Safa financial report shows shortfall of R107m as auditors sound alarm

The South African football Association (Safa) has posted a financial report for 2022-23 that shows a shortfall of R107m.

Auditors Sondlo Chartered Accountants, in a statement echoed by Safa's national executive committee (NEC), said in a letter contained in the report the year’s operating loss and shortfall mean “a material uncertainty exists that may cast significant doubt on the association’s ability to continue as a going concern”.

This translates into Sondlo sounding the alarm that Safa faces the possibility of having to post for insolvency if the situation cannot be addressed. Sondlo’s letter has the shortfall at R136,657,870.

Safa's shortfall for 2021-2022 was R73m, which has effectively worsened by R63m.

That amount could have been a lot more. Safa’s profit for 2022-23 of R5m was arrived at after a revaluation of Safa House wiped out a loss of more than R50m. This does not add cash value to the association's coffers.

Without the R29m disparity to the auditor's figure and R55.7m property revaluation, Safa would have posted a R191m shortfall.

The NEC’s part of the report, posted on Safa’s website last week, stated: “The group made an operating loss of R50,633,854 for the year, however there is a revaluation surplus of R55,677,857, which resulted in an overall profit of R5,044,003.

“The group’s total liabilities exceeded its total assets by R7,439,825. However, the group’s current liabilities exceed its current assets by R107,441,777 excluding income received in advance, which will not crystallise as a cash outflow.”

Finance and procurement committee chair Mxolisi Sibam reported revenue “increased by 4% to R237m, which is still 25% off our targeted range of R300m to R350m”.

“This increase is 20% over a two-year period, therefore we project to reach our targeted range within the next three years.”

The NEC said total revenue “decreased mainly due to a reduction in sponsorship income, broadcast fees and grants”.

“South African Breweries renewed its sponsorship at a reduced rate and opted for a lower package. Energade decided not to renew its sponsorship and was replaced by Endurade, which came in at a lower fee.

“The 2010 Fifa Legacy Trust was wound up, therefore Safa did not receive the funding for development programmes compared to prior years.

“The overall costs increased compared to the prior year. This is a result of our national teams being much more active. [This included] the 2022 Women Africa Cup of Nations, 2026 Fifa World Cup qualifying matches, 2023 Fifa Women’s World Cup preparation camps and matches, U-23 Africa Cup of Nations (Afcon) qualifying matches and qualifying matches and participation at the [men's] U-17 Afcon.

“Our governance costs increased in line with the expanded NEC. Salaries costs increased after Safa filled a number of vacancies.”

Safa CFO Gronie Hluyo wrote that “implementation of the gender parity policy, while highly commendable, resulted in additional costs”.

The NEC report said Safa’s turnaround strategy includes “embarking on a gigantic project” introducing an annual membership fee for South Africa's “three million” footballers.

Safa sees “a huge opportunity to increase the broadcast revenue”, from which most sporting bodies derive “about 60% of their revenue ... [while Safa derives] 14%”.

The NEC noted the imminent termination of its contract with the SABC and that Safa is “confident it will emerge from renewal negotiations with a much-improved deal”.

“The opportunities for pay-TV rights are also being pursued with much vigour.”

The consistent high performance by Banyana Banyana and Bafana Bafana’s improvement winning bronze at the Africa Cup of Nations this year “has resulted in several companies desiring to partner with these teams” and packages “are being finalised”.

Hluyo, reached for comment, said the Safa House revaluation “was done by a professional body”.

“The policy we used previously, which is cost minus depreciation, ignores that properties appreciate in value and did not reflect the realistic value.”

The revaluation was done for Safa's land and buildings only and not its other assets.

Hluyo said the R29m difference between the NEC’s R107m and auditor’s R136m shortfall figures was made up by the “income received in advance”, which he said related to sponsorships and the timing of their payments.

“If we have a sponsorship contract for R12m per year and that sponsor pays us on January 1, right at the beginning of the year, in accounting terms you don’t recognise that because you have not earned it. You must earn it over a year.

“So that R12m you show as a debt you owe the sponsor because you have not delivered on the league [the sponsorship deal covers]. In December [at the end of the league] it becomes income because you have earned it. The reason we remove is it is not something we have to pay in advance.”

Hluyo was asked if the auditor’s caution over Safa’s ability to continue as a going concern raises alarm bells.

“The numbers are correct to say we’ve got a net current liability position, which is why we had to come up with a turnaround strategy so we can improve this position.

“Further than that there was a decision taken at the NEC that once we have the strategy we will have a workshop so we can have full buy-in and the NEC can endorse it. We are almost done drafting the strategy to take to the workshop, which I think shows the seriousness that we want to change that position.”