Governance challenges, financial issues, and a potential £50m+ valuation: reflections on Sheffield Wednesday’s administration

Administration has created further uncertainty over the club’s future, yet Sheffield Wednesday’s rich heritage and loyal fanbase could help turn a distressed sale into a competitive bidding process - offering wider lessons on how good governance and community underpin long-term value in football.

The saga at Sheffield Wednesday took another turn at the end of last week, with the club being placed into administration. This situation, however, was inevitable with the club running out of money, and fans boycotting home games.

From a regulatory and governance perspective, there are some interesting points to come out of this situation, particularly for me as both a lifelong supporter of the club and as an M&A specialist.

Football governance

As we noted in our recent joint report with Law Debenture, Football Governance in Transition, Sheffield Wednesday was one of only 4 clubs in the top 5 leagues in the English pyramid with just one director on the board (Dejphon Chansiri, the current owner in Wednesday’s case, having been the sole director for the last 6 years).

In our view, football clubs, as organisations with a wide range of stakeholders including fans and their local communities, should be required to have at least three directors. This would reduce the risk of very small boards making poor decisions through lack of scrutiny and/or challenge. It should also mean that boards have access to enough directors to take on responsibility for the range of roles required to run a club effectively.

Financial sustainability of men's football clubs

We will shortly publish our third annual report looking at the financial sustainability of men's clubs in the English football pyramid. In last year’s report, we highlighted Sheffield Wednesday as a club with one of the weakest scores for financial sustainability, reflecting many years of financial mismanagement.

Independent Football Regulator

The club going into administration potentially saves the new Independent Football Regulator (IFR) from having an immediate “day 1” challenge in dealing with the situation, which would have been a significant early test. This buys the IFR bit of time to prepare for dealing with the inevitable next struggling club as, given the increasingly stretched finances in football, it appears only a matter of time before another similar case comes along.

What does administration mean for Sheffield Wednesday?

The move into administration has been broadly welcomed by the long suffering fanbase (which I fully empathise with!), with the prospect of the administrators selling the club to a new owner who we must hope is better able to finance it.

One important aspect is that the separate legal entity, Sheffield 3 Limited, that owns Hillsborough (the club’s stadium) has also reportedly been put into administration so that the club and ground can be sold as a package.

On the face of it, the value of the club will have fallen further, both as a result of the “fire sale” process now in play and the EFL’s 12-point penalty, which effectively renders the Wednesday a League One club in waiting. As such, it’s difficult to see any enterprise value assessment at much over £30m - and that’s before the significant investment needed to upgrade the stadium, the training ground, and the decimated playing squad.

However, given the potential attraction in owning a major club in one of England’s biggest cities and the prospect one day of returning to the gilded land of the Premier League (where established clubs with big fanbases have an average valuation of over £1bn), I wouldn’t be surprised to see a number of bidders taking a more optimistic view.   

Indeed, a club with a core loyal fanbase of well over 25,000 committed fans, regularly attending games even during fallow times, rarely comes on the market. As such, if the administrators can engineer a bidding war between competitive bidders (which appears to be potentially on the horizon), I can easily see a purchase price of over £50m emerging.

Conclusion

It may in fact be that Mr Chansiri will benefit significantly from the sale being handled by the administrators, rather than himself – as potential buyers are likely to have more trust in the process when dealing with a professional firm than with a potentially volatile individual.

Ultimately, however, I just hope the “right” owner can be found – and that the Owls will be flying high again before too long!