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Football finances laid low by virus

The pandemic unmasked the frailties of football finances at all levels, but the weakest clubs are likely to suffer the most, reports Mark Bisson.

11th Jun 2020
Sports business reporter
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Premier League and Championship football teams return to action behind closed doors on 17 June in the face of huge financial repercussions from the coronavirus crisis.

Since football leagues suspended their seasons in March, clubs have seen massive drops in their broadcasting, matchday and retail revenue streams – an experience that will be well understood by companies in other entertainment sectors, if not always at the same scale.

Struggles at the top

Football’s mega-rich top tier has not been immune, with Tottenham Hotspur taking out a £175m loan from the Bank of England to tide it over a cashflow gap.

Tottenham and all the other English Premier League (EPL) clubs are required to pay a £330m rebate to Sky and other broadcasters. With the rest of the season taking place behind closed doors, clubs will lose out on matchday revenues from catering, retail and other operations that have been shuttered since mid-March.

Presenting Manchester United’s latest financial results in May, executive vice-chairman Ed Woodward noted it had not laid off or furloughed any staff during the Covid crisis, thanks to its robust business model and financial resilience.

As of 31 March, United had a £90.3m cash balance together with an additional £150m available under the company’s revolving credit facility.

But Woodward warned about the new economic realities facing the game. The next two sets of quarterly results would reveal the scale of the fall-out from the football shutdown. It would not be business as usual for some time, he added.

Manchester United expected to bounce back strongly by adopting a prudent and cautious approach to cost controls, the transfer market and any significant new capital projects.

Burnley CEO Neil Hart made similarly resolute comments this week about the loss of TV and matchday revenues from the Clarets’ final four scheduled home matches.

“We will be like any other business; this will cost us,” he told the club’s website. “As a club we are resilient, we are strong, we’re unified and we will ride this out and we will come through this and hopefully it won’t be too long before we’re back to normal.”

Spurs, United, Burnley and other EPL clubs appear well-equipped to adapt and survive the pandemic, but the forecast is grim for clubs in the Championship and Leagues One and Two.

For Championship clubs, Liverpool University Management School football expert Kevin Maguire said that around one quarter to one third of clubs’ revenues come from matchday income, excluding parachute payments for clubs relegated in previous seasons. Many second-tier clubs already lose at least £20m per year, with lack of game income now worsening losses, he added.

Business interruption insurance policies might pay out for some, but the future resilience of many Championship clubs’ who have previously relied on owners to bail them out in tough times “really comes down to the wealth and inclination of the owner” to continue bankrolling them.

Distress in the lower leagues

In contrast to the top two tiers with their rich benefactors and hefty TV revenues, Leagues One and Two of the English Football League (EFL) voted on Tuesday to end their seasons, with promoted and relegated teams and play-off places based on a current points-per-game basis.

Ahead of the decision, EFL chairman Rick Parry said clubs faced a “£200m hole” in their finances by September, acknowledging that some may go bust.

“The aim is to make sure all the clubs survive and we will be working 24 hours a day to make sure they do,” Parry told BBC Sport on Wednesday.

During the crisis, many lower league clubs have had to furlough non-playing staff, defer players and find other ways to cut costs. Oldham Athletic, for example, revealed that income for March 2020 was £225,000 lower than in March last year, and matchday and commercial income for April and May was “close to zero”.

Kieran Maguire from Liverpool University pointed out that while income plummeted and clubs were refunding season tickets, they still had to foot enormous player wage bills and outstanding transfer fees.

“They’ll be hurting quite a bit. It’s a big cash drain for clubs,” he said.

Insolvency specialist Begbies Traynor’s eighth Football Financial Distress report filled in some additional details. Pre-lockdown Begbies estimated that five of the EFL’s 71 clubs were in major financial distress following Bury FC’s expulsion from the EFL last August.

“Unfortunately those clubs with wealthy foreign owners may not necessarily be immune from disaster either,” said Begbies Traynor partner Gerald Krasner, who used to be chairman at Leeds United.

