‘COVID-19 is just the accelerant of the smouldering problem that has been there for some time in football’

Covid-19 News | Reports | Sport

Football is back. It might not have the fanfare, packed stadiums or the same level of sporting intensity – but for many across the country, it is a welcome return to some form of normality.

As it is with all areas of business, entertainment and sport, COVID-19 has left nothing but devastation in its path – and football is no different. BLM investigates the true impact of the virus and what the future holds for the beautiful game.

Football is big business in England, Europe and across the world – and the impact of coronavirus has severely damaged club finances, to the point where many teams could be facing a very difficult future.

Although the Premier League is back on our televisions, behind the scenes, both the clubs and the sport’s governing bodies are looking at the best ways to keep the sport going – whilst also being conscious of government-mandated rules, as well as the health and wellbeing of all involved.

The FA told Business Leader: “These are unprecedented and challenging times for all industries around the world, and football is no different. We continue to work tirelessly with the football community, across every level of the game, to assess the impact of the coronavirus, whilst taking the important steps to support the welfare of clubs, players, staff and supporters. During this consultation period with our football stakeholders, we will continue to follow government advice and provide ongoing support for the game as we plan for football to resume, when it is safe and possible to do so.”

With many experts – both football and financial – warning of the end of the game as we once knew it in England, can it recover from the impact of COVID-19?

Impact on the Premier League

Often described as the ‘best league in the world’ by pundits and fans alike – the Premier League has not been immune to the devastation of the coronavirus pandemic.

Christopher Winn, Programme Leader – MSc Football Business, University Campus of Football Business, said: “Ultimately, the suspension of play has shone a light on just how critical cash flow management is across all levels of the game. In the Premier League, matchday revenue accounted for just 13% of revenues in the 2018/19 season. However, despite historically contributing the least to the revenue mix of Premier League clubs, matchday revenue will still be the most consistent cash inflow received by clubs in the course of paying the high and frequent levels of staff wages and other operating costs.

“In the course of the suspension of play, and subsequent decision to play behind closed doors, Premier League clubs are likely to forego a cumulative £150m in matchday revenue across domestic and cup competitions alone, with the Premier League ‘Big Six’ potentially footing c.£100m of this given their crowds and potential remaining number of home games across all competitions.

“The receipt of significantly larger broadcast revenues (exceeding £3bn in 2018/19), whilst likely to be more infrequent from a cashflow forecasting perspective, should also not be discounted from the suspension of play situation. If the season did not recommence, broadcasters would have been due a rebate in excess of £760m from Premier League clubs. Even by playing out the remainder of the season, a rebate of £300m-£350m could be due given the change in timing and product compared to normal. With such cashflows usually a given, from a forecasting perspective, issues may arise where clubs have spent this money in advance.”

Dan Plumley, Senior Lecturer at Sheffield Hallam University, agrees: “It’s had a huge financial impact on the EPL. Clubs only get their money three ways – matchday, broadcasting and commercial. If you look at the first two, clubs have had nothing coming in since the pause on football. Likewise, many commercial deals could be paid up front or pro-rata. So many clubs have had no income at all coming in, but they have still had costs to pay – most notably player wages. Also, a lot of matchday income is up front, in terms of season tickets, and is often spent in the summer on player acquisitions, so it really is a significant financial hit for all clubs.

“The EPL chief executive himself suggested the cost could be around £1bn for the EPL. A huge financial hole and nobody is immune, just some are better placed to cope than others.”

Impact of the Football League

It is clear to see that the business side of the sport has been shook to its foundations, with many that are heavily reliant on matchday, commercial and television revenue to keep them afloat.

Where the Premier League is afforded the eyes of the world viewing and investing into it from fans all over the world, the rest of the football pyramid has had to deal with the impact of COVID-19 differently.

