Cash, Sinkholes and Sources. How are Community Sport and Recreation Organisations Funded and What are the Implications for Their Future Viability? Research Report 3: Financial Vulnerability Analysis

Abstract

This research has produced a New Zealand model (tool) to help address a critical issue for sports clubs. We have produced an early warning system for clubs to know when they are getting into financial trouble, which should prompt them to plan to remain sustainable. In extending and adapting models derived for social services organisation in the US, this research found that financial vulnerability is a contested notion and, with few failed sports clubs to test, we set up proxies in order to define organisations as being financially vulnerable. The logistic regressions and further analysis reflects the uniqueness of amateur sports clubs. By developing the financial vulnerability models as risk indicators, the research offers a unique contribution and has the potential to be applied elsewhere. This study has found that an overseas study might be useful in golf clubs (being a balance-sheet model) and another in football clubs (being a revenue and expenditure model). We also developed a New Zealand model (tool) based on warning clubs against continuing losses (Model 3) and the Revenue Concentration literature. Model 3 was most likely to signal the probability of FV in both football and golf clubs. However, the explanatory variables were different between these sports. For these sports clubs to be sustainable financially: (i) they must ensure that members contribute appropriately to the club’s revenue base and that there is not undue reliance on grants and other external revenues; (ii) debt must be kept within manageable levels. It should not increase over time and net equity should not be allowed to decrease; and (iii) expenditure must be kept within the parameters of the club’s ability to pay. We recommend that, as part of their financial management, clubs monitor their performance against key indicators and derive strategies to manage their financial performance to ensure their longevity. This paper reports the result of analysis of the relationship between sports clubs’ funding and their financial vulnerability. It builds from a literature review. The analysis of the data collected from golf and football clubs in relation to our SPARC (the forerunner of Sport NZ) research project is presented in the main body of the report. This research was made possible through funding from Sport New Zealand, the cooperation of New Zealand Golf and New Zealand Football, the research participants, and our research assistant.