Seventeen clubs announced yesterday they are withdrawing their expression of interest (EOI) for the National Premier Leagues Victoria (NPLV), leaving Football Federation Victoria (FFV) with a competition dead before arrival unless it can come to a compromise with the clubs. This is in addition to another eight clubs that previously did not submit, or withdrawn, their EOI.

In a letter to FFV board and management, the signatory clubs state they support ‘the principles of the FFA National Competition Review (NCR)’ but oppose the changes FFV made to this model in which they felt failed to meet FFA’s National Competition Review (NCR) recommendations. The clubs also stated that the FFV model is ‘financially unviable’, and is different to the models rolled out in other states.

Media release statement by FFV clubs.

 

Eleven out of twelve Victorian Premier League (VPL) clubs have publicly announced their intention not to apply, leaving only Richmond, who is believed to be making a statement about withdrawing their EOI shortly. The speculation and tips offs about the impending mass exodus began as the signatory clubs held a meeting on Tuesday 23rd July. Patrick Lane reported in the Melbourne Leader the following day that two thirds of the FFV clubs would withdraw their application to join the NPLV. Five clubs convened the meeting: Pascoe Vale, Moreland Zebras, Box Hill United, Northcote City and South Melbourne.

Estimated that clubs joining the NPLV could lose $142,000 a year.

Central to the discussion was a financial modeling document, led by Box Hill United’s Vice President, Nicholas Tsiaras, in conjunction with the group of five clubs, which estimated that clubs joining the NPLV could lose $142,000 a year. Clubs aim to have a surplus of funds at the end of each year for the following season. If the financial modeling is to be accurate, then these funds will be eaten into, or the club will run out of cash. Unfortunately, none of the current VPL clubs post their financial records or annual reports, so there is a lack of visibility of the current cash balances of clubs. However, financial projections are based using historical financial data, with the aim of trying to anticipate the future. It is a method of informed prediction.

Projected Income Statement NPLV (Headline figures)

Total Revenue$516,395% of Total Revenue
Registration Fees$351,68068.1%
Sponsorship$80,00015.5%
Canteen Profits$55,82519.7%
Gate Receipts$16,5003.2%
Total Expenses$633,957% of Total Expenses
Direct Wages - Coaching staff$213,92033.7%
Direct Wages - Players$77,00012.1%
Apparel Costs$85,30013.5%
Licence Fees$55,0008.7%
Administrator $30,0004.7%
Ground Hire Fees$27,0004.3%
Medical/Welfare Personnel $25,0003.9%
Referee Fees$16,5802.6%
Net Income before GST-$116,762
GST -$25,654
Net Income-$142,417

Source: MFootball (click here to see detailed projection)

 

This estimate was supported by North Geelong Warriors president, Daniel Desa, in an interview with the Geelong Advertiser. Using FFV supplied documents, the club estimated the loss would be around $120,000 per year:

“We had a budget and we put in our figures into the template. It was just not feasible. Expenses, we were looking at $600,000, and our figures came up with about a $120,000 loss per year.”

VPL and state league club’s revenue streams come from three main sources – registration fees, canteen and sponsorship. In the financial model provided, 94.4% of revenue comes from these 3 sources, and all of them come under serious threat under the NPLV model.

Currently South Melbourne charge $3,200 in registration fees for youth league, and under the NPLV the cap is set for $1,700 plus GST. One might argue the points of morality of charging such ‘excessive fees’, but one cannot deny this is a serious dent to revenue, as registration fees make up on average 60-70% of total club revenues.

Unlike in NSW, FFV is not allowing any NPLV clubs to have an amateur component (sub-junior teams). Leopold Method reported the risk for clubs in regards to this decision, in their ability to obtain sustainable levels of sponsorship, fundraising and canteen income. The biggest impact is on registration fees from sub-junior players. The clubs have raised this as an issue with FFV, and under the financial model canteen and sponsorship makes up just over 26% of revenue. Having less players in the club, means less people buying food from the canteen on match days, and it also becomes less attractive to sponsors. Size does matter.

The concern of not having sub-junior teams is not only focused on the financial, but also the area of governance and community. For a club that currently has sub-juniors, and wants to apply for NPLV, will have to create two separate entities. Each with their own identity, with their own constitution and separate boards. Moreland Zebras president, Joseph Sala, announced on the club’s website that along with the financial impact issues, that the ‘action has the potential to fracture the club.’ Sala continues:

“The board will not disregard members and volunteers whose families have worked and contributed tirelessly. Nor will it seek to disengage from the community, in favour of so called ‘Elite’ Teams! Unless we can run both NPLV and Community structures to the limit of our facilities, we were always in doubt!”

A club that currently has sub-juniors, and wants to apply for NPLV, will have to create two separate entities.

As mentioned, South Melbourne will take a massive hit on their revenues due to cap on registration fees, and they do not see how they will recuperate this under the NPLV model, as expressed in press release statement:

“Its (FFV) failure to improve the financial and commercial position of State leagues and clubs or intended by the NCR and instead, proposing a model which will critically damage the financial and commercial position of our State league and the clubs, including our Club, rendering the FFV model financially unviable.”