Kieran Maguire from the Price of Football comments: “The balance sheets of Premier League clubs are in the main stronger than those of the Championship. Combined with a greater reliance on matchday income (it’s 13% in the EPL and over a third for most EFL teams) – clubs in the EFL are in a far more precarious position. All revenue streams are significant in the EFL, finances are so poor at most clubs that they cannot afford to lose any type of income.”

It is for this reason that many clubs in the Championship, League One and League Two are currently staring into the abyss – with only the hope of a return of the matchday fan for the 2020/21 season giving them cause for optimism.

The curtain has been pulled back on the behind the scenes operations of a Football League club – highlighting the different challenges, when compared to its Premier league counterparts.

Mark Hovell, Partner, for Mills & Reeve LLP, said: “The broadcasting deal for the EFL is miniscule in comparison to the Premier League. And the way that they share their revenues has meant that a vast majority of that money is shared amongst the Championship clubs – a lot less goes to Leagues One and Two. Those clubs are heavily reliant on sponsorship and matchday revenues. That is why many of them preferred to ‘mothball’ the club and end the season, as they would have made losses on restarting the matches behind closed doors. They also had to furlough staff and hope that the next season will start on time with clubs allowed to have supporters back in the stand. Leagues One and Two will need this to continue to operate.

“However, the model in the Championship is a bit riskier. A lot of clubs within that division are spending all their revenues on wages – with some spending more than 100% of their revenues on wages, all ‘gambling’ to get up to the promised land of the Premier League. That is having a massive impact and will continue to do so.”

The relentless pursuit to reach the Premier League by many clubs has been described as an unsustainable financial model for years now, and the coronavirus pandemic has only heightened those problems. And in some cases, made owners take drastic steps to save the club from going bust.

John Purcell, co-founder of Vysyble, comments: “With regards to the Championship clubs, they are split into two different groups: the clubs that have parachute payments, and those that don’t. For the clubs taking those parachute payments, the matchday aspect is 10-11% of the revenue and those that don’t, the matchday aspect is between 25-32% of the revenue.

“So, the loss of matchday revenue really depends on your position as a club and if you have recently been relegated from the Premier League. For the group that do not get parachute payments, there are a number of them that have had to look at other financial options. For example, a sale and lease back on the stadium.

“What the owner has done, in theory, has moved the ownership of the stadium from the left to right pocket, and the club has taken the profit but the ownership of the stadium is within the remit of the individual. The problem is that you have now sold your primary asset. This could make life for those owners quite difficult.”

Has football’s economic frailty been exposed?

With football – especially lower down the pyramid – on its knees as a result of the pandemic, the clubs and governing bodies have had to scramble together to try and protect the game as best they can. However, it could also be argued that the sport has had this sort of impact coming for a long time, due to its over-reliance on TV money and short-term view of finances.

Purcell comments: “COVID-19 is just the accelerant of the smouldering problem that has been there for some time in football. If football had recognised its financial issues a lot earlier, then it could have done something about it, and been prepared to deal with the current crisis. The pandemic would have still caused issues, but the impact could have been lessened if football had started to tackle its financial dependence on TV money and looked into how the sport has been financed.

“If teams had been preparing for an event like this, that could seriously damage the club, then they would have been more resilient to its impact. When you look at last season, there was a £1bn loss across the Premier League and Championship – it is difficult to see what can be done to help teams going through this current crisis.”

Due to clubs short-sighted view of finances, many have had to look for alternative forms of finances, in order to secure their future in football.

Purcell continues: “There have been many clubs considering short-term financial options to help them through this. The issue with short-term financing is that it has already been used for a long time within the Premier League. That is because the banks are not the biggest supporters of football – and that football clubs tend to take a shorter-term view of finances compared to other businesses.

“With regards to next season – all clubs could face the same problem. Yes, they could still be losing matchday revenues if fans are still not allowed to attend games – but, you cannot sell season tickets. A lot of the financing that is done by football clubs is based on using the season ticket money as collateral. This means that they are hedged against future sales. But with those sales not being there, then there is a massive issue with your lenders. Whilst matchday revenues are a critical component to running a football club, there are many knock-on impacts that will start to manifest themselves over time. This will put clubs in a very difficult position.”

