Village of cards
New football sustainability matrix flags systemic risk to the game
Football may be a big industry, but it still operates like a village. Everyone knows everyone else - and their business - and is still prepared to trust their creditworthiness, often in spite of abundant evidence to the contrary. Much like tick available at the local store or the chalkboard of debt behind the bar at the Dog and Duck. Not so much a house of cards as a whole village made of them.
I’ve had a sneak preview of an analysis of the sustainability of English men’s professional football published today by consultants LCP. Their football analytics team have drawn on the firm’s core capability of assessing the ability of companies to support their pension schemes (so-called covenant analysis), to create a financial sustainability matrix for all 92 clubs in the country’s top four leagues. What shines through is the systemic risk to the game from the interconnectedness of clubs, and specifically the debts between them.
The big numbers in LCP’s study are eye-catching. In the 2021/22 season, the 92 clubs generated £6.5 billion of revenue. 63 of them lost money - an aggregate £1.2 billion. The 29 teams that were in the black made a £0.3 billion profit.
Altogether, the 92 had a whopping £5.6 billion of ‘football net debt’ outstanding under UEFA’s definition. This is essentially a measure of the monies owed to lenders and other clubs. When a distressed club defaults on its obligations to other teams - for example to pay deferred player transfer fees - there is a multiplier effect through the industry.
“The financial crash of 2008 is potentially an object lesson for football: the environment in which such defaults occurred included lax regulation, speculative borrowing and risk-taking, and an interconnected financial ecosystem with insufficient circuit-breakers to prevent a collapse.” LCP
While Premier League clubs dominate the headline revenue and debt statistics, the risks of failure are greater lower down the football pyramid, with Championship clubs unsurprisingly most exposed. We’ve always known that chasing the Premier League rainbow is risky, but it is still a jaw-dropper to learn that Championship debts falling due within 12 months are almost 80% higher than clubs’ annual revenues. By contrast, League One and Two teams have short term debts that are half their annual revenues, and in the Premier League itself aggregate income is five times higher than near term debt. Championship wage bills alone exceed these clubs’ overall income.
Championship clubs: 2021/22 sustainability
You might wonder why football clubs continue to blithely do business with each other given the rotten state of so many balance sheets. Partly it’s long-engrained habit and a sense that they are all in it together, but importantly also the stipulation that the tax authorities and football debts must be paid off in full if a club that goes bust is to sustain its position in the league hierarchy under new owners. The number of clubs that disappear are heavily outweighed by those that get into trouble but are resuscitated with all football debts paid.
LCP’s sustainability matrix plots each of the 92 clubs’ footballing success against their financial strength. It provides an insight into which outperform their balance sheet on the pitch and those that fall short. Fun though that is to pick over for fans - I wasn’t surprised to see ‘my’ Crystal Palace just the wrong side of both the median finance and football lines - it is the financial scores that are most instructive. In particular the factors that underlie them.
The three metrics that LCP give heaviest weight to in their analysis are the proportion of revenue committed to staff (including player) wages, football net debt, and the debt owed to a club’s owners. This last factor explains a low score accorded to Brighton and Hove Albion, widely regarded as a paragon of good leadership but whose debt to owner Tony Bloom dwarfs that of any other Premier League team. It also is the reason why Chelsea’s score swung dramatically from low to high when the club’s debts to Roman Abramovich were wiped out as its ownership flipped to the Clearlake Capital consortium.
The LCP team make three calls: for increased financial transparency; greater due diligence on owner funding; and a system to reward good behaviour by clubs.
As asset values at the top end of football have inflated, so consortium ownership has become more fashionable, and with it multi-club networks. Cross holdings in teams across the globe and minority consortium members with interests in other clubs are proving a challenge to the football authorities. Where do conflicts of interest begin and end, and what threat might they pose to the integrity of competition? And how might fans feel about their club being a nursery for a team in an overseas league?
