Posted: 11 / 09 / 2020
By Dan Wilson, Audit Partner at Sedulo
The return of football over the summer with a barrage of games, some even on free-to-air, proved one thing beyond doubt. Football is nothing without fans.
Football club finances will be under increased pressure these next couple of seasons. They have all taken advantage of tax payment plans, government loans and league cash advances to help them through the short term, but long term this will need repaying. Gate revenues, sponsorship income and even the cash available to owners to invest in the club are all going to reduce these next couple of years, and therefore so must costs. The FA has confirmed replays have been scrapped and prize money halved in the FA Cup as a result of the pandemic, further reducing revenue streams.
Purse strings tightening?
There are already a record number of players as free agents, over 1,400, as clubs begin to cut their squads and an industry that has seen wages rise exponentially in recent years will surely see a drop as supply far exceeds demand. A lot of these lower league players aren’t earning big money, they have mortgages like everyone else and lower league clubs don’t have large TV deals to fund them. These are worrying times for the lower league clubs and players alike. Dover in the 5th tier of English football has already announced that all their players are available on a free transfer as they are struggling to be viable for next season with uncertainty of when fans can attend. Clubs further down the pyramid have already withdrawn from their league, the effect is being felt on an industry that for so long has lived on the edge.
Now is the time for owners to invest
Owners who are willing to invest money into the industry need to be encouraged right now, but they do have to prove that commitment. If you do have an owner who is willing to fund the club via equity, not putting debt on the club and can lodge the required cash at the start of the season, I personally don’t see the issues. It allows fans to have that opening season optimism without the same few clubs winning the trophies, as well as driving some much-needed funds into the industry. Manchester City has proven Financial Fair Play can’t be enforced, yet clubs are having to look at creative ways to show a profit. Barcelona and Juventus swapped players for 72 million euros to generate additional profit and clubs in England have sold their grounds to owners at a profit to reduce losses to try and get around the rules.
The counter-argument is that this can be a time to reset the industry, deflate wages and allow clubs to run more sustainably in the long term, but this is football. There will always be clubs spending money on wages and running at a loss and everyone else will try and compete. They do have a choice though and clubs can compete on much smaller budgets if they get their recruitment right and plan long term rather than focusing too much on next season.
The above means greater scrutiny of club finances is required, ensuring they are factoring in cash flows, debt repayments and adjusting income accordingly and that losses can be funded by owners. The English Football League’s fit and proper owners test has failed numerous times these last few years, with the final straw being Wigan entering administration 4 weeks after being taken over, with the virus not to blame. It’s now time for them to lead by example, enforce strong governance and help navigate their member clubs through these choppy waters and ensure fans can return safely as soon as possible. They need to rebuild their reputation and never has the time been more like the present. Premier League clubs can also play their part by buying local, the next Jamie Vardy will be out there.
Some might say why should there be any sympathy towards the multi-billion dollar football industry, but that’s like saying why should I feel sorry for my local corner shop and its employees when Tesco earned £2.9bn last year. The Premier League is largely recession-proof, the lower leagues aren’t, that new season optimism replaced with worries about clubs being able to see the season out.
These clubs are an important part of local communities and both the government and governing bodies need to do what they can to ensure fans can safely return to the stadium, otherwise the football landscape in the UK will change forever.