Calling Time On Lower League Debt?

by Mike Moore

Thursday, June 9th, 2011
 

Past celebrations for Blackpool - but how will they cope back in the Championship?

As news broke today that the Premiership has once again generated record income (breaking the £2 BILLION barrier), it got me thinking about how this money would be received lower down the leagues. The Championship is supposedly a bigger league than Serie A, drawing larger audiences and seeing more goals, and with ex-Premier League teams with big catchment areas such as Leeds, Southampton, and Nottingham Forest, this is hardly much of a surprise. These teams and many like them can draw large crowds and hence earn more to spend, with the increasing prevalence of televised games in the lower leagues also proving beneficial, if not essential, for clubs.

Yet debt is often a huge problem in this non-Premiership world, where multi-million sponsorship and endorsement deals are very rare, and many teams regularly post financial losses. It has been estimated that clubs in the Football League owe a cumulative £700 million debt, the majority of which is in the Championship, yet this is clearly not a healthy figure.

Wage increases in the Championship continued to soar in 2009-10, according to the latest Deloitte report into football finance, with over a third of clubs paying out more in wages than they received in revenue. According to the Daily Telegraph, Blackpool were particularly bad at this, as in the year they won promotion, had the biggest ratio, spending 134 per cent of their turnover on wages. Luckily they did not go on spending in this manner and so should be best suited out of the three relegated teams to adapt to the Championship.

Which is why I was extremely pleased to read today that, at the Football Leagues’ annual meeting in Cyprus, the Championship is to adopt a ‘financial fair play’ system similar to that revealed by UEFA for top clubs in European football. Under this model, teams will commit to only spending what they earn, which, as concerns over commercial income grow – the League’s new £195 million domestic TV deal earns the clubs 26% on the previous deal, again seems a wise choice for those clubs worried about staving off administration, particularly relegated teams who often rely on parachute payments (ironically a major source of income, as the about teams from the Premiership will receive upon relegation is rising to a maximum of £48 million over four years) in order to survive.

Clubs such as Burnley, who were featured on Sky Sports the other day discussing how they, unlike teams such as Leeds and Bradford, managed to keep their finances balanced following relegation, are now on their last instalment of parachute payments, and yet with a young and talented manager, a supportive board and an experienced squad, look poised to mount a strong promotion challenge next year.

Encouragingly, the lower leagues have already taken significant steps to protect themselves too. At the Football League meeting, the idea will also be put forward that League One clubs should move towards introducing a salary cap like that currently in force in League Two, where teams can spend a maximum of 60 per cent of turnover on wages, another wise idea.

Such moves will hopefully go a long way towards securing the long-term future of many of the clubs in the Football League, allowing teams to continue to attract players and mount competitive campaigns. It only waits to be seen if the Premiership chooses to follow it’s poorer cousin.

 

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