The House of Cards at the top of English football could collapse as financial lifeboats threaten to desert Premier League clubs during the coronavirus pandemic.
This is the blunt warning from experts, one of whom compared the crisis to the financial crash, when the US housing market fell into disrepair because it was considered too safe to fail.
Premier League teams are now accused of being dependent on television money for the belief that they would never be threatened. ‘Well guess what? Here we are, ”said an expert.
There is a dire financial situation in the Premier League, with serious risk for the clubs
Coronavirus crisis could put clubs at risk of bankruptcy due to perilous finances
Premier League chief Richard Masters has warned that the division could lose £ 1 billion from coronavirus
Premier League chief Richard Masters has warned that the division could lose £ 1 billion due to the pandemic. Burnley president Mike Garlick, who runs one of the narrowest ships in the division, has warned that they may run out of money in August. For others, D-Day may come even earlier.
All it needed was a catalyst. Despite record earnings, “the clubs were already in the worst possible position for an event like this.” A Premier League team spent 78% of its turnover in 2017-18 only on salaries.
Now their network of tangled loans, debts and transfer fees is at risk of collapsing.
Experts told Sportsmail:
- Teams will go bankrupt if owners save club or businesses
- Premier League teams face millions of transfer fees, club non-payment could cause ‘domino effect’
- Clubs risk defaulting on bank loans if expected income never materializes
Premier League teams still owe large payments on a number of transfers
Revenues dry up but expenses continue, the most important of which is the players’ salaries.
Premier League clubs and players still have no deal on pay cuts or deferrals. PFA chief Gordon Taylor pleads against general postponements. Since salaries account for around 60% of all division expenses – and at Crystal Palace in 2017-18, 78% of turnover – this becomes a serious problem.
A banking insider said the football clubs “made no sense” from a financial point of view. They had been warned.
“(In) the very first report we released in late 2016 … we made a comment,” said John Purcell of vysyble. “Football clubs depend too much on TV money. “
As fees continued to rise, their verdict did not go well. “Everyone thought it was a safe bet, just like the US housing market at the end of 2007: it couldn’t happen. Well guess what? Here we are.’
In the Premier League, TV rights were worth £ 2.45 billion in 2018-19. In the last three-year cycle, the lowest payout to a club for a season was £ 93.4 million.
But the DAZN streaming service asked to defer payments during the current closure. If this trend continues, the situation could become “very dangerous,” said Kieran Maguire, football finance professor at the University of Liverpool.
One wonders if the next installment of television money will go to clubs
Should the season be canceled, clubs may have to reimburse up to £ 762 million
Should the season be canceled, clubs may have to reimburse up to £ 762 million.
And although 2018-2019 is the last year of the most lucrative television deal of all time, statistics indicate that “data for Premier League and championship clubs suggests a combined and record economic loss of nearly £ 1 billion ”.
Purcell added: “No one could have predicted an event as catastrophic as Covid-19 but … the clubs had already placed themselves in the worst possible position. “
According to vysyble, Television money represents 38% of Manchester United’s revenue. In Watford, it’s 83%. For Bournemouth, according to Maguire, the situation is even more worrying.
“They depend almost entirely on Premier League TV income, which is about 88% of their total income,” he said.
Bournemouth relies on TV offers – broadcasters’ money accounts for 88% of revenues
“If the next installment does not materialize, they are in a perfect storm of outgoing and owed money.” Bournemouth director Eddie Howe has already accepted a pay cut.
Clubs are paid on television in three installments: in August, around January and at the end of the season.
In the past, they also paid upfront transfer fees. Nowadays, however, inflated fees mean that clubs often pay for players over the years.
“You are going to buy a player who sold a player and everything is linked,” said Maguire. “In total, Premier League clubs owe around £ 1.59 billion in payment … they only get around £ 685 million, so there is a large net payment to pay. Some of these payments will have been made last summer and others will be unpaid. “
Bournemouth director Eddie Howe has agreed to cut wages due to the crisis
The system is built on trust and if television revenues are threatened, Purcell says it “becomes incredibly vulnerable.” “(It’s) the same as the liquidity crisis during the 2008 recession,” he added.
“(Banks) started to look at himself and say to himself: I’m not sure I want to lend you. I don’t think you’re going to be in business tomorrow. The parallels with football are very similar … it is enough that this element of doubt seeps in and suddenly this house of cards collapses.
If “a medium-sized club” defaulted on a payment, says Maguire, “it could cause a domino effect.”
And while an agreement could be reached between Premier League teams, the majority is due to clubs around the world, which makes agreements more difficult.
But clubs don’t just lend money to each other. It is common for them to take out short-term loans between televised payments to finance transfers or to maintain cash flow. According to Purcell, these can be covered for incoming money, subscription sales, or club property.
Crystal Palace received an initial payment for the sale of Aaron Wan-Bissaka this summer
Bournemouth received £ 16 million last year from Australian bank Macquarie in anticipation of further payments due on sales of Tyrone Mings (£ 12 million from Aston Villa) and Lys Mousset (£ 4 million) , Sheffield United). Leicester and Crystal Palace did the same after the respective departures of Riyad Mahrez in 2019 and Aaron Wan-Bissaka in summer.
The fine print varies. But there are three constants: banks want to get their money back, IOUs are more difficult to meet if income never materializes, and loans can be harder to find – and more expensive – in the face of economic uncertainty .
“No one is considering a defect,” added Purcell. But now “it’s a separate possibility”.
Even in less dangerous times, clubs need help from the floor.
During the 2018-19 season, Roman Abramovich injected £ 247 million into Chelsea, up £ 180 million from the previous year. The club again suffered a net loss of almost £ 100 million after missing the Champions League.
Mike Ashley has other problems in his bac and Newcastle will not be his priority for the moment
They are not alone. Maguire insists that some clubs now depend on the owners.
“(Take) Newcastle, Mike Ashley has a lot of problems right now and Newcastle is not at the top of his baccalaureate. Its retail empire will suffer.
He added: “If the owner’s own businesses are unable to trade, then they do not have the resources to subsidize the football game. Maguire warned that with each passing week the number of clubs at risk of bankruptcy “will increase”.
Even the biggest clubs are not sure.
“When I read or hear stories about player transfers this summer as if nothing had happened, people have to wake up,” said Tottenham chief Daniel Levy last week. “Football cannot function in a bubble. “
Daniel Levy warned that “people must wake up” on the financial situation of the league
He was suspended for putting non-playing staff on leave, but could he be the canary in the coal mine?
The CIES Football Observatory predicts that the value of players will drop by 28%. Bundesliga chief Christian Seifert warned on Wednesday: “In the short term, I would say the transfer market this summer will not exist, it will collapse.
“Some agents will suddenly understand that they will have to work hard, or at least work; some leagues will understand that money is nothing that automatically comes out of the sky every month.
This would mean bad news for clubs that raise funds by selling stars and buying teams whose assets are going to lose value. Especially when they are always paid a high price. It promises to be a few difficult months.
Purcell concluded: “The sums don’t add up … you could put this in front of a child and a child with basic math will tell you: it doesn’t work.