Financial Controllers’ Club - Deloitte...•Financial Controllers’ Clubestablished in May 1997 and renamed Deloitte Finance Club in 2013 •Provides an annual programme of technical

©2014 Deloitte LLP. All rights reserved.

Deloitte Finance Club

The community for Financial Controllers and senior financial executives

Wednesday, 1st October 2014


Deloitte Finance ClubA few facts

• Financial Controllers’ Club established in May 1997 and renamed Deloitte

Finance Club in 2013

• Provides an annual programme of technical updates and hot topic briefings

• Connects our members to relevant experts as well as over 2,200 members

across the country

Deloitte Finance Club – "Fraud" and "Football Finance" (1 Oct 2014)2


Deloitte Finance ClubUpcoming programme

• Managing pensions risks and costs and Tax update

Wednesday, 22 October 2014 – 5:30pm-7:00pm (arrivals from 5pm)

• Key trends and developments in the UK insurance market

Wednesday, 19 November 2014 – 5:30pm-7:00pm (arrivals from 5pm)

• Holiday finance checklist 2014

Wednesday, 10 December 2014 – 8:30am-10:30am (arrivals from 8am)


http://www.deloitte.co.uk/financeclub/register1022.cfm

https://www.deloitte.co.uk/financeclub/register1119.cfm



Summer finance checklistAgenda

• Ian White – Fraud: an inevitable cost of business?

• Richard Battle – The Annual Review of Football Finance




Fraud: an inevitable cost of business?

Ian White


Fraud: an inevitable cost of business?Agenda

• When do we get to the Football?

• Scale of fraud as a business risk

• Cost of fraud to business

• War stories

• Responses?



Public sector

£20.3BN

28%

Private sector

£45.5BN

62%

Individuals£6.1BN

8%

Charity sector

£1.1BN

2%

Scale of fraud as a business riskThe cost of fraud to the UK economy

Source: National Fraud Authority, Annual Fraud Indicator, March 2012

Breakdown of losses by sector Breakdown of private sector losses

£73.0BN

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

£BN



Scale of fraud as a business risk


http://business.timesonline.co.uk/tol/news/

http://business.timesonline.co.uk/tol/news/


Scale of fraud as a business riskThe cost of fraud to business

• Financial loss

• Loss of reputation

• Diversion of management time

• Cost of investigation and recovery of

funds

• Impact on staff morale

• Loss of customer / investor / lender

confidence

• Loss of contracts

• Fines from regulatory authorities



Cost of fraud to businessWhat frauds are we seeing?

• Phantom employees and suppliers

• Profit manipulation

• Debtors – irrecoverable

• Non-existence of assets – asset

based lending

• Theft of confidential information

• Ponzi or pyramid schemes

• Disposal of assets at under value



War stories



War storiesFraud in a subsidiary company

University

Spin off research company

£7m turnover

Patents

Financial support

Patent attorney

feesRoyalty income



War storiesFraud in a subsidiary



War storiesConsider the culture

• The “car park test”

• Dominant individual

• Illusion of difficulties and technical

complexity

• Corruption of key staff to overcome

internal control

• CVs

• Nepotism



War stories”An orgy of greed and self-indulgence”, said the Judge…

• Stole £2.3m from her employer

• Spent £500,000 on a house with a hot

spring and swimming pool, bought a

fleet of Mercedes cars, spent £17,000

on film memorabilia, £10,000 on

motor sports events and £200,000 on

holidays

• Admitted money laundering and fraud

in relation to a false representation to

HMRC

• Her husband laundered just under

£925,000 through his newsagent’s

business

• Jailed for five years and her husband

for two and a half years



What can organisations do?Overall from an Internal Audit perspective

Not on my watch…



What can organisations do?Fraud indicators

• Key financial indicators start to slip

• Subsidiaries posting unusual results

• Cash not commensurate with reported profits

• Dominant line management

• High staff turnover

• Lifestyle of employees not commensurate with salary

• Unusual, irrational or inconsistent behaviour

• Low morale amongst staff

• Holiday not taken

• Remote locations

• Close association with suppliers or customers

• Receipt of tip-offs



What can organisations do?Preventative steps

• Tone from the top

• Education of employees

• Regular risk assessments (not one-off)

• Establishment of appropriate anti-fraud control framework

• Regular checks to ensure anti-fraud controls are working

• Employee hotlines

• Employee screening

• Data mining and predictive analytics

• Pursue perpetrators robustly



“An ounce of prevention is worth a pound of cure.”Henry de Bracton (De Legibus, 1240)



Fraud: an inevitable cost of business?Question

Where do the additional bananas come from?



Fraud: an inevitable cost of business?Characteristics of a fraud investigation

• Out of the blue

• Huge volumes of data (electronic principally)

• Multiple stakeholders – mostly impatient

• A scandal never too far away

• Fraudster’s response difficult to predict

• Almost always evolves into something much bigger



Investigating fraudTriggers



Typical Fraud Investigation Workflow

Control absence /

weakness

ACCOUNTING

DATA

Data Analytics

Issue / Allegation

Transactions for

further Review

Transactions of

InterestHigh Risk

Areas

Other info e.g.

