Football’s frightening debt culture

Only one Championship side finished last season not making a financial loss
debtBy David Owen
One solitary Championship club managed to make an operating profit in the 2012-13 season, as the second tier of English football faces crunch-time in its efforts to improve the state of club finances. Lancashire seaside team Blackpool were the odd ones out, as its 23 rivals contributed to aggregate operating losses of £241 million.

So worrying is this outcome that even professional services firm Deloitte, an organisation hardly renowned for resorting to extreme language, described the 70% increase from 2011-12’s record loss of £142 million as “phenomenal” and “alarming”.

It seems the bright lights and multi-zeroed revenues of the Premier League are so alluring that some clubs carried right on spending, in spite of negative factors such as the start of a new three-year broadcasting deal that is significantly less valuable than its predecessor.

But, of course, only three clubs per season can succeed in getting to the Premier League, prompting concerns about those who don’t make it. Said Deloitte: “Eleven clubs recorded operating losses in excess of £10 million…Three of these clubs achieved promotion to the Premier League, with combined operating losses of £58 million, which may be seen by management and fans as justification for the wage spending that resulted in those high operating losses.”

The rate of increase in operating losses, it went on, “is proof of the reliance many Championship clubs place on benefactor-funded debt. Clubs operating on this basis are continually vulnerable to that external support drying up. For a number of clubs such a withdrawal of support would place them in a very perilous financial position.”

Three of the 24 clubs – Barnsley, Blackpool and Crystal Palace – managed to make a pre-tax profit, Palace cashing in on Wilfried Zaha.

The lake of red ink has collected as the Football League is consulting with the Premier League over the implementation of its Financial Fair Play regulations.

No sanctions were implemented during the first two seasons of this regime. However, as things stand, from 2014-15 Championship clubs with more than £8 million of losses could face a transfer embargo or a “Fair Play Tax”, in effect a fine.

It looks like the moment of truth for Championship club finances is fast approaching. As Deloitte said: “The introduction of Championship Financial Fair Play rules was widely seen…as a necessary step to change clubs’ behaviour and ‘save them from themselves’…The severity of punishments applied to those who have not complied with the rules in the 2013-14 season (the first for which sanctions apply) and the eventual result of efforts to change the rules, will determine the extent to which they present an effective deterrent to widespread overspending.”

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