Championship clubs to adopt wage restraints
Fate of Preston shows danger of chasing Premier League riches
Thursday 09 June 2011
The most dangerous division in football is the Championship. So seductive, and so seemingly close, is the lure of the Premier League’s riches that clubs are prone to over-reach themselves financially in an attempt to join it.
The latest Deloitte Report into football’s finances reveals that Championship clubs averaged a wage/revenue turnover of 88 per cent, at least 11 per cent higher than either the Premier League, League One, League Two, or the major foreign leagues: La Liga, Serie A, Bundesliga and Ligue 1. Uefa have set a 70 per cent limit in its forthcoming Financial fair Play regulations, the same figure Deloitte suggest is a warning level. In League Two a salary cap of 60 per cent, a safer limit, already operates.
Deloitte reveals that eight clubs in the top two flights in 2009/10 exceeded 100 per cent ratios. Manchester City, a special case thanks to petrodollars, were the only Premier League club. Among the Championship clubs were Preston North End. In 2001 and 2005 they lost in the promotion play-off final, in 2009 they lost in the semi-final. They did all this without spending heavily on transfers, their record buy remains David Healy, signed for £1.5m in 2000, but wages add up on average gates of around 13,000 and their wage/revenue ratios for the two years to 2010 were 132 per cent and 108 per cent respectively. Losses, after player trading, were £10.5m
At the end of 2009-10 Preston faced a winding up order from the taxman. It was survived only through a takeover by Trevor Hemmings, a locally-born septuagenarian businessman. Hemmings drastically slashed the £11.6m staffing and player wage bill, bringing in trouble-shooter Maurice Lindsay, better-known for his rugby league links, to cut it to £6.5m. "We had to change the culture. We had to move away from the belief that the club would just carry on and someone would eventually pick up the bill,” said Lindsay. There was a price to pay. Last month, after 11 years in the second tier, Preston were relegated.
It is not as if Preston were big spenders. Their wage bill was below the division’s £15m median. And they were dwarfed by the £47m Newcastle United laid out in winning the Championship in 2010 (incurring a £22m loss). Second-placed West Bromwich Albion, spent £23m.
Newcastle United are, admittedly, a special case, given their support and stadium, but just as significant is that they, and West Brom, were in receipt of £8m relegation parachute payments which enabled them to maintain the bulk of their Premier League players (the third relegated cub, Middlesbrough, paid £31m in wages, and came 11th). These payments will next season be increased to £48m over four years. Other Championship clubs receive £2.3 million a year, League One sides £325,000 and League Two clubs £250,000.
Often as not it is in attempting to bridge the gap which brings clubs to their knees. Next season, for example Blackpool will be picking up £13.7m more in TV-related payments hand-outs than play-off finalists Reading, who might otherwise be expected to be promotion favourites. Reading thus have a choice, push the boat out and keep the likes of Shane Long and Jobi McAnuff, or sell to maintain a balanced budget.
Previous evidence suggests chairman-owner John Madjeski will sell rather than put the club at risk, but not all owners are so prudent. Thus the Football League are considering introducing it’s own version of Financial Fair Play, to help those who won’t help themselves.
Greg Clarke, the League’s chairman, revealed yesterday Championship clubs were likely to follow Uefa’s lead, although there had been some resistance.
He said: “Championship clubs voted to look at financial fair play, and in principle decided that was the road they wanted to go down. It's a perfect storm in that a lot of things have come together to make this happen, including, of course, the level of debt in the game – £700m in the Football League, most of that in the Championship – and big losses being racked up by the clubs.”
“These things are never unanimous, and a couple of the clubs would rather not have constraints on how much money they can spend,” admitted Clarke. The proposals will be voted on at the League’s AGM in Cyprus today.
One of the factors leading to this development is the spectre of a 26 per cent drop in TV income when the Football League’s new deal comes into operation. "Football finances are difficult,” added Clarke, “the UK television deal is less than the last one, and there are no signs that the economy is going to recover quickly."
In addition League One is moving towards adopting the 60 per cent salary cap already in place in League Two. It may be a while, however, before this is extended further. Based on 2009-10 figures only Arsenal, Burnley, Derby County, Manchester United, Tottenham and Wolves, of the 44 clubs in the top two divisions, would not exceed this cap.
On the face of it the worst offenders were Blackpool with a wage/revenue ratio of 134 per cent. This figure – as revealed in the bar chart issued by Deloitte and carried elsewhere on this website - is frightening and clearly unsustainable had they not won promotion, and the £80m windfall that entailed. However, buried in the report, 39 pages in, it is noted that Blackpool, paid significant promotion bonuses. Deduct the bonuses, which have been reported to be around £5m, and Blackpool’s wage-revenue ratio is 81 per cent.
That is still higher than is desirable, but it paid off handsomely. Blackpool were more cautious in the top flight and were subsequently relegated but they return to the Championship in far better shape than they left it. Seeing the improvements in playing staff and infrastructure at Bloomfield Road other clubs will be tempted to copy. Most, however, will not win promotion. The FFP model may be flawed, but it is needed to protect football clubs from living their dreams, and suffering a nightmare.
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