Employee Authority

Limits

Supporting Docs e.g. AP voucher

BIS Results on

Employees or

third parties

Collection of

custodian

data and

other e-data

E-DATA

Server

Hard

drive

Other

E-main

Application of

Search terms

Documents

Identified

Documents of

Interest

Transactions &

issues of

Interest

FACT FINDING MEETINGS & INTERVIEWS

Interviews with

Individuals of

Interest

REPORTING

Investigation

ResultsREVIEW

ANALYSISANALYSIS

K W

S

LINKS MADE

LINKS MADEANALYSIS

Investigating fraudAn Approach




An introduction to Global Football Finance

Richard Battle


An introduction to Global Football FinanceThe Sports Business Group at Deloitte

25 Deloitte Finance Club – "Fraud" and "Football Finance" (1 Oct 2014)

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=4EKVwbDVPY752M&tbnid=6OBvvS5sQcrp-M:&ved=0CAcQjRw&url=http://en.wikipedia.org/wiki/Real_Madrid_C.F.&ei=QegaVPKYDKug7AaiuIG4Cw&bvm=bv.75097201,d.ZGU&psig=AFQjCNFkggbXyFNMO0vyQ6ze3AO-4Hg_mw&ust=1411135947928426

http://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=4EKVwbDVPY752M&tbnid=6OBvvS5sQcrp-M:&ved=0CAcQjRw&url=http://en.wikipedia.org/wiki/Real_Madrid_C.F.&ei=QegaVPKYDKug7AaiuIG4Cw&bvm=bv.75097201,d.ZGU&psig=AFQjCNFkggbXyFNMO0vyQ6ze3AO-4Hg_mw&ust=1411135947928426

http://en.wikipedia.org/wiki/File:Alainnewlogo.png

http://en.wikipedia.org/wiki/File:Alainnewlogo.png

http://en.wikipedia.org/wiki/File:FK_Zenit_St_Peterburg.svg

http://en.wikipedia.org/wiki/File:FK_Zenit_St_Peterburg.svg

©2014 Deloitte LLP. All rights reserved.26

The global football market

Deloitte Finance Club – "Fraud" and "Football Finance" (1 Oct 2014)


A global gameDeal flow

27

2014 2003

2010

2006

2005

2007

2008

2011

2013

2009

2012


http://en.wikipedia.org/wiki/File:Nottingham_Forest_logo.svg

http://en.wikipedia.org/wiki/File:Nottingham_Forest_logo.svg


Global football revenuesBig five European leagues dominate global club football revenues

28

2,946

2,018 1,859

1,682

1,297

896 740

551 452 380 285

-

500

1,000

1,500

2,000

2,500

3,000

3,500

Selected top division revenues 2012/13 (€ million)

Source: DFL; Lega Calcio; LFP (France); LFP (Spain); UEFA; FIFA; Deloitte analy sis.



A global gamePremier League shirt sponsors



Global leagues – match day attendanceAttendance is a useful barometer of a League’s relative interest

30

42,609

36,695

25,319

23,011

22,939

21,092

18,608

17,226

16,647

14,951

13,041

7,652

- 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

German Bundesliga (18)

English Premier League (20)

Spanish La Liga (20)

Italian Serie A (20)

Mexican Liga MX (18)

French Ligue 1 (20)

US Major League Soccer (19)

Japanese J-League (18)

English Championship (24)

Brazilian Serie A (20)

Australian A-League (10)

Korean K-League (14)

Selected top division average attendances 2013 or 2013/14

Note: Number of clubs in each league shown in bracketsSource: League websites



The ‘big five’ European leagues – revenueVariation in absolute and relative contribution from three key revenue

sources

31

682 469 402

182 139

1,390

620 900 993

632

874

579

557 507

198

350

328

2,946

2,018 1,859

1,682

1,297

-

500

1,000

1,500

2,000

2,500

3,000

England Germany Spain Italy France

Matchday Broadcast Sponsorship Other commercial

Revenue breakdowns for European leagues 2012/13 (€ m)




Premier League club business models



REVENUEPremier League (Central) Clubs (Individual)

League business model – Premier LeagueDevolved responsibility for exploiting certain revenue streams and costs

33

Exploitation of revenue streams between Premier League and member clubs

COSTS

* Certain limits introduced regarding amount of

increased central funding that can be spent on

player wages

No hard cap on

player wages*

Club

responsible for

other operating

costs

Merchandising(non-playing & training

apparel and other)

Merchandising(Limited product

categories)

GA Ticketing

Sponsorship(Secondary - limited)

Sponsorship(Secondary)

Broadcasting(All platforms – national &

international)

