|Going Up and Going Down|
|Written by Wyn Grant|
|Tuesday, 03 April 2012 08:28|
We’re coming to the time of year when questions of promotion and relegation are decided with all their financial implications. But the really golden prize is a place in the Champions League.
The competition for Champions League places is still very much open. Arsenal, Chelsea, Spurs and Newcastle United could all claim the third and fourth places. Securing a place in the Champions League, even a fourth place play-off spot, has become even more important for top clubs. Getting to the group stage alone is worth £30m. Getting further could yield £50m as against £6m for a successful run in the Europa League.
It's not just the money itself that is important. Top players want to play in the Champions League and qualification helps to attract them, as well as providing the money for higher salaries. Failure to qualify one year makes it harder next year unless the money is available for a major strengthening of the squad.
The financial fair play guidelines provide an additional constraint, not least for Chelsea who have lost £182.4m or £3.2m a game over the last four seasons.
After their recent bad run, Liverpool are no longer in contention. Many commentators think that building a new stadium for Liverpool is essential to retaining the club's top ranking. Others think that the financial gains would not offset the loss of the distinctive and special atmosphere generated at Anfield.
At some point Liverpool will have to take a decision about what to do, although there are no easy re-development options at Anfield. But it seems that the club is still ‘mulling over a decision’, emphasizing that it must take a decision that is financially responsible.
Managing director Ian Ayre that the club needed to fill around 60,000 to 65,000 seats in any new stadium. The club already has 46,000 seats and those extra 20,000 seats were not going to generate hundreds of millions.
In practice a naming rights deal could make all the difference between viability or not. This is also true at Everton, although their optimal capacity is estimated at 50,000 which would only generate an extra £5m a year. Potential sites are not in short supply, but they would need to use the model which it was intended to use at Kirkby with nearly half the cost being met by a retail development.
With promotion to the Premiership in their sights, Southampton have received a big financial boost with the news that £33m of loans invested in the club by the estate of former owner Markus Liebherr will not have to be paid back. The money has now been converted into shares, removing it as a liability.
The accounts show that the club made a net loss of £11.5m winning promotion from League One last season. Total revenue excluding transfers rose by 11 per cent to £16.4m and group wages made up 93 per cent of turnover.
That is a worryingly high figure, well above recommended levels. However, the club is relaxed about it. Chief financial officer Gareth Rogers said, 'In isolation you could say it's a very scary figure but in the context of the five year plan it was expected, it includes £1.4m of one-off payments that won't recur.'
Even so, that £1.4m wouldn't reduce the overall level of exposure by very much and Rogers admitted that wage costs have risen in the Championship and would rise further if promotion was secured. However, he insisted, 'The loss incurred to date is absolutely beneath what we expected, so perverse as it sounds, we're pleased with that size of loss.'
The costs of making a push for the Premier League before parachute payments end are shown in Middlesbrough's latest accounts. A loss of £13.81m was recorded over the 18 months to 30 June 2011 despite player sales. The wage bill amounted to over £36m.
Chairman and benefactor Steve Gibson continues to bankroll the club. At the end of the year the club owed banks £27m but this has been refinanced and covered by the Gibson O'Neill company meaning that Boro has no external borrowings.
Next year's accounts are expected to show better figures with manager Tony Mowbray slashing the club's wage bill by half. Administrative costs have also been reduced.
Leicester City's Thai owner Vichai Raksriaksorn has got a poor return on the £53m he has invested so far in the club. They are 12th in the Championship with no real prospect of promotion to the Premiership this season.
£11m has been spent on the wages of players, many of whom have been a disappointment. The latest injection of cash from Raksriakorn takes the form of a £26m loan at a chunky interest rate of 8 per cent. The club made a record loss of £15.2m last year. It all goes to show that a football club can be an expensive plaything.
However, the challenges that clubs in the Championship face are nothing compared with those encountered in League 2. Port Vale have entered administration, although there appear to be a number of credible bidders interested in acquiring the club.
Hereford United are currently bottom of League 2. Does Hereford want a Football League or Conference side? That is the question that has been posed by chairman David Keyte. The club has been currently averaging crowds 330 below budget which would mean losing £22k over the last five home matches.
He noted that the club had been run on a shoestring under the previous regime, but suggested that there had been a lack of investment in the ground. Plans for both ends of Edgar Street were under discussion.
Hereford is a 'stand alone' club in a reasonably prosperous area, although that prosperity is still very much linked with farming and food processing which can have its ups and downs. There is also a large retired population which either might not be interested in football or have allegiances elsewhere.
Any relegation is difficult for a club. It's a blow to morale and a big financial setback as well. But the costs of relegation from League 2 to the Conference are particularly heavy. Just look at the clubs who have found it difficult to return to the Football League: among them Grimsby, Lincoln, Luton, Mansfield and York (who have had the longest stay at the lower level).
With one automatic promotion place and well-funded up-and-coming teams like Fleetwood challenging, it's not an easy league to get out of. Luton have just sacked their manager because an automatic promotion place is effectively beyond their grasp.
The financial price includes the immediate loss of the £250,000 Premier League solidarity payment. TV revenue and sponsorship at £430,000 is halved for one year and then goes. Youth development funding of £180,000 a year is halved for two years and then disappears. It's a big contrast with the generous parachute payments clubs relegated from the Premiership receive for three years.
Luton who went down in 2009 calculate their shortfall to be £1m. Nick Pomery, financial director of Cambridge United told The Football League Paper about their experiences when they were relegated in 2005: 'Attendances fell by 15 per cent. We had to drop gate prices. Also, away fans dropped off and in our case we had to cut down on staff. Matchday sponsorship fell too. All in all, it cost us between £500,000 and £600,000 in lost revenue.'
If you look at the clubs in the relegation zone in League 2, only two are relatively big clubs. Plymouth have been through a very difficult period financially and are only starting to recover while Bradford are locked into cheap season ticket deals that have decimated their income.
However, teams like Hereford (average gate 2,301), Barnet (2,107) and Macclesfield (2,082) are invariably in the mix. Indeed, it has been argued that there should be an attendance test for joining the Football League. However, the relationship between attendance and results is not a perfect one. Accrington Stanley are currently mid-table and they had a crowd of 1,627 on Saturday.
Listen to me each Saturday on the Radio Scilly sports show at www.radioscilly.com at 10.00 BST.