Chester City could be the first of many football clubs to go out of business, reports Alex Turner

LEWIS CARROLL, if he had been alive today, might have chosen to travel the dozen miles from his Daresbury home to watch Chester City, who were last week thrown out of the league after 125 years of history.

But even he would have found it hard to fathom the “Through the Looking Glass” economics around football today.

In Alice's Adventures in Wonderland, Carroll penned the following exchange:

“But I don't want to go among mad people,” said Alice.

“Oh, you can't help that,” said the Cat. “We're all mad here. I'm mad. You're mad.”

“How do you know I'm mad?” said Alice.

“You must be,” said the Cat, “or you wouldn't have come here.”

The conclusion could equally apply to the people who choose to invest in football clubs.

Of the 124 clubs to have played in the top five divisions of English football, 56 clubs have appointed administrators 63 times in the past 30 years.

But the problem has accelerated, with 39 of those cases in the last decade.

This includes a spike after the collapse of ITV Digital, in 2002, which left clubs with huge holes in their projected income.

But the financial problems across football are affecting more clubs in increasingly unmanageable ways.

The last recession saw the demise of Aldershot and Maidstone, although no clubs from the top divisions met with financial ruin.

But football’s run of good fortune – it is 18 years since Aldershot went out of business mid-season – has come to an end.

On Friday, Blue Square Premier League clubs agreed to “erase Chester City (2004) FC Ltd from membership” which saw their playing record expunged and the club thrown out of the league.

Football finance expert Prof Tom Cannon, who is professor of strategic development at the University of Liverpool Management School, is expecting at least 20 clubs to face massive upheaval in the next decade.

“I think it will be far worse than the last recession, barring an economic miracle,” he said.

“We now have about 90 clubs, I would be amazed if there were any more than 70 in 10 years’ time competing at the same level.

“It’s very hard to see how the number of clubs competing on a national stage could survive. My view is that we may have to move back to second division north and south in the football league.

“Why are we asking Exeter to play Darlington? There’s no way the revenues can justify the costs involved. I find it very hard to believe that a league on the current basis could possibly survive, short of major structural changes or an economic miracle.”

Prof Cannon argues that Chester’s demise is evidence of the financial crisis being “notched up a level” within the sport, which will be increased further if a major club, for example Portsmouth, fail to survive.

“There’s a risk that if one goes, there could be a knock-on effect,” he said.

“In truth, in the heart of hearts of the people that finance a lot of clubs, there has been the view that a big club can’t go under.

“The fact that Portsmouth have gone into administration means that defence no longer exists.”

He expects the problems to be far more widespread than during the last recession because of the changes football has undergone.

“It’s different this time for two reasons,” he said. “First, it’s about scale – there were no teams in the top division that went under during the last recession.

“Second, a lot more investors have come in for the money, for a speculative gain. When the going gets tough, they disappear.”

MPs debated football’s financial problems in the House of Commons on Monday with Ellesmere Port MP Andrew Miller urging Culture Secretary Ben Bradshaw to “support the supporters of clubs like Chester and clubs like Portsmouth who have been so badly let down by financial backers”.

Chester City went into administration last May with declared debts of £8m, and it now faces a winding-up order on March 10 over an unpaid tax bill of £26,125.

The club’s then-owner, Stephen Vaughan, was banned from being a company director for 11 years in November, which meant he failed the Football Association’s “fit and proper” test for club owners. Ownership of the club passed to Stephen Vaughan Junior.

Charles Lambert, sports broadcaster and Chester City fan, said: “It was obvious for months that the club could not complete the season.

“Appalling business practices and alienation of the supporters have been going on for years. But it was still a hammer blow. I suspect the football authorities will want to wash their hands of the Chester saga as soon as possible. I doubt if the national media will bat an eyelid. That would be a mistake.

“There are many lessons which can be learned for the benefit of other clubs. One is the over-indulgence of the football authorities who should have clamped down on the Vaughan regime much sooner.

“And even more deserving of penetrating questioning is the administrator who took over the club last summer and unbelievably sold it straight back to Vaughan, the very man who had created Chester's crisis in the first place.

“The best solution is for the company to be wound up, leaving the way clear for the supporters to launch a phoenix club and start the long trek back to respectability.”

The financial crisis stretches from Chester to Portsmouth, via Cardiff, Southend, Bournemouth, Crystal Palace and others, all caught in a cash crisis they could no longer control.

But Sean McGuire, who turned around the financial fortunes of St Helens RLFC while chief executive, and is the founder of Liverpool-based financial management training firm Ambitious Minds, believes there is a simple solution.

He said: “Clubs have to grow their revenues, or cut their costs, or, ideally, do both – just like any other business would have to do in their position.

“A business like Portsmouth which turns over no more than a fairly large supermarket cannot afford to pay anyone a £1m per year – yet Portsmouth had more than two dozen players at that level.

“The industry has stubbornly refused to apply even the most basic rules of running a business – controlling costs, spending within its means, basing budgets on realistic rather than speculative future performance, such as becoming a considerably more successful football club overnight.”

Until that happens, the old joke will remain true: how do you make a small fortune from owning a football club? Start with a large fortune.