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Every club is trying its best to stay afloat, selling real estate, hosting concerts, borrowing heavily, but is the model sustainable?
April 16, 2013
County cricket is experiencing a commercial transformation unparalleled in its 123-year Championship history. Encouraged and supported by the ECB, clubs are shifting from an outdated and withering six-month business model into a 365-day dynamic enterprise fit for the 21st century. But can all 18 survive this enormous financial shake-up and reach the promised land intact?
County cricket is at a pivotal stage in its evolution. While the sheer determination, will and desire to keep "the 18" solvent is impressive to observe, rumours persist of some counties being close to bankruptcy. No one who values the rich and varied tapestry of English cricket would want any county club to fold without one hell of a fight. But there is no escaping it. These are challenging times for our professional clubs.
Somewhat perversely, the euphoria around the 2005 Ashes success was the catalyst. It was in the afterglow of that triumph that the ECB's financial adviser Deloitte Touche suggested that English cricket could be entering a golden era with large rewards to be reaped. But with many clubs housed in dilapidated and crumbling buildings, it was time for a major makeover.
The Test match grounds (TMGs) were the first to respond. The ECB warned that unless they modernised, their status as active international venues could come under threat. Others on the periphery of international cricket, like the ambitious Hampshire, were busy transforming their ground into a magnificent sports stadium. The competition was on. Some counties borrowed heavily from banks and councils, who were throwing money around like confetti. Then the 2008 banking crisis hit.
Two years later Deloitte Touche delivered a follow-up report. This one was markedly different in tone and message, warning the ECB that some TMGs were "facing financial difficulties and maybe even insolvency". Their report stated that debt levels amongst the TMGs stood at £91m and this would only increase with interest payments alone costing £36m up to 2015. These were disturbing figures for a group whose combined profit, excluding the MCC, between 2006 and 2009 was just £2m.
Non-TMGs like Kent were also feeling the pinch, needing to sell the family silver to raise sufficient funds for their St Lawrence redevelopment. A highly valued painting here (£600,000), adjoining land there (£4m plus) - but it still wasn't enough. Unfortunate commercial decisions, along with rising players' wages, began crippling the club. In March, Kent reported a £628,054 operating loss for 2012, amounting to a £2,544,042 deficit since the 2008 accounts - a huge sum for a non-TMG.
The first to react were local councils. John Gilbey, leader of the Canterbury City Council, tells AOC: "County cricket is not self-sustainable. It requires initial investment to become an all-year business. Our bottom line is, do you want county cricket in Kent, and if so, do you want it based in Canterbury? The financial decision is about the impact a county club has on the local community; the income and jobs gained or lost; and the well-being it can offer to local residents." The decision involved a £5.5m loan in two tranches. "If we had not done this, the club would have got into severe financial straits."
Meanwhile Hampshire, steered by the flamboyant Rod Bransgrove, was in even greater financial strife. By 2009, the Irish bank aligned to the club had stopped all lending facilities. Enter Keith House, leader of the Eastleigh Borough Council. "Nobody would lend, so Hampshire came to us," he explains. "We concluded the project was excellent for the community and would make a sound return for the council. So we stepped in. Without our intervention, Hampshire might have fallen into financial difficulty."
Eastleigh Borough Council bought the Ageas Bowl for £6.5m in January 2012. The council rent it back to Hampshire at an annual £420,000. They also took on the £32m investment required to build the 175-bedroom, four-star Hilton hotel and 18-hole golf course. Altogether, this amounts to £38.5m of taxpayers' money - an extraordinary amount for a medium-sized borough council. The hotel includes a luxurious health spa and gym, a gourmet restaurant for 150 diners, and a 6500 square-foot ballroom. Work started last autumn and will take 18 months to complete. The venue will create 500 new jobs and £50m extra annual revenue for the local economy. The overall Ageas Bowl development costs £48m in total.
Economic distress for our established clubs is not unusual. In 2000, Hampshire were insolvent to the tune of £1.2m until Bransgrove bailed them out, while in 2003, Yorkshire were saved from certain bankruptcy by their chairman, Colin Graves: "The club was 48 hours away from going bust," he says. "I stepped in by personally underwriting the £10m owed to the bank along with any future loans. I sorted out their finances, got the Leeds City Council, university and others involved." But why? Graves, who has a £50m personal fortune from creating the supermarket chain Costcutter, laughs: "I must have been an idiot. But I'm passionate about the club and didn't want to see it fold."
There's more. In 2012, Glamorgan only escaped administration after refinancing their debts and attracting a new £1.3m investment from a private consortium, the £13.4m owed to creditors via the SWALEC's development having proved difficult to manage.
