Support for sport

Posted on August 25, 2016 · Posted in Accounting & Business

West Ham United has just finalised its lease of the Olympic Stadium.  It cost £700m to build and £272m to convert for football, yet West Ham paid just £15m towards the capital costs and an unknown – but probably modest – amount for the lease.  The Government declines to say how much West Ham is paying as it is “commercially sensitive”.

 

We have been here before, with Manchester City’s Etihad Stadium starting life as the City of Manchester Stadium, built for the 2002 Commonwealth Games.  That cost £112m to build and £42m to convert, with the club contributing about half the conversion cost.  These arrangements seem to many critics like cheap deals for major clubs – a petition protesting against West Ham’s lease attracted 25,000 signatures.

 

Local authorities are keen to promote clubs like Manchester City, which, along with Manchester United, gives the North West an important and international brand image.  Walk around the city and the positive tourism impact quickly becomes apparent from the many visiting fans.  But with the top clubs also being massive businesses, financial support for them has led to complaints of unfair ‘state aid’.  (The European Commission is investigating support for top Spanish football clubs, but has rejected complaints about help from public finances for English soccer and Welsh rugby clubs.)

 

But support for sport runs much deeper than this.  The main point of a sporting strategy is to encourage citizen participation and fitness, not to boost elite clubs.  Fitness, social inclusiveness and the provision of shared green spaces are all positive outcomes from a good sports and leisure policy at a local level.  At the end of last year the Cabinet Office published its finalised ‘Sporting Future’ strategy, establishing the framework for how public bodies should be helping the development of sports.

 

Public policy on sport needs to move on from seeking as many medals and victories for our athletes and other sporting stars, explained the report.  “In the future, funding decisions will be made on the basis of the social good that sport and physical activity can deliver,” explains the report. “We are redefining what success looks like in sport by concentrating on five key outcomes: physical wellbeing, mental wellbeing, individual development, social and community development and economic development.”

 

The strategy recognises the key role of local government in sports development within communities, not least as it is the main sources of public finance, spending over £1bn a year not including capital infrastructure.  Local government’s role in promoting sport as a means of improving personal wellbeing has become even more important as a result of public health responsibilities being transferred to it from the NHS in 2013.

 

A recent LGA policy document explained that “councils have seized the opportunity to integrate physical activity into public health policy as part of a shift from a system that treats ill-health to one that promotes wellbeing”. It added: “Demand for costly health and social care interventions could be reduced by a locally-led approach that leads to higher participation rates, maximising the wider benefits from investing in sport.”

 

The LGA responded positively to the government strategy.  Cllr Ian Stephens, chairman of the LGA’s Culture, Tourism and Sport Board, explains: “This new strategy is a positive step forward for councils and their communities in helping to promote grassroots sport and get more people active, while highlighting local authorities’ leadership role and continued investment.  The extension of Sport England’s remit to focus on children aged 5 and upwards is in line with councils’ new public health responsibilities for this age group and offers great opportunities for joined-up work on tackling inactivity and driving up participation.”

 

Despite this, the strategy places a much stronger emphasis on the need for sporting bodies to move towards financial self-sufficiency. “With continued pressure on public funding, it is more important than ever that the [public] money available is used as wisely as possible,” says the strategy. “Those organisations that are particularly reliant on it for their survival are increasingly at risk and therefore less able to plan and deliver over the longer term.”

 

Sporting bodies need to seek diverse funding sources, says the strategy. “Some parts of sport have traditionally been good at exploring and exploiting the potential of some alternative income streams, for example sponsorship and selling media rights, but there are other areas, for example philanthropy and fundraising, crowdfunding, social impact bonds or partnerships with the private sector, that have yet to be fully utilised,” it explains.

 

As a result, the remits of Sport England and of UK Sport are evolving so that they can assist bodies to become more commercial, increase income and be more effective in raising finance.  Both agencies will also work with sporting bodies to improve their efficiencies, for example by merging back office functions, the use of shared services and through co-locations of different sports’ facilities and offices.

 

It is also intended that sporting bodies will take greater advantage of social investment, including through social impact bonds.  Some 32 social impact bonds have so far been issued over the last five years.  Commissioning bodies, such as a clinical commissioning group, can invest through the bonds to specify social outcomes that must be delivered as a return on the investment.  The outcomes may, for instance, be reductions in particular health conditions or a reduction in social problems.  The Government would also like to see more engagement in sports by social enterprises, including by taking advantage of Social Investment Tax Relief.

 

Central and local government are both keen to see Premier League clubs invest more of their profits in their local sporting infrastructures.  “Government,” says the strategy, “has been discussing with the Premier League the level of investment in grassroots football it expects to see in future given their significant increase in income and we welcome their new commitment that, pending the outcome of the Ofcom investigation into how the Premier League sells its broadcasting rights, they will more than double their investment in grassroots football over the coming three seasons.”

 

In the future it should be less a case of what can be done for clubs like West Ham and Manchester City – and more what they can do for others.

 

Box – The Business of Sport

 

Sport is a mega business – football in particular.  Deloitte’s annual football money league shows the biggest team in Europe last year to be Real Madrid, which earned around £440m.  The second largest team was Barcelona, at £427m, which is owned by its own fans.  Manchester United was the biggest income generator in the Premiership, earning nearly £400m.  Over the next three seasons, the Premier League will generate net broadcasting revenues in excess of £5bn.