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Coronavirus Exposes Football’s Weak Financial Foundations

Coronavirus Exposes Football’s Weak Financial Foundations

 

The suspension of football across the globe due to coronavirus has exposed the weak financial state many clubs find themselves in but will it prompt a change in behaviour post lockdown? Andrew Warshaw finds out more.

 

Football is in for the long-haul as a result of the Covid-19 pandemic. But when it’s all over – and that is perhaps the one certainty amid a constantly changing landscape – will the naked ambition that has pervaded the game for so long, at elite level at least, finally give way to a more responsible approach in the way the game manages its finances?

 

While no-one would dispute that a raft of smaller clubs are in financial disarray because of matches being wiped off the map, there are growing arguments to suggest that the coronavirus should provide a wake-up call in terms of the need to put aside cash reserves as a necessary priority in order to ensure financial stability. But will clubs really take heed?

 

It’s a narrative that seems certain to pick up speed in the weeks and months ahead. Gestures such as the £50m short-term relief fund provided by the EFL to help their clubs with cash-flow issues, and a FIFA  emergency fund to assist the industry amid growing fears that the coronavirus crisis will bring the sport to its knees, are  all very laudable. But ultimately there is a conversation to be had about whether clubs will change their attitudes about sustainability, and a parallel debate about whether financial fair play should be more rigorously enforced.

 

Leading football finance expert Kieran Maguire predicts clubs will initially wake up and smell the coffee. But a watershed moment as a result of Covid-19? Far from it. Instead, he believes, clubs will revert to type.

 

“In the short-terms perhaps, lessons will be learned but people have very short memories,” Maguire told fcbusiness. “In a season or two when a club has maybe had the opportunity to gain promotion to the Premier League, all common sense will once again be thrown out and we will return to the casino-style football business style seen in operation prior to the coronavirus.”

 

What does the casino-style model mean? “Well in the Championship it means spending £107 on wages for every £100 that comes in,” Maguire continued. “I think there’s only been only one club in the division in the last seven years where income has exceeded the wage bill. If you look at the collective losses made by the clubs promoted from the Championship to the Premier League over the course of the last decade, it’s about £860m.”

 

That’s a pretty subdued picture to paint post-Covid-19, but Maguire makes no apologies for this assessment. “The premise seems to be that you need to lose money in order to get promoted. As far as I know the only Championship club to make a profit in 2018-19 was Rotherham United and they got relegated. And the club that made the biggest loss, Aston Villa, were promoted. Unless certain individuals change their mindset, we’ll make no progress in terms of being financially sustainable.”

 

Maguire, like everyone else, welcomes the EFL’s £50m package to help clubs with cashflow problems resulting from the suspension of matches to still function, especially those who rely on gate receipts. In all likelihood the 47 League One and League Two clubs will face huge losses if the season ends up being scrapped for good. But what about higher up? Why not enforce stricter financial fair play rules when things get back to normal? Again, Maguire can’t see it happening, adding: “To a large extent FFP is held in contempt by a lot of club owners who go to their accountants and try to circumvent the rules.”

 

He points to what he calls “creative accounting” to comply with FFP such as clubs selling their stadium to their owners. “You didn’t used to be allowed to do this but the rules have been diluted.”

 

If there’s one lesson to be learnt amid all the cost-cutting caused by Covid-19, surely it is that a certain amount of funding needs to be put aside for a rainy day rather than squandered on dreaming of the Holy Grail. But again Maguire is sceptical.

 

“It’s great in principle but in order for that to happen the clubs have to have the cash in the first place,” he responds. “If all of your money is going out in wages, there is no cash. Of course one way of building up your balance sheet is to improve liquidity but I can’t see it among clubs whose priorities are non-financial. 

 

“The nature of football clubs is that they are trophy assets. Therefore the idea of getting a financial return is very much secondary to owners. The sad reality is that if you want financial prudence and stability it comes at a price. Take a look at all the clubs who went into administration in the 90s and noughties. That was in theory a wake-up call and nothing was learned then. I live in hope about strengthening governance. But don’t hold your breath.”

 

One of the areas Maguire feels might work is constant financial accountability – or, as he puts it, “real time monitoring.”

 

“That is perhaps the only way to know if a club is having a cash-flow crisis. Then, if they fail to pay players on time or the HMRC on time, automatic points deduction. That would certainly act as a disincentive if they get themselves into situations where wage levels are unsustainable.”

 

A different topic but equally relevant in the current climate is how some lower-league clubs and non-league teams could go out of business because of Covid-19 through no fault of their own.

 

The FA’s decision to pull the plug on most of the non-league game and declaring all fixtures null and void whilst handing the professional pyramid, at the time fcbusiness went to press, a chance to carry on their season caused widespread anger and resentment.

 

Maldon & Tiptree FC looked set to win promotion to the Isthmian Premier Division, the seventh-tier of English football, having been 14 points clear at the top of their league with 12 games to go. “We found out from social media without any prior consultation,” manager Wayne Brown told the BBC. “There are many players at our level on a non-contract basis, so clubs don’t have to pay wages if games aren’t played.”

