English football clubs face financial problems outside PL
Despite Liverpool winning the Champions League title for the sixth time in an all-English final, there has been a six-fold increase in financial distress in football clubs beyond the Premier League, while Scottish clubs are holding up better
4 Jun 2019
The Begbies Traynor annual football distress report shows six clubs (8%) across the Championship and Leagues One and Two are currently showing signs of serious financial trouble with late payment of players’ wages becoming a regular feature of the season.
This spike follows a period of improvement for the past five years which saw the drop in distress fall from its peak of 11% to a record low of 1% of all league clubs in 2018.
Gerald Krasner, partner at Begbies Traynor and former chairman of Leeds United, said: ‘While the trends have been generally good since the early years of this decade, we’re now seeing signs that over spending on playing staff and poor planning are on the rise again, especially in the lower divisions as the fortunes of the Premier League and the rest of football become more and more polarised.
‘Late payment of players’ wages is again becoming commonplace, and Bolton Wanderers’ financial woes and the recent collapse of the club’s sale is certainly concerning.
‘It appears that the effects of gambling on promotion and higher than achieved league positions might be coming home to roost for some clubs, and with stagnant attendance figures that gives clubs a financial problem in subsequent seasons.’
Average gates in the Premier League were static at just over 38,000 and there have been slight falls in attendances in the Championship (down 1.5% from the year before at just over 20,100). Only Division One gates saw an average increase, up by 11.5% to just over 8,600 per match in the season to the end of March 2019.
Krasner said: ‘With the gulf between the top and bottom clubs growing ever wider, the cost of relegation is becoming increasingly significant. What is encouraging is to see the progression of relatively small clubs into the top flight, and some examples of frugal well‐run clubs such as Huddersfield Town this year, who remain in a strong financial position despite early relegation from the top flight.’
Begbies Traynor’s analysis says that since the start of the Premier League in the 1990s, with an increase of overseas investment, the top two English leagues now attract the largest football viewing audiences in the world.
Huge TV deals have generated an increasing proportion of English club revenues and sponsorships, rather than ticket sales and the cultivation of talent that was once a mainstay of football club income.
Financial fair play rules
But there are some constraints on spending since the introduction of tighter governance of club spending in 2012. The financial fair play rules are biting with Manchester City facing a probe by FIFA's into top adjudicatory chamber, the Club Financial Control Body, over whether the club breached FIFA's break-even rules over sponsorship accounting, which could put their place in the Champions League at risk while Chelsea is under a player transfer ban until January 2020 over breaches of under-18 transfer rules.
Krasner said: ‘UEFA’s financial fair play (FFP) rules, that came into effect in England and Wales in 2012, have encouraged the majority of football clubs to limit the huge losses that were all too often seen when reckless chairmen and directors gambled on promotion to the globally lucrative Premier League.
‘We hope these clubs can turn the ship around and plan more realistically to recover their stability of a year ago, but relegation or missing anticipated promotion could be a financial and business disaster for some clubs this year.’
Scottish football finances
The position in Scotland is markedly different, partly because of less reliance on TV revenue, and also as a result of clubs working to address previous failings, particularly the issues at Rangers, where the club went into liquidation and was forced down two divisions in 2012.
Begbies Traynor says none of the 42 clubs that make up the first four divisions of Scottish football are currently showing signs of serious distress, down from a peak of four clubs in 2012 and 2013.
The Scottish Premiership saw a 1% rise in average attendances to just over 16,000 on average, the highest figures recorded since the survey began. A 7% rise in average Scottish Championship gates to 3,090 was countered by falls in average gates in League 1 and League 2. Overall, attendances have risen by close to 17% since the 2011/2012 season.
Ken Pattullo, head of Begbies Traynor in Scotland, said: ‘We’re a long way from the days of Rangers’ 2012 failure when a clutch of clubs were teetering on the brink, with a bleak future and out of control finances.
‘In contrast, sensible spending, mature business decisions and careful prudent planning across the sport have created a very different scenario today.
‘To say we won’t ever see a club get into trouble again is impossible, but just five years ago we would have said another big failure was probably not unlikely, and the efforts of the clubs have put Scottish football into a far better place in a relatively short period.’
By Pat Sweet, additional reporting Sara White