League Two: The looming crisis
Posted on October 9, 2020
THE coronavirus pandemic has highlighted many things in the football world: the ongoing imbalance across most of Europe’s major leagues; the vulnerable business models of some clubs; the extravagant wage-to-income ratios; and continued aggression in the transfer market.
While the top clubs have the means to recover from huge losses of income brought about by an absence of matchday income and associated commercial revenues, smaller clubs have far less protection in a crisis. Matchday revenues form a larger part of overall income for smaller clubs than for the elite clubs, therefore the effect of the pandemic can be comparable to falling off a cliff.
Many football industry professionals have predicted a collapse of lower league football with dozens of clubs having to overcome existential obstacles in the aftermath of the crisis. Bury and Macclesfield have both fallen over in the past year and it is nothing short of a miracle that others haven’t gone the same way. One can only assume that creditors have adopted a reasonable approach and banks have accepted the current crisis impacts us all.
But the pandemic should teach us a few things, not least that many football clubs live beyond their means and struggle to handle the unexpected. While a lot of people hope for life to return to normal, the post-crisis environment should also act as the catalyst to improve businesses, reshape financial models and also build-in risk management functions.
League Two is a very vulnerable division in the UK, although the Championship – with its track record of spending more than the clubs earn – may yet prove to be the English league’s most financially risky area. Many fourth tier members are just a bad season away from experiencing severe financial pressure.
Southend United have been making the wrong kind of headlines in recent months and have more red flags flying than their local beaches. Southend have been waiting for a new stadium to emerge for some years and although the plans are in place, the club is in a precarious position at the moment. Southend’s wage bill is high but the club has been in decline for a couple of years and was relegated in 2019-20.
Indeed, the biggest concern is the £ 493,000 owed to HMRC, a debt that cannot be ignored for too long. Southend have until the end of October to pay this sizeable amount and if they do not, a winding-up petition will surely come their way. Ron Martin, the club’s chairman, has said that Southend’s parent company will pay the HMRC.
Southend started the 2020-21 season disastrously, losing 4-0 at home to Harrogate Town and are perched near the bottom of League Two. Ron Martin says they are light years away from Macclesfield in terms of their outlook, but people are worried about the future of the club.
Oldham Athletic were seemingly in danger of being evicted from their Boundary Park home earlier this year, but their new CEO, Karl Evans, believes they are no more worse off than any of their rivals in terms due to the pandemic. The Latics’ fans want owner Abdallah Lemsagam to sell-up and there have been interested parties who were interested in taking the club off his hands, but the threat of administration still hangs over them. Oldham have also been warned about late payment of wages by the EFL.
Morecambe are the EFL’s smallest club and struggle to draw 2,500 people to their home games. The club voted in favour of salary caps and also hoped for a rethink of English football. Although they’re losing money, they also have the smallest wage bill in League Two. In order to ease their problems, Morecambe launched a crowdfunding campaign, which proved to be successful.
The crisis has hit Scunthorpe United hard as their wage bill has exceeded their income to the tune of 143% and they have more than £ 11 million of debt. The club deferred around 20% of players wages as the pandemic took hold of Britain. At one stage, the club was losing £ 50,000 per week.
Tranmere Rovers’ Chairman Mark Palios has been very vocal about his concerns and has envisaged a loss of between £ 400,000 and £ 500,000 for his club. Exeter City are anticipating a deficit of some £ 700,000 and Colchester United are bracing themselves for a £ 400,000 loss. Bolton Wanderers, now in League Two, expect income to drop by £ 1 million.
Walsall’s chairman has commented in public that his club have done remarkably well during the pandemic. The Saddlers’ players volunteered for the club’s cost reduction programme.
It is difficult to find good news from among the League Two membership, although Port Vale admitted their club was strong because of the financial support it receives from Carol and Kevin Shanahan.
The combined revenues of League Two clubs amounted to £ 91 million in 2018-19, less than half of the League One total. When you consider that the top six clubs in the Premier League (Manchester United and City, Liverpool, Chelsea, Arsenal and Tottenham) generated almost £ 3 billion between them, it is clear there is enough money in the game to help every club in financial trouble.
While a fighting fund is a perfectly reasonable thing to suggest, if only to ensure the eco-system remains intact, it smacks of democracy, the very thing football is not about. The game is all about the survival of the fittest and meritocracy, with a little dose of schadenfreude thrown in for good measure. Although some fan groups champion a form of socialism, it doesn’t represent the ethos of most clubs.
The EFL and the clubs also have their future in their own hands. Carlisle United’s co-owner said that “The Armageddon scenario is pretty close” when describing the current situation among small clubs. But while financial directors wring their hands and squirm in their seats, the transfer market rolls on with the Premier League spending £ 1.45 billion in the recent window, far more than the other big European leagues. With so many of England’s clubs living a precarious existence, does this really feel right?