Other clubs were more fortunate. During 2010-11, Sussex used a £12m legacy to redevelop their ground debt-free. Nottinghamshire spent just £8.2m transforming Trent Bridge - the money coming from an East Midlands Development Agency grant (£2.5m), as well as loans from three local councils (£3.7m), and the club's own reserves (£2m). Described as "creative, bold and hugely successful", this partnership won two prestigious accolades during 2009, including the Outstanding Public Private Partnership Award at the MJ Local Government Achievement Awards in London.
The Oval and Lord's, meanwhile, were already high-class venues, but this didn't stop the MCC planning an astonishing £400m "Vision for Lord's" facelift before pulling the plug at the last moment. This led to former PM, Sir John Major, resigning from the club's committee.
The cavalry finally arrived this February when the ECB announced each county would be eligible for a £1m payment to help them with their metamorphosis. It was described as a "very soft loan" by ECB's managing director of the professional game, Gordon Hollins: "I don't believe any county would see this particular loan with anything other than glee. The all-important condition is that each submits a business plan which is validated by the ECB board and leads towards a delivery of sustainable first-class cricket."
There are five strategic priorities of the First Class Counties Transformation Programme being coordinated by the ECB:
To create a customer-centric business
Operational and organisational excellence
First-class facilities for spectators, sponsors and the media
Working with and alongside the local community
A clear and consistent fixture schedule
Hollins adds: "We believe £1m can make a significant difference and offers a real opportunity for counties to become a robust future force."
Immediately, Yorkshire used half the money to pay off part of their loan to Leeds City Council, while Kent handed a large amount to Canterbury City Council. "It was a very pleasant and unexpected surprise," recalls.
While there are 18 unique counties, the blueprint for their transformation carries many similarities. Great emphasis has been placed on improving ground facilities. Apart from increased seating capacity and better terracing, changes include revamped or new pavilions, buildings, executive boxes and hospitality suites, which can lead to all-year revenue streams from conferences, exhibitions and weddings, to banqueting, hospitality days and general events.
At the sharp end: Q&A with Gordon Hollins, the ECB's managing director for the professional game
Some counties are building retail centres or hotels on their ground in order to garner important monies either through rental or one-off amounts. Kent, for example, has a new tenant - Sainsbury's Local. Opening a year ago, the outlet has created 25 local jobs. In a similar move Lancashire formed a partnership with Tesco in 2009, with the chain pledging £21m towards the ground's redevelopment after one of their supermarkets was included in the planning, leading to a bitter legal dispute with a local property developer which the club eventually won.
Then there's Worcestershire, gaining £1m from Premier Inn for the use of a section of land - the company is investing £7.5m in a 120-room hotel and restaurant, with the building work having begun last September. While further north at Durham, planning permission has been given for a £10m, 150-bedroom Hilton hotel. The county are raising up to £8.5m, so the hotel can be owned and run by the club under Hilton management. Construction should start this autumn.
Further areas of potential revenue are ground naming rights. Until recently Surrey held the record - a five-year contract with Kia Motors worth around £3.5m - believed to be the largest county cricket commercial deal in history. But in late February, Lancashire smashed this after announcing a ten-year agreement with Emirates Airlines for a stunning £10m. In one move "Emirates Old Trafford" wiped out a major part of their debt, while the airline increased its presence in cricket after signing a previous six-year stadium naming deal with Durham in 2010.
Music concerts are becoming another favoured track. Lancashire is the Harvey Goldsmith of county cricket. Their first act was Simply Red in 1995, and other performers since include Oasis, Coldplay, Muse, Take That, David Bowie and Lady Gaga. Two summer concerts are held each year, played to a present capacity of 50,000.
Other clubs are hoping now to emulate their success. Non-TMGs, in particular, are viewing this option as a way of generating extra revenue. When Elton John played at Sussex in 2006 and 2011, the club accrued over £100,000. The venture was risk-averse as the promoter, Marshall Arts, covered all losses/profits while the club made money from the ground rental and peripheral areas like food and drink. Elton, a big cricket fan himself, has turned out to be a fruitful money driver for other counties too.
But it's a fickle business. Kent's disastrous £200,000 loss in June 2009 came after promoting the Sugababes and James Morrison themselves - theirs is a chilling lesson in just how precarious the market is.
Northamptonshire CEO, David Smith, however, is not deterred. He hails from the leisure industry. The club recently signed a five-year deal with a local promoter where losses or profits will be shared. The first act signed is Madness for September 22, and Smith is upbeat. "We believe this venture will bring in significant revenue for the club. Already, 4000 tickets for Madness were sold in the first three weeks of sale. We have a standing capacity of 18,000, so we hope for a minimum of 10,000 ticket sales. If successful, we could earn a substantial six-figure sum."
Smith also accepts the risks. "The lower it is, the less money. Therefore, it's about balancing that risk by choosing the right performer." He has already turned down a number of acts and is presently talking to Lionel Richie's management. Smith adds: "There are a large number of chimney pots within an hour's drive. We shall give it a go."
The biggest challenge counties face is how to manage their debts. Borrowing is the easy part - paying the money back with interest is another matter entirely.