However, Premier League teams could be in luck. Due to the value and T&Cs of the latest TV broadcasting deals, clubs have been able to absorb the initial blow of the COVID-19 pandemic.

Hovell comments: “The reality is that since the last major TV deal, the Premier League have brought in constraints on what they can spend that money on. For example, they cannot just go and spend it all on new players, and limits on other areas. This decision has meant that a lot of Premier League clubs have become profitable businesses. They are in a much better position to weather the storm, than they would have been if this had happened three years ago. However, this doesn’t play down the severe impact that a loss in sponsorship and matchday revenues has had on the business side of the sport.”

Some of the more innovative teams among the English and European elite have placed themselves at the forefront of the recovery, due to new approaches to how the financial aspect of a football club should be run in the modern era.

Pauline Rigby, Partner and Head of Corporate at Forbes Solicitors, said: “The pandemic and lockdown have really crystallised how much clubs rely heavily on two revenue streams of TV money and matchday income. While these will continue to be important, you can expect to see clubs become increasingly creative in generating other sources of income in the future. Some of the most astute, and often larger clubs, are already excelling in this by agreeing lucrative sponsorship and partnership deals. However, we’re also seeing other clubs, like the parent company of Manchester City FC, building global brands through takeovers and selling stakes of ownership.

“It’s reasonable to think that other clubs will start looking at these more traditional corporate routes to funding, whether its joint ventures, mergers and acquisitions or raising capital through part sales. This will diversify risk for football clubs and can also help them to expand their presence in markets outside of England.”

A continental future?

By diversifying and looking at new streams of income, many of the country’s leading teams will be looking at new and lucrative forms of revenue.

So, could the coronavirus pandemic lead to the long-rumoured plan for a European ‘Superleague’? Purcell believes so – and discussions amongst the European elite could have already begun.

He said: “Will clubs find themselves in trouble? Yes. Will clubs go bust? Yes. Will it amount to a complete restructure of the football pyramid? Perhaps. Our analysis would suggest a European Superleague would be a distinct possibility as a result. If that were to happen, we would no longer have a Premier League as we see it today – or even a football league structure.”

So, how and why would this happen?

Purcell continues: “In the analysis that we have conducted, the larger European clubs do not make a profit on a regular basis – they are generally loss-making entities. If you look at the performances of them from a footballing standpoint, Juventus have won their championship nine times in a row, for example, showing that the competitive element has eroded a little bit from a domestic perspective. Also, in terms of a TV deal proposition, domestic tv has dropped during the last cycle, while the international element has increased in popularity. So, we are getting the feeling that the domestic leagues have run their course a little bit.

“If you are running one of the ‘Top Six’ clubs in England, you would make a significant impact on your revenue if you are playing in Europe on a regular basis. Winning the Champions League is worth £100m to a club – and it is money that some Premier League clubs like Watford and Bournemouth are never going to see.

“So, there is already a disparity in the Premier League structure, but for the top European clubs, you see them not making profits on a regular basis – if you are an owner of one of those clubs, you will be looking at other options to make the business more profitable. They have the sponsors, the players and an entertaining product – but it is still not making a profit. This could be the answer. Clubs are driven by cash – revenue is the drug of choice – they are addicted to revenue – so, how are you going to improve your revenue? The best way to do that is to create a closed-door European competition with the continents top clubs and selling those broadcasting rights to the top bidder.

“There have been many discussions over the years for the idea of a breakaway European superleague. What COVID-19 is doing is focusing minds. Football has, for a long time, needed to take a hard look at itself and debate the future of the sport from a financial standpoint. All the top clubs, will have looked into the possibility of it, and what the necessary steps were – as well as the potentially revenue increases.”

Did you enjoy reading this content?  To get more great content like this subscribe to our magazine

Reader's Comments

Comments related to the current article

Leave a comment

Your email address will not be published. Required fields are marked *