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- 45% of finance directors say club’s finances ‘in need of attention’; 5% report ‘grave concern’
- 70% of clubs in top four divisions lose money amid rising player wages and transfer fee inflation
- Private equity interest spikes following UK’s national lockdown in March
Half of clubs across England’s top four soccer leagues are concerned about their financial health and 43 per cent say they have been approached by outside investors in the last 12 months, according to a new report from accountancy and business advisory firm BDO.
Prior to the 2019/20 season, clubs in England’s top four divisions stood to collectively generate record revenues of more than UK£6 billion (US$7.6 billion), but the ongoing disruption brought about by the coronavirus pandemic has intensified existing financial challenges and left some in dire straits.
Responding to the latest edition of BDO’s annual report, 45 per cent of the 42 finance directors surveyed said their club’s finances were ‘in need of attention’, more than double the 21 per cent reported in 2019 and nearly four times the 12 per cent reported a year earlier. A further five per cent said their club's finances were of 'grave concern', though this was consistent with the previous two years.
Prior to the pandemic, BDO notes that 70 per cent of clubs across England's top-flight Premier League, second-tier Championship, third-tier League One and fourth-tier League Two were loss-making, with player wages and transfer fee inflation escalating costs throughout the divisions.
While a quarter of Premier League finance directors reported concerns about their club’s finances, nearly half of Championship sides and over two thirds of teams in League One and League Two, whose 2019/20 seasons were brought to a premature end in June, said their finances were ‘in need of attention’ or worse.
The BDO report notes that clubs in the English Football League (EFL), which comprises the second, third and fourth tiers, have been hit particularly hard by the pandemic because they are more reliant on matchday revenues and earn less from broadcast rights income than those in the Premier League.
Earlier this year, a report by financial services firm Deloitte found that spending on wages accounted for 107 per cent of club earnings in the Championship, while EFL chairman Rick Parry warned of a “financial hole” of UK£200 million (US$254 million) facing his clubs by September.
BDO’s survey found that every League One and League Two club surveyed and 92 per cent of Championship sides had taken advantage of the UK government’s Coronavirus Job Retention Scheme, while the vast majority had deferred employment taxes and VAT payments.
Many of those clubs have turned to secondary funding rather than taking on additional debt in a bid to shore up their finances, with a third leveraging player transfer fee receivables and 40 per cent having sought advances on central funding.
“Many clubs were already struggling to balance the books, but Covid-19 has accelerated and exacerbated the problem,” said Ian Clayden, BDO’s national head of professional sports.
“At club level, as well as working hard to activate new revenue streams, there is a trend towards leveraging future receivables to manage current liquidity constraints. Care needs to be taken of course to secure the future rather than mortgage it and kick the problem into the long grass. Supplementing incomes now will only help in the medium term if action is being taken to dial back player costs – which inevitably takes time.
“If matches continue to be played behind closed doors for an extended period, we may see a number of clubs, particularly in the lower leagues, at risk of insolvency or takeover in the coming year.”
Despite the grave financial implications of the pandemic, BDO’s survey found that interest from outside investors remains strong across English soccer. Of the 43 per cent of clubs that had been approached by potential suitors during the past year, nearly half have received interest since the UK’s national lockdown started in March.
Over a quarter of those approaches were from global institutional investors, with US private equity taking a particularly keen interest. According to BDO, American investors have often looked to 'form consortia with high net worth individuals, industry specialists and other sports franchises'.
In an effort to improve club finances, the EFL is set to introduce salary caps across League One and League Two, and a similar cost control is currently being considered for the Championship. According to Clayton, such moves could serve to draw more investors to English soccer because they create increased financial certainty and sustainability.
‘If anticipated and necessary financial adjustments promote sustainability (and indeed profitability), a new balance of central control with enhanced global digital opportunities will excite institutional and profile-building investors alike,’ he writes in the report’s foreword.
