English football on the precipice: 40-plus clubs technically insolvent

FOOTBALL’s unsustainable finances continue to be affected by external affairs and sub-optimal practices, the latest hurdle will doubtless emerge from the war in Ukraine, although the full economic impact of the conflict is still a long way from being known. 

However, even before the pandemic and the behaviour of Vladimir Putin, football’s business model was being exposed on a daily basis and covid-19 merely provided the final straw for some clubs. According to Fair Game, the organisation promoting sustainability, integrity and community orientation, 44 of the 85 clubs that filed financial returns for 2019-20 were technically insolvent. These included Premier League clubs West Ham, Brighton, Bournemouth, Aston Villa, Wolves, Crystal Palace and Sheffield United. The most “technically insolvent” club in the Fair Game list is Stoke City with a negative figure of £ 154.4 million.

At the opposite end of the table, the balance sheet equity figures of the big and powerful dwarf the majority of the 92 clubs. Manchester City, for example, had balance sheet equity of £ 631 million, while Chelsea (£511m), Arsenal (£345m), Tottenham (£340m) and Liverpool (£ 208m) were the only others with figures in excess of £ 100 million. 

Technical solvency is calculated by taking all the club’s assets (including stadium, training ground and players) and subtracting the liabilities (including debt). If liabilities outweigh assets, the club can be categorised as technically insolvent.

Niall Couper, CEO of Fair Game, said in a press release: “These pre-pandemic figures should be a huge alarm bell to anyone interested in football. Most clubs only exist because of a wealthy benefactor. Which leads the obvious question: What happens if they walk away?”.

The football world will soon see what happens when one of the most generous benefactors, Roman Abramovich, leaves Chelsea, and how the new owners of the club eventually run the business. Here we have an example of a club that has enjoyed huge levels of backing suddenly without the man who has funded unprecedented success.

Interestingly, Newcastle United co-owner Amanda Staveley, who was a pivotal figure in the club being acquired by the Saudi Arabian sovereign wealth fund, has come out in support of Abramovich, claiming it is unfair he has had to sell Chelsea. “We’re always going to have geopolitical issues… I’m really sad that someone is going to have a football club taken away because of a relationship he may have with someone,” she said at a Financial Times conference on football finance. Staveley may have had in mind that the spotlight will surely be focused on Newcastle United and their controversial takeover again in the near future.

The Premier League clubs, generally, have a high degree of solvency which is boosted by TV revenues, amounting to almost £ 2.5 billion in 2020. Couper added: “The problem is that the vast majority of that sum stays in the Premier League and this has created a dangerous culture. Clubs are gambling their very own existence to chase the siren call of the Premier League, with Derby County the latest example.” The Championship, of which Derby have been members for 14 seasons, is renowned for overspending, primarily on players wages. For example, in 2019-20, the wage-to-income ratio in the division rose to 120%, up from 107%. 

TV revenue distribution needs to be examined closely, for only 1.2% of the total is distributed to clubs below the top two tiers, while 12% goes towards parachute payments for relegated clubs from the Premier.  A fairer method would ensure the whole of League One and Two attain technical solvency. Couper says: “There is so much money in football, yet there is no holistic view on how to use it to benefit the game overall.”

Fair Game is calling for an independent regulator, a key element of the recent government study on football, but also considers a sustainability index a priority built around four criteria: financial substainability, good governance, equality standards and community and fan engagement. Perhaps there is a need for a credit rating agency of a sort to monitor the financial health of clubs on a real time basis?

Although the past two years have seen football struggle against a difficult backdrop, the fact so many clubs have announced financial distress should concern everyone. The geopolitics, the pandemic, the global economy and the UK’s departure from the European Union have all contributed to the current situation. And with the immediate horizon looking very depressing and uncertain, we can only assume more clubs will stare into the abyss at some stage. We have been warned.

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