“Overseas owners will be forced to respond to the effects of the global pandemic on their own finances and business interests, and for some that could mean that ownership of an English football club is simply no longer viable,” he said.

Krasner now estimates that at least 10 clubs in leagues one and two are in danger of financial collapse due to the effects of the pandemic. Rob Wilson, a football finance expert from Sheffield Hallam University, thinks it could be even more, estimating that 15 or 16 league clubs could go into administration by the year’s end.

Keep an eye out for Macclesfield Town. The League Two club, already docked 11 points for non-payment of player wages, faces another EFL punishment for late payments in March – and possible relegation to the National League.

Relegation impacts

Tranmere Rovers chairman Mark Palios, once of PwC and former chief executive at the Football Association, put forward proposals to the EFL on equitable ways to end the season. After these ideas were rejected, his club was relegated to League Two.

“The consequence of what has happened, if not overturned, is that we now have to prepare for a drop of approximately £1m in our income next year, over and above the financial stresses of having no gate income,” Palios said in a club statement.

“Inevitably, this decision will have a knock-on impact on the capital projects we had planned and lead to a reduction in staffing numbers.”

Krasner said clubs need to take drastic action and think outside the box to survive. “If they don’t change their attitude and do something, football at the lower levels will disappear,” he told AccountingWEB.

Club owners should dig deep to inject new investment or seek it from elsewhere, including offering supporters a stake in clubs, he added.

Wage caps for players would be difficult to push through “unless everybody agrees”, he said. “Things that never been thought before now have to be considered.”

A test of resilience

Wilson described Covid-19 as “a test of resilience of club finances”, with well-run clubs such as Plymouth Argyle and Accrington Stanley likely to fare better than others.

“The pandemic unmasked the frailties of football finances in general,” he said. “So many clubs in the EFL run on a hand-to-mouth existence. Revenue comes in and goes back out on player wages.”

With 1,400 players in the EFL out of contract this summer, Wilson predicted wage reductions as clubs seek to manage their reduced income profiles. More loans and free transfers are likely as clubs tighten their purse strings. Further EFL relief schemes were needed to ease short-term cashflows while more financial fair play regulation was necessary in the longer term.

Constructing a fair system of salary caps or wage limits to ensure competitive balance would be “hard to manage and will stretch the pyramid”, Wilson warned.

Replies (7)

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By markabacus
12th Jun 2020 10:39

The greed of the few paid for by the many. A sport that has been destined to go 'bust' as the players bleed the fans and media dry with their ridiculous pay packets for kicking a bag of wind around a patch of grass.

Not a great business model and money has just spoilt it all

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By Felis Catus
12th Jun 2020 11:16

I've tried but I can't feel any sympathy whatsoever for football, a business built on decades of greed and tax fiddles.
As a more "mature" person I can remember when professional footballer's wages were capped at £20 a week which was about double what the average factory worker earned. Nowdays there are players on anything from £100,000 to £300,000 a week, damit they earn nearly as much as accountants :)
Football is no longer a "working man's sport", two people going to a premiership game will spend £20 on transport & £100 on tickets, which puts it out of reach of many. The cheapest seats at our local Championship club are £35, and the cheapest seats at one premiership side are £65 each.
Maybe a threat to their survival will force football to reconsider it's decades of greed.

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Replying to Felis Catus:
By Ruddles
13th Jun 2020 16:49

This from someone that is happy to help fill those same players’ pockets and pay the exaggerated price of a season ticket at The Emirates - a stadium more than 200 miles from his home where there are local clubs that could much more do with his support.

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By graydjames
12th Jun 2020 12:31

I wish I could agree with the comments above, but I fear it is not the players bleeding the fans but the fans, in some cases through the TV companies, fuelling the money pot that pays them. This is all due to that good old invisible hand of Adam Smith. The plain fact is that, in the Premier League especially, the hysteria that football attracts means that so many people feel almost obliged to either attend matches or follow things on Sky/Prime/BT Sport or wherever. They have to be part of it, to be part of the conversation at the office or factory on Monday morning. This hype is inflated by the TV companies who engender, with their constant self-advertising, a sense that football is an unmissable spectacle. Add to this mix those hard core supporters who will watch "their" team in any circumstances and you have a demand pressure that inevitably allows clubs and TV companies to charge more or less what they like. Supporters moan about prices but they always turn up and, in the Premier League at least, fill the grounds and pay their silly monthly subscriptions to Sky.

