Football Shorts – Part V: The Reality of Reducing Income and Fixed Costs

A look at the impact of virtually no crowds in the Premier League this season, the impact Covid-19 is having on broadcasting revenues and the volume of transfer business

Paul The Esk 23/09/2020 17comments  |  Jump to last

Football Shorts is a series looking at the financial implications of Covid-19 on Premier League clubs.


From a normal business perspective you would look for Premier League clubs to cut costs following a significant reduction in income. However, given the nature of their largest cost area, wages and the nature of footballer’s contracts this proves very difficult to do.

In Part IV I suggested that the only way Premier League football can continue with its current cost base and much reduced income was to allow, where possible, club owners and shareholders to recapitalise their businesses through the injection of equity to meet future liquidity requirements.

The Premier League has paved the way for this to happen with the suspension of profit and sustainability rules for season 2019/20 in a similar manner to UEFA’s suspension of Financial Fair Play monitoring. It is interesting to note that the Premier League failed to publicly communicate this significant change in their financial rules other than by the publication of their annual handbook.

To date, most clubs have used additional debt facilities as a means of providing working capital to meet income shortfalls rather than owners/shareholders contributing permanent capital. The use of debt is essentially a “buying time” measure. Given most clubs operate on the basis of spending all (sometimes more) of their usual income it is difficult to see how debt can be repaid out of future lower levels of income.

I would expect future financial regulations to permit (possibly encourage) the conversion of current and future debt into permanent equity without falling foul of the usual profit and sustainability rules.

Overview of Premier League Club Finances

(thanks to @SwissRamble for the use of his figures)

Arsenal – restructuring of their long term stadium debt in June 2020. Debt of £144 million plus £40 million penalty charge paid in exchange for a £184 million loan provided by Kroenke. restructuring permitted the use of £36 million previously held in a restricted reserve account.

Aston Villa – Nassef Sawiris and Wes Edens (Villa’s owners) continue to support the club financially with a further £74 million capital injection between August 2019 and May 2020.

Brighton & Hove Albion – continued financial support from Tony Bloom who has invested £360 million over the last decade. His latest investment was £49 million in 2018/19. However there are for the first time in a long time noises about how tight financing is currently.

Burnley – as stated in Football Shorts Part IV continue to be self financing with no public information about external debt.

Chelsea – Abramovich continues to fund the club and keep them within the rules of Financial fair Play. His most recent contribution was £247 million in 2018/19.

Crystal Palace – received £24 million in shareholder funding in 2018/19. They recently (May 2020) took external funding (debt) from Macquarie Bank

Everton – continue to rely upon the generosity of Farhad Moshiri, £350 million as of the last accounts but that figure will almost certainly have increased given Everton’s continued losses and continued transfer activities. Additional debt provided by Rights and Media Funding Limited.

Fulham’s – their return to the Premier League (and the redevelopment of their main stand) has seen owner Shahid Khan provide £186 million of funding up to the 2018/19 accounts. A further £53.125 million was provided in June 2020.

Leeds United – no evidence of new financial support since returning to the Premier League, the last shareholder contribution was £18 million in 2018/19.

Leicester City – have a long term loan of £91 million with their owners King Power. They also have a long term relationship with Macquarie Bank entering into a new loan in August 2020 secured against Premier League central payments.

Liverpool – are believed to have a bank facility to the value of £150 million. The shareholders FSG provided debt for their stadium redevelopment but have provided no financial support since.

Manchester City – Continue to be supported by Sheik Mansour’s Abu Dhabi United Group. The last capital injection from shareholders was £58 million in 2017/18. The total capital provided by Mansour is in excess of £1.3 billion.

Manchester United – To the distress of Manchester United supporters around the world,the Glazers continue to take funds out of the club, not making contributions to the club. Dividend of £22 million were paid last year. As at 31 March 2020 Manchester United had an unused £150 million debt facility with a syndicate of banks led by Bank of America Merrill Lynch.

Newcastle United – Whilst Ashley continues to try and sell the club, the club owe him £111 million, £33 million having been repaid in 2018/19.