‘Anecdotally, we can assure you that new investors are waiting in the wing and they have growth capital to invest. However, as always in football, the completion of transactions will depend on whether potential sellers are willing to walk away from sunk costs, or, alternatively, whether buyers will relax their appetite for a bargain and bridge the gap a little. In reality, both are probably needed to some extent.’
Half of clubs across England’s top four soccer leagues are concerned about their financial health and 43 per cent say they have been approached by outside investors in the last 12 months, according to a new report from accountancy and business advisory firm BDO.
Prior to the 2019/20 season, clubs in England’s top four divisions stood to collectively generate record revenues of more than UK£6 billion (US$7.6 billion), but the ongoing disruption brought about by the coronavirus pandemic has intensified existing financial challenges and left some in dire straits.
Responding to the latest edition of BDO’s annual report, 45 per cent of the 42 finance directors surveyed said their club’s finances were ‘in need of attention’, more than double the 21 per cent reported in 2019 and nearly four times the 12 per cent reported a year earlier. A further five per cent said their club's finances were of 'grave concern', though this was consistent with the previous two years.
Prior to the pandemic, BDO notes that 70 per cent of clubs across England's top-flight Premier League, second-tier Championship, third-tier League One and fourth-tier League Two were loss-making, with player wages and transfer fee inflation escalating costs throughout the divisions.
While a quarter of Premier League finance directors reported concerns about their club’s finances, nearly half of Championship sides and over two thirds of teams in League One and League Two said their finances were ‘in need of attention’ or worse.
Clubs in the English Football League (EFL), which comprises the second, third and fourth tiers, have been hit particularly hard by the pandemic because they are heavily reliant on matchday revenues and earn less from broadcast rights income than those in the Premier League.
Earlier this year, a report by financial services firm Deloitte found that spending on wages accounted for 107 per cent of club earnings in the Championship, while EFL chairman Rick Parry warned of a “financial hole” of UK£200 million (US$254 million) facing his clubs by September.
BDO’s survey found that every League One and League Two club surveyed and 92 per cent of Championship sides had taken advantage of the UK government’s Coronavirus Job Retention Scheme, while the vast majority had deferred employment taxes and VAT payments.
Many of those clubs have turned to to secondary funding in a bid to shore up their finances, with a third leveraging player transfer fee receivables and 40 per cent having sought advances on central funding.
“Many clubs were already struggling to balance the books, but Covid-19 has accelerated and exacerbated the problem,” said Ian Clayden, BDO’s national head of professional sports.
“At club level, as well as working hard to activate new revenue streams, there is a trend towards leveraging future receivables to manage current liquidity constraints. Care needs to be taken of course to secure the future rather than mortgage it and kick the problem into the long grass. Supplementing incomes now will only help in the medium term if action is being taken to dial back player costs – which inevitably takes time.
“If matches continue to be played behind closed doors for an extended period, we may see a number of clubs, particularly in the lower leagues, at risk of insolvency or takeover in the coming year.”
Despite the grave financial implications of the pandemic, BDO’s survey found that interest from investors remains strong. Of the 43 per cent of clubs that had been approached by potential suitors during the past year, nearly half have received interest since the UK’s national lockdown started in March.
Over a quarter of those approaches were from global institutional investors, with US private equity taking a particularly keen interest. According to UK-based BDO, American investors have often looked to 'form consortia with high net worth individuals, industry specialists and other sports franchises'.
In an effort to improve club finances, the EFL is set to introduce salary caps across League One and League Two, and a similar cost control is being considered for the Championship. According to Clayton, such moves could serve to draw more investors to English soccer because they create increased financial certainty and sustainability.
‘If anticipated and necessary financial adjustments promote sustainability (and indeed profitability), a new balance of central control with enhanced global digital opportunities will excite institutional and profile-building investors alike,’ he writes in the report’s foreword.
‘Anecdotally, we can assure you that new investors are waiting in the wing and they have growth capital to invest. However, as always in football, the completion of transactions will depend on whether potential sellers are willing to walk away from sunk costs, or, alternatively, whether buyers will relax their appetite for a bargain and bridge the gap a little. In reality, both are probably needed to some extent.’
