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Can The Counties Survive?

I was just reading back this post about Warwickshire's 2019 accounts.  Written in February, without a single reference to coronavirus, events make fools of us all.  This post is a collection of musings about the financial position of county cricket given the certainty the coronavirus will, at best, significantly reduce the amount of cricket played in 2020 and might mean we lose a year (or two, or three or five) of cricket in the UK.

With UK deaths from the disease in the tens of thousands and thousands of new cases a day none of this really matters, but sport is supposed to be a distraction....

Introduction

The starting point for this post is this  cricinfo review of the steps each county was taking in response to the pandemic.  What is interesting is one or two of the smaller counties indicate they think the financial burden of the cessation of cricket will fall on the test hosting grounds.  Durham chief executive, Tim Bostock said the following:

" They've got businesses that rely on income outside of ECB regular monthly funding - particularly I can think of Lancashire, Warwickshire and Yorkshire, the Ageas Bowl," Bostock told talkSPORT. "They've done the right thing, they've diversified so that they can survive without ECB income, but what that has meant is… that has fallen off the edge of a cliff through no fault of their own. That is a major challenge.
"A club like Durham - a larger percentage of our income comes from the guaranteed ECB income as a result of the new television deal, and therefore we are much less exposed. I can confidently say that what's coming in is more than what's going out.
"We absolutely are in a position where we don't need to lay anybody off, and we don't need to reduce anybody's salary. Rather than reducing headcount and making savings, we took the view that we would support [our staff]."

But although county chief executives are sanguine there was a headline in one newspaper that half of the counties could go bankrupt. 

Which made me think about what the future might hold and whether smaller counties might be better placed than counties with international grounds.  


The Debt Problem

It's always worth bearing in mind; county cricket is a  resilient beast. All of the first class counties survived World War I and played in the 1919 championship and similarly the seventeen first class counties were able to see out World War II and reemerge for Compton's summer of 1945.

To an extent modern day counties have a similar ability to hunker down and wait for better times.  The cricinfo article referred to above shows most counties have used the government's timely furlough scheme to reduce the wage costs that make up a significant portion of their cash expenditure.  Other items such as ground maintenance can also be slashed to the bone.  And crucially most counties (not Middlesex and Hampshire) own their own grounds and so don't have the financial strain of having to make rent.

However, modern day counties, especially those with international grounds are rather more complex than their twentieth century predecessors.  Reading the cricinfo article I have the (unkind) thought that although chief - executives have taken the tough decision to furlough staff they have also taken the rather less tough decision to keep themselves in post and away from the horrors of living on £2,500 a month.  In this respect Worcestershire are better placed than their neighbours Warwickshire, "County Chairman, Fanos Hira told BBC Hereford and Worcester, "We're the only county that doesn't have a six-figure paid CEO," he said. "We don't have a director of cricket either, probably on similar pay, so we are a lean structure.""

Another issue modern day counties face is, debt.  In the first half of the twentieth century counties rarely borrowed money.  Ground improvements were sponsored by wealthy members.  But the 1990s saw an explosion of cricket debt, most of it used to finance much needed ground developments and frequently ancillary conference and hospitality businesses.  The businesses the counties diversified into have been shut down by coronavirus, but the debt and interest payments  remain.   

The accounts of Worcestershire and Warwickshire give us some idea of the cash crunch faced by one large and one medium sized county.   Accounts identify the assets available at the balance sheet date which can be turned into cash in the next twelve months and the liabilities which need to be paid in the same period.  I estimate Worcestershire's cash liabilities exceed its financial resources at 31 December 2019 by approximately £1.1m.  An equivalent exercise using Warwickshire's accounts for the year to 30 September 2019 shows the county faces a cash crunch of approximately £2.7m.  Warwickshire would have been in a far worse position except for an influx of cash from a 2019 home ashes series and a world cup; if coronavirus had struck a year earlier the county would have been in a very sorry state.

It also needs to be borne in mind that the 2019 balance sheet position was probably better than the current position for both clubs.  Both counties would have (quite understandably) traded through the winter in the expectation 2020 would be a normal year.  I suspect this means incurring losses, they hoped to recoup.   But I haven't got anything that gives an indication of how much worse the current financial position is compared to the previous financial year.

Any conclusions are tentative, circumstances will differ between clubs, but looking at just Warwickshire and Worcestershire there does seem to be some evidence smaller counties are better placed to deal with the coronavirus crisis than counties with international grounds.   But for both Warwickshire and Worcestershire there is, before ECB funding is taken into account, likely to be a cash crunch in 2020.  So will ECB money save the day?