At a time when football could be said to have been more affordable, and most supporters were genuine football fans, before all-seater stadia, my home team would typically attract around 25,000 fans, in the old First Division. Sometimes more, sometimes less. Now, when football is said to be beyond the pocket of your typical working person, the same club, manages to fill, at almost every home game in the Premier League, its 32,500 seater stadium - and is looking to increase capacity to 40,000.

Players are greedy perhaps, and I am no advocate for them, but they are no more greedy than pop stars, film stars, top TV personalities, people working the City and the heads of many large corporations. It is simply a matter of demand and supply.

I used to be a season ticket holder, and a Sky Sports subscriber, but I came to realize (not least when I could see that many of the people around me knew nothing about football and were there only to be a part of it) that I no longer wished to fuel this gravy train and now I have neither and I have not watched a football match in the UK in over five years.

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By colinhigginson
12th Jun 2020 12:36

it's all well and good bemoaning the salaries at the top level and harking back to a bygone age but they bygone age was a time where the people who deserved the reward were not rewarded. United under the Edwards were happy to take their dividends annually whilst the players were, quite literally, underpaid for entertaining 50,000 fans each match. Market forces dictate how much players are paid and nobody is holding a gun to the head of owners forcing them to pay these wages.
By all means the sport is no longer structured to ensure fair competition, with the big clubs ensuring they retain as much of the income as possible whilst watching clubs who used to be their feeder clubs fall by the wayside.
If it is so easy to earn millions for kicking a bag of wind around then why isn't everybody doing it?
You don't see Americans bemoaning the salaries of top sports stars in the same way we do however at least the US draft systems help to allow decent competition.

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Replying to colinhigginson:
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By dwgw
12th Jun 2020 16:02

Well said. Players are soft targets & there's always been a whiff of class snobbery about the attitude to lads from less affluent backgrounds exploiting their talent for football, boxing, music etc and making a lot of money doing so. Why shouldn't they? They're the ones generating the interest and the revenue.

CEOs & those earning megabucks in the City - or even at the top of big accounting or legal firms - are assumed to have earned their wealth, however tenuous their contributions to real economic value might be. Many are certainly no more worthy and often less so.

If there's a structural and financial problem in football, that's not the players' responsibility.

It's at the lower league levels that the financial fallout from the pandemic is being most keenly felt. These clubs are often integral parts of the communities they represent and provide valuable services within them. Most of the players at these clubs aren't on spectacular wages, their careers are short and always at risk of premature ending through injury or loss of form or favour.

As the article discusses, these are the clubs that could be lost - not just in the EFL but scores more in non-league football too. These are the players and support staff who'll be out of work - ordinary wage earners with families to support, not wealthy young men with flashy cars.

Football is much, much more than the 20 clubs on the Premier League's continuing gravy train. There needs to be a far greater "trickle down" of wealth if the integrity and fabric of the sport - not to mention thousands of jobs - are not to be lost and communities diminished.

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Hallerud at Easter
By DJKL
15th Jun 2020 12:20

I have never truly understood why the kneejerk reaction , as seen above,is always "vast salaries, players bleeding game dry etc etc". I accept that in the English Prem, English Championship and a small part of Scottish Prem the wages are high and quite often the talent is shaky, but chances are they are not the clubs in the firing line here, it will be the non league and lower league teams that will take the brunt, maybe disappear forever.

Whilst the ownership of the bigger clubs might have to change they at least will still exist at the end of all this, a lot of fans will lose their teams and it is the players from this lower segment who will find themselves out of contract and forced to take permanent pay cuts to continue , even part time, in football.

I, for one, do have sympathy for the vast majority of clubs.

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