Football Shorts is a series looking at the financial implications of Covid-19 on Premier League clubs.

From a normal business perspective you would look for Premier League clubs to cut costs following a significant reduction in income. However, given the nature of their largest cost area, wages and the nature of footballer’s contracts this proves very difficult to do.

In Part IV I suggested that the only way Premier League football can continue with its current cost base and much reduced income was to allow, where possible, club owners and shareholders to recapitalise their businesses through the injection of equity to meet future liquidity requirements.

The Premier League has paved the way for this to happen with the suspension of profit and sustainability rules for season 2019/20 in a similar manner to UEFA’s suspension of Financial Fair Play monitoring. It is interesting to note that the Premier League failed to publicly communicate this significant change in their financial rules other than by the publication of their annual handbook.

To date, most clubs have used additional debt facilities as a means of providing working capital to meet income shortfalls rather than owners/shareholders contributing permanent capital. The use of debt is essentially a “buying time” measure. Given most clubs operate on the basis of spending all (sometimes more) of their usual income it is difficult to see how debt can be repaid out of future lower levels of income.

I would expect future financial regulations to permit (possibly encourage) the conversion of current and future debt into permanent equity without falling foul of the usual profit and sustainability rules.

Overview of Premier League Club Finances – thanks to @Swiss Ramble for  the use of his figures

Arsenal – restructuring of their long term stadium debt in June 2020. Debt of £144 million plus £40 million penalty charge paid in exchange for a £184 million loan provided by Kroenke. restructuring permitted the use of £36 million previously held in a restricted reserve account.

Aston Villa – Nassef Sawiris and Wes Edens (Villa’s owners) continue to support the club financially with a further £74 million capital injection between August 2019 and May 2020.

Brighton & Hove Albion – continued financial support from Tony Bloom who has invested £360 million over the last decade. His latest investment was £49 million in 2018/19. However there are for the first time in a long time noises about how tight financing is currently.

Burnley – as stated in Football Shorts Part IV continue to be self financing with no public information about external debt.

Chelsea – Abramovich continues to fund the club and keep them within the rules of Financial fair Play. His most recent contribution was £247 million in 2018/19.

Crystal Palace – received £24 million in shareholder funding in 2018/19. They recently (May 2020) took external funding (debt) from Macquarie Bank

Everton – continue to rely upon the generosity of Farhad Moshiri, £350 million as of the last accounts but that figure will almost certainly have increased given Everton’s continued losses and continued transfer activities. Additional debt provided by Rights and Media Funding Limited.

Fulham’s return to the Premier League (and the redevelopment of their main stand) has seen owner Shahid Khan provide £186 million of funding up to the 2018/19 accounts. A further £53.125 million was provided in June 2020.

Leeds United – no evidence of new financial support since returning to the Premier League, the last shareholder contribution was £18 million in 2018/19.

Leicester City have a long term loan of £91 million with their owners King Power. They also have a long term relationship with Macquarie Bank entering into a new loan in August 2020 secured against Premier League central payments.

Liverpool – Liverpool are believed to have a bank facility to the value of £150 million. The shareholders FSG provided debt for their stadium redevelopment but have provided no financial support since.

Manchester City – continue to be supported by Sheik Mansour’s Abu Dhabi United Group. The last capital injection from shareholders was £58 million in 2017/18. The total capital provided by Mansour is in excess of £1.3 billion.

Manchester United – to the distress of Manchester United supporters around the world,the Glazers continue to take funds out of the club, not making contributions to the club. Dividend of £22 million were paid last year. As at 31 March 2020 Manchester United had an unused £150 million debt facility with a syndicate of banks led by Bank of America Merrill Lynch.

Newcastle United – Whilst Ashley continues to try and sell the club, the club owe him £111 million, £33 million having been repaid in 2018/19.

Sheffield United – Sheffield United have received limited support from their shareholders, a £2 million loan in 2018/19.In July 2020 Sheffield United agreed a secured bank facility from Emirates NBD Bank.

Southampton – Currently subject to a £200 million takeover by former Bordeaux owner Joseph DaGrosa, Southampton recently arranged an £80 million facility from a Michael Dell owned company (MSD Holdings).

Tottenham Hotspur – heavily indebted by their new stadium development, Spurs’ shareholders continue to use debt facilities to fund the club. As previously described, Spurs have a £175 million credit facility under the Government’s Covid Corporate Financing Facility.

