Football clubs fear business collapse as coronavirus hitsby
With the global economy on its knees due to the catastrophic effect of the coronavirus, Mark Bisson looks at British football as a case study of how the impacts are likely to hit clubs struggling on the brink of collapse.
As the coronavirus wreaks havoc worldwide, the financial impacts are being felt across UK sport – most acutely in football where cash-strapped clubs stand to lose hundreds of thousands of pounds per cancelled match.
The British football season was one of the early victims of the outbreak. After a number of players and staff contracted the virus earlier this month, the Premier League and English Football League suspended fixtures until at least 3 April and likely for many weeks after that. Leagues in Scotland, Wales and Northern Ireland also came to a halt.
Football is a self-contained world where the economic impacts of the virus can be assessed with a degree of certainty - though the knock-on effects on local communities will amplify losses as the national shutdown continues. We may no longer be able to play fantasy football, but this article applies some of those analytical skills to use football as an example of how slowdowns in other sectors might affect the UK economy.
Fearing the financial devastation and potential legal challenges from clubs if they abandoned the 2019-20 season altogether, EFL bosses met on Wednesday and agreed to release a £50m short-term relief package to assist clubs with their cash flow amid the coronavirus outbreak. The board also confirmed that it was aiming to complete the season’s fixtures. Premier League chiefs meeting today [19 March] are also expected to seek a successful conclusion to the EPL season.
“This fund consists of the remaining basic award payments being advanced to clubs immediately, with the remainder made up through interest-free loan facility available to clubs, calculated in line with the EFL’s Article of Associations,” said an EFL statement.
“The cash injection is included as part of a series of measures, that includes potential government support to help clubs and their associated businesses through this period of uncertainty.”
The financial implications for moneyed Premier League clubs receiving millions in broadcast income pale alongside the struggles facing those further down the football pyramid that depend on matchday revenues to pay weekly and monthly bills.
Football business website offthepitch.com calculated that Manchester United might lose up to £4.3m per match if they are forced to play the remainder of the campaign behind closed doors, with Arsenal and Liverpool missing out on £3.2m per game, Tottenham £2.5m and Chelsea £2.1m. It’s estimated that smaller clubs with reduced stadium capacity like Bournemouth, Sheffield United and Burnley would lose income of £200,000 to £300,000 per match.
But the crisis is starker for Championship clubs and those in League One and Two, some of whom fear going out of business. They rely heavily on gate receipts, pre-match hospitality and food and beverage concessions to survive – money that’s used to pay players and staff. The possibility of playing the remainder of games behind closed doors, if and when the season resumes, could cost clubs between £200,000 and £500,000 in lost income.
Financial crisis “catastrophic” for clubs
Rob Wilson, a football finance expert from Sheffield Hallam University, tells AccountingWEB that matchday income accounts for between 60% and 80% of total yearly revenue for League One and Two clubs.
In the coming weeks, they face a possible drop in income of 20%. “For an organisation which is only just washing its face financially, that is really destabilising,” says Wilson, referencing the huge financial problems that led to Bury’s demise last year and Bolton’s administration and points deduction.
Wilson said that top-flight clubs with good cash reserves have the ability to maintain interest payments and keep paying suppliers. But the cashflow problems for some Championship clubs and in the EFL’s second and third tiers are more acute as they are “living a hand-to-mouth existence”, with matchday income spent on a monthly basis on players’ and staff wages and suppliers – and “nothing much leftover”.
Cutting costs is not an option, according to Wilson. “The only thing they have is a reduction in matchday expenses and paying casual workers. But all the fixed costs are still there – staff, players, academy running costs.”
Luton Town chief executive Gary Sweet summed up the scale of the financial crisis for clubs and the knock-on economic impacts of the escalating coronavirus pandemic.
“We know this is going to be pretty catastrophic, not just for football, but for the global economy and certainly here locally in Luton too,” he told Sky Sports News.
“For ourselves personally, Luton Town, we’re in a good financial position but, despite that we’re going to suffer from the lack of income from the next few games and whatever might ensue afterwards.
