News » Football club FDs issue warning as Bury expelled from EFL

Financial Directors at football clubs in the UK have warned that club finances need attention, amidst the backdrop of Bury being expelled from the EFL and Bolton also on the brink of administration.

According to research from BDO, the accountancy and business advisory firm, a quarter of football clubs are saying that their finances are still in need of attention, with 70% currently reliant on shareholders to fund losses, an increase from 57% last year.

The annual survey of football clubs, which questioned more than 50 clubs across English football’s top four divisions (English Premier League (EPL), Football League Championship (FLC) and Football Leagues One (FL1) and Two (FL2)), found that there was ‘an underlying sense of rising discontent’.

The financial inequality between the divisions and the inflation of player costs were at the heart of the problem. After player-trading, only 42% of EPL clubs and 24% of English Football League (EFL) clubs are expected to turn a profit in 2018 compared to 89% and 28% respectively this time last year.

Division disparity

You don’t have to look too closely at the figures to see the disparity between the clubs in the different divisions. North London based club Tottenham Hotspur have recently opened a new stadium which cost £1bn to build, and recently refinanced around £400m of debt, after taking out a loan of £637m to fund the stadium. Meanwhile, Bury FC’s stadium had £3.7m worth of debt attached.

Confidence in central regulation is diminishing, as is trust in clubs to ‘play fair’, while application of the fundamentals of good financial governance are inconsistent, which is causing tensions as clubs are seen to be taking unnecessary financial risk to stay ahead of the game, potentially sacrificing long-term stability for short-term gain.

Ian Clayden, Head of Professional Sports at BDO LLP, said: “Based on what many of the clubs are telling us, the current financial governance structure of English football requires some adjustment.

“In too many cases, promotion to the premier League, and thereafter premier League survival, is out-ranking cost control. The resulting player cost inflation – whether it be wages, transfer frees or agents’ fees – is forcing many EFL clubs to live hand to mouth, with reliance on player trading as a secondary profit centre.

“Left to their own devices, clubs will not collectively restrain player cost inflation. Owners, without enforced parameters, will not universally play fair. Long-term sustainability will be jeopardised in pursuit of short-term gain.”

Cases of Bury and Bolton show how bad it can get

The issue of club finances has been thrust into the national news this week, as Bury FC, a 134-year-old club, was expelled from the EFL after the club was unable to pay its creditors or orchestrate a successful sale of the club to a party that could securely manage its finances.

Bolton Wanderers FC, only 7 years after being relegated from the Premier League, went into administration in May 2019 and has been given until the 12 September 2019 to prove financial viability or face the same consequence as Bury and be expelled from the EFL.

Both cases show what can happen to a club if it is not managed well, but with the financial stability of the club often in the hands of the players and managers and out of the hands of those managing the club, more needs to be done to help clubs as businesses.

The cost of relegation from the Premier League was estimated to be £50m by Deloitte Sports Business Group in 2018, and is even more in 2019, while those in the Premier League receive roughly £90m each season, generated from TV revenues.

A club could be run impeccably, but for a business to suddenly lose a huge source of income due to factors out of its hands – i.e. the performance of a team on a football pitch – explains why clubs do think more short term, spending big on players in order to keep the club in a higher division in order to protect such an important source of income.

Ian Clayden of BDO believes with media rights secured for the next three seasons, English football should take time to consider what can be done to protect clubs. “As we embark on the next three years, with 2019-22 media rights secured, perhaps English football now has the headspace needed to consider whether the current structure and financial governance of the English leagues is right for the long term,” he said. “Financial regulation and media rights distributions should both be high on the agenda.”