Suspension of Payments in Soccer Clubs

There are so many interests surrounding soccer clubs that a suspension of payments can be a real problem. What does this financial situation consist of and how is it managed?

The suspension of payments in soccer clubs has led to more than one scandal in European soccer. In Spain, there’s a Bankruptcy Law that regulates this type of conflict between debtors and creditors. In 2012, a legal history milestone was marked: a reform allowed teams to lose their category due to non-compliance.

This regulatory framework also applies to other sports. However, these cases are often more recurrent and controversial in soccer. This is due to the economic structure of the king of sports. The amount of money that moves in the soccer elite is astronomical compared to other sports.

What is the suspension of payments in soccer clubs?

The suspension of payments is a bankruptcy situation under which the club cannot pay the full amount of its debts. This usually occurs as a result of a lack of liquidity or cash, although it can also result from heavy penalties.

This is a very different situation than filing for bankruptcy. In a suspension of payments, the entity has sufficient assets to meet its various commitments. The problem is basically that they cannot meet them momentarily.

That’s when the debtor clubs try to reach an agreement with their creditors. This allows them to establish alternative terms and payment methods that are more comfortable and realistic in order to settle the debts. In other words, it’s a negotiation to pay debts that are overdue or about to expire.

Up until 2012, there were no declines due to non-payment in Spain

Previously, the Bankruptcy Law allowed clubs to maintain their category despite falling into a suspension of payments. The strategy used to avoid sanctions was to abide by a judge’s decision. This measure was understood as a discriminatory and unfair resource for the rest of the teams.

The clubs that did direct their resources towards paying debts could see it as an advantage for the debtor. This ended in 2012 when the Spanish Government intervened by promoting a law reformation. The additional provision was clear: undergoing a bankruptcy procedure doesn’t grant immunity against sanctions regarding the competitions.

With this reform, legislators did more than reinforce law compliance. In fact, one of the goals they were after was to protect the continuity of the tournaments. Therefore, the participation of insolvent groups is usually settled before the start of the leagues.

The arrangement with creditors

When a club defaults on its players and creditors, it must go through an arrangement with the creditors. In this procedure, specialists study through legal means the possibilities that the entity has to pay its debts. In general, clubs agree on the payment of debt portions through equity and negotiate payment modalities.

Arrangements usually favor renegotiations that allow for a conservative solution. That’s to say that they always try to find a way to prevent the club from going into bankruptcy. However, sometimes they can’t reach an agreement; that’s when they declare liquidation.

One of the most famous cases of administrative decline due to insolvency was the Xerez CD case in 2013. In that year, it became public knowledge that the club had a debt of 2 million euros with the Treasury. On top of that, it entered into a two-month debt in defaults to creditors and players, which cost it the descent to the third division.

The risk of disappearing due to a suspension of payments

The suspension of payments in clubs is one of the causes that most generates the disappearance of teams. As a matter of fact, this is what happened with Parma FC from Italy in 2015 when they filed for bankruptcy. In that season, the team had difficulties paying for even matters as basic as the safety of the public in a game.

Some historical teams have disappeared and reappeared in the form of a new legal entity. For example, Parma, which went up to Series A in 2018, returned to Series D and climbed three categories consecutively for its expected return.

In summary, the suspension of payments in soccer clubs generates a series of quite complex legal and interest conflicts that include lawsuits, administrators and the possibility of bankruptcy. Therefore, the right thing to do is to maintain a state of financial balance at all costs.