Counting The Cost Of Coronavirus
How The Suspension Of Play Might Impact EFL Club Finances
In what we might now refer to as a previous reality, where football was a given in our everyday lives, cash would have been very much king when it came to the operations of our English Football League (EFL) clubs.
In the absence of the lucrative broadcast distributions provided to Premier League sides, EFL clubs are already widely known to operate on the boundaries of sustainability, with Championship clubs particularly incurring large losses annually through excessive wage expenditure in pursuit of a place in the top flight, which would be underpinned by crucial and critical cash flow management.
But what might happen now that some of the weekly revenue streams that support that committed expenditure have been taken away from those EFL clubs, when, as demonstrated by Bury and Bolton Wanderers already this season, it was already common knowledge that many were already struggling financially?
The arrival of the coronavirus in the UK has brought unprecedented changes all around us. Indeed, football clubs in their own right, particularly at the lower levels, are themselves relatively small businesses with players under contract, club staff on the payroll, and many other weekly operating costs that do not disappear despite the current suspension of play.
The EFL have been quick to respond to the financial threat facing their member clubs, providing a relief fund of £50m. This constitutes an advance payment of the clubs’ remaining basic award broadcast payments for 2019/20, as well the ability to apply for an interest-free loan, as summarised per club below:
Following the government announcement made recently, this should also be supplemented by the support made available from April to all businesses to cover a proportion of wage costs to avoid redundancies. The question at hand however remains – will such measures be enough to see all clubs through these difficult times?
With 13 of the 24 2018/19 Championship clubs having already published their accounts for last season, this can provide an up-to-date indication of both the average amounts of weekly matchday revenues received, as well as the average levels of wages and other operational costs likely to be currently paid out on a weekly basis in the second tier.
As such, with the past often providing a good indication of the future, we analysed the likely state of play in the Championship following the league’s suspension on Friday 13th March and current forecast to restart at the end of April, therefore covering seven weeks and eight rounds of games (an average of four home matches per club).
When it comes to cash income for EFL clubs, it is difficult to place timings on the general receipts of broadcast and commercial revenues. The certainty (at least until recently) was the receipt of matchday revenues every home matchday – that being the general admission gate revenue and associated concessions – with season ticket cash inflows likely to have already been received at this stage of the season.
While matchday is the key revenue focus here, it is also important to bear in mind that commercial revenue could also be impacted by a prolonged suspension of play through lost merchandise sales on matchdays, as well as in the event commercial partners withhold payments given their present lack of exposure. We will assume for now that the season does recommence, as such not impacting broadcast revenues.
Applying the above estimates of 24 home games and general admissions contributing 75% to matchday revenue, we calculate an average gap in club general admissions of c.£865k over the suspension period – allowing c.£520k of room for other lost revenue streams when compared to the EFL package above.
In terms of cost base, wage costs and other operating costs (excluding player trading and amortisation) may provide the best proxy for weekly cash outflows:
Applying a simplified smooth cash flow over the year, the average Championship club’s cash outgoings may be around £1m per week, with wages making up over 70% of that commitment. As such, over the existing seven weeks’ suspension period, the average ‘cash’ outgoings may equate to £7m per club; the importance of continuing owner contributions alongside the timing of broadcast and commercial cash inflows to support club financials could not be clearer.
League One and League Two
Turning attentions to League One and League Two, financials are available to a lesser extent.
Utilising data from Deloitte for the 2017/18 season, if we assume these clubs derive a third of their revenues from matchday sources with the same assumptions as before, the following numbers can be ascertained in terms of average foregone general admissions income over the suspension period:
Again caveating for losses in associated income such as merchandise and commercial receipts, on the basis of these estimations the EFL contributions of £433k and £284k respectively per club should cover the anticipated matchday general admissions cash shortfalls.
However, over the same seven-week period, League One clubs are likely to be paying out around £1.3m on average, and League Two clubs c.£600k on average, again emphasising the importance of the timing of other revenue streams and continued owner contributions.
At what is a critical period for all businesses big and small, the measures provided by both the EFL and wider government will hopefully mean that by the time football returns, all of our clubs are still operational.
However, with EFL clubs historically being loss-making, and there being little sign of that changing, the present crisis may provide further evidence that this status quo, including the associated business models and revenue distribution mechanisms, needs to be addressed once business, and football, returns to normality.
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