Relegation will have a ‘brutal’ impact with ‘severe cutbacks’
FOOTBALL FINANCE EXPERT WARNS OF CONSEQUENCES OF LIFE IN THE CHAMPIONSHIP
LEICESTER City must be braced for a “brutal” dent to their finances if they are relegated to the Championship, an expert has warned.
City are now one of the favourites for the drop after a disastrous bank holiday Monday in which they were dismantled by Fulham before Everton and Nottingham Forest leapt above them in the table.
In the event of relegation, football finance lecturer and host of the Price of Football podcast Kieran Maguire predicts City would face severe cutbacks, with player sales required to fill a heavy drop in revenue.
However, Maguire does not believe the club’s outstanding debts would be a major concern to their future.
Without Premier League TV money, City’s income could drop by two-thirds, and so immediately the club would have to reduce their wage bill and generate cash through player sales.
The latter should not be an issue, with players like James Maddison and Harvey Barnes under contract and valuable in the market.
But cutting wages may be tough. City spent £182 million on staff wages in 2021-22, the most recent accounts available show, which ranked as the seventh-highest figure in the Premier League.
Problems will arise if City do not have relegation reduction clauses set into players’ contracts, and if they then struggle to find buyers in the transfer window.
Maguire told the Mercury: “There are two issues. First of all, have they got players they can sell?
“There’s a Maddison-shaped solution to Leicester’s financial issues, in my view.
“Secondly, do they have relegation clauses in contracts?
“They’re usually in the region of 20 to 25 per cent (wage reductions) for clubs at the bottom of the Premier League.
“Some of that will be automatic. But the pool they’ve been fishing in in recent years is such that they would struggle to get relegation clauses, because they’re constantly saying they want to get into European places and such.
“Their income, it was £215 million in 2022, realistically, they’d be looking at around £130 million to £140 million decrease.
“So it will be brutal. The income’s going to go down by two-thirds.
“It will certainly be very challenging. There will have to be severe cutbacks.”
To help finance their spending in the Premier League, City have taken out loans with Australian bank Macquarie over the past few years, securing them against Premier League TV payments and, in the event of relegation, parachute payments.
City have at least £70 million owed to Macquarie, but Maguire does not believe it is in the bank’s interest to call that in and put the club’s future at risk.
In the event of administration, the bank could miss out on some of the money it is owed.
Burnley, who have bounced back immediately to the Premier League under Vincent Kompany following relegation last season, also have loans with Macquarie.
Maguire said: “Your parachute payments, if the worst happens, will be about £42 million, of which I think quite a lot of that will be ringfenced for Macquarie.
“How much Macquarie are due to be repaid we don’t know, but that’s always a cause for concern.
“It’s in Macquarie’s interest for Leicester City to still be around.
“That’s looking at it from a positive point of view.
“Macquarie were quite happy to take on Burnley’s parachute payment issues at the start of this season and they’ve come straight back.
“It’s not a nightmare but it’s going to require a lot of hard work at board level.
“Burnley had a deal originally with MSD Holdings who are one of the other big lenders. They transferred that to Macquarie.
“The fact that Macquarie were prepared to take on the finances of a Championship club is indicative that they’re reasonably fair.
“It’s not in their interest to call in the loan. It works out as being very expensive.
“If they go into administration, you’re not guaranteed to get all of your money back and it all starts to get very messy.”
Kieran Maguire and Price of Football co-host Kevin Day will be joined by Sunday Times journalist Jonathan Northcroft and talkSPORT broadcaster Geoff Peters for a live edition of the podcast at the Menphys Hub, Wigston, on Thursday, May 11. All proceeds from the evening will go towards supporting children and young people with disabilities in Leicester and Leicestershire.