“If such a situation as this continues then obviously we are going to have cashflow problems, but that’s something we have to deal with between now and then.”
He said the least-worst option was to play the season behind closed doors and get it finished: “I think any suspension or deferral creates a whole load of new problems – player contracts, transfer windows, Euro 2020. So I really can’t see that being a workable solution when you have got to take into consideration it’s a 10-14 week period before the virus peaks.”
David Bottomley, CEO of League One Rochdale, told BBC Radio Manchester: “We’re looking at a big impact on our finances in March. If they cancelled the season and said 'no more football' that would have a disastrous effect on our finances because we have got six more [home] games to come.
“I would fear for a lot of clubs who are probably living very hand-to-mouth and rely on gate receipts.”
On Monday, the English Football League issued a statement, saying it was continuing with contingency planning to deal with the implications of COVID-19 on clubs. “These are indeed challenging times for the league, its clubs and the game as a whole,” said EFL chair Rick Parry.
“However, now is the time for cool heads and calm reflection, rather than speculation as we look to steer our competitions and clubs through this period of uncertainty.”
With football in shutdown, clubs are scrambling to put in place contingency measures to mitigate potentially huge losses of income from matchday ticketing and hospitality that are, for many, the lifeblood of their businesses.
There’s also the additional loss of revenue streams from cancelled or postponed corporate functions and events that help sustain them. For Premier League clubs, plans for pre-season tours that typically generate millions of pounds are now being put on hold or scrapped.
Aside from the financial implications, senior management at football clubs up and down the country are assessing the human impact. This week they’re involved in discussions centred around their approaches to dealing with the repercussions of COVID-19 on their business – in terms of access to the training ground, possible home working, and pastoral care for anyone affected by the outbreak.
One Premier League club senior executive described to AccountingWEB the prevailing mood among football’s administrators, saying the challenge was “ensuring that we have staff and fan welfare at the heart of our decision-making – despite this being financially very tough for the club”.
Solutions to address financial strife?
Tranmere Rovers owner Mark Palios urged the EFL to back a plan that would allow clubs to enter administration to resolve financial issues but not be punished for doing so.
“Having been an insolvency practitioner, you could use the administration process, which was brought in to help businesses survive, in a slightly different way,” he told BBC Sport.
“If coronavirus tips clubs over the edge, there's an argument that this isn't because of financial mismanagement, it's because of circumstances, and therefore you could go into administration to get the benefits of protection but not take the sporting sanctions. That is something I would recommend.”
Wilson puts forward other ideas to ease the cashflow pressures on clubs. He said the government through HMRC “should be volunteering to relax their payment terms… asking them [clubs] not to pay VAT contributions and national insurance. Or maybe they give them a payment holiday, allowing more time to pay to support cashflow.
“We have seen HMRC be quite aggressive with football clubs. I think they will need to stop doing that for at least the next 10 to 12 months and extend payment terms.”
Wilson also suggests Premier League and EFL chiefs need to come up with a financial aid package of measures to ensure smaller clubs can survive the virus crisis.
“There’s a lot they could do, like looking to relax some of financial fair play regulations for the season,” he said.
As for compensation to plug the shortfall in matchday incomes, a hardship fund of £40m to £50m was the best way to achieve that, he proposed.
“What I’d like to see is the Premier League come out with member clubs, who each get about £120m from the recent TV deal, and offer a 2% broadcast sacrifice which they pay to the EFL,” he said.
“So about £2m per club is £40m in a pot and that becomes the EFL hardship fund. For all clubs struggling, they could apply to the fund. It’s an institutional approach to solving the problem. It wouldn’t have a huge impact on EPL clubs’ bottom lines but would do the world of good to EFL clubs.”
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Mark Bisson is a sports business reporter and editor with over 20 years experience. He currently writes about Premier League and Championship clubs for football finance website, Off The Pitch.
An Olympic correspondent for more than 13 years, he has written for many UK and international sports business publications.
Mark is a former...