07.04.20 Quarterly Insight

Sportcal has written about the findings of Oakwell’s latest research report – which analyses the financial impact and disruption Covid-19 is likely to have on the EFL. Our research shows the current crisis will increase the pressure on an already unsustainable business model, and suggests that a global reset is required in sport overall.

The English Football League, the country’s second-tier soccer competition, stands to miss out on total combined revenue of £170 million ($209 million) and faces a financial crisis if it is unable to complete the remainder of the 2019-20 season because of the coronavirus pandemic, according to a new report.

There are 341 games still to be played in the EFL Championship, League One and League Two, but, like the top-tier Premier League, these divisions are presently suspended indefinitely.

A study by Oakwell Sports Advisory, the London-based sports financial advisory firm, predicts that Championship clubs will be the most impacted if the campaign does not resume, with each team set to lose £4.6 million in total revenue.

In total, the 24 Championship clubs will account for £120 million of the potential losses across all three divisions, taking into account end-of-season play-off games.

Last Friday, the Premier League unanimously voted to provide advance solidarity funds of £125 million to the EFL and the fifth-tier National League to help relieve immediate cashflow problems for clubs.

Despite this, Oakwell believes the financial impact and disruption of the coronavirus will continue to cause further distress to struggling clubs.

It claims that the EFL was already unsustainable and this will be made worse in the current climate, with Championship clubs to suffer the most as operating losses for its clubs will continue to increase.

Combined operating losses in the Championship increased by a compound annual growth rate of 17 per cent from 2015 to 2018.

Oakwell cited an unsustainable player wages model in the league as the main cause of this as more clubs are willing to gamble to secure a money-spinning promotion to the Premier League.

The advisory firm named Derby County, Sheffield Wednesday and Birmingham City as examples of clubs with regular ambitions to achieve promotion supported by “an unsustainable level of spending.”

Oakwell believes the traditionally bigger clubs in the EFL, such as Derby and Leeds United, will be impacted more significantly both in the short- and long-term as they “stand to lose more in absolute terms because EFL central distributions are broadly equal to all clubs and bigger clubs have a higher proportion of match day revenue, therefore will lose more when matches are cancelled.”

Leeds and Derby generate annual revenue of £41 million and £30 million respectively, and have a larger proportion of revenue from match day income (40 per cent and 31 per cent).

Oakwell projects that clubs with smaller revenues, such as Preston North End and Brentford (both £13 million) will suffer proportionally less in the short run because the proportion of revenue from match day is less at 26 per cent and 24 per cent respectively.

However, the company notes that these smaller clubs depend on broadcasting income more and in the current climate with uncertainty over the season finishing, there is an even greater risk that broadcasting payments to the EFL will be withheld.

The report found that the coronavirus pandemic “will increase the likelihood of more EFL clubs getting into financial trouble as clubs try to quickly reduce costs to protect the immediate shortfall in budgeted income for the 2019-20 season.”

Oakwell expects the current crisis will spark a wave of takeovers at discounted values, but only if the EFL addresses its governance and financial sustainability.

The company ultimately believes the current situation will force the EFL to be more sustainable in the long-term, and insists improved governance and collective responsibility is a key prerequisite.

Oakwell also recommends bringing in tighter Financial Fair Play rules across the EFL which will “limit the overall losses of football clubs over a three-year period” and “create accountability for owners and directors to ensure that clubs are properly run with stricter rules on wages as a percentage of turnover.”

The report concluded: “There will be a global reset in sport for leagues and federations as a result of the coronavirus crisis. Financial sustainability and improved governance and administration will need to be at the centre of this reset for the EFL.”

As featured on Sportcal 07 Apr 2020.

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