Three models, one goal: Assessing financial vulnerability in New Zealand amateur sports clubs

Highlights

► We model three different theoretical constructs of financial vulnerability and apply these to amateur sports clubs. ► Utilising longitudinal data from golf and football clubs we are able to assess changes in key ratios over time. ► Each model's predictive variables and explanatory strengths differ, due to differences in these sports. ► Variables to monitor include: over-reliance on external (non-member) revenue, increasing debt, and excessive expenditure.

Abstract

Financial vulnerability is a critical issue for nonprofit sports clubs due to clubs’ increasing costs and impediments to generating sufficient income. The first objective of this study is to derive a conceptual understanding of financial vulnerability for sports clubs by assessing three financial vulnerability models, two of which have previously been applied in the nonprofit sector generally. Two models are based on revenue patterns and expenditure, and the third is based on movements in Net Assets over four years. A second objective is to identify determinants of financial vulnerability within amateur sports clubs, focusing specifically on golf and football.

The data to test these models were derived from the financial reports of 227 amateur sports clubs in New Zealand (98 football and 129 golf clubs). Each of the three models results in different predictive variables and has different explanatory strengths. For example, football clubs that were financially vulnerable under Model 1: Program Expenditure had declining revenues from members and trading, as well as high administration costs. Conversely, declining reserves are predictive in financially vulnerable golf clubs using Model 2: Net Assets. Model 3: Net Earnings was generalizable to both football and golf clubs. The explanatory variables were different between these sports, due to their different asset base and propensity to employ paid staff. The common variables those with oversight responsibilities should monitor against financial vulnerability are: an undue reliance on external, rather than member-based revenue, increasing debt, and excessive expenditure. Further research could extend this model to other sports and other jurisdictions.

Keywords:

• Financial vulnerability
• Amateur sports’ finances
• Financial distress

Notes

1 Throughout this paper, variables used in the statistical modeling are presented in upper case. They are all defined in Table 2.

2 In the 2009 study from England and Wales (Taylor, Barrett, & Nichols, 2009, p. 64) the average income of golf clubs was >£500,000, while in most other clubs the average income was <£50,000.

3 Sport New Zealand was known as SPARC before 1 February 2012.

4 The descriptive results are available from the authors on request.