AT THE start of the lockdown it was pretty clear that the future of some teams, particularly professional clubs and even leagues would struggle to survive.
Immediately, from our perspective, the fear for the future of the clubs in the League of Ireland and our Pro 14 rugby sides were evident. Their financial situations were precarious without the assistance of a global pandemic.
But few of us would have considered the English Premier League (EPL), the most lucrative sporting league in the world, to be under threat. After all, this is a league that makes £2.5bn a season in TV rights alone.
Not counting all the tasty financing from their corporate sponsors and that they all have full-houses every week in their mega stadiums. But news is starting to filter out, that if the EPL does not get back into action soon, it is at serious risk of going to the wall.
While we have all gotten used to the glitter associated with the EPL. It’s eye-watering transfer fees and breathless marketing, few of us have looked at the clubs seriously as businesses.
And now that play has stopped the corresponding money that comes with it has dried up and it’s clear to see that the business plan for many clubs was built on a foundation of sand that over-relies on TV money and the promise of transfer payments from other clubs that are themselves on the verge of collapse.
Like most businesses, Premier League clubs’ expenses are mostly paid out on wages. Unlike other businesses, few have staff that earn £250,000 to £300,000 a week. Some clubs spend up to 80% of their revenue on wages, which is far from desirable in the current trading environment, or rather lack of trading environment.
But this is a situation many other firms (including the company I work for) are now facing. What’s different for the football businesses, is that their business plan is based on the promise of TV money coming their way when they need it most.
Clubs are paid TV money in three tranches. The first in August, the second in January and the final one at the end of the season. This was an assured and lucrative stream of funding, only a disastrous event of global proportions could threaten its flow... Oh, dear.
Problem is, with such surety in their cash flow, the clubs have effectively invested the money they have not already earned into the talent of new signings and the wages of stars they already have.
With no matches, both Sky and BT, as well as all the other international TV subscribers to the EPL, are contractually well within their rights to get back most of the money since January and keep all of the money due at June. That potentially means that the EPL has a £762m repayment bill to the TV firms while all the time they are also doing without any sponsorship or advertising revenue, not to mind the not unsubstantial sales from match tickets.
All the league’s clubs are highly dependent on TV revenue but according to a Daily Mail report, the dependency is most exaggerated the lower down the table you go. So Man United only depend on TV money for 38% or their income. While sides like Chelsea, Arsenal, Man City, on to Liverpool, it constitutes between 44% to 48%.
For Spurs, it is 52% and it rapidly gets worse from then on all the way down to Bournemouth who need 88% of the TV cash to keep afloat.
The added catch for EPL clubs comes from how they pay for transfers. Back in the day, clubs would buy player, cash upfront, fully paid for before he kicks a ball for his new club.
Nowadays, it’s a bit more complicated, exorbitant transfer costs, bonuses, and fees mean that most clubs pay for new players in installments, spread out over many months, even years. Sometimes clubs are paying-off the cost of a player long after they have sold the player on again to another club.
What this has led to is an estimated £2bn in outstanding payments due to other Premier and international clubs. This was not an issue when TV money was assured. But now that this may be gone it leaves the clubs in the lurch for payments to other clubs, who in turn owe cash to another club and so on and so on.
It has raised the fear that this domino-effect could wipe out more than a few clubs in the league and beyond should all the bills be called-in.
And while many of the clubs have billionaire owners that will be willing to bail-out their football clubs, it is far from guaranteed. Remember, most clubs are not the main business venture of their owners. Indeed most clubs are just a hobby for their rich benefactors. The problem is, the global shutdown in trade will also be hitting their core businesses that made the money for the owners in the first place that allowed them the luxury of buying a football club.
If the owners are put in a position of closing down their big-earning firms in order to save the football club then you may start to see why many now fear for the future of clubs and even the entire EPL.
And while some people scoffed at the idea of playing the remainder of the league games behind closed doors to just TV audiences, it is now clear that finishing the league and claiming the TV money is more of an existential necessity for the league, rather than a mere fulfillment of entertainment requirement.