Financial Gulf Widens Between Premier and Football League Clubs
Thu 18th Oct 2012 | Money & Finance
The financial disparity between the Premier League and the rest of the football industry is growing wider, according to the eleventh annual survey of football club Finance Directors published today by PKF Accountants and business advisers.
‘Leagues Apart’ surveyed 62 teams from the English Premier League, Football League Championship, Football Leagues One and Two, and the Scottish Premier League. It reveals that, with the exception of the top Premier League sides, it is becoming increasingly difficult to run a football club without losing money:
- 66% of clubs were expecting not to make a profit before player trading and amortisation in their next accounting period compared with 42% in last year’s survey; 89% of Premier League clubs expect to make a profit, compared to 12% of Championship teams and one-third of League 1 sides;
- 58% of those surveyed were dependent on a principal shareholder (or shareholders) to finance annual revenue shortfalls or operating losses; there were marked differences between the leagues with only 44% of Premier League clubs relying on such a benefactor compared to 87% of Championship teams;
- 22% of Premier League clubs thought that the challenging economic environment will reduce ticket sales this season, compared with 56% of Championship clubs and 46% of League 1 teams; similarly only 11% of Premier League teams expected sponsorship to fall as a result of the economy, compared with 32% of Championship clubs and 54% of League 1 sides;
- As a result, 56% of Premier League respondents rate their current financial position as ‘very healthy’, compared to 25% in the Championship, 20% in League 1, 38% in League 2 and just 17% in the Scottish Premier League.
Charles Barnett, head of PKF’s Football Industry Group, said: “The divide between the rich and the poor in football is growing wider. You simply need to contrast the fortunes of Premier League giants such as Manchester United, which recently tapped Wall Street for funding, with lower league sides such as Port Vale and Portsmouth, which are both in administration, to get a good idea of what is happening in football club boardrooms across the country.
“With match day revenues continuing to decline, operating costs still rising and a growing reliance on the generosity of major shareholders, many clubs outside of the Premier League elite are balanced precariously on the knife edge between survival and insolvency.
“This tension is particularly evident in the Championship, where many clubs gamble with their very survival for a shot at entry to the Promised Land of the Premier League. The dilemma is there for all to see – find a generous benefactor, spend more than you earn, gain promotion and pay the fines; or play by the rules and settle for mediocrity.
“The benefactor model can seem appealing because it has delivered instant success on the pitch in some high-profile cases, but it is inherently unstable – you only need to look at recent history to see what can happen when such a set-up comes crashing down.
“The situation in the Scottish Premier League is also likely to remain challenging following Rangers’ relegation.”
Against this backdrop, the PKF survey also found that clubs are showing some signs of financial restraint and are at least trying to curb some of the excesses seen in previous years:
- 58% of respondents have set a wages-to-turnover ratio benchmark of less than 55%, compared to 46% of those surveyed last year; 83% of those surveyed expect to operate within their benchmarks, compared with 63% last season;
- Exactly half of those surveyed plan to reduce the size of their first team squads this season, up from 37% last year; significant differences emerge between the leagues with 22% of Premier League clubs expecting to increase squad sizes, compared to just 6% of Championship sides;
- As a result of these and other measures, 85% of clubs expect to comply with the domestic and/or UEFA financial fair play rules for the 2012/13 season.
The report also suggests that clubs are beginning to respond to HM Revenue & Customs’ increasingly hard line approach to tax irregularities, with only 16% of clubs making more than one late payment to the taxman in the past year, compared to 20% in 2011.
Charles Barnett continues: “While there is some evidence of financial restraint and more robust attempts by clubs to curb the excesses of player wages, it is difficult to be too optimistic about the long-term prospects of the football industry outside the Premier League, unless there is strict adherence to the financial fair play and salary cap regulations.
“The responses to this latest survey suggest that a growing number of football club boards recognise that the current situation is unsustainable and are at least trying to do something about it. However, boosting revenues when the economy remains in the doldrums and slashing payroll costs when competing for talent internationally is easier said than done.
“Clubs are making the right noises but I suspect that many will need to urgently review their five-year-plans with a strong dose of realism if the industry is going to make it through the next few years without any further insolvency cases.”
Posted by: Aaron Gourley
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