The nature of reality: Finance in the EFL

The clock is ticking for clubs in the EFL in terms of their ability to financially survive with the effects of Covid-19, money is needed, and quickly too, but who should be putting their hands in pockets…if anyone?

How should an industry which has learned nothing from the ITV Digital crash in 2002 and the economic slump created by bankers, accountants and debt rating agencies in 2007 be viewed in terms of its governance and regulation?

EFL clubs between them had a total net loss (total revenues less total costs) of £286 million in 2018/19.

Calculating profits is tricky though as they often contain one off profits such as stadium and player sales that do not occur every year.

Unfortunately, many clubs in the bottom two divisions don’t publish full accounts and so it is only possible to calculate operating profits for clubs in the Championship, these totalled over £600 million in 18/19.

Regrettably both Derby County and Sheffield Wednesday have chosen to not publish their accounts, so their figures are for 2017/18.

EFL Championship clubs have in the main lost money because of an inability to control player related costs, especially wages.

Spending more money on wages than is generated as revenue means that the finances of clubs at this level were precarious prior to the pandemic.

Due to getting a fixed percentage of the Premier League TV deal in the form of solidarity and parachute payments, EFL clubs have had some significant rises in their revenue streams over the last decade which have gone straight through to higher wages.

In 2017, for example, at the start of a new Premier League TV cycle, Championship income increased by £148 million mainly due to this deal but wages increased by £153 million.

Some clubs in the Championship, and many further down the EFL pyramid do try to operate a tighter financial regime but this is difficult with so many others in an arms race on wages and transfer fees chasing promotion.

In a division where the highest wage bill is 12 times that of the lowest it is difficult to have sympathy for those clubs paying out wages of over £1 million a year (£19,230 a week). 

Nevertheless, there is a real danger of insolvency, especially in Leagues One and Two, who only get 12% and 8% respectively of the broadcasting deals in the EFL.

Premier League 

The head of the DCMS, Oliver Dowden, has said the Premier League should ‘step up to the plate’ and provide financial support to EFL clubs, who are potentially looking at a £200 million income shortfall in 20120/21.

EFL clubs however received about £348 million from the Premier League in 2019/20 in the form of parachute payments as well as solidarity payments of £4.5m for Championship teams, £670,000 in League One and £450,000 in League Two.

Giving further funds to the EFL therefore grates with some Premier League club owners, who point to the potential £680 million shortfall in revenue they will suffer if matches continue to be played behind closed doors for 2020/21.

Reliance on matchday income is less critical for Premier League clubs than it is for those in the lower leagues, with 13% of total revenue coming from this source for the top tier compared to over 40% for many clubs in League Two.

Additional to parachute/solidarity payments, Premier League clubs have paid those in the Championship over £100 million during the summer by recruiting the likes of Nathan Ake, Ollie Watkins and Callum Wilson.

The Premier League clubs also point to the fact that they have not, unlike many companies of a similar size, used the government furlough scheme (and when some did contemplate this approach performed an immediate U-Turn due to fan displeasure) and that some Championship clubs (Birmingham, Villa, Reading, Sheffield Wednesday and Derby) sold their stadia to club owner controlled companies for nearly £1/4 billion in 2018.

Government

It is the government who introduced the rules preventing football matches taking place before a paying audience, so should the government bear some of the financial cost that could cause the industry to lose some clubs over the next few months?

Over the course of the pandemic the football industry has been used as a target (Matt Hancock’s comments about player wages) and a source of positivity (the initial pilot schemes were championed as success in combatting the disease) by politicians.

No one is suggesting that the government pays all of the costs incurred by the industry, but for those clubs in the EFL who are suffering as a result of being unable to generate revenue, there is a sense of frustration that the government is focussing on the Premier League and ignoring the position of those further down the pyramid.

If the government can provide grants for the entertainment industry and the National League to allow it to play, should the same be the case for the EFL?

