Gap widens between have and have-nots of English football
While revenues continue to explode in the land of milk and honey that is the Premier League, elsewhere in English football the picture is far less rosy. Beyond the top tier, fewer than 20% of clubs describe their finances as “very healthy”, as they play a high-stakes game of spending beyond their means to achieve promotion.
Beyond the lofty broadcast revenues of the English Premier League, many of English football’s oldest clubs are in a financially precarious state. To the despair of loyal fans, throughout the 2018/19 season a number of lower-tier sides have flirted with collapse: while Notts County’s beleaguered ownership endured a face-off with tax authorities, Blackpool FC entered into receivership to find a buyer.
The worrying trend has already bled into the following campaign, too. Since the end of last season, Bolton Wanderers has been desperately seeking new ownership, flirting with liquidation before administrators from David Rubin & Partners finally brokered a deal to keep the club afloat. Sadly, Bury FC did not have as much luck, and thanks to the perfect storm of a neglectful manager, a turbulent market, and a regulator seemingly asleep at the wheel, the historic club closed the doors to Gigg Lane at the end of August, having been kicked out of the English Football League (EFL) after failing to provide proof of its financial sustainability.
The news comes just months after Bury secured promotion from League Two, and according to two reports from the consulting world, they are not the only ones to have overstretched themselves while chasing glory. Indeed, Bury may be just the tip of the iceberg, thanks to the ever-growing gap between the top tiers of English football and the rest of the country.
Figures compiled by Big Four audit and advisory firm Deloitte have revealed that the total revenue of the Premier League has risen by roughly £200 million in the last season, to sit at £5.24 billion – or enough for each team to bag £261 million per year. While the ballooning commercial and broadcasting revenues of English football’s top table mean each team is almost £10 million better off than last season, the wealth is not permeating far beyond the Premier League, meaning many teams are breaking the bank to access it, even for just a season.
The Championship has seen its revenues grow marginally, with the nation’s second highest division bringing in £749 million in the 2017/18 season – £29 million more than the year previous. At the same time, teams in the Championship also see revenues buoyed by parachute payments from the Premier League for several seasons after they are relegated, a procedure aimed at softening the blow and helping clubs work to restructure their finances over the long-term to prepare for less lucrative futures. Just one tier down, however, the fact that English football may be on the verge of a crisis becomes much more clear.
In League One and League Two, revenues are stagnating. According to Deloitte, League One clubs brought in a collective £146 million in revenues during the 2017/18 season, and League Two saw an even more sparse £91 million – or roughly one-third of what a single Premier League club will enjoy in the 2019/20 season. The average League One club has a revenue of £6 million, and a League Two club just £4 million.
Looking at this data, it soon becomes painfully clear just why the owners of lower league teams seem so willing to bet the house on chasing promotion. Purchasing a club in one of the lower tiers is often an incredibly cheap investment – Steve Dale bought Bury FC for £1 in December 2018 as the club was already in financial difficulties – before the team managed to achieve a surprise second-place finish in League Two. Had the team have survived another promotion, revenues could have boomed to £31 million for just one season in the Championship.
Indeed, beyond that, were a business person to purchase a lower-level club in the Championship for a relatively low amount, achieving promotion to a league where clubs see revenues in the hundreds of millions represents a major opportunity for a profit. As a result, a growing number of clubs further down the footballing food chain have been subject to take-overs by investors intent on doing just that. While in some notable cases, such as Leicester City or Wolverhampton Wanderers, this has seen some clubs reborn as forces to be reckoned with, it can also result in disaster, particularly as there is so little scrutiny on such investors.
Betting the house
What was previously known as the “fit and proper person’s test” is overseen by the EFL, and sees those who want to become owners of English clubs asked to satisfy certain requirements, such as not having an unspent criminal conviction for fraud, not being bankrupt, and not being banned from serving as a company director. Anyone who wants to be a director or owner is asked to provide information – but there is no investigatory element by the authorities. As a result, owners like Steve Dale are able to take the reins of a club with relatively little push-back, before the cracks start to appear.
According to a second report by professional services firm BDO, only 11% of League Two teams and 24% of League One teams’ finance officers said their clubs were “very healthy”. This makes stark reading when compared to the 56% of League Two who said attention was required to stem financial problems, and the 59% of those in League One who conceded “things could be better.” With revenues having plateaued in these leagues, while spending shows no sign of slowing, a huge number of football’s smaller teams could soon find themselves on the brink of becoming the next Bury or Bolton.
Further up the pyramid, however, Premier League and Championship clubs would be kidding themselves to think they were untouchable, according to BDO. The study found that in order to avoid tumbling down the divisions and suffering drastic losses of revenue as a result, after player-trading only 42% of Premier League clubs and 24% of Championship clubs are expected to turn a profit in 2018 compared to 89% and 28% respectively this time last year. At the same time, 80% of Championship clubs are spending over 75% of revenues in player wages, well above their own target levels.
As a result, roughly two of the Championship’s teams are likely in acute financial distress. BDO’s survey found that 7% of respondents in the division called their finances “a cause for concern”; and while the Premier League saw the highest number of “very healthy” teams at 50%, at least one team in the top flight has intimated that “attention is needed” to avoid further problems. Indeed, Portsmouth’s infamous collapse in 2010 suddenly feels much less distant.
During the 2009/10 season, it had become apparent to the club's new owner Balram Chainrai that Portsmouth were approximately £135 million in debt, so to protect the club from liquidation, Chainrai placed the club into administration. This triggered a chain reaction which led to the rapid decline of the 2008 FA Cup winners, and following a second administration, the club currently plays its football in League One. Considering the amount Premier League clubs are clearly investing to stay on top, it may only be a matter of time before history repeats itself.
Commenting on the state of play, Ian Clayden, Head of Professional Sports at BDO, said, “Based on what many of the clubs are telling us, the current financial governance structure of English football requires some adjustment. In too many cases, promotion to the Premier League, and thereafter Premier League survival, is out-ranking cost control. The resulting player cost inflation – whether it be wages, transfer frees or agents’ fees – is forcing many EFL clubs to live hand to mouth, with reliance on player trading as a secondary profit centre.”
