It could be a week, a year or possibly two, but it will happen. A UK premiership club will go out of business. Portsmouth FC is on the brink. The club has had four owners in just one season. Afflicted by the desire to compete with the Liverpools and Manchester Uniteds of this world.. they spent big. They attracted international stars to a relatively small provincial club with the carrot of wages beyond their means. Last year, wages represented 90% of the revenues of the club. The bonuses were so high, that if they had won the F.A. Cup, they would have lost money. What does this prove? It is simple. No business, whether a bank or a fashion house like McQueen, can spend more than it earns for a long period. If costs are higher than revenues there will come a time when the business is financially unsustainable. A business may represent the heart and soul of a community or be the brand choice of Hollywood stars, but if it fails to make a profit it is dead.
So the question is – are there businesses that are immune from standard financial rules and strictures? Can anyone imagine Manchester United folding in a mountain of debt? Well, the debt exists (in fact some £700m of it), but they have something Portsmouth does not have; a worldwide brand. This is the time to remember when looking at the financial worth of an organisation, that intangible assets such as brand values or goodwill, are sometimes greater than the physical fixed assets on the balance sheet. What is worth more – the Nike brand, or the Nike physical assets? Clearly the former. Google’s, the world’s most valuable brand name is estimated to be worth $100 billion in 2009 (see www.brandz.com – also available as an iPhone app).
Tags: accounts, Finance, intangible assets, liquidation, Topic 3.5, Topic 5.2