Sheffield United – Sheffield United have received limited support from their shareholders, a £2 million loan in 2018/19.In July 2020 Sheffield United agreed a secured bank facility from Emirates NBD Bank.

Southampton – Currently subject to a £200 million takeover by former Bordeaux owner Joseph DaGrosa, Southampton recently arranged an £80 million facility from a Michael Dell owned company (MSD Holdings).

Tottenham Hotspur – Heavily indebted by their new stadium development, Spurs’ shareholders continue to use debt facilities to fund the club. As previously described, Spurs have a £175 million credit facility under the Government’s Covid Corporate Financing Facility.

West Bromwich Albion – Largely self-financing, owner Guochuan Lai has made no new investment since 2016. The club factored a near £3 million transfer receivable through Macquarie bank in December 2019. They also have debt facilities with Barclays Bank.

West Ham United – Despite the very advantageous terms of their tenancy at the former Olympic Stadium, West Ham’s finances looked parlous prior to the pandemic. They currently have £45 million of outstanding shareholder loans, a £75 million facility with Rights and Media Funding plus the shareholders made an equity injection of £30 million on 1st July 2020.

Wolverhampton Wanderers – Owned by Chinese conglomerate Fosun International, Wolves have benefited from £131 million of shareholder loans in the last three years. In July 2020 Wolves arranged a £50 million facility with Australian bank Macquarie.

Reduction in revenues

Optimistically, many in the game thought spectators could start re-attending matches as early as October, albeit with much reduced capacities of perhaps up to 30%. However, with the recent rise in cases and the genuine prospect of the second wave lasting through the winter, the opportunity for many fans to see more than a handful of matches late in the season appear extremely slight.This is going to have a significant financial impact. I have estimated that fans will be permitted to see three games and each of those games will be limited to an average of 25% capacity. As a result clubs can expect to see a reduction of 96.25% of their match day revenues.

Reduction in revenues:


£m
Manchester United 106.65
Tottenham Hotspur 96.25
Arsenal 92.59
Liverpool 81.04
Chelsea 64.10
Manchester City 59.90
West Ham United 26.08
Newcastle United 23.00
Brighton & Hove Albion 17.81
Southampton 16.36
Leicester City 14.15
Everton 13.67
Aston Villa 12.27
Leeds United 12.14
Wolverhampton Wanderers 11.07
Crystal Palace 10.49
Fulham 10.28
Sheffield United 9.86
West Bromwich Albion 7.04
Burnley 5.39
Total 683.18

Reduced broadcasting revenues

As a result of the final 92 games of the 2019/20 season being played behind closed doors, the Premier League agreed a £330 million rebate to the broadcasters. The 2020/21 Premier League Handbook provides an illustration as to the reduced revenues each club can expect:


£m
Liverpool 17.3
Manchester City 16.8
Manchester United 16.2
Chelsea 16.3
Leicester City 15.8
Tottenham Hotspur 14.8
Wolverhampton Wanderers 14.2
Arsenal 15
Sheffield United 14.7
Burnley 13.4
Southampton 13.3
Everton 13.5
Newcastle United 12.7
Crystal Palace 11.9
Brighton Hove Albion 11.3
West Ham United 11.6
Aston Villa 10.3
Bournemouth 9.0
Watford 9.1
Norwich City 7.1
Leeds United 8.4
West Bromwich Albion 8.4
Fulham 8.4
Promoted clubs (20/21) 24.2
Parachute payment recipients 15.4

Overseas broadcaster revenues, seen as the new growth driver based on previous cycles are being threatened as previously anticipated.

The removal of the previous Chinese rights holder, Suning, over the non payment of £160 million due in march 2020 saw the Premier League scramble for a quick replacement for the 2020/21 season. As a result Tencent Sports have been awarded the rights for one season at a reported price of just £25 million.

In addition, other Asian broadcasters are unhappy with the scheduling of games. With many games now kicking off at different times in the early evening this is proving unattractive to Asian subscribers and advertisers most of whom are 8 hours ahead. There is a growing expectation that rights holders in Malaysia, Thailand, Singapore, Indonesia and others will seek a reduction in rates given the less than optimal timing.

