Football, Football Finances, and Coronavirus
“Of all the unimportant things, football is the most important” — Pope John Paul II
The coronavirus outbreak has brought the world to a standstill, and the business of sport, like other businesses, is reeling under the effects of this global shutdown. Major sporting events around the world have been postponed. The longer this situation persists, the greater the effects. World football, for one, may never be the same.
Why, one may ask? With the massive amounts of money that exchanges hands every transfer window, and flashy lifestyles of top level footballers displayed all over tabloids and social media, one may be forgiven for assuming that footballers and football clubs are flush with cash. But the reality is that a vast majority of them aren’t. There have been calls to hit the reset button, and pretend that the season never happened. This is dangerous. Not playing out the rest of the season threatens the very existence of many football clubs.
The health of the footballing industry (and of Liverpool supporters) is heavily reliant on the completion of the current playing season. With the postponement of The European Championships and Copa America, football associations across the globe will be working actively towards playing out the remainder of the matches in the summer. This of course, depends on how the coronavirus situation pans out in the coming months.
In order to understand why abandoning the season altogether is just not practical, we need to understand how football clubs make money.
From being vanity projects of local businessmen, to community-owned entities, to full-fledged organizations with a workforce in four figures, club ownership models vary significantly. With the increase in money flowing into the sport and financial regulations, the push for clubs to be run as sustainable businesses has seen them look for more reliable sources of income. Over 40% of the revenue generated by the top 10 clubs in Europe comes from commercial deals; which even prompted Ed Woodward, the executive vice-chairman of Manchester United, to say that playing performance does not really have an impact on the club’s health. While this is, to some extent, true for clubs plying their trade in the upper tiers of the football pyramid, the landscape changes completely as we go down.
Revenues generated by football clubs can broadly be divided into 3 categories: Broadcasting, commercial engagements, and match day income. The share of each category in this pie varies as we move down the footballing pyramid. Top English Premier League clubs, for instance, generate almost 50% of their revenues through broadcasting, according to a study by KPMG. The share is even greater for smaller Premier League clubs — it accounted for 88% of Bournemouth’s revenue for the 2018–19 season. Lower league clubs, on the other hand, garner most of the support from the community around them. They are heavily reliant on match day revenues, local sponsors, and the owner’s benevolence.
Unlike the big boys, many small clubs are still run badly — they have shady owners and spend way more than they should. Player wages drop significantly as we go down the divisions, simply because the supply of lower level players is greater. But these wages do not go down significantly enough- while the average spend on player wages stands at approximately 50% for Premier League clubs, League Two clubs spend close to 75% on player wages. There has been a year on year increase in revenues for the top two tiers in football. Revenues in League One and Two, however, are stagnating. This has made promotion more important than ever, resulting in clubs putting in massive amounts of money in pursuit of it. Failure to progress has catastrophic consequences — owners may bail, clubs may go into administration or, as we saw in Bury FC’s case last year, even cease to exist.
So how will things play out if there is no football?
Match day revenues will disappear. The number of season tickets sold by clubs reduces rapidly as we go down the divisions. Manchester United sold over 50,000 season tickets last year- almost two thirds of the stadium capacity. A League One club, in contrast, sells on average a tenth of that number, closer to 20–25% of the stadium capacity. Smaller clubs, therefore, are more reliant on match day crowds. Lack of football matches will affect the whole ecosystem around football stadiums — this includes local eateries, shopping complexes, hotels — that benefit from footfall at matches.
Broadcasting fees are paid on a match by match basis — clubs therefore, stand to lose millions if the remainder of the season is not played out. Premier League clubs, it is estimated, will have to pay around 700 million pounds to broadcasters for non-fulfillment of contracts.
Prolonged absence of football may also affect the commercial dealings that are keeping football clubs secure at the moment. The economic slowdown is bound to affect the economic health of investors and sponsors. Why would anyone, government aside, continue to pump money into dormant entities, when their own wealth is eroding?
Ed Woodward’s observations seem to fall apart at this point.
Loans will be increasingly hard to secure, because bankers also have eyes and ears. Insurance does account for the odd match being cancelled due to inclement weather and the likes; but it does not cover season abandonments.
There are many clubs in the lower strata of English football — Macclesfield, Oldham Athletic, Bolton Wanderers, to name a few — that are finding things hard as it is. Barnet have already let go of sixty employees because they cannot cope with fixture postponements. Football finance expert Kieran Maguire has estimated that Stoke City, which was in the Premier League till 2018, will run out of money in nine days if the situation persists.
The precarious nature of club finances means that they are just not equipped to deal with shocks like virus outbreaks. So what will clubs do to keep themselves afloat?
What they will do for sure is pray that the situation improves in the coming weeks, enough to at least play matches behind closed doors. This should enable several clubs to cut losses through broadcast revenues. Lower league clubs would be less fortunate in that respect, since broadcasting avenues were small to begin with.
We can expect more clubs go the Barnet way and part company with its employees. There will be calls for players to take cuts in wages. Clubs will try to garner support from their fans. The summer transfer window, if there is one, will throw in several surprises as clubs attempt to offset losses by selling off their prized assets.
Goliaths of the footballing community have been asked to pitch in and help out the clubs in need. However, the footballing world is hardly this generous. Hans-Joachim Watzke, the Borussia Dortmund chief executive, was very blunt- “At the end of the day, the clubs who have the effort to put a bit of money aside these past years can’t reward those who have not … We’re running businesses in a market, and we’re in competition.” It is unlikely that big clubs will save the day for the strugglers, since they will be in a spot of bother of their own. They have also been hard done by the shutdown, and already have big obligations to their sponsors.
A market fundamentalist view of the situation would be to allow these clubs to fail. This will be a cautionary tale for clubs that survive and indeed, the phoenix clubs that arise from their demise. Clubs will start being more sensible with their money, such is the hope.
Football clubs are massively important social institutions. Many football clubs invest significant amounts of their income into developing the communities around them. Dividends go to hospitals, universities, schools, charities — the spillover effects of a football club’s success is for all to see. Local industries benefit massively. The positive externalities of having a well-functioning football club also extend to tackling social injustices like racism and homophobia, with clubs working actively to improve the environment in and around the stadium.
It is imperative, therefore, that football associations work with clubs and the local governments to chart out a bailout package, with strings attached, in case the season is not played out. This needs to be supplemented with measures to ensure stricter compliance with international and domestic financial regulations. How funds will be raised for the bailout though, it remains to be seen. If only we had a worldwide governing body for the sport with billions stashed in their coffers to save the day and prevent the virus from claiming more victims.
P.S. Would highly recommend Tifo Football’s podcast with Murad Ahmed, where they discuss this topic in greater detail.
