David Conn: Television crisis puts clubs on danger list

Media giants' attempt to renegotiate three-year broadcasting deal casts doubt over future of 30 per cent of Nationwide teams

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League rejects reduction in TV payments

Shock, horror and outrage would probably best describe the reaction by Football League clubs to this week's news that ITV Digital is seeking to "renegotiate" its TV deal, offering £50m over the next two years instead of the £180m contractually agreed. While the League's chief executive, David Burns, is adamant that the contract must be honoured, and that, legally, it is backed by ITV Digital's giant co-owners, Carlton and Granada, the clubs themselves could not help but consider the frightening consequences if the money never comes.

Geoffrey Richmond, the chairman of Bradford City, was vitriolic: "The very idea that Carlton and Granada, two huge media companies, intend to renege on a contact they signed barely 18 months ago, and seriously endanger 72 Football League clubs which are effectively small businesses, is disgraceful. Most clubs, as we know, don't make money, we all sign contracts we perhaps shouldn't, but we have to honour them. Carlton and Granada have to honour theirs. Clubs have budgeted – and obtained facilities from their banks – on the basis of the money coming in, and if it doesn't it would have very grave consequences indeed."

Carlton and Granada have lost heavily on their £800m investment in ITV Digital, and have still to find a further £360m for the failing channel. Their main problem has been a failure to secure access for ITV Sport on BSkyB's digital platform. Earlier this month ITV Digital announced it had appointed Deloitte & Touche to advise on a wholesale restructuring, in order to reduce what Granada called "the cash burn". Last week they offered £50m to the Football League, instead of £180m. Steve Morrison, Granada's chief executive, warned on Wednesday that ITV Sport would go bust if the League does not accept reduced payments, and ITV sources have argued that the contract is with ITV Sport only, and does not bind Carlton and Granada.

Tony Scholes, the chief executive of Preston North End, generally recognised to be one of the First Division's more financially responsible clubs, did not want to consider non-payment, but gave a succinct summary of the dangers: "When the three-year TV contract was signed, to come into effect from 2001-2004, it gave us three years' certainty of income. Most players sign contracts for longer than one year and, in our case, the average length of contracts is 28 months – that is, from now to the end of the TV deal. I don't want to be pessimistic, but if the money isn't paid, it will have a very serious effect on most League clubs."

The bare facts are that ITV Digital owes £180m over two years on the three-year deal it signed, for £315m, in the summer of 2000. First Division clubs are due to receive roughly £2m in each of the two years, Second Division clubs around £200,000 and Third Division clubs £150,000, in addition to smaller monthly payments through the season. Clubs, heavily criticised already for spending too much of their income on their biggest cost, players' wages, will go more deeply into the red if TV money is cut by close to three-quarters.

Footballers' contracts are protected under agreements with the Professional Footballers' Association and so have to be honoured in full. That binding commitment increases the bitterness with which football people are viewing the position apparently being taken by Carlton and Granada. But the League also claims to have positive legal advice that although it never signed a "long form" contract, only a short version, it can legally call on guarantees from the parent companies.

But the news that there is even a legal battle in prospect to recover money previously taken for granted has come at the worst possible time for League clubs. When the £315m deal was done, at the height of the media, sports rights and dot.com boom, clubs blessed their good fortune. But this has still not translated into any semblance of financial security; clubs have continued to spend too much of their income on wages. According to the most recent report by the accountants Deloitte & Touche, which collated clubs' figures for 1999-2000, a resounding 91 per cent of Football League clubs were making a loss.

"League clubs in particular," the report said, "must grasp the opportunity presented by their splendid new TV deal to repair their finances."

There has been little sign of it so far. Bury went into administration this month owing £2.6m, Queen's Park Rangers are still in administration, Notts County narrowly avoided it a fortnight ago and many other clubs are up for sale and living on the edge of their bank managers' nerves. On Monday, Swansea City will hold a meeting with creditors, including their former manager John Hollins, to try to agree a way out of £1.7m of debts. If they cannot gain 75 per cent approval of the plans, they are likely to go into administration. "This isn't going to help us at all," said Peter Owen, a club spokesman. "We've prepared budgets for our creditors on the basis of TV money coming in, and this news makes Monday's meeting very much more difficult."

One of the ironies is that the same firm, Deloitte & Touche, which urged clubs to take advantage of their "splendid" TV deal, is now advising ITV Digital on its restructuring, which includes renegotiating the TV deal substantially downwards. Nobody from the firm would comment on this curious situation, but it is understood that the next review of football clubs' accounts is due out next month and will show a financial position as dire as last year's.

The damage from any diminution in TV money will not only be felt at First Division clubs such as Nottingham Forest, losing £100,000 per week, Sheffield Wednesday, who have £16m debts, or Coventry, who owe £30m, but at all clubs, including those trying to run themselves responsibly. The idea that 30 could go bust is a round figure estimate, but not unreasonable.

Lincoln City and Chesterfield, two clubs which emerged from recent financial crises owned co-operatively by supporters, have both included the TV money as a key component of their rescue plans. Lincoln's chairman, Rob Bradley, said that the club, despite a disappointing season, have managed to grind out £200,000-£300,000 in repayments, but still owe creditors around £900,000. "I am absolutely appalled that ITV Digital can think of reneging on the deal," he said. "The idea that a community club could be endangered by media giants looking to save money is horrendous."

Alan Walters, a director of Chesterfield, rescued from administration after a herculean effort by the supporters' society, said that the club would make contingency plans. "But you don't have to be a genius to work out that if we lost a big slice of our income it is going to hurt," he said.

Richmond was adamant that Carlton and Granada would have to pay. "They're already offering, apparently, £50m. So the difference between that and what they have contracted for is £130m. These are multi-billion pound companies. Are they really going to risk destroying clubs and the Football League structure, and all the fall-out, for communities, possibly destroying thousands of jobs and their own credibility, for what is ultimately petty cash to them? It's unthinkable," he said.

It does seem extraordinary that a major television venture is looking to renegotiate a contract because it has turned out to be expensive, but, at the worst possible time for football, this is a very real cash crisis.

davidconn@freeuk.com