Handball clubs on the brink of insolvency
16.03.2011By Rasmus K. Storm
Losses associated with professional team sports seem to be a common problem across Europe. Most recently UEFA released its annual report on the economy of European club football. ‘The European Club Footballing Landscape - Club Licensing Benchmarking Report Financial Year 2009 '.
The report figures showed a football branch filled with red numbers. Other European pro-sports, however, are also suffering from financial problems.
Team handball, the second most commercialized sport in Denmark, is an example hereof as it is facing its worst financial crisis since the commercialization of the game started in the mid-1990’s.
As with the European football clubs, the Danish team handball clubs have persistently overspent on players now resulting in a record high average deficit. An analysis conducted by the Danish Institute for Sports Studies reveals a very dire situation.
Management in need of revision
While several clubs struggle to survive, one of the leading Danish clubs, the Fynen based, GOG TGI Svendborg A/S, folded due to insolvency in the 2009/2010 season. Several clubs only survive as creditors or sponsors steps in to secure future funding. Seen from a sound financial perspective, the financial management of the Danish team handball clubs is in need of revision.
As can be seen from the below figure revenues fell significantly in the 2009/2010 season. Prior to these two years a successive increase in revenues had persisted in the 1993-2007 period. However, this was put to a sudden hold when the global credit crunch crisis struck the Danish economy in 2008.
Today the average revenue of a League male or female team handball club is 11.3 million Danish kroner (approx. € 1.6 mill.) At its highest point in 2007/08, the average revenue hit a record of 16.5 million kroner (approx. € 2.2 mill.).
Even though all clubs have reduced their respective costs, losses continue to grow. In 2007/08 the average club loss turned out to be 1.9 mill. Dkr (approx. €256.000) only to be followed by increased losses in the season 2008/09 and 2009/10 reaching 2.5 mill. Dkr. and 2.8 mill. Dkr. (approx -€335.000 and -€375.000).
16 out the 20 club audit reports that have been accessed in order to draw up the above figures, report losses. A closer analysis reveals that several clubs have been rescued by creditors that have waived their debt portfolios.
Average revenue and profit/loss in Danish Team Handball Leauge clubs, 1993-2010 (mill. Dkr.)
The figure plots average revenue (red line) and average result (blue line) for men and women Leauge teams during the 1993 to 2010-period. ________________________________________
Pressure mounts for regulation
The numbers revealed above show a dire development of Danish Team Handball in financial terms echoing the problems of the larger European pro-football Leagues.
As a reaction to the situation, some club CEOs and board members have stated that even though the Danish Handball Federation already has some financial regulation in place, tighter control, such as a financial fair play program currently being implemented in European professional football, is needed in order to bring the Danish clubs back on track.
In addition, experts – referring to the initiatives taken by UEFA – argue that overspending is a game of moral hazards, meaning that if many clubs more or less irresponsibly gamble with money they do not have in order to stay competitive, then clubs that are making an effort to balance their books are punished in terms of their results on the field. Subsequently this punishes them economically as well, as they cannot obtain the economic rewards associated with sporting success.
So far, however, new regulation initiatives have mainly been rejected as a sound way to control the clubs. According to the Danish Handball Federation, the clubs must learn to balance their books themselves.
This being said, much evidence still points to the necessity of pushing the clubs towards better financial management.
Even if new regulation is not put in place shortly, the Danish Leauge Clubs could learn from the UEFA initiatives and discus what appropriate steps are in need of being taken.
In the 2009/2010 audit reports some clubs have had debt cancelled that is reported as income. To give a picture of the clubs' real life, these amounts, however, pulled out of both turnover and profit. Some clubs does not report net income. In case the net income could not be obtained from the clubs directly, it has been estimated. The real revenue average can thus vary a bit from the displayed figures.
Due to insolvency proceedings for GOG TGI Svendborg A/S and the folding of FCK Håndbold and AaB Håndbold audit data could not be obtained from these three clubs. Should they have been added to the data base, the overall picture would have been worse.