Media Rights, Investment, Politics & Governance, Soccer, Europe

Jamie Gardner | EFL clubs must rein in costs to avoid financial precipice

With the precariousness of club finances in English soccer having been exposed by the coronavirus pandemic, Press Association’s chief sports reporter considers whether stricter cost controls and more televised matches will be the keys to long-term stability.

by Jamie Gardner
Jamie Gardner | EFL clubs must rein in costs to avoid financial precipice

Long before we were talking about self-isolating, social distancing and track and trace, it felt as though many professional soccer clubs in England and Scotland were hurtling towards the edge of a cliff in financial terms.

The coronavirus pandemic has accelerated that frenzied dash to the precipice and unless drastic action follows in the summer ahead, many will go over and never return.

The problems appear especially severe in the English Championship, where despite financial services firm Deloitte reporting in June that second-tier clubs had earned a collective UK£785 million in revenue in 2018/19, they made combined losses of more than UK£300 million, many months before any of us had even heard of Covid-19.

Those losses are primarily driven by spending on wages, with staff costs accounting for an eye-watering 107 per cent of earnings. No wonder English Football League (EFL) chairman Rick Parry has talked about a "financial hole" of UK£200 million facing his clubs by September.

While the Championship has managed to restart the 2019/20 season and salvaged most of its scheduled broadcasting revenue, that is not going to be the miracle cure. Nor, seemingly, is a change to the 'parachute payments' given to clubs coming down from the Premier League, which Parry sees as "an evil that needs to be eradicated". 

Revenue generation does not seem to be the issue - that figure of UK£785 million was a record at second-tier level. Everything points to greater cost control.

Let us not forget, Deloitte has been tasked with the job of presenting the cold, hard facts to players as they prepare to enter negotiations with their clubs over wage reductions and deferrals. It calculates that capping wages at 70 per cent of turnover in the Championship would wipe out that UK£300 million deficit at a stroke.

The current profitability and sustainability (P&S) rules have never really seemed fit for purpose, and appear even more of a chocolate fireguard in the world we are now in.

League One set a new revenue record in 2018/19 - UK£191 million - while League Two equalled its best-ever figure with UK£91 million generated. Wage restraint has been more prevalent at this level, but it is in those divisions where the loss of matchday revenue has been most keenly felt.

That shortfall, plus the cost of testing, was what drove the overwhelming majority of second and third-tier clubs to accept curtailing the 2019/20 season. But despite some positive noises, those clubs must face up to playing some if not all of the 2020/21 season in empty stadiums.

Dale Vince, one of the EFL's most progressive club owners, has told me his club, Forest Green Rovers, is budgeting to play the whole of next season without spectators.

One League One club I spoke to, who pride themselves on financial prudence, have opened negotiations with players who will still be at the club for the new season to accept fairly drastic wage cuts.

Parry predicts as many as 1,400 EFL players will be out of contract and without a club at the end of June. Many will find that pay packets are smaller, and contracts are shorter, when clubs look to build their squads for next season. Those less fortunate may need to find an alternative career.

Vince is one of those who is trying to be optimistic about the future. Just as the pandemic is likely to fundamentally change how many people work, it is likely to alter how we expect to be able to consume sport.

He already expects that the model being used in the Championship - where season ticket holders access their team's matches via the iFollow streaming platform, or an equivalent - will be rolled out to the lower two divisions for next season, and hopes that it remains long after the country has recovered from the pandemic.

"It’s kind of uncharted territory for clubs at our level," Vince said on the day League Two clubs voted to end the regular season. "There’s a fear that you affect gates if someone can watch a game live (on a stream) but I don’t believe that stacks up these days.

"I think there are a lot of people who would watch a game for a tenner from home on their device if they could and won’t come to a game, and that actually we can have live games and streamed games at the same time. They’re very different experiences as well – there’s nothing quite like a live game.

"It’s another great example of where the virus has come along and caused us to make a change to adapt to that, and it’s a change we probably should have made before but probably weren’t going to. I think once we’ve done it, I think we’ll like it and we’ll keep it.”

The UK’s Saturday 3pm blackout on televising matches has been lifted, and who knows if it will ever return?

In 2018/19, Deloitte found over UK£3 billion of Premier League earnings - over 59 per cent of the total - was generated from broadcasting rights. Falling advertising revenues and other pressures - such as piracy - are driving down the value of these rights domestically and internationally.

Making even more matches available to broadcasters - and hoping that match-going supporters will still thrive off the buzz of being there - may be the recipe to at least keep income stable in these troubled times.

Jamie Gardner is the Press Association’s chief sports reporter. Follow him on Twitter @PAJamieGardner.