FFV has not proposed how it will help clubs generate revenues or even developed a marketing plan. As can be noted by the financial modeling that gate receipts are quite low. FFV has not indicated if it aims to drive sponsorship dollars for the competition and share the revenue with the clubs to offset their investment. Hume City’s club communications manager Ezel Hikmet, in a media statement prior to the club not submitting an EOI:

“The concept of producing talented footballers where the clubs are required to do all the work and the governing body puts nothing into the game does not sit well with us. We need answers as to what our governing body is prepared to do for the development of the game at the grassroots level.”

“We refer to the AFL which supports its developmental clubs in the TAC U18’s competition by putting in a quarter of a million dollars a year per club to nurture and develop its players. On the contrary FFV expects its clubs to go and find the money, for an idea derived with no real consultation”

Unfortunately, FFV does not have the money to be able to invest in development like the AFL, especially after posting a loss last year of $783,100. The FFV is pushing the cost of development down the chain to the clubs. As Green Gully General Manager Raymond Mamo told Leopold Method in a previous article on the NPLV, ‘the fees are not going to be enough to pay the coaches’.

The clubs claim there will be ‘inflationary pressure on coaching costs, due to a lack of suitable candidates.’ Under the financial model, direct wage costs for coaching staff is forecasted to be at $213,920, which is 33.7% of costs and 41.4% of total revenue. Wage costs do not incur a GST offset, which explains why the clubs will have to pay $25,654 in GST, even though they are making a loss. On top of this, players and coaches will be seen as employees, therefore this is deemed ‘assessable income’, and will incur on-costs such as Workcover insurance and superannuation.

 Source: MFootball (click here to see detailed projection)

 

FFV’s Frequently Asked Questions (FAQs) document for the NPLV, on the question on the lack of qualified coaches inflating club’s wages, FFV replied:

“We currently have over 400 coaches in Victoria with an AFC C Licence or higher qualification. We plan on running more B and C Licence coaching courses leading into 2014 which will give us even more accredited coaches.”

A supplementary question on the same issue, but this time proposing to dilute ‘the standard by one rung, to ensure that clubs will not be forced to pay over the odds when it comes to signing coaches.’. FFV’s response:

“The criteria states that for the first two seasons U18 coaches and below only need a community licence which are easily accessible. C licences are only mandatory from 2016. Since 2010 there have been 120 candidates successfully awarded a C Licence and this does not include those who were awarded them previously, so there is no shortage. We will also be holding a course for NPL coaches who to need to upgrade their accreditation.”

The argument has turned into ‘your word against mine’. The clubs are forecasting for a dramatic increase on coach’s wages, whilst the FFV are claiming that there should be no inflationary pressures, due to there being enough coaches in the system and enough time to increase the size of the coaching pool.

As clubs asked questions to the FFV about the financial model for the NPLV, the lack of detail from FFV meant someone would fill that vacuum. A group of clubs punched out the numbers, forecasted a potential loss, and shared that information with other applicants.

On Friday 26th July, FFV put out a statement that NPLV assessment panel members will be announced this week. FFV claimed that out of 45 EOI submississions only 3 had officially withdrawn. Newly appointed FFV CEO Mitchell Murphy:

“It is pleasing to see so many applicants embracing the NPL concept and excited about the opportunity to provide a pathway for talented players and having the best of the best in coaches.”

The assessment panel will barely have enough applicants for a competition, as an additional 17 clubs withdrew their application as of yesterday. Whilst investigating the NPLV model for ‘In Search of Perfection: National Premier Leagues Victoria’ series, a question via email was put forward by Leopold Method to FFV President Nick Monteleone about the loss of clubs not playing at the top level for next season such as Hume City, Melbourne Knights and Green Gully. His response:

“It did not surprise FFV that these clubs chose not to put an EOI in as they had indicated their intention at some of our consultations and in the media.”

If he was not surprised then, one wonders if Monteleone is surprised now.

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Shortly after posing this article, Leopold Method spoke with Nicholas Tsiaras.

“The issue here is governance,” said Tsiaras “The clubs could be insolvent from day one. If you as a director know this, you are liable under Section 558G of the Corporations Act.”

Section 588G of the Corporations Act 2001 provides for the director’s duty to prevent insolvent trading by a company:

“The effect of the provisions, shortly stated, is that, if the requirements of Section 558G (1) are proved in circumstances where either subsection (a) or subsection (b) of Section 588G (2) is also proved, a director will be taken to have failed to prevent the company from incurring the debt unless it is proved that, the Director took all reasonable steps to prevent the company from incurring the debt.”

If club directors willingly know that they do not have the current cash reserves, and enter into the NPLV and incur loses, they will be held liable. Directors could be subjected to a civil penalty and/or personal liability to pay compensation.

In response to question about whether VPL and state leagues have funds to be able to cover the $140,000 shortfall, Tsiaras replied, “All five clubs gave me access to their financial information. No one has got the cash.”