Clubs too reliant on the money box

EXPERTS SAY BANKING ON INCOME FROM TV DEALS WAS A CALAMITY IN WAITING

THE house of cards that is English football could collapse because Premier League clubs are too reliant on television income.

That is the stark warning from experts, one of whom compared the current cash crisis brought on by coronavirus to the financial crash of 2008.

Now Premier League sides are accused of relying too much on the the TV cash, believing it would never come under threat. ‘Well, guess what? Here we are,’ one expert said. Burnley chairman Mike Garlick, who runs one of the division’s tightest ships, has warned his club could run out of money in August.

For others, D-Day could come earlier. Experts told Sportsmail:

Teams will go bust if owners have to save either the club or their other non-football businesses.

With Premier League sides owing each other millions in transfer fees, one club’s failure to pay up could cause a domino effect.

Clubs risk defaulting on bank loans if expected TV income does not materialise.

One banking industry insider said football clubs ‘ make no sense’ from a financial perspective.

They had been warned. John Purcell of financial analysts Vysyble told Sportsmail: ‘In the very first report we issued at the end of 2016, we made one point. Football clubs are too reliant on TV money.’

As rights fees continued to rise, their verdict did not go down well. ‘ Everybody thought it was a safe bet, very much like the US housing market at the end of 2007: it could not possibly happen. Well, guess what? Here we are,’ said Purcell.

Across the Premier League, TV rights were worth £2.45billion in 2018-19. Over the last three-year cycle, the lowest payment to a club for one season was £93.4million.

But streaming service DAZN have asked to defer payments during the shutdown and Kieran Maguire, a lecturer on football finance at the University of Liverpool, says if this trend continues the situation could become ‘very dangerous’.

Should the season be cancelled, clubs face a TV repayment of up to £762m.

AND despite 2018-19 being the last year of the most lucrative TV deal ever, Vysyble say ‘data for Premier League and Championship clubs suggest a combined and record-breaking economic loss of almost £1billion’. Purcell says: ‘No one could have foreseen an event as catastrophic as Covid19 but the clubs had placed themselves in the worst possible position.’

According to Vysyble, TV money — from domestic and international broadcasters — accounts for 38 per cent of Manchester United’s revenue. At Watford, it is 83 per cent. For Bournemouth, Maguire says, the situation is more worrying. ‘They are almost reliant on Premier League TV income, it’s about 88 per cent of their total income,’ he says. ‘If the next instalment fails to materialise, they are in a perfect storm of money due in and money going out.’

Clubs are paid TV money in three tranches: in August, January and at the end of the season. Previously, transfer fees were paid up front. Nowadays, larger fees mean they must be paid over a number of years.

‘You will buy a player having sold a player and everything is linked,’ explains Maguire. ‘In total, Premier League clubs owe around £1.59bn in outstanding payments. They are only due to receive around £685m, so there is a net significant payment due.’

Some of those were made last summer but many remain outstanding. The system relies on confidence and should TV revenue come under threat, it becomes ‘incredibly vulnerable’, according to Purcell.

He adds: ‘It’s the same as the liquidity crunch during the 2008 recession. Banks started looking at each other and saying, “I’m not sure I want to lend to you. I don’t think you’re going to be in business tomorrow”. There are parallels with football. All it takes is that element of doubt to creep in and that house of cards collapses.’

It is common for clubs to take out shortterm bank loans between TV payments to fund transfers or maintain cash flow and Purcell says these can be hedged against incoming money, season-ticket sales or property the club owns.

Bournemouth received £ 16m from Australian bank Macquarie in anticipation of instalments due for the sales of Tyrone Mings (£12m from Aston Villa) and Lys Mousset (£4m from Sheffield United). Leicester and Crystal Palace did similar following the respective departures of Riyad Mahrez and Aaron Wan-Bissaka.

‘Nobody envisages a default,’ Purcell says. ‘But now that’s a distinct possibility.’

Even in less perilous times, clubs need help from their owners. During the 2018-19 season, Roman Abramovich pumped £247m into Chelsea, up £180m from the previous year. The club still made a net loss of nearly £ 100m after they missed out on the Champions League.

Maguire insists some clubs are too reliant on owners. He said: ‘Take Newcastle; Mike Ashley has an awful lot of problems at present and Newcastle is not top of his in-tray. His retail empire will be suffering. If the owner’s own businesses aren’t able to trade, then they don’t have the resources to subsidise the football part.’

Maguire warns that the longer the crisis continues, the number of clubs at risk of going bust will ‘ creep up’. Not even the biggest ones are safe.

Tottenham chief Daniel Levy said last week: ‘ When I read or hear stories about player transfers this summer like nothing has happened, people need to wake up. Football cannot operate in a bubble.’

He was panned for furloughing nonplaying staff, but could he be right?

The CIES Football Observatory predict players’ value will drop by 28 per cent. That would spell bad news for clubs who raise funds by selling stars, and buying teams whose assets will drop in value. It promises to be a difficult few months.

Purcell concludes: ‘ The sums don’t add up. You could put this in front of a child and a child with basic maths will tell you: this doesn’t work.’