Column

Unchartered territory

Discussing the implications for top-flight football of the Coronavirus pandemic, the suspension of matches and the possibility that the season is cancelled

How things can change and change quickly. A few weeks ago, we were contemplating a strong finish to the season and the prospects of European football… Clearly there are far more important matters than football at present; however, such is the investment in football from a society perspective, it is impossible to ignore the potential implications of what is unfolding before us for football generally and Everton specifically. Most prudent boardrooms will be modelling their future finances based on different outcomes.

Let's start with the issue of what happens to the 2019-20 season? The postponement of football until 4 April is just a time-buying exercise by the Premier League. It allows time for all the interested parties (Premier League, EFL, Uefa, broadcasters and sponsors) to plan different scenarios depending upon the impact of the Covid-19 virus in the coming months.

There is no prospect of competitive football returning at that date. I suspect the Premier League and EFL will plan a number of scenarios based on best-case, then working down through gradually worsening assumptions.

Best case scenario (extremely optimistic):

Best case would be that all teams could confidently predict that in the near future (end of April?) they can present full squads of fully fit players, all of whom have either been tested positive and been quarantined for the 14 days and fully recovered or are currently testing negative (and probably taking extreme steps to minimalise future infection). This might allow games to be played behind closed doors. This would also require domestic broadcasters to offer all games to UK viewers free to watch at home thereby minimising the gathering of crowds. Overseas broadcasters would have to follow the advice of their own domestic authorities.

Such a scenario might mean that the domestic season could re-start in May or June and run for a maximum of two months to fulfill all fixtures. That would impact the start of the following season, pushing it back by one or two months to start in October with a later finish than normal.

This would require the co-operation and agreement of all the major European Leagues (who would have to follow subject to the conditions in their own countries at the time) and Uefa. It would obviously mean that the 2020 Euros would be cancelled or moved to the following summer, although that might be problematic if the 2020-21 season finish was late. It would cause the least interruption, provide a relatively fair sporting contest, thereby maintaining sporting integrity, minimalise the financial impact (more on that below) and reduce the impact of contractual year-ends ending 30 June 2020. Those with expiring contracts could agree to short-term contract extensions for the purpose of concluding the season.

The financial impact would be as follows: loss of matchday income, loss of perimeter advertising revenue, loss of merchandising, food & beverage sales, potential penalty clauses in shirt sponsor and other sponsor contracts & potential penalty clauses within broadcast contracts.

For Everton, it is difficult to calculate the losses of revenues because the contract terms are not known nor is the potential for mitigation under Force Majeure or the legal argument of frustration leading to the termination of contracts.

Matchday revenues at Everton are somewhere around £700,000 per game — with 5 home games potentially played behind closed doors, that would equate to £3.5 million lost. If sponsor penalties came into play and were calculated on a pro-rata basis, we have played 76% of a full season, therefore loss of commercial and sponsorship income could be as high as £10 million (on a pro-rata basis) although, if matches were shown on television as usual, the penalties would be lower. The assumption here is that broadcasting revenues remain unchanged. On the positive side, our operating costs would probably reduce. If they reduced by 10%, that would be a £3.5-4.0 million saving.

Overall impact would not be helpful but would be sustainable.

I have to stress that this is the very best scenario and one that personally I feel is extremely optimistic.

Season ends un-concluded

The next best scenario is that conditions make it impossible to conclude this season but have improved sufficiently for season 2020-21 to start at the usual time.

The question, and it would be open to legal challenge whatever decision would be made, is how to deal with an incomplete season?

My own view is that we cannot award titles, nor settle relegation and promotion on the basis of how the tables stand currently. Whilst I accept entirely the claims of unfairness by those impacted by such a decision, there is no alternative if sporting integrity is to be maintained.

Thus, in my opinion, season 2020-21 would start with everybody in the same position as they were at the start of 2019-20 in terms of which division and also European qualification. Quite possibly any on-going legal cases might render this impractical.

What would the financial implications be?

Frankly no-one knows. I'll assume merit payments are paid on the basis of current League standings. However, more importantly, the absence of football for the remainder of this season, would clearly give the broadcasters and sponsors scope to claim compensation for the remainder of the season (let's ignore the potential for damages). From a planning perspective, that might mean that Premier League clubs could lose 25% of their income (based on a pro-rata basis).

