Assessing Financial Vulnerability in Nonprofit Sports Organisations

Abstract

Funding and financial management are critical issues for the not-for-profit sector. Funding is limited, competitively sought, and differences in funders’ and organisations’ expectations and needs can cause dysfunction. Sport is important in New Zealand society. Sports clubs provide formal opportunities to play indoor and outdoor sport. These clubs offer opportunities for exercise and the building of social capital for healthy and vibrant communities. However, there is a lack of local and current research about the manner in which not-for-profit sports organisations finance the assets which are necessary for their operation.

The objective of this research was to assess the impact of governors’ financing choices on the sustainability of New Zealand’s sports organisations through empirical research into funding practices. This research was also undertaken in an economic downturn heightening awareness of organisational liabilities and the need for ongoing income to meet those liabilities.

Six sporting codes were chosen from which thirty organisations’ annual reports were analysed. Income sources, expenditure categories and the composition of liabilities were the prime analyses undertaken.

In addition, twenty interviews were conducted with selected organisations to elucidate the preliminary findings of the quantitative analysis.

This research found that: 1. Financial health in sports clubs has reduced over the two year period analysed; 2. Gaming and philanthropic trusts are a major source of funding for team sports clubs. However, successful clubs work hard at developing alternative sources of income; 3. Property and players’ expenses consume the majority of sports clubs’ incomes, however members do not always appreciate the costs of the sports they enjoy; and 4. More than 40% of sports clubs have non-current (i.e. long-term) debt. Generally, smaller clubs have higher ratios of total liabilities: total assets. These debts pose a risk to their financial sustainability.

Recommendations in this report include that sports organisations should be encouraged to: 1. work actively to bring in alternative funding. This is because of the relatively high levels of current dependence on grant funding and the levels of debt in sports clubs. 2. regularly review their membership fees to ensure they make an adequate contribution to the running of sport. 3. plan their property expenditure carefully to ensure cash is available to meet commitments 4. re-assess their financial risk in respect of long-term debt. While the findings of this report are context-specific, local organisations are encouraged to develop complementary income streams which will enable them to thrive, despite macro-economic events.

Keywords: New Zealand, sports clubs, funding, nonprofits

JEL Classification: L30, M41, L83