Back in the middle of the last decade when UK property prices were soaring, one obvious step was to use surplus land to build residential homes, with the money gained from selling such land to a property developer diminishing a sizeable chunk of the loans. Warwickshire seized on this opportunity, as CEO Colin Povey explains: "We went into partnership with property developer MCD and a parcel of land around the perimeter of the Wyatt Stand was chosen."
Initially, 79 town houses were to be built - based on an innovative design used in Holland and Germany - with underground parking and first-level gardens. With 22 homes presently under construction, they should be complete by the summer with some already pre-sold. Sensibly, given the uncertainty now facing the property market, the development is staggered. "MCD have until 2020 to complete the whole project," Povey says. "There are plans to create some retail, like a restaurant and coffee shops - also a possible hotel along with further car parking. The money gained will help towards paying off our debts."
Another on this path is Gloucestershire. Their £10m refurbishment of Nevil Road relies heavily on the money accrued from building a seven-storey, 147-apartment block on the Ashley Down Road side of their ground. But this sparked protests from ward councillors and local residents, and to the club's horror, planning permission was denied in January 2012. Some architectural changes were necessary before approval could finally be granted four months later.
Given the uncertain economic times, one strong theme is emerging - greater cooperation between the counties. PCA chief executive Angus Porter explains: "We must encourage clubs to work together under one commercial umbrella. At present, we have 18 fiercely independent, separate businesses. That can't be right."
Porter believes ticketing for all counties should be executed by one company. Through basic economies of scale, whether it be buying drinks or toilet rolls for all, this would reduce expenditure. "County CEOs must show a spirit of cooperation," he says.
Sussex chief executive Zac Toumazi agrees: "We should not compete anywhere else but on the pitch. Consolidation is now the key, so we have to trust each other and work together. We know what the product is. We all hold a view on this. But it's the bits around the outside. So let us be creative, cooperate and learn from each other. It's all up for grabs."
Another theme is the need for counties to engage more with their local areas. In this case, Nottinghamshire are the pioneers. The club's head of community sport, Tracey Francis, explains: "By interacting with our local community, we are attracting a new and larger audience to cricket, more sponsors and advertisers, while increasing our hospitality and conference business - it's a win-win for us."
"At Sussex," adds Toumazi, "I want to encourage every player and staff member to engage with the community, whether it is assisting with the various Sussex Cricket Board projects or through direct interaction with the people. We are the ambassadors of the club, so we must connect more with them and publicise what we do."
Hollins is in agreement: "County grounds must have a relevance within their community. This has slipped in recent years." And Gilbey adds: "We applaud the initiatives from the ECB to encourage counties to get more involved. This was a primary reason why we kept Kent afloat, as it stretched beyond cricket."
As for the future, even after the ECB £18m financial aid, there are some who still envisage turbulent times ahead. Graves, recently confirmed as the ECB's deputy chairman, is one of them: "I believe several clubs could still go into administration. Some are struggling to keep their heads above water. Further money and assistance is required."
Porter adds: "While we are fighting for all our members, if a couple of clubs do go under, it's not the end of the world. Sixteen is a good number and benefits the design of strong competitions."
But while there will be tough challenges ahead, there is a growing optimism that county cricket is through the worst, that through this enforced transformation "the 18" will emerge in one piece to become more robust. "Clubs will be under the cosh for some time," admits Toumazi, "and I don't see a magic formula that will fix the debt. This is a tricky period for many but I'm optimistic we'll get through it intact."
Povey, who has to pay an annual seven-figure sum to creditors, smiles wryly. "Warwickshire has as much debt as anyone but this doesn't keep me awake at night. I feel comfortable with our deficit. We'll bring it down. Meanwhile, the club is not prepared to compromise investment in core cricket. If we want an available top player we'll approach him. Cost-cutting is not in our book."
As county cricket has a business model where profit is not necessary and break-even is the primary goal, a couple of successful new revenue streams may be sufficient. Povey comments: "We'll be generating an annual £2.5m from non-match activities soon, which is more than our present ECB £1.8m monies."
The vision of some grounds is striking. Down at Hampshire, councilman House sees a garlanded future: "We are positioning the Ageas Bowl to become one of the world's top leisure and sports venues. Only 6% of the hotel trade will be for cricket. The majority is for conferencing and the local cruise-liner and airport markets. We aim to promote a wide range of activities throughout the year where cricket plays an important but part role."
The outcome for those who support English cricket could well be wondrous, with greatly improved grounds providing a shot in the arm to the cricket-watching public, and a boost to the wider communities they serve. Many county hierarchies should be applauded for their determination to reach the promised land, while the ECB must be praised for their ongoing support and encouragement. The financial dramas for some may continue as county cricket intrepidly moves through this evolutionary off-the-field period. But its successful conclusion could well be worth all the pain and effort.
© All Out Cricket
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