FOOTBALL is the people’s game and its wealth, sustainability and support are all underpinned
by the mass gathering of spectators. Without the fans, the game cannot exist and, even
in this digital age, the value proposition of football is its broad global appeal, making
it attractive to investors, benefactors, the media, sponsors and advertisers.
When something disrupts the routine of the world’s most popular sport, the impact goes
way beyond supporters being disorientated. The Corona Virus, or Covid-19, has stopped
football in its tracks, jeopardising the eco-system that feeds thousands of clubs, players and
peripheral businesses.
The disruption may be temporary, but as well as domestic league and cup programmes and
continental club competitions, the enforced suspension and ongoing uncertainty has forced
the postponement of the European Championship and possibly also the Olympic Games. The longer-term
health of some football clubs could also be compromised.
It is not just a question of clubs not finishing their season, because football as an industry
provides income for many people not necessarily working within the game. Local shops, restaurants
and bars have grown-up around clubs’ home grounds and have become accustomed to profitable
footfall on matchdays.
Furthermore, broadcasters have effectively fuelled the dramatic growth of football with
vast sums of money being paid for TV rights. With games, at the crucial end of the 2019-20
season now suspended until further notice, the prospect of falling subscribers, viewers
and advertisers is very real. Should normal services not be resumed, there may be a push
to renegotiate broadcasting fees and the knock-on effect for future seasons may bring to an
end the cycle of ever-increasing rights fees.
This, in turn, may lead to lower wages for players and, with clubs’ revenue also impacted,
increased admission prices. The virus, which has already triggered high volatility in financial
markets, could be the catalyst for a transformational period for the game.
Will the loss of matchdays for a couple of months seriously damage top level football?
La Liga has suggested that the disruption will cost around € 700 million, while in
Italy, predictions range from € 700 million to € 1 billion. The Bundesliga could lose
around € 800 million. In England, some clubs have suggested the virus could cost them as
much as £ 40 million.
At the top, many Premier League clubs were in profit in 2018-19 and their revenue streams
are diverse and robust. But if club owners run into difficulties, as some have in the
past, then the financial stability of some clubs will be questioned, especially if owners
don’t inject cash into a struggling business model.
Moreover, with the Coronavirus originating in China, where economic growth is slowing,
the longer-term outlook is cloudy given there is a sizeable Chinese presence among club
owners.
The average wage-to-income ratio in the Premier League is just over 50%, which means they
are not paying-out everything they earn. However, the Football League is a different story,
with many clubs paying wages that exceed their revenues. This makes them highly vulnerable
in the event of a cashflow problem.
Although it is not out of the question that broadcasters may seek an adjustment to their
deals, the most direct impact on many clubs will be the drying-up of matchday revenues.
It should be remembered, though, that season ticket sales are high at many clubs, therefore
income has already been received from fans.
Manchester United, for example have 52,000 season ticket holders, while Arsenal have
45,000. Lower down, a club like Nottingham Forest sells around 20,000 season tickets,
which is 70%+ of their average crowd). Further down, in League Two, Plymouth sold 2,300 for
2019-20, which represents around 20% of the club’s average crowd.
The figures vary greatly across the spectrum.
Matchday income for smaller clubs represents a larger share of overall income than it does
for Premier League clubs. It can amount to more than 30% for a League Two club, while
higher up the food chain, the percentage for a club that has recently been in the Premier
League, and is therefore boosted by “parachute payments”, could be below 20%. In the Premier
League, the average for the so-called “big six” is around 17%.
Manchester United has the highest income from matchday, more than £ 100 million, while
Arsenal has the biggest reliance on matchday revenues among the group, with their £ 96
million accounting for 25% of their overall total in 2018-19.
Lower division clubs, who do not benefit from high broadcasting fees or global sponsorship,
are more reliant on community backing and smaller businesses which will undoubtedly
suffer through the crisis. Hence, the effect on smaller clubs might be two-pronged, missing
matchday income and troubled sponsors.
The crisis will, undoubtedly, highlight the huge imbalances in football – for instance,
Crewe Alexandra, in 2018-19, generated income of £ 3.2 million while, not too far away,
Manchester United earned £ 602 million. Naturally, the smaller clubs are far more exposed and
some have little margin for error.
The story of Bury demonstrated clubs can fall into the abyss and in recent months, there
have been concerns about the financial health of Morecambe, Macclesfield Town, Bolton Wanderers
and Oldham Athletic. If there is a liquidity crisis in English football, then clubs that
have been on the brink of disaster could be pushed into bankruptcy, or at the very least,
administration.
Similarly, the transfer market could also seize up, which would be a major blow to clubs
that rely on player trading to balance their books. It is not inconceivable there will
be casualties in the form of failed clubs, player redundancies and debt defaults at the
lower end of the footballing food chain.
If nothing else, this crisis should prompt a proper reassessment of the financial state
of English and indeed, European football. The game is awash with cash, yet too many
clubs are a missed pay day away from disaster. Better provisioning for adverse trading conditions
– and not just relegation to a lower division – and a more realistic wage structure must
surely be under consideration in the future if the current football structure is to be
maintained.