 

Maldon grabbed the headlines earlier this season when they reached the FA Cup second round, upsetting League Two side Leyton Orient in round one. “I feel for the people who have committed a huge amount of time and finance, plus the volunteers we have at the club who’ve helped out all year,” said Brown. “It’s all been for nothing. There’s been a lot of money invested from the chairman and the owner and we’ve had 31 weeks where it’s all been in vain. The players have also made the sacrifice, travelling after work in most cases and long distances, to play the games and try and be successful. Unfortunately we’ve been denied the ambition and opportunity to progress up the leagues.”

 

Such sentiments were echoed throughout the non-league game while higher up the scale there are many who feel the Premier League should use its vast wealth to help out the three professional divisions immediately below. “If  the Premier League says, ‘Well as an act of good faith towards the football community, we are going to give £250,000 to each club in League One and League Two,’ it would cost them £12 million,” explains Maguire. “That would not buy them a reserve full-back but it would buy time – and that is the most important thing. We are living through exceptional times.”

 

Times that have led, and are leading, to all manner of compromises and complexities, notably of course the decision to postpone Euro 2020 for a year. Given Covid-19’s unpredictability, football’s authorities are having to think on their feet not only in terms of their competitions but also  potentially putting in place plans to extend player contracts, which normally expire on 30th June, until the end of delayed domestic seasons. Moving transfer window dates beyond the traditional summer period is also under consideration to fit in with any new scheduling.

 

The contractual situation potentially affects thousands of players and coaches worldwide, including the thorny issue of those out on loan. FIFA is reportedly proposing pushing back the end dates, arguing the pandemic is a “force majeure” event that prevents current contracts from being fulfilled. But there are so many imponderables. What if, for instance, a loan player is on a Bosman and has agreed to go somewhere else for more money?

 

It’s a potential quagmire with some players likely to be better off and some worse off, resulting in all kinds of possible legal consequences. Jonas Baer-Hoffmann, head of the international players union FIFPro, has called for a unified approach from all stakeholders. “It requires a little bit of good faith from clubs,” he said. “Our preference would be that we have as harmonised a solution on the contract extensions as possible. You could very much argue the spirit of the contract is that it runs until the season is over, and a new contract starts with a new season.

 

“We are very concerned we might end up in a situation where [clubs] pick and choose who is being retained for the last couple of months of the season and who is not. We believe there should be collective solutions.

 

“On the one hand you could say, when a player signs a contract with a new club there is always a risk that they might get injured until that contract starts. But when the party signed that contract they probably did so with a thorough understanding of how long that risk period is, namely the end of June. I don’t have a clear answer on how that can be best managed yet.

 

“Nevertheless I do think it requires some collective consideration as well, because even if that has a different response than all the other contracts, it would still be better to do that in a harmonised way rather than leaving every contract on its own.”

 

To say we are living in highly unusual circumstances is an understatement, with pay cuts (voluntary and enforced) becoming the norm – rather like social distancing – depending on the financial wellbeing of individual clubs. Asked whether he encouraged his members to take salary reductions like players at giants such Barcelona and Juventus have been doing, Baer-Hoffmann is understandably cautious, making the point that not all professional footballers are rich. In fact, he said, the vast majority in many of the 65 countries where FIFPro is represented are less advantaged. “The average player we represent is not a millionaire. We have people literally on between €300 and €1,000 a month, for them to consider a pay cut is a different story.”

 

For their part, elite leagues are keen to extend their seasons into the summer and beyond in the hope of taking advantage of lucrative broadcast contracts that will not be forthcoming if remaining matches are scrapped. But others have different reasons for carrying on whatever it takes. The head of the umbrella body representing over 30 European leagues warns that medium-sized and smaller clubs could go out of business if the game is shut down for too long as a result of Covid-19.

 

“It’s a discussion that is taking place right now,” says European Leagues president Lars-Christer Olsson. “At lower levels there is no cushion because they are totally dependent on gate receipts to survive. It’s no exaggeration to say some clubs could go out of business if we can’t complete the season and they don’t get sufficient financial support. It’s worse in small and mid-sized leagues because there are no real reserves.”

 

With the sport in lockdown and no indication of when it might resume, Olsson has called on governments to help provide guidance. “For us, sooner or later we need to get decisions by the public health authorities before we can come up with a more secure plan.”

 

He can see a rapidly evolving domino effect with individual leagues restarting and completing their seasons at different times. “There are likely to be different solutions in different countries because of respective restrictions imposed as a result of corona. Obviously whenever they start and finish will then have a knock-on effect in terms of when they can start again next season.”

 

If that happens, he says, there is a growing likelihood that the format of competitions will have to change both at domestic and European level. One solution may be a return the old-style European Cup knockout system, or something like it. “If we go on postponing and postponing, there may well have to be alternatives. One way might be to turn home and away games into one match.”

 

With European football facing a race against time, FIFPro’s Baer-Hoffmann agrees that scrapping leagues completely is not an option. “Everyone in football will lose out if that happens,” he said. “I don’t think it’s responsible to make that consideration at the moment. If we have any chance of finishing the season, we have to do so because the impact for players and everyone else in the game will be great if we don’t.”

 

Image: PA Images

 

Article appears in Issue 124 of fcbusiness. Don’t miss out, subscribe today: www.balticpublications.com