The cost of the drop
Posted on March 26, 2016
WITH SOME worrying messages coming out of both Newcastle United and Aston Villa, two of the clubs most likely to suffer relegation from the Premier League, the cost of dropping out of English football’s top flight is becoming ever more apparent.
According to the game’s think tank, Football Benchmark, relegation has never been more costly than it will be in 2015-16. In KPMG’s new release, “A different paradigm”, the major disruptors of falling through the trapdoor are looked at in some detail.
The paper comes as Newcastle United’s owner, Mike Ashley, revealed that his club has no money left in the bank after an £80m “spending spree” this season that has not lived up to expectations. At the same time, new Aston Villa director, David Bernstein, has told supporters that Villa may even suffer a second successive relegation, such is the current condition of the club.
Football Benchmark says that the three clubs that drop into the Championship this summer will experience the usual shocks associated with failure, but the enhanced sponsorship income will make relegation an even more bitter pill to swallow.
Both Newcastle and Villa have replaced their manager during the course of 2015-16, Villa installing Remi Garde in November and more recently, Newcastle brought in Rafael Benitez in a bid to stave-off disaster. Football Benchmark said: “The prospect of relegation forces clubs to act, either in mid-season, in the final run-in or at the end of the campaign. The fear of life at a lower level, and the likelihood of upheaval, club restructuring and departure of key players fills club chairmen and owners with dread.”
Not all mid-season appointments work. Remi Garde’s position at Villa appears to be very precarious even after such a short tenure in the dugout. Football Benchmark calculated that only half of all mid-season hirings have resulted in better performance. Some might argue that is a good statistic given what’s at stake.
The paper said that the commercial aspect of relegation is increasingly becoming a “financial catastrophe” for clubs. In 2014-15, the Premier League paid out £ 1.6bn in “central income” prize money. The Premier claims that the revenue distributed to clubs is the most equitable of all Europe’s major football leagues – a ratio of 1.53:1 between the champions and the bottom-placed club.
In 2014-15, the Premier League divided 50% of UK broadcasting revenue equally among the 20 member clubs and similarly shared all international broadcast revenue and central commercial revenues. A quarter of UK broadcasting revenues represented merit payments and the remaining 25% was paid in facility fees calculated on live TV appearances in the UK.
In 2014-15, Chelsea received a total of £99m – of which £25m was based on merit, £20m on their TV coverage – equating to approximately £800,000 per live game. In addition to these variables, Chelsea, and all the other Premier League clubs, received £54m. The three relegated clubs, Hull City, Burnley and Queens Park Rangers, received in excess of £60m apiece overall.
Although parachute payments attempt to cushion the blow, they are modest compared to the rick pickings the Premier League now offers. Total revenues in 2013-14 for the Premier League clubs averaged out at £163m, approximately eight times the figure per club in the Championship – underlining the vast gulf between the two leagues.
Little wonder that clubs cling onto the hope of beating the drop right until the last game, often sacrificing success in other competitions to prioritise Premier football for the following season.
Relegation also impacts at the turnstile. Relegated clubs have, on average, suffered a 20% fall in gates in their first season out of the Premier, and this often declines further in the second campaign, unless, of course, instant promotion is achieved.
Football Benchmark added that relegation also comes with the possible burden of legacy wage bills. Although some clubs have significant “drop clauses” inserted into player contracts, we have seen a number of clubs experience a slump once they leave the Premier – for example, Bolton and Portsmouth. “Relegation is often the signal for a huge exodus of players, either by the design of the club or through the departure of disillusioned players wanting to retain their top level status,” said the paper.
The underlying message is that clubs should consider adopting a business model that has margin for error and suggests that relegation could trigger off a restructuring programme that makes a club’s finances robust enough to “withstand the headwinds of relegation.”