November 20, 2018
Sports

Whats going on with the financial health of English football?

Big clubs, big money transfers, and big TV contracts usually dominate the headlines when it comes to football.

But we often forget that running a football club is, in many ways, no different to running any other business.

In the interests of creating or preserving shareholder value, a successful club needs a skilled management team, a quality talent pipeline, and a sustainable balance sheet. It needs to comply with appropriate regulation and thrive among healthy competition.

Read more: From supply and demand to game theory, football is full of economics

Tonight, we kick off the new English Premier League (EPL) season, and for the past two months weve been interviewing finance directors across the leagues to better understand the financial health of football.

The good news is that clubs are generally in good shape. None of the EPL clubs we spoke to said their financial position was in need of attention. In fact, 70 per cent of the English leagues and 89 per cent of the Scottish leagues are expecting to make profit.

Unlike consumer-facing industries like retail and hospitality, the football sector is finding current economic conditions favourable. That said, management teams are too astute to take anything for granted.

In our experience, finance directors have a clear plan with detailed working capital forecasts. They are acutely aware of the risks involved when success ultimately lies with the 11 men on the pitch.

When it comes to costs, most business leaders will relate to one of the clubs biggest expenditures: people. Around 80 per cent of clubs are spending more than half of their turnover on player wages, while some Championship clubs even spend as much as 75 per cent.

Like other businesses, managing the talent pipeline is a big priority across all leagues, with significant investment allocated to youth academies. Clubs are also improving technology and facilities in stadiums to improve the customer experience. None of this will be unfamiliar to other consumer-facing businesses.

However, it is clear that the gap is growing between the Premier League and lower league clubs.

Premier League media money is not filtering down through the system with the fluidity that many finance directors would like. In fact, outside the EPL, half of clubs interviewed believe that the increase in Premier League media rights since 2016 has had a negative impact on their clubs. Player wage and transfer fee inflation is hitting them hard, and theyre not yet benefiting from “feeder-club” wealth.

Interestingly, there is an overwhelming call for a more equal distribution of income to improve competitiveness and bridge the gap between leagues.

Financial regulation, including appropriate sanctions for those that break the rules, is also high on the agenda. But the sector is complex; theres no obvious one-size-fits-all solution, despite the overriding acceptance that football is stronger if all leagues are sustainable and competitive.

There is a symbiotic relationship between the different leagues. In the long run, the sector will benefit from collective health.

The playing field may not be level, but the grass does need to be green at both ends.

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