Lockdown. Suspension of play. Facemasks. Geisterspiele. Furlough. Five subs. Hand sanitiser. Pay per view. Zoom. Rebates. Bailouts. Big Picture. No matter the level of your involvement in the beautiful game, chances are that this time last year, the above terminology would be either irrelevant or incomprehensible to your day-to-day lives. What a difference a year makes.

The arrival of COVID-19 in the UK has brought unprecedented changes. Indeed, football clubs in their own right, from the Premier League to the EFL and beyond, are themselves relatively small businesses with players under contract, club staff on the payroll, and many other weekly or monthly operating costs that do not disappear despite the ongoing absence of matchday revenue across league football.

GIS’s Christopher Winn, Programme Leader on the MSc Football Business degree, has widely commentated on the impact of the pandemic this year and the finances of the game, appearing on BBC TV and the Radio 4 Today programme, as well as being published across a range of regional and national written media outlets. With so much having happened in 2020 on and off the pitch, Chris has given us his thoughts on what has come to pass, and where things may be headed…

What has been the financial impact of coronavirus on the Premier League?

Ultimately, the initial suspension of play followed by games being played without fans has shone a light on just how critical cash flow management is across all levels of the game. In the Premier League, matchday revenue accounted for just 13% of revenues in the 2018/19 season. However, despite historically contributing the least to the revenue mix of Premier League clubs, matchday revenue will still be the most consistent cash inflow received by clubs in the course of paying the high and frequent levels of staff wages and other operating costs.

In the eventual conclusion of the 2019/20 season, Premier League clubs are likely to have foregone a cumulative £150m in matchday revenue across Premier League, FA Cup, and UEFA club competitions alone, with the Premier League ‘Big Six’ potentially footing around 70% of this given their relatively larger crowds and remaining responsibilities in cup competitions upon resumption of play. Assuming limited to no further attendance of fans by the end of 2020 (Gameweek 16 in the 2020/21 season), clubs will likely have foregone at least a further £200m in Premier League matchday revenue alone, with potentially £80m also missing across domestic and European cup fixtures. As a result, 2020 may have cost Premier League clubs upwards of £430m cumulatively in matchday revenue, with no sign of fans returning in large numbers in the short term.

The receipt of significantly larger broadcast revenues (exceeding £3bn in 2018/19), whilst likely to be more infrequent from a cashflow forecasting perspective, should also not be discounted from the situation. Clubs are reported to have been informed that a 2019/20 broadcast rebate of at least £330m will be due to domestic and international broadcasters given the change in timing and nature of the broadcast product over the summer. An agreement has reportedly been reached with Sky to defer £170m (c.50%) of this payment until the 2021/22 season, when it is hoped clubs will be in a better financial position, whilst amounts due to BT Sport (c.£50m) are expected to follow suit. However, the remaining c.£110m due to international broadcast rights holders may impact the 2019/20 financial picture. Further afield, UEFA have also confirmed that clubs participating in the Champions League and Europa League face a cumulative European 2019/20 broadcast rebate of c.£520m, which will partly further effect the English contingent once results are published in full.

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With such cashflows usually a given from a forecasting perspective, issues may arise where clubs have spent this money in advance. And to further complicate matters, it was reported in September 2020 that the Premier League had terminated its lucrative international TV rights contract in China with PPTV two years early, worth c.£565m over three years, following a failure to pay a £160m instalment in relation to the 2020/21 season. Tencent Sports have stepped in for the remainder of the present season, although financial details have not been disclosed. Meanwhile domestically, the decision to move previously unscheduled TV games to pay-per-view at £15 per game was met with widespread criticism and boycott regardless of the intentions for the additional revenues, resulting in the model being terminated in favour of all games being broadcast again from Gameweek 9.

The commercial impact is probably the most difficult to quantify, as will likely come down to the strength of relationships between clubs and sponsors, as well as contractual specificities. There is no doubt that in the course of the initial break of play, sponsors and commercial partners will not have received the exposure and affiliation that they pay very large amounts for, and as such some commercial payments may have been initially withheld or further rebates requested, further impacting any cashflow shortages between March and June. For example, even a total 10% fall in commercial revenues could equate to c.£140m based on 2018/19 figures. However, with all 2019/20 games played out over the summer on TV, and with all league games at home grounds as intended, it could be argued that although delayed, club commercial partners gained enhanced exposure as a result of the increased broadcast coverage, with the same in-stadium commercial inventory usage, which may, in turn, mitigate any commercial losses- a relationship that will likely continue in 2020/21 given all games have been broadcast thus far.

