The financial challenges faced by football are manifold, particularly against the backdrop of a worsening economic situation. It’s also worth remembering that they are driven to a large extent by the expectations of owners and fans. In any league half the teams have to finish below midway.
The financial challenges faced by football are manifold, particularly against the backdrop of a worsening economic situation. It’s also worth remembering that they are driven to a large extent by the expectations of owners and fans. In any league half the teams have to finish below midway.
However, the Championship has faced particular problems because clubs often overspend in an effort to reach the promised land of the Premiership. Whether its streets are paved with gold is an open question because you have to spend big if you want to stay there and then, if you are relegated, its difficult to bring expenditure down again.
This is not just a question of player contracts, but increased spending on all aspects of club infrastructure including the stadium, the training ground, the medical team and hospitality and marketing. I know from the experience of Charlton how difficult the adjustment can be, particularly if you then have another relegation.
Of course, some teams effectively accept that they will just stay up in the top flight for one season, collecting a big cheque on the way down. Barnsley, Burnley and Blackpool come to mind. Actually, if Blackpool have spent a little more on their defence, they might have got a second season in the Premiership. Burnley, meanwhile, are finding it didn’t deliver the financial bonanza they hoped for.
It is now proposed to fine clubs who are promoted but have not lived with their means in the npower Championship. The details have yet to be agreed, but clubs whose losses outstrip permitted limits by more than £10m would have to pay the same amount of the excess in a penalty to the League. The money would then be redistributed to Championship clubs who had played by the rules.
It is planned that losses would be limited to £4m in the 2102-13 accounting year, reducing to £2m by 2016-17. These figures would take into account depreciation, capital costs and youth development which leaves some room for creative accounting and ultimately legal challenges. Any proposal of this kind put forward these days has to be able to stand up to a challenge in the courts.
You can also lose another £8m, falling eventually to £3m, if it is converted into equity which many owners would be happy to do if they are benefactors (there might also be tax write offs).
10 Championship clubs are expected to announce losses of more than £5m in this financial year and four think they will lose more than the £10m figure in the following year. Leicester City and West Ham United are two of the biggest spenders in the division.
Clubs also face a number of potential revenue reductions. A continuing poor economic climate could affect gate revenues. The new television deal that kicks in next season will see revenues fall by 27 per cent to around £4m.
There are also some misunderstandings going around about how new anti-bribery legislation affects corporate hospitality at grounds which I will write about soon.