Sponsorship(Title sponsorships)

Corporate hospitality

Sponsorship(Stadium naming rights)

Other matchday

Matchday

Broadcasting

Commercial Merchandising(playing & training

apparel)

Broadcasting(Delayed live match & highlights

footage, local radio rights)

Sponsorship (Shirt)

Other commercial



The football club business modelCase Study: Manchester United FC 2013/14

34

Matchday

£108.1m

Broadcast

£135.8m

Commercial

£189.3mTotal 2013/14

Revenue £433.2m

£214.8m

Wage Costs

£88.3m

Other Costs

£130.1m

2013/14

Operating Profit


//upload.wikimedia.org/wikipedia/en/7/7a/Manchester_United_FC_crest.svg

//upload.wikimedia.org/wikipedia/en/7/7a/Manchester_United_FC_crest.svg


Wage costs and profitability



The ‘big five’ European leagues – wage costsSubstantial wage cost growth

36

1,209

1,511

2,080

845

972

1,193

608

900

1,046

580

725

1,030

450

703

862

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13

England Italy Spain Germany France

Wage costs for the 'big five' European leagues (€ m)




Wages vs League performanceWages costs have increased in the search for on-pitch success

37

Premier League clubs – comparison of total wages with league performance 2012/13 (£m)

Source: Deloitte analysis



Premier League – profitabilityPremier League Revenue, Wages and Operating Profit

38

1,326

1,981

2,525

811

1,325

1,783

149 79 82

-

500

1,000

1,500

2,000

2,500

3,000

03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13

Revenue Wages Operating Profit

Premier League Revenue, Wages and Operating Profit (£m)

Source: Deloitte analy sis



The ‘big five’ European leagues – profitabilityVarying profitability between Leagues and clubs within the same league

39

222 240

81

96 89

250

264

(234)

1

(53)(102)

37

(102)

(3)

(300)

(200)

(100)

-

100

200

300

03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13

England Germany Italy France

Operating profit/loss in four of the 'big five' European leagues (€ m)




Key trends and challenges



Key trendsGlobal football

• Consistently strong overall revenue growth

• Symbiotic relationship between top-tier domestic league football and Pay-TV

reinforced by recent broadcast deals

• Increased polarisation in revenue-generating ability between leagues and clubs

within the same league

• Growing emphasis on international market growth, particularly by the largest

clubs as global brands

• Difficult environment for mid and smaller tier clubs in top leagues in maintaining

ticketing revenues

• Continuing challenge to control player costs relative to revenues



Key trendsGlobal football

• Challenging balance between globalisation (e.g. in ownership, management,

distribution of content, market for playing talent) and developing home grown

talent / local or national identity

• Limited profitability and significant indebtedness / instability

• Focus on strengthening governance and regulatory structures; increased scrutiny

and demands for transparency

• Emerging markets looking to professionalise domestic competition structures and

use football as a vehicle for global prominence

• Growing challenge of broadcast of ‘imported’ football from biggest leagues

competing with domestic content



Strategic challenges for footballComponents of a successful league or competition

43

Exciting on-field and off-

field ‘product’

Strong attendance at

matches

Optimised commercial

structure

Equitable revenue

distribution

Competitive balance

Facilities investment

Youth development

Player recruitment

and retention

Strong

governance &

regulatory

structures



An introduction to Global Football FinanceAny questions?



Deloitte Finance ClubUpcoming programme

• Managing pensions risks and costs and Tax update

Wednesday, 22 October 2014 – 5:30pm-7:00pm (arrivals from 5pm)

• Key trends and developments in the UK insurance market

Wednesday, 19 November 2014 – 5:30pm-7:00pm (arrivals from 5pm)

• Holiday finance checklist 2014

Wednesday, 10 December 2014 – 8:30am-10:30am (arrivals from 8am)


http://www.deloitte.co.uk/financeclub/register1022.cfm




Deloitte Finance ClubContacts and resources

• Ian White – 0113 292 1296 [email protected]

• Richard Battle – 0161 455 8789 [email protected]

• James Bates – 020 7303 0094 [email protected]

Resources:

• Deloitte Finance Club home page: www.deloitte.co.uk/financeclub

• UK Accounting Plus (formerly IAS Plus): www.ukaccountingplus.co.uk

• Future of UK GAAP: www.deloitte.co.uk/futureofukgaap

• The Annual Review of Football Finance: www.deloitte.co.uk/arff

• Deloitte Sports Business Group: www.deloitte.co.uk/sportsbusinessgroup


mailto:[email protected]



http://www.deloitte.co.uk/financeclub

http://www.ukaccountingplus.co.uk/

http://www.deloitte.co.uk/futureofukgaap

http://www.deloitte.co.uk/arff

http://www.deloitte.co.uk/sportsbusinessgroup


©2014 Deloitte LLP.

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Deloitte LLP is the United Kingdom member firm of DTTL.

This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon

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