Many clubs in the Premier League also continued to pay out player/staff wages and other weekly operating costs in full during the initial suspension in play. In 2018/19, Premier League clubs cumulatively paid out a total of c.£60m per week in staff costs (61% of revenues), with a total further c.£22m per week in other operating costs excluding player trading. These are clearly significant sums, forecast in the main to be funded by the usually reliable aforementioned income streams. With clubs recording a cumulative loss after-tax position of c.£175m in 2018/19, the worst result since 2012/13, and little further growth in the value of the Premier League broadcast rights cycle commencing 2019/20, it is likely that such levels of losses could now be further compounded, potentially reaching historic levels.

How does that compare to the impact on the Football League?

The further down the footballing pyramid you go, the more reliant clubs become on the bread and butter of their business models, that being match day cash inflows and revenue. The Championship is the easiest to articulate given the broader availability of financials.

On the face of it, matchday revenue contributed c.20% of Championship revenues in 2018/19, however, this picture is heavily skewed by Premier League parachute payments, which amounted to around a third of the league’s total revenues. Removing their influence, matchday contributions rise to an average of 30%, with some clubs relying on matchday even more heavily. As a result, these weekly to fortnightly cash inflows become all the more important when meeting weekly wages and operating costs, and their continued absence will be keenly felt in a very different financial environment to that of the Premier League. Championship clubs are likely currently foregoing in excess of £200k matchday ticket cash inflow on average per home game not played- some obviously far exceeding this mark.

Championship broadcast revenue is much more modest compared to the Premier League, however still material at that level, contributing c.35% of revenues when excluding parachute payments. This is predominantly made up of EFL broadcast distributions and Premier League solidarity payments. It’s been reported that the EFL has agreed a collective broadcast rebate of £7m with Sky in respect of the 2019/20 season, but like the Premier League, this has been deferred, with no reductions in club receipts until at least 2021/22. Meanwhile, any 2019/20 Premier League broadcast rebates may have a knock-on effect in terms of the value of parachute and solidarity payments (currently c.£5m per non-parachute Championship club) received by EFL clubs for 2019/20.

Commercial effects are again hard to forecast, but with all delayed 2019/20 Championship games broadcast or streamed, similar logic to the Premier League may apply- although a 10% fall in commercial revenues, in this case, will amount to just £17m across the league based on 2018/19 figures. Whilst League One and League Two were curtailed, the value and contribution of commercial deals at those levels may have mitigated any commercial losses.

The much larger issue at hand in the Championship though is the levels of expenditure. The league has historically operated on very high wages to revenue ratio in the pursuit of promotion to the Premier League, recording an overall wages/revenue ratio in excess of 100% for the third time in the last four seasons in 2018/19, and recording cumulative losses before tax in excess of £240m. These are pre-pandemic levels of spending and losses, which puts into context the issues many clubs are likely to be currently facing when matchday revenue is removed from that equation. And whilst the levels of spending are not quite as severe in Leagues 1 and 2, the steadily increasing reliance on matchday revenue means that cashflow shortages could be even more acute in the face of club operating costs.

What has been done to help clubs in the EFL and National League through the crisis?

Over the course of the year, there have been several landmarks in the provision/discussion of financial assistance, with the EFL chairman Rick Parry reportedly stating that the EFL is facing a £250m black hole as a result of the pandemic.

Earlier in the year, the EFL (£50m) and the Premier League (£125m) advanced EFL clubs funds in an effort to stem the cash flow shortages experienced due to the initial suspension of play. However, these were predominantly made up of advance broadcast payments (parachutes, solidarity, and EFL), i.e. not replacing lost income, but simply bringing future income forward which may have already been spent in advance. Furthermore, given the huge disparity between the values of parachute payments and solidarity/EFL distributions, a very large proportion of these funds will likely be received by only a handful of clubs, leaving the majority most in need- many of whom have turned to the government furlough scheme or arranged wage cuts/deferrals.

In the Autumn, it was then announced that the National League would be receiving a £10m rescue package from the government, allowing the 2020/21 season to kick off behind closed doors. With some clubs relying almost entirely on matchday revenue alongside owner contributions at that level, the funding was intended to stop some clubs going out of business. A secondary package of £11m for the National League, largely composed of loans, has recently been announced as part of the government’s wider £300m ‘Sports Winter Survival Package’, with the Women’s Super League and Women’s Championship also receiving £3m.

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The EFL accepted a further £50m bailout package from the Premier League for teams in Leagues One and Two.

More recently, after months of reportedly drawn out negotiations, the EFL have accepted a further £250m bailout package from the Premier League for teams in the Championship, League One and League Two, having rejected earlier terms. The Premier League will provide £15m to allow the EFL to secure a £200m interest free loan facility for Championship clubs - with the caveat that funds made available are to clear debts and taxes, not to sign players. Meanwhile clubs in Leagues One and Two have been given immediate access to £30m of loan funding, with a further £20m ‘monitored grant’ that clubs can apply for based on need. With ten EFL clubs having reportedly stated fears regarding the ability to pay November 2020 wages, the assistance is likely crucial.