The ECB

Most counties seem to be working on the assumption they will receive a full years funding from the ECB.  Planned ECB annual funding for each county for the 2020 - 2024 period is about £4m.  If Warwickshire and Worcestershire are facing a cash crunch of £1.5m  - £4m (before ECB funding); full ECB funding should see both counties through this year and allow them to have lower amounts of debt compared to the start of year position. 

But will the ECB be able to pay out a total of £75m+ to the counties in 2020?  There are two issues here.

Firstly does the agreement between the ECB and the counties require the ECB to make the full payments regardless of external factors?  I haven't seen any reference to the ECB refusing to make payments and assume they are either required to pay out in full to the counties, or have accepted they have a duty to do their best to meet the expected payments.

Secondly even if the ECB has or wants to make the payments will it have the resources to do so? As a number of journalists have pointed out, in recent years the ECB's reserves have reduced from over £60m, to less than £11m.  It was expected the those reserves would be replenished with increased TV revenues from the Sky deal, for 2020 - 2024.  But it would seem that not all (or perhaps not any) of the revenues from that deal were guaranteed.  To get paid by Sky the ECB would have to stage its international matches.  If there is no money coming in from Sky, how can the ECB fund its commitments to the counties?  It's a good question and the ECB accounts for the period to 31 January 2020 will make interesting reading.  But I think there are grounds for optimism:

  • Just as 2019 was a bonanza year for counties with international grounds so the ECB will have made significant profits from the ashes and world cup.

  • As I set out in this post the ECB's cash position at 31 January 2019 was considerably healthier than it's net reserves would indicate and it had a bit more room for maneuver than was apparent, even before taking 2019 into account.

  • Although we all like slagging off the ECB it does get some things right.  This article suggests they will be able to offset some of their 2020 losses with pandemic insurance and the ECB seems to have given more serious thought to the "how" of staging major sporting fixtures in the midst of a health crisis than other sporting bodies.  There is some optimism 2020's home test matches will take place, but probably not with spectators.

And the ECB has already launched a £60m rescue package, with £40m being allocated to the first class counties.  Admittedly much of the £40m was bringing forward amounts payable to the counties later in the year but it does indicate the ECB, at least up to a point, intends to provide the counties with a good portion of the planned 2020 payments.  Still there must be a possibility that there will be some shortfall in ECB financing and there has been talk, the second half of the £1,300,000 Hundred inducement payment due to each first class county will be withheld now the tournament has been cancelled.  And even if the ECB manages to make the £4m of payments to each county it won't be in a position to bail out any counties the way it bailed out Durham and Yorkshire in recent years.


 What Else? 

Even if the ECB is unwilling or unable to come to the rescue of every first class county there may be other routes which allow counties to remain in existence.  In calculating the "cash crunch" for Warwickshire and Worcestershire I have assumed both make significant scheduled debt repayments in 2020.  But it is possible their lenders will allow those amounts to be deferred.  Warwickshire's main creditor is Birmingham City Council and they have in the past been prepared to accept delayed capital repayments and, in one instance, interest payments as well. There was a reference at a recent member's forum that discussions were under way for (yet another) deferral of repayments due to the council.

Worcestershire's funding comes at least in part from banks who may take a more narrowly commercial view of debt repayment than Birmingham City Council, so in this respect they are in a worse position than Warwickshire  Still even a bank would consider whether it might, in the long run, be a better bet to let a county cricket team survive rather than foreclose and take possession of a cricket ground with few alternative uses, especially now.

Another possibility is counties will restructure, selling  (or part selling) their commercial operations in order to repay their more pressing debts.  Although such sales might be fraught with difficulty I think they would have some merit.  I've long thought first class counties in general and first class counties with international grounds in particular, have too many assets and too much debt.  As we are seeing debt implies risk and I think that risk would sit better in a for profit company than a members' organization.  Similarly like a lot of Warwickshire members I feel the county has become, first and foremost, about the Edgbaston ground, and servicing the debt taken on to develop it.  Splitting the cricket operation from the commercial business might return us to a member led, cricket based model.

My Prediction

There may be a few counties that teeter on the brink but I believe there is a 80% chance that if we play any county cricket in 2021, all 18 first class counties will be around to participate.  I think the chances that more than 2 first class counties are wound up is very small.






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