State of Championship Club Finances

I posted pretty much along the same lines a couple of weeks ago in terms of how FFP was working, losses allowed. i suggested a scaled approach to punishments upto and including relegation, barred from promotion etc..

Another idea....Government are missing a trick as well here and could equally get involved regardless of how toothless the EFL are.

How about slapping a 35% tax on these owner LOANS to football clubs and boosting the public purse. Tie this in with the only way to reduce the tax is to gift the money to the club but still attract a 10% tax.

Force clubs to work within their means..

 

The issue with a blanket tax of 35% on loans would be impossible to enforce as the majority of owners doing this are not UK citizens or tax payers or they are based off shore. The legislation required to pass that would be impossible as the government are screaming out for foreign investment.

People have to realise, especially Wigan fans, is that the football club is a company and subject to companies house rules and general accounting procedures. The EFL cannot govern what happens within the confines of a Ltd company transaction. Only thing the EFL can do ban membership of the EFL or impose penalties should the owners don’t conform to their rules.

 

Agree with your comments, one thing that could be considered for new owners is a bond of £ x millions lodged with the EFL to protect the various creditors....once the accounts show that the bond has been exceeded by debt accrued the EFL could act in some way.

 

When it comes to FFP, the EFL act only as policemen and jury, and not the law makers. It was the clubs themselves who wanted the system and limits that apply within FFP. The system and limits can only be changed if the clubs want it to be so, and many owners still believe that they can spend their way to the Premier League, and on that basis, they would oppose any change.

In my view, the system that is used in Leagues 1 and 2 is a far fairer system. The system links player wages to turnover, only allowing clubs to pay a maximum of 60% of turnover out in qualifying player wages (League 1) or 55% (League 2). Once again, that system exists because the clubs wanted it that way. The accounting is on an ongoing basis based upon club returns, rather than being based the annual accounts which are 9 month out of date before they are submitted to Companies House, and 18 month out of date before the EFL gets around to looking at enforcing any breech of the rules.

 

For example when Wolves got promoted a couple of years ago with their new chinese owners. how much did they spend in 1 season £100m+? What would the EFL have done if they didn’t get promoted?

 

Transfer activity isn't included within Turnover, as player trading is essentially the sale and purchase of capitalised assets, so there's a separate entry further down the P&L that reports the net impact of this. However, the P&L position potentially looks very different again to the cash-flow position, so it's still relatively difficult to identify the cash-flow impact of transfers, as an element of it will always be sitting within debtors and creditors, due to fees being paid in instalments.

I did a brief analysis when the last accounts were first published which referred to this, and the thread itself had some good debate within it (http://barnsleyfc.org.uk/threads/bfc-accounts-up-to-31-may-2019-submitted-today.289256/#post-2436201)

More generally, your original post identifies a lot of issues within the Championship, but these are essentially symptoms of more fundamental issues within football finances, largely brought about and exacerbated by the formation of the Premier League. Rather than being corrected over time, the current situation is worse now than it was when the Premier League first came into existence. Football finance has needed a fundamental reset for years, to reduce the massive imbalance as you move down the pyramid, yet all the momentum remains in the opposite direction.

Fundamentally, there are two main issues which cause an imbalance in the football economy compared to how it used to operate, and they've created something of a vicious circle compared to previously. The first is that there's a far greater 'drainage' of cash out of the football economy in the form of player wages and agents fees, which have inflated massively subsequent to the Bosman ruling, and which are lost from the economy once paid out. When wages were relatively low relative to turnover, in particular non-TV revenues, then there was far greater recycling of cash throughout the economy, rather than the enormous drains from it seen nowadays.

Additionally, TV revenues became the dominant source of income, and the gaps between the Premier League and lower league TV deals just keep on widening, resulting in an increasing distortion of funds between the top and bottom of the pyramid. Parachute payments were meant to be a short-term buffer for relegated teams, but over time they've increasingly become 'war-chests' by which relegated clubs can take punts on getting themselves promoted again in the time they have them. These now last for 4 years after relegation, rather than 2 years originally, and the increased amounts of parachute payments payable have essentially created the enormous distortion in Championship finances between the haves and have-nots. The distortion continues further down the leagues (so Championship vs League One has a similar imbalance) but the Championship is the league where there's an enormous distortion between clubs, that effectively creates an unfair playing field. Many clubs, desperate to chase the pot of gold, have resorted to huge overspends of wages relative to turnover, assisted by rich owners and dubious accounting practices in some cases, but the impact has filtered all the way down the football pyramid, with very few clubs being able to keep wages below turnover without reliance on TV monies.

Accepting the fact that we are a relatively frugally run club living largely within it's means, we still fall victim to these impacts, particularly as we've become something of a yo-yo team between the Championship and League One. Within the analysis of our own most recent accounts, we recorded a wage/turnover figure of 105% in League One as the extent to which our wage bill reduced after relegation was far smaller than the extent to which our turnover fell, and almost all of the revenue shortfall was distribution of TV monies. We'd potentially fall victim to the hard and fast rules you suggest each time we suffered relegation. SCMP already attempts to do this in the lower leagues anyway (and one of the problems is that these are different rules compared to FFP requirements in the Championship, so there's no common rule, even within the EFL's own pyramid). Neither of them will ever be effective regimes if the football authorities don't effectively punish clubs for breaking them, and this is where the EFL has been hopelessly negligent to date.

At the most basic level, while ever there is a massive distortion of TV distribution through the football pyramid clubs will look for whatever ways they can get away with to chase the increased rewards, and they'll continue to largely ignore the rules if there's no effective punishment for breaking them, and significant points deductions are surely the only sanctions that can ever be effective in this regard. If the end result is just a fine, then you can break the rules, get promoted and just offset this against the massive increase in income you obtain, and several clubs have adopted this approach in recent seasons to get themselves into the Premier League.

 

I agree with your sentiments. I wrote the post just to highlight most championship clubs reliance on owners for cash flow and certain clubs being used as debt instrument by their owners, mainly in response to highlighting what’s happened with Wigan. Then the post just evolved.