Administration

In football, administration refers to the legal process in rescuing a club when they are unable to pay off outstanding debts. It prevents the club from going into liquidation while continuing to be operational. If a club chooses to enter this process, under the creditors’ rule of football, the club is required to pay off first the wages owed to players, staff, and transfer fees that they owe to the club.

Reasons why a Football Club go Into Administration

There are many reasons why a club files for administration. Although it can be avoided, if the club is not managed well, it is at risk of going into bankruptcy.

Overspending

One reason for a club to go into administration is due to mismanagement of funds. Since they spend more than the amount earned, the club ends up losing funds. Funds are often spent on facilities, salaries, and wages, among others.

Debts

A club can go into debt if they loan money that is beyond their capacity to pay. Sometimes the management of the club would risk loaning money without taking into consideration the current financial situation of their organization. Since the majority of their spending is for the wages of the players, clubs would often loan to compete for their salaries, instead of losing the players to the competitors.

Projected income was not achieved

The entire budget for the year is affected if the club is not able to reach its projected income. The reason for this is during the season, the assumption that a stadium is filled was not realize. Since they rely on their income on a full-packed stadium, if it is not filled, the result can boomerang to their financial situation.

How to Avoid Administration

It is possible to avoid administration if the club learns how to make realistic projections. Mismanagement of funds is often the cause of going into debt. When preparing for their budget, it should be based on the average income they earned for the past three years. The average amount they earned should be their projected income each year.

Once they have projections of revenue, the budget of expenses should be within their projected revenue. Also, the club should not spend more than whatever income is pouring in.

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