With the recent news surrounding Portsmouth, Among the Thugs has been fielding the question, “what is administration?”
Administration is a term used to describe the action taken by a football club that is unable to pay its outstanding debts. A British business term established under the Insolvency Act 1986, a club can choose to enter into this resolution mechanism. The club will then be brought to court, and if it is shown that a business cannot pay debts as they fall due, or cannot repay outstanding debts, then the company will be classified as insolvent (seen as having an inability to pay the debt).
For a football club these debts include the money owed to other clubs (active deals), staff (think about the crazy number of people involved), and the players wages, all of which must be paid first. If these basic debts cannot even be met, then a club will enter into administration. Under administration the club puts the accountants in charge of just about every decision regarding the club except who takes the field in the next fixture.
Administration is used as a way to save a club from complete financial disaster and allow for it to still operate until a solution is reached. It is the last stop before bankruptcy or ceasing to exist . However, this safety blanket was able to be manipulated and abused by clubs to shed debts, restructure, and then borrow again once the creditors had been bought off. To avoid clubs using administration as its own personal “Bobs” (read: Office Space), in 2004 the FA instituted a point deduction for any team entering into administration. A 9 point deduction for Premier League teams, and a 10 point deduction for the rest.
Portsmouth became the first Premier League team to enter into administration (details here).