London Irish Administration: The Latest Sports Team Insolvency

Rugby team London Irish have become the latest sports team to face insolvency as a result of mounting cost and falling income. The premiership team have appointed ReSolve Advisory to oversee the administration.

This has come just a week after the club was issued a winding-up petition by HMRC over unpaid taxes. This was seen by many as the death knell for the club. Although administration may offer some time to restructure the club, ultimately, their finances may be beyond recovery.

The club are understood to have debts of about £30m. The club’s owner, Mick Crossan has given a “significant financial investment”. However, a combination of factors, exacerbated by the Covid pandemic, are said to be the cause of the club’s demise.

The collapse of London Irish, along with Worcester Warriors and Worcester Wasps, has seen 3 Premiership rugby teams fall into administration or liquidation in the last year. They are not the first sports team to enter insolvency and unfortunately, they won’t be the last.

What Is Causing Sports Team Insolvencies?

Ultimately, sports teams are like any other business. A lack of money and rising debts will result in an unsustainable situation.

These teams require a high level of cash flow as usually, they have high wage bills, large overheads and contractual obligations. This makes them more vulnerable to cash flow issues. This is exactly what is happening now.

A large portion of the debt held by sports teams is a result of the Covid-19 pandemic. Like many businesses, teams had to take on large loans to continue functioning during lockdowns. The result of this is unmanageable repayments and, not enough revenue to cover them. In the case of London Irish, this is what has pushed them into administration.

Lots of factors can result in a loss of cash flow. These include relegation, decreasing attendance, borrowing to upgrade facilities or fines. Any one of these factors can put a club ‘into the red’.

Will Administration Help?

Administration seems like an attractive option; the club continues to play and gets a chance to recover. However, this is not the reality. If there is a major financial issue at the heart of a business, it is likely too late to recover, no matter what option is taken. Overall, administration is rarely a recovery measure, with less than 10% of administrations ending successfully.

In most cases, administration is just a costly process that sees little benefit for the business and ultimately, extends the suffering but yields no positives. Realistically, the best option for any business is to try and deal with financial issues informally. In the worst-case scenario, the liquidation of a business may ultimately be the most commercial option.

No matter the situation or desired outcome, Bell & Company always recommends consulting independent insolvency experts. This will help you to find out what is best for you and your business. The world of insolvency can be confusing but an impartial specialist will be able to help you navigate this.

Feel free to contact us on 0333 305 4331, request a callback below or join our live chat to speak to a business insolvency expert.