For Everton, that would be significant. A reduction in revenue of perhaps £45 million would seriously increase our projected losses. It might also impact our ability (outside the generosity of Farhad Moshiri) to arrange future credit facilities.

Such a scenario would significantly affect all clubs. Whilst most Premier League clubs are likely to survive such a scenario, the implications further down the Football League, even in the Championship, would be extremely dire. Without some form of guarantee scheme (perhaps offered by the Government) many, if not most, full-time professional clubs would not survive.

If this scenario was played across football in Europe and globally, it would also materially affect the transfer market, reducing activity and no doubt reducing the transfer values of all but a very small number of players. Loan deals with options to buy might become more attractive although selling clubs in difficult financial circumstances might resist such deals.

A reduction in the potential for future player trading profits would have a huge impact on the business models of many Premier League clubs, including Everton. Perversely, the impact would be greatest with those clubs with the most expensively acquired squads. I would imagine there would be significant write-downs of player values — impacting both Profit & Loss, and the balance sheet.

The loss of perhaps 25% of turnover, a write-down of player values, and a reduction in future player trading would cause major problems and would require a complete re-think on player contract terms when due for renewal. The boom days for clubs and players would, in my opinion, disappear quickly.

In such a scenario, the Premier League's Profit and Sustainability rules and Uefa's FFP rules would have to be relaxed for a considerable period. The discretion built into both the monitoring and sanction elements of both bodies would have to be fully utilised.

Worst case scenario

Not only season 2019-20 remains unfinished but conditions have not improved sufficiently for season 2020-21 to start on time.

Now we really get into unchartered territory. Although broadcast deals and most sponsorship deals are multi-year in their duration, even if no legal action had been taken with regards to season 2019-20, the validity of existing contracts relating to 2020-21 would surely be questioned.

In this scenario, all clubs would face significant cash flow issues, many clubs would require recapitalisation (support from shareholders) or extended credit facilities. The Premier League and Uefa financial regulations would have to be waived for a number of years.

The inflationary cycle of ever-increasing commercial deals, broadcasting rights, sponsorship increases and most important player trading values would cease. The impact on the game would be as severe as the impact the financial crisis had on banks in 2008. Without support, most clubs could not operate in the manner they have in recent times.

The New Stadium at Bramley-Moore Dock

Clearly no-one can predict the degree of disruption to football and the financial cost of such in coming months. The more severe the impact, the greater the long term implications are for the game and of course, capital projects such as the new stadium at Bramley-Moore Dock.

I think all that can be sensibly said is that, with the scenarios painted above, the best case would have few major implications, but might make budgets tighter and may impact slightly the cost and quantum of borrowing. It might also slightly delay the final decision by the club — my opinion only.

The mid-scenario has implications in line with the financial costs of the disruption which again would impact budgets and almost certainly impact financing costs. I say this because, from a risk assessment perspective, football looks a much less solid business to lend to than it did even 6 weeks ago.

If we get into the third scenario and the potentially deflationary conditions mentioned above, then reluctantly, I am of the opinion the possibility of the Bramley-Moore Dock stadium being delayed or, in the worst case, not implemented, starts to grow very quickly.

Extraordinary times

We are living in extraordinary times. What seemed impossible weeks ago is now very real and no-one really knows to what extent the disruption will be, be it short and relatively mild (although every victim is a personal tragedy, of course) or much more significant.

What is clear is that football is not immune financially — nor more importantly at a human level. We trust that those in charge of the game, and particularly all at Everton, make the decisions that reduce the impact of events to a minimum, keeping all involved healthy and safe and leaving the game (and club) we all love in a position to continue to enthrall us all for years to come.

Whatever will be, as Blues, we will look after each other, I'm sure, and be there to support our club in the future.

Reader Comments (58)

Note: the following content is not moderated or vetted by the site owners at the time of submission. Comments are the responsibility of the poster. Disclaimer

About these ads

---

, placement: 'Below Article Thumbnails', target_type: 'mix' });