West Bromwich Albion – largely self financing, owner Guochuan Lai has made no new investment since 2016. The club factored a near £3 million transfer receivable through Macquarie bank in December 2019. They also have debt facilities with Barclays Bank.

West Ham United – Despite the very advantageous terms of their tenancy at the former Olympic Stadium, West Ham’s finances looked parlous prior to the pandemic. They currently have £45 million of outstanding shareholder loans, a £75 million facility with Rights and Media Funding plus the shareholders made an equity injection of £30 million on 1st July 2020.

Wolverhampton Wanderers – owned by Chinese conglomerate Fosun International, Wolves have benefited from £131 million of shareholder loans in the last three years. In July 2020 Wolves arranged a £50 million facility with Australian bank Macquarie.

Reduction in revenues

Optimistically, many in the game thought spectators could start re-attending matches as early as October, albeit with much reduced capacities of perhaps up to 30%. However, with the recent rise in cases and the genuine prospect of the second wave lasting through the winter, the opportunity for many fans to see more than a handful of matches late in the season appear extremely slight.This is going to have a significant financial impact. I have estimated that fans will  be permitted to see three games and each of those games will be limited to an average of 25% capacity. As a result clubs can expect to see a reduction of 96.25% of their match day revenues.

Reduction in revenues:

Reduced broadcasting revenues

As a result of the final 92 games of the 2019/20 season being played behind closed doors, the Premier League agreed a £330 million rebate to the broadcasters. The 2020/21 Premier League Handbook provides an illustration as to the reduced revenues each club can expect:

Overseas broadcaster revenues, seen as the new growth driver based on previous cycles are being threatened as previously anticipated.

The removal of the previous Chinese rights holder, Suning, over the non payment of £160 million due in march 2020 saw the Premier League scramble for a quick replacement for the 2020/21 season. As a result Tencent Sports have been awarded the rights for one season at a reported price of just £25 million.

In addition, other Asian broadcasters are unhappy with the scheduling of games. With many games now kicking off at different times in the early evening this is proving unattractive to Asian subscribers and advertisers most of whom are 8 hours ahead. There is a growing expectation that rights holders in Malaysia, Thailand, Singapore, Indonesia and others will seek a reduction in rates given the less than optimal timing.

As mentioned throughout the Football Shorts series, what was once considered as very secure income streams are now subject to near decimation (matchday income) or considerable reduction (broadcast rights payments).

Transfer Activity (to 22 September 2020)

A reduction in transfer activity and in the value of many players was quickly anticipated as the potential economic damage of Covid-19 became clear.

Two interesting trends have appeared from my perspective.

Firstly, a small number of clubs with resources and/or breathing room with regards to future FFP and PL compliance are using this window to acquire quality players at very attractive prices. As a result four clubs, Chelsea, Liverpool, Manchester City and Tottenham Hotspur account for 48% of purchases to date. Despite these four clubs plus Aston Villa and Leeds United’s expenditure, total purchases so far, only represent 57% of last season’s expenditure.

Secondly, the volume and aggregate value of sales is to date, extremely low. This suggests two points to me (i) there is, across the Premier League, an unwillingness to spend speculatively and (ii) there is an unwillingness for many average and older Premier League players to move clubs given the prospects of being able to match existing contracts elsewhere.

The ultimate expression of a buyers’ market is the free transfer of James Rodriguez from Real Madrid to Everton. A sensational transaction that could not have occurred outside a Covid-19 hit environment.

The implications of much reduced transfer activity are interesting. The immediate thought is that it must be good for club’s finances. Whilst it obviously protects cash flow of would-be buyers, a market with much reduced activity and sale prices ultimately hits the profit and loss account through the absence of player trading profits. As we have seen, many Premier League clubs rely upon the profitable sale of players to meet their financial targets. A reduction in activity is going to impact many clubs in this sense. Furthermore that acts as a deflationary factor driving prices lower. It is all part of the deflationary cycle football is entering, even if many fail to realise that yet.

So, in my latest piece, we’ve examined how Covid-19 is impacting revenues through reduced match day income and now also reduced broadcasting revenues. We’ve also examined the impact on the transfer window and the implications of that.

We’ve seen that the typical early response from clubs to this crisis is not to address running costs but to fund losses through short term debt. That becomes a problem if the losses are greater or sustained longer than originally thought.

Premier League football, if it is to maintain it’s extraordinarily high cost base will need re-capitalising, quite quickly. For some clubs that is not a problem (particularly if regulations are relaxed). For others it is a significant problem, especially if there happens to be large infrastructure capex looming!

Thanks for reading!