It is hard to see these trends reversing though. There are bound to be spectacular fallouts within consortia as misaligned ambitions, timeframes and egos collide. But they do provide the opportunity to spread financial risk, network for footballing talent, and provide some sort of challenge to the seemingly bottomless riches of the sovereign funds.
I was taken by a recent Joe Pomp podcast interview with Steve Pagliuca, owner of the Boston Celtics NBA team and Atalanta in Italian football’s Serie A. He suggested that if three Premier League clubs were owned by sovereign funds then effectively the other 17 would be fighting for a single Champions League place each season. It offended my footballing heart, but romantic notions only take you so far. You can listen via this link.
What I can see emerging over the coming years is a lowering of the barrier to ownership of more than one club within the English system. A prohibition on outright control of two or more rival clubs is likely to remain, but the need for capital throughout the pyramid, the hoarding of young players by the big teams who need to find game time, and the fad for consortium investment, all point towards minority cross-holdings being permitted in time. Not saying I’d vote for it myself, but I can envisage the question being posed to the new football regulator if / when it is created.
A direct link to the LCP report: Creating a Sustainable Future for Football is here
Aced
No Brits through to the second week of Wimbledon (only marginally surprising). Six of the remaining 25 players in the men’s and women’s singles on Monday morning were Russian or Belarusian (also, only marginally surprising).
The press made much of fans booing Belarus’ Victoria Azarenka in her defeat to Ukraine’s Elina Svitolina, but in truth those players barred last year have slipped easily back into the tournament. Doubtless the IOC will be further emboldened to include athletes from Russia and Belarus at Paris 2024. The Asian Games in Hangzhou this year is providing them with qualification opportunities.
Impossible though it is to read about 16 year old Wimbledon qualifier Mirra Andreeva and think the young Russian is in any way responsible for Putin’s warmongering, I’m still very much in favour of an outright ban rather than Bach’s policy that is redolent of appeasement.
Yorkie bar
No Ashes test at Headingley when the series is next held in England in 2027. Whether or not this is the ECB’s punishment for the racism furore at Yorkshire CCC, the ground could do with some serious investment, starting with the old generation electronic turnstiles which created massive queues. Not sure where the money will come from though. Time too for some local attitudes to be updated…
Yorkshireman next to me listening to the BBC’s Test Match Special on his stadium earpiece, turned to his friend to complain about one of the female commentators: “Women aren’t made for that.”
Anyone got a spare copy of the ICEC report to enlighten him?
Living on an island
It’s standing room only reports my correspondent at the Island Games. She confirms that, as expected, Guernsey is “full to the rafters” but “really nice to see so many young people getting the opportunity to enjoy the island.”
Guernsey’s athletes currently top the medal table, further buoying the mood in capital St Peter Port. Nothing like sleeping in your own beds to gain home team advantage!
My correspondent on the Isle of Wight reminisces about the now-discontinued junior version of the Games which back in the day saw his son sailing in Guadeloupe. The IoW currently sits 6th in the medal table, just behind Gotland and ahead of Saaremaa.
Top dawg
Only in America… Not only can a champion 4th July hot dog eater down 62 of the dogs - bun included - in 10 minutes, but he’s called Joey Chestnut. Yahoo!Sports gives a flavour (sorry!) of the contest here
I particularly enjoyed the intro to Chestnut from an MC overdosing on hyperbole, as flagged by ESPN. This is their tweet
"No Brits through to the second week of Wimbledon (only marginally surprising). "
Ed, spare a thought for the non-singles British competitors.
O'Mara and Nicholls who got as far as the mixed doubles semi-final.
Skupski and partner are through to the the Men's doubles FINAL.
Jamie Murray and partner who got as far as the Men's doubles quarter finals.
Shuker got to the women's singles wheelchair quarter final and also the women's doubles semi final.
Not forgetting Hewett and Reid who are both in the men's wheelchair singles semis. They will also compete together in the men's wheelchair doubles FINAL.
Slade and Lapthorne independently got as far as the men's quad doubles semi final.
All happening in Wimbledon week two. It seems that it is just the singles events that we haven't done so well in this year, which I am sure is what you are referring to.