John Webber calls for change in the way business rates are calculated for football stadiums, to reflect the financial realities of relegation from – or promotion to – the Premier League.
The new football season is now well under way, but a test case defeat over the summer – on the effects of relegation on the calculation of business rates for football stadiums – set football clubs (and business rates professionals) shaking their heads in horror before a ball was even kicked.
An appeal by Wigan Athletic against its business rates assessment was dismissed by the Valuation Tribunal for England (VTE) with the words “football is still football”.
The double whammy
Wigan had made an appeal because, in recent years, it had dropped from the Premier League down to League One (albeit, last season, it was promoted back up to the Championship). It had argued that its two relegations constituted a “material change of circumstance” that should have led to a lower rating assessment, and that the “devastating financial impact” of the relegation should be considered immediately and not put off until the next revaluation.
This is because, when assessing a club for its business rates bill, the Valuation Office Agency (VOA) not only looks at the cost of the stadium, but also the club’s ability to pay. Clubs in the Premier League at the relevant valuation date (1 April 2008) were deemed to be able to pay more than those in other leagues as it was recognised they could earn tens of millions a year purely from TV income – bringing in considerably more revenue than clubs in lower leagues. However, if a club is relegated to a lower division, there is nothing in the current VOA approach to note that this is a “material change”. The affected club then faces a “double whammy” of high rates combined with often significantly reduced income. This was the case with Wigan.
Wigan was relegated from the Premier League after a seven-year stay, in 2013. It was then relegated to League One two years later, following which it was paying more than six times the average business rates of its rivals in that division: £590,000 compared with an average of £88,000.
The result
In assessing the appeal, the president of the VTE agreed that relegation affected the club’s finances. But he did not agree the club had seen a ”material” change to its circumstances, since the stadium did not change physically. He therefore dismissed the appeal.
This is a position that we at Colliers International feel is totally outdated. Because the rateable values of football stadiums should recognise the ability to pay, surely a massive drop in income should be considered in any assessment?
Even the president recognised that broadcasting rights provided more than 80% of Wigan’s income when it was in the Premier League, dropping to 23% when it was in the Championship and further reduced to around 13% in League One.
Relegation therefore was a material change to the club’s fortunes. Since dropping leagues, Wigan has seen much smaller crowds, the stadium is not using as many seats, some are affectively advertising hoardings and some of its TV viewing boxes are now redundant.
Wigan Athletic is not the only club to run foul of the current assessment process. Let’s look at Sunderland, which has also seen a double relegation, and compare its fortunes (and finances) with Wolverhampton Wanderers, which was this year promoted to the Premier League.
When Sunderland’s Stadium of Light was valued for business rates in 2017, the club was in the Premier League and its rateable value (RV) was increased by 86% between 2010 and 2017 – from £1.9m to £3.53m – giving the club an annual rates bill of £1.38m in 2017-18, rising to £1.74m for this coming year. Yet during this time Sunderland was relegated from the Premier League (thus losing up to £100m of income) to the Championship and then again to League One, with even lower income prospects. Yet its annual rates bill is due to grow to £1.9m by 2021-22 if the VOA refuses to accept the club has had a “material” change in its circumstances.
And it works the other way too. Wolves’ Molineux Stadium was valued when the club was in the Championship, giving it a RV of £685,000, and thus annual rates bill of £328,000 in 2017-18 and £338,000 this year. The club has now been promoted and will play this season in the Premier League, where it will receive at least £100m of income from TV rights, etc – but its rates bill goes unaltered.
Of course, stadium size is a consideration when calculating a club’s rates bill. Sunderland’s stadium at full capacity of 48,707 can hold 54% more fans than at Wolves (31,700). But this should not mean it should be committed to pay a rates bill more than five times the size. In fact, as Sunderland will this season play in League One, we calculate that its RV of £3.53m is not far off the total of all the other football clubs in the same division put together (£4.35m).
As another example, Stoke City saw a massive 293% increase in its RV between 2010 and 2017 but was relegated from the Premier League this year. Again, we believe it will be paying too high rates compared with its circumstances.
Time for change
There are six clubs a year that move up or down between the Premier League and the Championship. Given the disparity in income generated by being in these leagues, it would not take much work for the VOA to recognise there has been a material change of circumstance for these clubs and to assess accordingly. Leaving matters until the next revaluation is too late for many clubs, particularly those who have suffered relegation.
That is why the Wigan decision was a sad day for football clubs. The VOA has shown it is pursuing a totally inflexible and increasingly out of date valuation method and the VTE has supported this.
But the issue is not dead. Even the president of the tribunal agreed that “someone needs to look again at the valuation approach to stadiums which are occupied by football clubs”. Thankfully Wigan has now appealed the decision to the Upper Tribunal (Lands Chamber), so the prospect of a replay is likely.
Let’s hope that the system embraces the needs of the modern football world – and doesn’t score another own goal yet again.
Main image: Damon Campion/Scunthorpe FC/Rex/Shutterstock
John Webber is head of business rates at Colliers International