The government themselves have so far stood firm on providing any emergency funding to the Premier League or EFL clubs, with the £300m ‘Sports Winter Survival Package’ announced in November 2020 excluding the four leagues, reportedly pointing to the c.£1.3bn Summer 2020 transfer spend of Premier League clubs as proof of existing resources at the top level that can be utilised to help the EFL “rather than taxpayers’ money”.

However, it is also important to note that transfer fees are often paid in instalments over time- so these levels of spend are not immediate cash payments here and now- potentially diluting the point being made, whilst given Championship clubs may be future competitors for Premier League clubs, there is also the argument that directly bailing out Championship clubs may not be in the longer term interests of some clubs’ Premier League statuses- with associated financial implications in their own right.

What more needs to be done to protect the English game?

With so many clubs across the English game struggling in the face of almost a year without fans, many have seen the current circumstances as an opportunity for a reset of the Economics of English football, and the associated unsustainable business models across much of the EFL.

For instance, there has been a growing clamour, as a result of the current situation, for the Premier League broadcast revenue distribution mechanism to be reconsidered. In 2018/19 all Premier League clubs recorded revenues of at least £120m, largely due to the Premier League broadcast deal which paid out a total c.£2.4bn to those clubs alone. To put that in context, the bottom placed team on the smallest merit payment and minimum facility fee payment, still received in excess of £90m in Premier League broadcast payments that season. Whilst parachute recipients tend to receive between £43m and £17m at current rates, the rest of the Championship clubs received just c.£5m each from the Premier League in broadcast solidarity payments in 2018/19, falling to c.£700k per League 1 club and c.£500k per League 2 club. This financial chasm is deemed unfair by some, and it also can be attributed to leading clubs down the overinvestment path in search of such financial glories.

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Liverpool and Manchester were behind the doomed 'Project Big Picture'.

This is where ‘Project Big Picture’, an initiative reportedly designed by the owners of Liverpool and Manchester United, and subsequently rejected by the Premier League clubs, came into play this Autumn. At a high level, the plan would have seen the EFL given £250m by the Premier League immediately to fill the reported financial black hole as a result of the pandemic, but also 25% of future Premier League annual revenues- a sizeable increase from the current level of 4%, with the much debated parachute payment mechanism also scrapped. However, in return it was proposed that the Premier League be cut to 18 teams, the League Cup and Community Shield abolished, and most unpalatably, the voting rights of the Premier League clubs placed into the hands of the ‘Big Six’ clubs, plus three other long standing members of the league. Unacceptably to the rest of the league, this would have replaced the existing one club, one vote system, with many fearing for the long-term direction of the English pyramid with so much control in the hands of a few wealthy owners, especially with the spectre of a future lucrative European Super League refusing to dissipate.

Cost management also needs to be considered. Granted, a pandemic was unprecedented, but EFL clubs could have been in better financial shape before the coronavirus arrived in England. The existing Championship Profitability and Sustainability regulations, regulating clubs at the adjusted loss before tax level, have not worked, with several clubs recently employing creative accounting techniques such as sale and leaseback of stadia transactions with owners in order to meet the rules over the measured three-year period. It has been suggested that any bailout from the Premier League to Championship clubs should incorporate enhanced financial regulation as a covenant per se, to provide a much needed reset to the levels of unsustainable wage expenditure in the division. For instance, had a 70% soft wage cap been in place in 2018/19 (regulating Championship clubs’ wage expenditure as a percentage of revenues), the £300m+ of cumulative losses before tax would have been wiped out.

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Clubs in Leagues One and Two have already voted in a hard salary cap, replacing the previous soft cap regulation in both divisions, in advance of the 2020/21 season. The levels of wage expenditure in League 1 and League 2 had steadily increased over recent years, Deloitte reporting an 80% wages/revenue ratio in League 1 and 78% in League 2 in 2018/19. With clubs at these levels often receiving upwards of 50% of revenues from matchday, it appears the pandemic has indeed provided a reset of expenditure models in the respective leagues, with enhancements to the Championship financial regulations still to be determined at the time of writing.

Regardless of where you stand, what is clear is that the pandemic has had a profound impact on all our football clubs, shining the clearest light yet on existing models of finance, governance and regulation throughout the game. The future of English football is now firmly on the table, in a way it would never have been pre-pandemic, and if given appropriate consideration and due diligence, one of the worst years for the game in living memory could yet prove to be its long term salvation both on and off the pitch.