CHAMPIONSHIP CLUBS GENERATE AVERAGE LOSSES OF £14.67m DURING PROMOTION SEASON TO PREMIER LEAGUE
London 10th October 2017.
Building on the success and international coverage of its examination of Premiership football finances, vysyble announces further football-related research with the launch of a new report entitled ‘Over The Line – The Economic Cost of Promotion into the English Premier League’. This report is a detailed assessment of those clubs and their economic demands during their promotion-winning season into the Premier League. The report covers the period 2008-9 through to 2015-16 (last available accounts) and is based upon our usual metric of examination – economic profit; a measure which includes all the costs of operation.
Compared to riches of the Premier League, Championship club revenues are relatively modest. Consequently, losses are keenly felt due to the lack of a lucrative TV/media broadcasting arrangement. Over the 8 seasons in question, the 19 clubs analysed generated economic losses totalling £379.10m in their successful pursuit of promotion whilst achieving revenues of £596.35m. In addition, there has only been one occasion where a club has generated an economic profit during a promotion-winning season – Crystal Palace in 2012-13 with an economic profit of £1.13m.
The average economic loss for a promotion-winning season is £14.67m from an average revenue of £24.85m.
Economic losses for promotion-winning clubs have grown 63.7% from 2008-9 season to 2015-16 season whilst revenue has grown at 54.97% (£56.97m to £103.63m) over the same period.
When the Football Profitability Index® (FPI) calculation is applied (where the efficiency in generating economic profit is expressed as a single number), the resulting FPI Values illustrate the scale in the destruction of value that is taking place in the Championship to achieve promotion into the Premier League. The average FPI Value for the period and clubs in question is 36.43. This compares with the current FPI Value for the Premier League of 91.13. This means that the successful Championship clubs generated average economic losses of £63.57 for every £100 of revenue (ie 36.43 – £100) whilst Premier League clubs in 2015-16 alone generated economic losses of £8.87 for every £100 of revenue (ie 91.13 – £100).
“Getting to the Premier League is seen by fans and owners of aspirational EFL clubs as the golden ticket to untold riches, which is arguably why so many investors are getting involved with clubs in the Championship. But our work reveals that, far from being a golden ticket, trying to remain and compete in the Premier League without a sound financial strategy is both costly and ultimately loss-making. Clubs that over-extend themselves whilst in the Premier League struggle to survive over the longer-term and incur significant damage to their balance sheets in doing so. This frequently renders any parachute payment as ineffective and usually brings with it a prolonged tenure in the Championship and beyond. Therefore, staying in the Premier League is not a one-way ‘wealth creation’ scheme, or a solution to a club’s financial woes. Big-spending English Football League (EFL) clubs are, in fact, chasing a dream that can rapidly become a financial nightmare,” commented Roger Bell.
The lowest FPI Value was achieved by the promotion-winning trio of Cardiff City, Crystal Palace and Hull City in 2012-13 where the combined economic loss was £154.11 per £100 of revenue despite Crystal Palace’s modest economic profit achievement.
The revenue trend has increased from a low point of £40.15m in 2012-13 to £103.63m in 2015-16 as certain relegated clubs from the Premier League avail of the parachute payment system and seek immediate promotion e.g. Hull City, Norwich City and Burnley.
Roger Bell said: “This work demonstrates that by monitoring the economic performance of clubs, under certain circumstances, it is possible to predict which clubs are at an increased risk of financial and operational difficulty. Owners who accept the risk of relegation but also preserve the balance sheet face much better prospects if the club is indeed relegated with Burnley, Norwich City and Newcastle United proving to be excellent examples.”
Bell added: “Our work looks at EFL clubs that were promoted to the Premier League, rather than the Championship as a whole, but our numbers indicate that the losses are likely to be significant throughout the division.
“Without the presence of extremely generous benefactors, the current situation is wholly unsustainable in the longer term unless the EFL starts to recognise and measure the economic health of clubs.
“Given the recently reported differences between Premier League clubs over the future distribution of foreign TV revenue, the EFL may face significant issues in the future should the structure of the Premier League change or fragment and the parachute payment system is reduced or even ceases to exist.
“Furthermore, the EFL has just committed to a five-year TV deal with Sky which it may not be able to renegotiate if circumstances do change. All of which is, in our view, a potentially challenging combination.”
“Central to our work is the in-going belief that “You cannot manage what you cannot see”. In using and applying the economic profit metric, club owners and the game’s administrators will be able to see the real economic picture and will also be able to observe dynamics that they could not see before. We believe that both the Premier League and the English Football League will benefit from a deeper and more robust understanding of the game’s economics which over the longer term will lead to more enlightened and effective decision making, particularly in relation to Financial Fair Play.”
vysyble was launched in August 2016 and has gained international recognition in the calculation and examination of companies and market sectors in generating Economic Profit and shareholder value. vysyble provides sector-level reports and individual company assessments on a paid-for basis.
Football Profitability Index and FPI Value are registered trademarks.