As mentioned throughout the Football Shorts series, what was once considered as very secure income streams are now subject to near decimation (matchday income) or considerable reduction (broadcast rights payments).

Transfer Activity (to 22 September 2020)

A reduction in transfer activity and in the value of many players was quickly anticipated as the potential economic damage of Covid-19 became clear.

Two interesting trends have appeared from my perspective.

Firstly, a small number of clubs with resources and/or breathing room with regards to future FFP and PL compliance are using this window to acquire quality players at very attractive prices. As a result four clubs, Chelsea, Liverpool, Manchester City and Tottenham Hotspur account for 48% of purchases to date. Despite these four clubs plus Aston Villa and Leeds United’s expenditure, total purchases so far, only represent 57% of last season’s expenditure.

Secondly, the volume and aggregate value of sales is to date, extremely low. This suggests two points to me (i) there is, across the Premier League, an unwillingness to spend speculatively and (ii) there is an unwillingness for many average and older Premier League players to move clubs given the prospects of being able to match existing contracts elsewhere.

The ultimate expression of a buyers’ market is the free transfer of James Rodriguez from Real Madrid to Everton. A sensational transaction that could not have occurred outside a Covid-19 hit environment.

Source transfermarkt £ millions 2020/21 2019/20 2018/19 2017/18 2016/17
Arsenal Purchases 32.40 144.36 72.14 137.57 101.74
Sales 15.89 48.29 7.11 142.20 9.32
Aston Villa Purchases 74.12 143.19
Sales 0.00 3.60
Bournemouth Purchases 50.81 80.19 30.87 36.62
Sales 31.05 18.18 0.00 21.32
Brighton Hove Albion Purchases 3.20 67.45 79.85 60.30
Sales 17.55 5.75 12.26 0.36
Burnley Purchases 0.00 17.46 29.70 32.17 41.04
Sales 0.00 12.20 7.20 45.00 1.08
Cardiff City Purchases 46.08
Sales 0.00
Chelsea Purchases 200.80 40.50 187.92 234.45 119.52
Sales 66.60 141.54 65.03 180.54 98.10
Crystal Palace Purchases 16.02 6.84 10.67 44.06 91.17
Sales 0.00 49.84 0.32 2.70 45.18
Everton Purchases 42.63 108.90 89.82 182.88 77.40
Sales 3.98 72.45 25.79 113.74 54.72
Fulham Purchases 25.38 104.85
Sales 0.00 4.82
Huddersfield Town Purchases 45.63 51.08
Sales 11.10 5.81
Hull City Purchases 36.00
Sales 26.01
Leeds United Purchases 61.38
Sales 0.00
Leicester City Purchases 24.30 93.87 103.14 79.38 82.44
Sales 45.18 79.65 86.22 45.09 59.45
Liverpool Purchases 78.93 9.36 163.98 156.49 71.91
Sales 14.31 37.44 37.19 175.05 76.84
Manchester City Purchases 79.92 150.14 70.73 285.75 193.50
Sales 40.50 62.10 51.84 82.22 31.82
Manchester United Purchases 35.10 192.60 74.43 178.56 166.50
Sales 0.00 73.06 27.50 40.95 42.53
Middlesbrough Purchases 43.16
Sales 12.15
Newcastle United Purchases 34.88 65.61 53.78 41.85
Sales 0.00 32.08 45.94 19.10
Norwich City Purchases 7.93
Sales 1.98
Sheffield United Purchases 27.18 64.35
Sales 0.00 0.32
Southampton Purchases 22.77 52.74 56.03 55.13 62.01
Sales 22.77 24.57 21.42 88.52 76.55
Stoke City Purchases 51.93 34.90
Sales 31.63 3.42
Sunderland Purchases 37.71
Sales 21.39
Swansea City Purchases 66.05 44.37
Sales 72.99 34.90
Tottenham Hotspur Purchases 85.86 133.65 0.00 109.35 75.15
Sales 11.97 58.05 4.82 93.42 47.07
Watford Purchases 43.20 27.09 64.26 63.41
Sales 22.86 46.66 16.87 52.29
West Bromwich A. Purchases 22.32 48.15 34.11
Sales 0.99 1.85 24.28
West Ham United Purchases 14.58 108.18 90.81 51.12 75.15
Sales 20.07 49.48 13.38 62.12 36.90
Wolverhampton W. Purchases 46.62 109.62 101.03
Sales 71.28 21.69 20.97
Total Purchases 928.39 1610.76 1487.87 1961.40 1487.81
Total Sales 331.09 827.99 507.75 1220.16 775.32
Total 1259.48 2438.76 1995.62 3181.56 2263.13