Some clubs in the EFL, such as Shrewsbury, Lincoln, Tranmere and Accrington Stanley not only operate on tight budgets but also are integrated into their local communities, offering respite and schemes for those most in need of help, and surely such efforts should be recognised?

The problem could be that the EFL does cover a range of clubs from those paying out wages varying from small tens of thousands a year to over a million, which makes it difficult for the government to be seen to be financially supporting all three divisions.

Having a scheme which is linked to individual club’s personal circumstances is a potential solution, but this would take time to implement and in the intervening period clubs could become insolvent.

English football is part of the fabric of our society and as such deserves preserving, the financial cost compared to other schemes is relatively low.

By supporting football, however, would the government be setting a precedent for other sports and outdoor related industries who would also be after financial investments?

EFL clubs in the main don’t pay much corporation tax as they nearly all lose money but do provide employment both directly and indirectly (transport, pubs, restaurants on match days etc) and so contribute towards HMRC’s employment tax receipts.

EFL Itself

Some people might take the view that the EFL, combined with clubs and owners, who are worth an estimated £32 billion between them, should take on the responsibility for funding the game during the pandemic.

The EFL is however only an organisational body, sometimes working for, sometimes at loggerheads with individual clubs in terms of agreeing and implementing rules.

A look at EFL finances does show that it has been a lucrative place of employment for some though.

Looking at wage figures at the EFL it does seem strange that someone’s salary shot up from 2016 onwards but critics will say that there was no improvement in the governance or financial success of the organisation.

Bury, Bolton and Macclesfield fans, and probably some from other clubs too will point to the continued self interest that appears to be the driving force of how the EFL operate.

Under Jonathan Taylor QC a governance review did take place earlier this year and the main proposal, that of the appointment of independent directors on the EFL board, was rejected.

Making a good case for financial support from other parts of the football world is now more difficult for the EFL when its own governance structure is called into question.

Gambling Companies

English football has proven to be very lucrative for gambling companies, with the likes of Bet365 generating over £64 billion in wagers that generated £3 billion of profits.

Viewers of football on TV will have noted that many shows are sponsored by betting companies, the EFL itself is sponsored by Sky Bet and over half of Championship clubs have front of shirt sponsors from the industry.

Even when a House of Lords Select Committee report recommended a front of shirt ban from betting companies recently the EFL acted as a cheerleader for the bookies by responding “The association between football and the gambling sector is long-standing and the League firmly believes a collaborative, evidence-based approach to preventing gambling harms that is also sympathetic to the economic needs of sport will be of much greater benefit than the blunt instrument of blanket bans.”

Reading between the lines the EFL clearly thinks that gambling companies are somewhere between Mother Theresa and the NHS in terms of the positive impact they have on society.

A 1% levy on gross bets placed could bring in substantial sums to the government and this could be used to finance EFL club finances and that of grass roots football too.

However, help is needed now, and it could take too long for legislation to be introduced in time to prevent clubs disappearing.

In addition, the betting industry could potentially go even further offshore than it is presently, and the government could end up out of pocket as a result.

Conclusion

The Premier League (probably) and EFL club owners (certainly in the bottom two divisions) can’t pay for the full shortfall with a full ban on fans attending games for its own games. The Premier League might be more supportive of a limited form of support for clubs in Leagues One and Two, perhaps the bottom of the Championship too, but this will not be a free lunch, and there will be some ‘concessions’ sought from the lower divisions.

The government is under pressure from a variety of industries to give them support, of which football is one. In the short term it could help as it has done in the National League in the last week, longer term it might look for some form of increased transparency and better governance from EFL clubs.

The betting industry has been a major beneficiary of football since the sport lockdown was lifted, but its lobbying power and ease at moving operations overseas means that it is not a short term solution to clubs that are already worrying whether they can pay the wages at the end of October and November.

Published by The Baron

I write about football finance, and listen to music that was last popular in the 1980's.

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