best practice, something that should be embedded in their everyday processes.

Overall, the index paints something of a gloomy picture as barely half the clubs are following a “good path” in the Premier and the Championship looks very vulnerable. Reports like Fair Game’s Sustainability Index can keep the subject in the public eye, but ultimately, clubs have to want to run themselves properly by factoring in every eventuality.

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