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Football comes home

by Wayne Bartlett

(well, after a fashion anyway…)

At last the moment that many deprived football fans have been waiting for for so long has arrived. Several weeks after the Bundesliga restarted in Germany, La Liga sprang back into action in Spain and Serie A in Italy re-opened its doors metaphorically if not literally, the English Premier League started afresh. Forget for a moment the strangeness of the product on offer now, with its behind-closed-doors environment and a total absence of fans, in a financial sense it has come not a moment too soon. The often whacky world of football finance runs on extremely tight margins with high wages (in the Premier League at least) only possible because of TV revenues. If the TV revenue dries up – and no games 'on the box' equals no income – then clubs will soon find themselves on the edge of a precipice. The longer the football lockdown went on, the greater the chance that someone would fall into the abyss.

The effect on the wealthier clubs in the Premier League has already been huge. Tottenham Hotspur, who recently built a new expensive stadium, have taken out a £175 million loan to help them get through the short-term hole in their finances and the clubs are required to pay a £330 million rebate because of the matches that have already been lost to the TV. Add to that a loss of matchday revenue because fans are no longer coming through the turnstiles and the loss of other revenues, the collective impact is very significant. However, for most of the bigger clubs the problem, whilst challenging, is probably survivable.

Because of this concentration on the big clubs in the English Football League structure, it is very easy to overlook the impact of the pandemic on clubs in the other three divisions that currently exist. Yet in many ways their financial position is far more dangerous. Here we need to make a distinction between the other three divisions. That which is immediately below the Premier League, the Championship, is full of clubs who have stretched themselves to the financial limit in an attempt to get promotion to the promised land of the Premier League and its relative financial riches. The Championship is a league for gamblers. A recent piece of analysis showed that the average wage bill of a Championship club came to 105% of revenues. With those wages being largely a fixed cost, though some clubs have negotiated short-term pay deferrals with their players because of the pandemic, and revenues being largely variable in nature this is a very high risk financial model. Though TV revenues for Championship matches are in absolute terms far lower than those in the Premier League, they are still proportionately significant. However, the Championship is also returning for business and this will also help the clubs to survive the short-term financial hole they find themselves in. That said, the clubs' collectively imprudent financial approach means that that hole has to some extent being dug by themselves.

However, in relative terms the position of clubs in the First and Second divisions (i.e. tiers 3 and 4 in the Football League pyramid) is dire. They rely almost exclusively on gate receipts through fans coming through the turnstiles; and with social distancing preventing large gatherings that has come to a total stop. To get through the crisis they will need to dip into their reserves which in many cases are non-existent. The Chairman of the English Football League (EFL), Rick Parry, has stated that the clubs face a deficit collectively of around £200 million. In Premier League terms that would amount to a challenging but survivable hiccup; for those in Leagues 1 and 2 it is a black hole that threatens to swallow them up completely. It is worth noting that the finances of these Leagues were parlous before the lockdown; one of them, Bury FC, has already gone to the wall this season long before it took effect. Begbies Traynor, a business rescue and recovery specialist, estimated that five of the other 71 clubs involved in the lower three divisions were also already in financial trouble.

Both Leagues 1 and 2 have now brought an end to their season. Begbies Traynor estimate that another ten clubs have now joined the list of those on the brink of financial disaster – some specialists reckon the number could be almost twice as much as that. Tranmere Rovers, one of the clubs relegated when the season prematurely ended, are threatening legal action, citing the fact that going down a division will result in an additional financial hit of £1 million; that amounts to about a month's salary for a top Premier League player but for a club like Tranmere, whose last reported accounts for 30 June 2018 already showed a loss of nearly £2 million on revenues of £4.6 million, this is a massive consideration. Experts say – and it is hard to find reason to disagree with them – that the pandemic has exposed the clubs collective reliance on hand-to-mouth financial planning, something that simply cannot be allowed to continue unless dozens of clubs are to be faced with financial ruin in the future. Maybe the pandemic will succeed where football administrators have tried and failed for decades and bring the strange world of football finance closer to the normal rules of sound financial management.

Wayne Bartlett is an author for accountingcpd. To see his courses, click here.

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