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Due to the high profile nature of sporting organisations, there is considerable public interest in their performance and continued viability. This chapter presents two key reviews of the financial performance of high profile sports organisations. Deloitte and Touche (UK) have undertaken an annual review of clubs within the English Football Association since 1992, with an emphasis on financial sustainability. This has been replicated to some degree by the Institute of Chartered Accountants in Australia (ICAA) with their review of the financial reporting of AFL clubs. The last review in 2004 for the 2002-2003 financial year, also considered some key

governance aspects.

Annual Review of Football Finance (Deloitte and Touche LLP, 2004)

There are several key performance indicators which are routinely reviewed by this report: revenues (match day, sponsorship and broadcasting revenues); profits

(including the costs and benefits of relegation and promotion); taxation; wages and salaries (in total); transfer fees; capital expenditure on football facilities; and

financing (including interest costs and dividend payments). These key indicators are discussed on a comparative basis and are also compared longitudinally.

The Review highlighted a financial ratio which the authors identify as a key

performance indicator in football – ratio of total wages to turnover. A further insight was reported in terms of maximising the revenues from the limited stadia capacity. Described as improving the yield on existing seats, the Review suggested a more scientific approach to pricing of season tickets and corporate suites. A further key indicator of ongoing solvency was the gearing ratio (total borrowings to shareholders equity).

Annual Survey of AFL Clubs Financial Reporting (ICAA)

The above report had five key objectives: firstly to review the clubs’ annual reports for the financial year; secondly, identify key accounting policy issues; third, to assess the appropriateness of the policies within generally accepted accounting principles; fourth, to identify examples of industry best practice; and finally, to collect

information on and comment on governance practices. The Survey presented the comparative financial performance of clubs for Revenue, Profit, AFL distribution, Player payments, Net cash flow from operations, and working capital.

The governance aspects which were reviewed included: the existence of a business plan; the preparation and review of month end financial reports; the existence of an audit committee; and the existence of other board committees.

Governance

The ICAA recommended the following good governance practice: • A business plan for at least three years in advance

• The provision of month end reports in one to three days

• The finalisation of the year end financial report in five days with board and audit sign off and dissemination to members within ten days.

• The presence of a separate finance committee.

In terms of disclosures on directors, they recommended disclosures on directors’ indemnification and information on the qualifications of directors.

Revenue

The ICAA found that all clubs disclosed revenue in line with the minimum accounting requirements. The suggested however, that disclosure be relevant to members and proposed that revenue be disclosed on: Net gate receipts; Revenue from the AFL; Merchandise; Membership and Annual reserved seating;

Marketing/Corporate sponsorship and Fundraising; Non football revenue (for example social and gaming revenue).

Expenses

ICAA recommended the reduction in the use of ‘Other” expenditure as an expense category. They benchmarked best practice as disclosure of: Coteries and

Sponsorship expense; membership and annual reserved seating expense; Social Venue expenses; Function, training and education expense; Merchandise expenses, Football Department expenses; Administration expenses; Borrowing cost expenses; plus other statutory disclosures.

Contractual Obligations

The key contractual obligation for the AFL clubs is the commitments for medium term player and coach’s’ contracts. The ICAA recommended that these obligations be disclosed, in addition to contingencies such as Long Service Leave. They also recommended that any clubs which have borrowings should disclose the collateral provided for those loans. It is clear from the results of this study, that many of these recommendations have been adopted.

Summary

Performance management and measurement is a strategic issue for most

to the board to enable effective oversight of management. Various approaches to performance and effectiveness in sport organisations have been discussed.

Gerrard (2005) developed a model defining the financial versus sporting performance dichotomy. His research was conducted on English Premier League teams and his initial premise was that the value to the owner would be a function of financial and sporting performance. His second contribution to this thesis was an empirical test of any links between ownership status and performance. He used transferable indicators of financial performance: Revenue efficiency and Wage efficiency which provides useful indicators for AFL club performance. He then investigated correlation between ownership and performance, with the results indicating that listed teams had greater financial efficiency but this offset the lower sporting performance.

Smart and Wolfe (2000) examined the use of tangible and intangible resources as a source of competitive advantage. Their findings indicated that physical and human resources were not a source of competitive advantage, because they could be replicated by other clubs. The only potential source of competitive advantage was organisational resource which was defined as history, culture, and relationships possessed within a group of individuals.

Using a similar methodology to Gerrard (2005), Haas explored the productive

efficiency of Premier League clubs. He operationalised the measures through a series of proxy measures, again many of which are transferable. His findings indicated limited productive efficiency within the league using commercial revenue and league points won as outputs.

Papadimitriou and Taylor (2000) used a multiple constituency approach to determine the effectiveness of 33 NSOs in Greece. Their study validated the use of multiple constituency approach but also highlighted the problems with conflicting definitions of effectiveness. They deemed that the effective organisations were those that successfully reconciled the different viewpoints of the various constituents.

Shilbury & Moore (2006) examined organisational effectiveness of Australian Olympic Sporting Organisations using the Competing Values Approach. They

determined ten effectiveness factors to be: flexibility, resources, planning, productivity, information, stability, motivation/recognition, work harmony, professional support, and volunteer support.

Finally, two external performance reviews were discussed. The Deloitte annual Review of Football Finance is conducted within the Premier League and indicates firstly the importance of performance measurement for this sector of the industry and secondly provides some useful indicators of performance. In Australia, the ICAA conducts an annual Survey of AFL Clubs’ Financial Reporting and again, provides a context within which to evaluate clubs’ performance.

In conclusion, there was evidence that innovative, objective and practical performance measures exist for sports organisations and there was substantial alignment of these measures to theories of effectiveness. Inclusion of these measures within conceptual models of performance discussed in earlier sections of this chapter provided a rigorous approach to the measurement of organisational performance, which in turn, provided a basis for evaluation of effectiveness and represents the second stage of the governance-performance link.

In most cases, the measures contained within the literature were easily operationalised and this is critical to their usefulness.

The ability to obtain and operationalise performance and economic data is perhaps a feature of sport organisations. By nature, they have quantitatively determined

performance outcomes in contrast to many of the nonprofit organisations subjected to scrutiny. In the studies into nonprofit performance, outcomes were much less

definitive and relied almost exclusively on subjective measures.

There is an interesting paradigm emerging here. The studies into the governance of nonprofits were substantive and well developed but their studies into performance measurement were few. This was mirrored to an extent by the range of studies into VSO governance and again, there was little research effort into performance

In contrast, however, there was little focus on governance aspects of professional sporting bodies but a rich vein of measurement studies. The significance of this is yet to be explored but could indicate that while VSOs share many similarities with

nonprofit organisaitons, this is less true for professional sports organisations.

The preceding chapters have given a substantial theoretical basis to the empirical results and the next chapters present the findings of the semi-structured interview process and comprehensive document reviews. Chapter six focuses on the

governance aspects of the Governance-Performance Framework, while Chapter seven presents comparative performance for the clubs.

CHAPTER FIVE