The implications of much reduced transfer activity are interesting. The immediate thought is that it must be good for club’s finances. Whilst it obviously protects cash flow of would-be buyers, a market with much reduced activity and sale prices ultimately hits the profit and loss account through the absence of player trading profits. As we have seen, many Premier League clubs rely upon the profitable sale of players to meet their financial targets. A reduction in activity is going to impact many clubs in this sense. Furthermore that acts as a deflationary factor driving prices lower. It is all part of the deflationary cycle football is entering, even if many fail to realise that yet.

So, in my latest piece, we’ve examined how Covid-19 is impacting revenues through reduced match day income and now also reduced broadcasting revenues. We’ve also examined the impact on the transfer window and the implications of that.

We’ve seen that the typical early response from clubs to this crisis is not to address running costs but to fund losses through short term debt. That becomes a problem if the losses are greater or sustained longer than originally thought.

Premier League football, if it is to maintain it’s extraordinarily high cost base will need re-capitalising, quite quickly. For some clubs that is not a problem (particularly if regulations are relaxed). For others it is a significant problem, especially if there happens to be large infrastructure capex looming!

Thanks for reading!

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Reader Comments (17)

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Tom Dodds
1 Posted 24/09/2020 at 06:24:43
This guy definately gets off on accountancy.
Gary Carter
2 Posted 24/09/2020 at 07:47:29
Unless he's on our board I don't really get how he comes up with his reports. Surely they are based on supposition and (I'm sure very educated) guesswork as he doesn't have direct access or knowledge of our finances – never mind the whole Premier League, as dissected above?
John Parsons
3 Posted 24/09/2020 at 08:22:26
We bought Doucouré from Watford... and yet the table shows no sales for Watford??
Derek Thomas
4 Posted 24/09/2020 at 08:32:03
Short term right now, Esk, I doubt anybody cares about the greater Premier League House of Cards thing. Nor, after 4 wins, do they care about the EFC one either... they should, but they don't.

If anybody does think of it, it's in relation to a new centre-back, maybe Zaha... and if we're really lucky, a decent keeper.

Good work, though.

Paul [The Esk]
5 Posted 24/09/2020 at 09:27:29
Gary #2, almost all the data I use is in the public domain.
Alan J Thompson
6 Posted 24/09/2020 at 10:46:43
It would appear that, whoever represented the Clubs in negotiating broadcast contracts, they couldn't see passt the next weekend.

Do these figures take into account those who have already paid for season tickets for 2020-21? Or, if any part is carried over or refunded, how it might affect the season crowds are allowed back?

Andy Finigan
7 Posted 24/09/2020 at 11:27:25
I was listening to the Tranmere Rovers owner talking on TalkSport and he was saying that letting in supporters in smaller numbers but, because they were mainly season ticket holders anyway and the fact that staff had to be paid to attend turnstiles etc, they were losing money. I guess that would be typical a cross the board.
David Ellis
8 Posted 24/09/2020 at 14:10:52
Paul – great analysis as usual. I have read your annual reports on Everton finances over the years and listened to the Everton Business Matters podcast with great interest.

However, the conclusions you come to seem consistently pessimistic compared to the outcome, specifically in relation to transfer funds available under Moshiri.

I guess the gap here is the ongoing largesse of Moshiri as clearly Everton have not been remotely running on a sustainable basis since he arrived.

Jay Wood
[BRZ]

9 Posted 24/09/2020 at 14:17:59
Paul, ignore the snidey posts at the top of the thread.

I for one greatly appreciate the time and research you dedicate to your in-depth pieces. They are always thought-provoking on unseen factors many of us are not aware of which will determine and impact on the club's desire to progress.

