Championship clubs have been warned their wage bills are “unsustainably high” following the publication of Deloitte’s annual review into football finances for the 2021-22 season.
The accounting firm’s report revealed Championship clubs’ wages exceeded their revenue for the fifth year running at a rate of 108 per cent – down from a record 126 per cent in 2020-21 – while teams that participated in the second-tier in both 2020-21 and 2021-22 reported operating losses of £322m, an increase of 17 per cent.
Numerous Football League clubs have encountered financial issues in recent years, often as a result of spending beyond their means to try and earn promotion to the Premier League, the most lucrative division in world football.
Investing heavily in wages has worked for some clubs. Fulham, Bournemouth and Nottingham Forest were promoted in 2022 and they accounted for the three highest wage bills in the Championship. The former pair had also benefited from parachute payments after suffering relegation from the top-flight in previous campaigns.
However, others have been on the brink of financial oblivion after missing out, most notably Derby County, who came close to going out of business in 2022 and are now in League One three years after contesting the Championship play-off final against Aston Villa at Wembley.
“From a wages point of view, this is now the fifth year in a row that the wage-to-revenue ratio is above 100 per cent for the Championship, which is quite concerning,” Zal Udwadia, assistant director in Deloitte’s sports business group, told i.
“If you look at what Uefa are trying to implement from a regulation, sustainability and governance point of view, their limit for next season’s financial sustainability regulations is about 70 per cent so it’s really a big gap to fill.”
Worryingly, if unsurprisingly, the Championship’s wage-to-revenue ratio compares unfavourably to other major divisions: the Bundesliga has the lowest rate in Europe’s “big five” leagues at 59 per cent, with the Premier League next at 67 per cent. Even France’s Ligue 1 which has the highest rate of Europe’s main divisions is comfortably below.
Clubs’ desire to enjoy a slice of the Premier League pie is what has fuelled risk-taking across the competition.
Premier League clubs’ revenue reached an all-time high of £5.5bn in 2021-22, while Luton Town are estimated to earn a minimum of £90m after securing promotion to the top-flight via the play-offs this season. Even if the Hatters were to go straight back down, they would earn an additional £80m in parachute payments over a two-year period.
“It’s the price of promotion that really drives so many clubs to overspend to try and get there,” Udwadia says.
“We’re at a really interesting crossroads in the English game with the independent regulator coming in and the chief focus for them is going to be looking at the financial sustainability across the league and the redistribution of funds across the pyramid.”
It is not only Championship clubs that are looking longingly at the Premier League’s riches – the English top-flight also dwarfs its European rivals in terms of revenue. Premier League clubs earned on average £322m in revenue, compared to £175m in the Bundesliga, £164m in La Liga, £117m in Serie A and £101m in Ligue 1.
That disparity of wealth has also had an unwelcome knock-on effect on the Championship. Mid to lower-half Premier League clubs have greater transfer budgets than ever before and with most of their contemporaries across Europe still feeling the effects of the pandemic, they are better positioned to recruit high-calibre players from abroad.
As such, the need to shop around in the English lower leagues has been reduced.
According to Deloitte, Premier League clubs spent £1.1bn on players in the 2021 summer transfer window but signings from the Championship accounted for just £65m of that total; the lowest in eight years.
“Should this trend continue, EFL clubs may need to consider an alternative approach to player development and train players that are attractive to continental clubs and explore player trading opportunities outside of England,” Deloitte’s report states.
Birmingham City did just that in the same transfer window, selling Jude Bellingham to Borussia Dortmund for £25m. Two years on and the England international has joined Real Madrid for a deal worth up to £115m.
Premier League signings from the Championship in 2022-23
- Keane Lewis-Potter (£20m to Brentford from Hull City)
- Djed Spence (£20m to Tottenham from Middlesbrough)
- Harry Souttar (£15m to Leicester from Stoke)
- Flynn Downes (£12m to West Ham from Swansea)
- Antoine Semenyo (£10.5m to Bournemouth from Bristol City)
- Marcus Tavernier (£10m to Bournemouth from Middlesbrough)
- Harry Toffolo and Lewis O’Brien (£10m combined to Nottingham Forest from Huddersfield)
- Josh Bowler (£4m to Nottingham Forest from Blackpool)
- James Bree (£750,000 to Southampton from Luton Town)
- Daniel Bentley (undisclosed to Wolves from Bristol City)
That total increased to around £75m last summer, with Brentford’s £20m signing of Keane Lewis-Potter from Hull and Tottenham’s purchase of Djed Spence from Middlesbrough for the same fee the most expensive purchases.
They made a combined three Premier League starts last season, which perhaps demonstrates why clubs are reluctant to take the plunge on players from the Championship when more established alternatives are available abroad.
“Premier League clubs are spending less lower down the pyramid compared to historic years,” Udwadia says.
“Really you look at the last five windows it is the Premier League that has influenced, to an extent, what has happened across the rest of Europe because they are the ones with the most capital. They are the ones that are driving the spending.”
Although the financial outlook appears alarming, there are reasons for optimism.
It is hoped a lucrative new broadcasting deal with Sky Sports, which will commence from the start of the 2024-25 season through until the end of 2028-29, will boost commercial revenues for the 72 clubs in the EFL.
The deal agreed in May is worth £935m over five seasons and will lead to a significant increase in televised matches, with over 1,000 games from the Championship, League One and League Two being shown live.
“The current deal only allows for about 13 per cent but in the new deal there will be over 50 per cent of matches on TV,” Udwadia says.
“That same season you’ve also got Sky Bet renewing their title sponsorship agreement so in 2024-25 you’ve got a couple of big deals coming into play for Championship clubs that will hopefully drive increased revenue and sustainability in the league.”
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