Chris Winn | “Football is easy; life is complicated”

Chris Winn, finance academic at University College of Football Business and former co-author of the Deloitte Annual Review of Football Finance, reflects on the financial concerns in the world of the English Championship in the face of the Covid-19 pandemic

There are undoubtedly more important things in the world than football when it comes to the current Covid-19 crisis. That, however, doesn’t mean the industry is immune to its own financial concerns.

A lot has been said already about the state of play in England’s four professional leagues, from a potential £750m (€861m/$932m) shortfall in broadcast income for Premier League clubs through to simple survival for clubs further down the EFL divisions.

However, it’s in the Championship – England’s second tier – where some of the most interesting, not to mention most eye-catching, financial implications could take place over the coming months as the crisis continues. After analysing the latest accounts of 20 of the 24 clubs in the division over the 2018-19 season, it’s clear that these clubs may be forced to change and adapt to survive and succeed in the post-pandemic world.

These numbers demonstrate that the division as a whole relies heavily on parachute payments from the Premier League, as well as player sales in the transfer market. Like everything right now, a lot is unsure, however, with no games currently being broadcast on TV and the remaining Premier League broadcast distributions hanging in the balance as the division decides how to see out its own season, Championship clubs are in a perilous game of financial limbo.

However, it’s the transfer market where the biggest affect could be seen. With less money in the game being the likely scenario when clubs get back to business, inflated transfer fees could well be a thing of the past for Championship clubs.

Player trading over the 2018-19 season culminated in profits of around £230m for these 20 clubs, offsetting their £225m of player contract amortisation. Reading this, it shouldn’t be underestimated in the context of the current suspension of play what this may mean for future transfer windows. Championship clubs are extremely sensitive to cash outflows in the present climate, so 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. This is all the more important given only three clubs recorded an operating profit even before player trading – Rotherham, West Bromwich Albion and Hull City, of which WBA and Hull were also in receipt of parachute payments.

Away from player transfers and the potential problems that may cause for clubs, wage expenditure continued to be unsustainable in the main. In recent years the Championship has become synonymous with mounting losses, mostly driven by over-investment in players’ wages as clubs chase promotion to Premier League and the estimated £170m minimum returns that reportedly come with it. Last season was no different, with over half of the 20 clubs analysed spending more on wages than the revenue they generated. Reading were the worst culprits, spending more than double their revenue on wages, ultimately finishing 20th and just about avoiding relegation. However, the tactic did pay off for Norwich City, Sheffield United and Aston Villa, with all three promoted clubs featuring in the top five of the highest over-investors.

From the outside looking in, the Championship would appear to be a competition able to compete with other major leagues in Europe. Big, full stadiums; historic clubs and young ambitious managers. Last season, the 20 clubs analysed generated close to £700m in revenue. However, around one third of this –  around £230m – represented parachute payments from the Premier League to just seven clubs. All seven clubs ranked in the top eight by revenue, with Leeds United being the exception to the rule in the absence of parachute payments, instead generating funds through an efficient matchday and commercial operation.

Ultimately, overall pre-tax results for the league totalled a loss of around £265m across these 20 clubs, with only four of them turning a profit.

To quote the great Pelé: “Football is easy, life is complicated.” But as life off the pitch gets increasingly complicated it is also becoming increasingly unsustainable, and current circumstances may lead clubs to reconsider their business models. The majority of existing wage expenditure patterns clearly demonstrate no allowance for breakdowns in business continuity such as those now being experienced by all.

*This analysis considers the 20 2018-19 Championship clubs to have either published accounts at Companies House, or announce abbreviated results at the time of writing (April 14, 2020). Derby County and Brentford have taken advantage of the government’s allowance to extend their filing deadlines by three months, Bolton Wanderers have not published accounts since the 2016-17 season, and Sheffield Wednesday are not due to file until May at the earliest. While accurate league financial totals are not yet possible, the emergence or continuance of trends and patterns should still hold true. Also note figures for Wigan relate to a 13-month reporting period.