I fancy I am not alone in thinking that here on ToffeeWeb.

Keep up the good work, please.

Thomas Lennon
10 Posted 24/09/2020 at 15:57:36
Always great to read Paul's efforts on ToffeeWeb, bringing things into a different perspective.

Underneath all the optimism of progress on the field – sometimes quite remarkable progress – lies our finances. Nothing will last, nothing is sustainable unless the finances are in place, or the facilities to earn that finance are in place. Our finances are more central to our long term future than buying James or Allan.

While the rest of us have fun with 14 goals in 4 games, Paul is locked away in a garret somewhere, warming his fingers on a Dickensian candle, keeping our feet on the ground.

Jerome Shields
11 Posted 24/09/2020 at 16:36:37
Great article, Paul.

I previously estimated that Covid and the relaxation would give Everton two years more to sort out there finances to comply with FFP rules.

It's interesting that they have taken advantage in the transfer market to put Ancelotti/Brands cost-effective beneficial change in place. The reluctance of older and deadwood players to move on is a problem that Everton have had for a while. Fortunately Brands has been working to reduce the impact on Everton. Allowing Big Sam to purchase Tosun and Walcott in that January transfer window could prolong things. But at least Ancelotti has been able to find some value in players that we may have been added to the heap.

Maybe because Everton's commercial side is underdeveloped, the Covid-19 impact on revenues won't impact as much as it will with other Clubs, who will lose more revenue. Anyway, the development of the Stadium and the commercial side is going to be needed to turn finances around once the Covid-19 effect is lessened.

It is fortunate that Moshiri recruited Ancelotti, which increasingly looks a low-risk move and value for money. A decision that now appears to have been ahead of the game.


Mike Gaynes
12 Posted 24/09/2020 at 17:40:39
Paul, just curious... how long does it take you to assemble an article like this?

And what is your profession?

Extraordinary degree of effort here.

Paul [The Esk]
13 Posted 24/09/2020 at 22:36:33
Thanks Mike for your comments - I have always been a collector of financial data for football clubs, thus it takes less time than you may think.

Profession? I have run businesses and been an investor in businesses across many sectors and regions for more than 25 years.

Paul [The Esk]
14 Posted 25/09/2020 at 12:48:44
#3 John. As Watford are no longer in the Premier League their figure is not included for 2020-21.
Mark Taylor
15 Posted 25/09/2020 at 19:05:46
Must be a bit of a trainspotter myself, but I also appreciate these articles for the genuine insight they provide.
Rob Hooton
16 Posted 27/09/2020 at 09:46:48
Great insight and very interesting to note the clubs that tip their fans off on match days will be hit hard in this area of revenue generation. We have some of the cheapest tickets in the country and have been one of the few clubs in the league not to completely take the piss out of the fans!!
Matt Traynor
17 Posted 28/09/2020 at 08:40:08
It's been a while since I looked at football finances in the context of Everton (pre-Moshiri), but generally, clubs' revenue was broadcast, commercial and matchday.

Everton were way too dependent on broadcast revenue, making us susceptible if that market were to collapse, as predicted by many. Whilst it's softened (the growth was unsustainable), "new" entrants like Prime, BT etc kept Sky "honest" (for want of a much better phrase).

At one time recently, clubs like Man Utd and Liverpool's commercial revenue alone outstripped Everton's total revenue.

What no-one could've really foreseen was a collapse in matchday revenue (and short-term reduction in broadcast revenue) from a pandemic.

With the way the broadcast revenue is set up, I believe that the Premier League is amongst the most equitable. Overseas broadcast is still split equally between the 20 clubs – this is an area that Liverpool and others are trying to change, arguing that they have the bigger overseas fanbase. As long as the Premier League is one-man one-vote, then it's unlikely to change... but, if it does, the protectionism of the media 4 or 6, will be complete.

At that stage, I'd say give them their European league they crave and let's get back to proper competitive league football. (On the proviso, when that collapses, they re-enter at the bottom of the football pyramid.)

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