The financial risks for a taste of the Premier League

When it comes to English football being in the Premier League is what every club, player and manager wants. However, how much should clubs risk to get there? A blog post by Paul Fletcher this week put this financially risk into perspective. There is now around £700m worth of debt within the Football League and more than 80% of this is within the Championship.

Now, this is not to suggest that debt in English football is exclusive to clubs outside of the Premier League – because we know there are a number of big Premier League clubs who carry heavy debt. But although we should be concerned with any sort of debt; the debt is more manageable when there is turnover in excess of £100m.

The debt in the Football League is of far greater concern, because it’s causing clubs to go into administration and possibly out of business. Then there is the issue of parachute payments to consider and if it’s really fair on the rest of the Championship that clubs are given these payments over several seasons after being relegated to the Premier League. To a certain extent it is up to the individual club how much they want to risk in order to stay in the Premier League.

The risk that Blackpool took on to remain in the Premier League was relatively minimal after spending just £4m on new players. When considered that they received £40m in TV revenue alone for their solitary season in the top flight. However, they will receive up to £48m over the next four seasons. This will put them at a significant advantage over other teams that weren’t involved in the Premier League and encourage them to risk their club’s future in order to try and compete. There is also the argument that Blackpool don’t really need the parachute payments based on the fact that there are in a stable place financially and are likely to profit hugely from the likely transfer of Charlie Adam.

The debt issue is about to be tackled in some way as Football League clubs have agreed in principle to adopt Uefa’s financial fair play rules. An interesting development especially given the financial gap between the Premier League and the Championship; Premier League clubs receive a minimum of £40m in TV revenue each year – where Championship clubs can only expect to receive only £1m. Furthermore, it widens the advantage of the parachute payment system. Clubs with the parachute payments will clearly hold an advantage with those extra resources. Therefore, other clubs will have to get smart to strengthen their squads on a budget. The new regulations look like coming in for the beginning of the 2012/13 season. There is an interesting development in League One for next season where a Salary Cost Management Protocol (SCMP) will be introduced for next season. They system basically means that clubs will only be able to spend a fixed percentage of their turnover of players wages. A similar system already operates in League One.

It is certainly good to see football clubs taking responsibility and being open to tackle the issues of debt head on. However, at the top of world football transfer fees and wages are still extremely high and although the financial fair play rules may start to control this. The reality shows that there a huge amount of money available and just looking at the income clubs of the statute of Manchester United, Barcelona and Real Madrid make shows us that extremely high transfer fees and wages will remain despite any new regulations. But Manchester City and Chelsea in particular will need to adjust their spending to fit in with the new regulations.

There seems to be a danger of English football becoming anti-competitive with a financial disparity between clubs could eventually mean that their will only be a select group of teams that will have a chance of getting into the Premier League. Within the 72 Football League clubs there are plenty of teams that have had their time in the Premier League but have fallen from grace and it’s not as if all those teams still appear in the Championship. Some of those teams appear in League One and League Two. It’s truly remarkable to think that sides such as Charlton and Sheffield Wednesday find themselves struggling in League One with significant financial difficulties – despite the fact it wasn’t long ago that they were solid Premier League sides.

The Championship also contains two previous giants of English football in the shape of Leeds United and Nottingham Forest and both of these sides spent several years in League One as they seriously fell from grace; but both clubs now seem to be making progress again and were both in and around the play-off picture last season. Norwich and QPR provide some inspiration for these sorts of clubs. They were both involved in the Premier League when it began – but had fallen from grace in recent seasons and Norwich even dropped down to League One. However, they have proved that it can be turned around and are now back in the Premier League.

There is no doubt that clubs pushed out to try and get in the Premier League last season – but it didn’t work for them all. It is unclear how much money Cardiff put into the deal to secure Craig Bellamy on loan – but their wage contribution would still have been significantly higher than most wages in the Championship. However, the gamble backfired as Cardiff fell short in the automatic promotion picture and was eliminated in the play-offs. Leicester and Hull also invested heavily in their teams in order to try and force their way into the play-offs but neither managed to get there.

Expect to see more teams take the gamble in the summer and have a crack to get into the Premier League. Promotion the world’s best league is estimated to be worth £90m and clubs will feel it’s worth taking the gamble in order to get a slice of that financial cake. But a word of warning if they fail the consequence may involve the club spiralling out of control getting relegated to League One and entering administration. So proceed with ambition but not recklessly.

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