With revenue cut in half, expenditures will need to be reduced to accommodate the new situation (Southampton Leisure Holdings PLC. 2006). The team management will need to make key decisions on players, as salaries are the largest single expense. A plan will need to be implemented that can reduce the costs associated with player demands and still provide a reasonable opportunity to compete towards a goal of promotion back into the Premier Division.
Management will be required to draw up a business plan that reflects the business strategy of the team. Loss of revenue from relegation will mean restructuring the player roster and may amount to the loss of the best players. Other players may be sold to generate immediate cash. One of the first tasks of the budget will be to realistically match salaries and goals to achieve the required end. Management may set a long-term goal of remaining in Division 1 until they are competitive enough to produce a profit in the Premier League.
Alternately, a team may set a goal of returning to the Premier League after only one season in the Championship League. This would involve structuring player expense to increase the probability of being promoted. The team may spend all their available cash as well as incur further debt. However, management needs to plan beyond the current season as well. Promotion to the Premier League may not be any financial advantage if they are unable to compete in the future at that level. Loss of cash and increased debt has the potential of creating a yo-yo situation where the team is alternately promoted and again relegated.
A key consideration of relegation has to do with whether a team actually is financially better off by being promoted to a higher league. A Premier League team operates in a local market for selling tickets and a national market for selling media rights. In both cases, the demand for a team's products depends on its quality, the opponents, and their market. In general, teams in more populous, wealthier markets will generate more revenue. (Noll 2002 p. 172). Promotion into a league that is too strong for the market in which the team is located may have a negative effect due to marginal costs. The advantage of the increased press coverage that results in greater demand may be offset by the increased marginal player expense (Noll 2002 p. 173). Thus, a team that should be in a lower league from the perspective of profit maximisation may set goals that are not in the best financial interests of the stakeholders.
Establishing a budgetary control process will be a necessity and require naming key individuals in each department that will be responsible for maintaining expenditures within the budget, and meeting the long term objectives. A sound approach to generating a good budget is characterised by the participation of as many people as possible, a budget that will consider the whole organisation, and utilises effective standards of performance. The budget must be flexible enough to allow for changing circumstances and analysing ongoing revenue and costs.
A budget committee should be comprised of senior members of the organisation and should be represented by every part of the organisation. The budgetary committee will be responsib