April 20 – The English Football League’s announcement that games in its three divisions will return behind closed doors once government Covid-19 restrictions allow, will not solve what is an increasingly worrying financial health picture for the three tiers of professional football below the Premier League.
Research by Chris Winn, finance academic at University Campus of Football Business (UCFB), finds that clubs, particularly in the second-tier Championship, will need to “adapt to survive” when the season restarts.
Winn analysed accounts of 20 of the 24 clubs from the 2018/19 season. He found a perfect storm of an over reliance on Premier League parachute payments and TV money, and huge player wage bills, combining with what will likely be drop in player transfer values to create a club market spiralling out of control.
More than “half of the 20 Championship clubs analysed spent more on wages than the revenue they generated as they chased Premier League glory, with Reading being the worst culprits spending more than double their revenue on wages despite finishing 20th that season,” found Winn.
Of the £695 million revenue generated by these 20 clubs, about a third – £230 million- was generated by parachute payments from the Premier League to seven Championship clubs. All seven clubs ranked in the top eight by revenue, with Leeds United being the exception.
Winn found that only three clubs recorded an operating profit before player trading – Rotherham, West Bromwich Albion and Hull City, of which WBA and Hull were also in receipt of parachute payments. With player trading over the season culminating in profits of around £230 million for these 20 clubs, offsetting their £225 million of player contract amortisation.
“With clubs currently extremely sensitive to cash outflows, the dynamics of the 2020/21 transfer windows may be severely affected. If there is a general tightening of the purse strings or a diminishment in player valuations, what represents a major component of many Championship clubs’ income streams may diminish,” said Winn.
Looking at the overall pre-tax results for the league, which totalled a loss of £265 million across these 20 clubs, just four clubs made a profit. It is a position Winn says is “unsustainable”.
“The current circumstances may lead clubs to reconsider their business models, with the majority of existing wage expenditure patterns clearly demonstrating no allowance for breakdowns in business continuity such as those now being experienced by all,” said Winn.
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