Note: no Mark Knopflers were mentioned or harmed during the writing of this article. Also, the first two-thirds of this in-depth article is free and the final third is behind the paywall.
It seems that the football world is returning to some semblance of normality, with elite-level games having taken place in Germany this weekend. But that’s Germany, where tracking and testing for Covid-19, along with far greater hospital capacity, has seen the country ravaged by a fraction of the deaths experienced in England, Spain and Italy, the continent’s other main leagues. In England we are still at least a month away from resumption.
As things currently stand, nearly all Premier League clubs are still paying their players 100% of their wages, with the wage deferrals or reductions so many said was essential for clubs to remain solvent still strangely absent.
If players don’t want to play due to health concerns (or concerns for catching and spreading Covid-19 to their families), that’s fair enough – and any individual should have the right to step back; but they are taking the money as if they are still playing. You cannot go on strike, or simply take a career break, and still pick up a million quid a month, even if you do donate some of it to the NHS. And the financial hits the clubs are taking are only mounting. All the money players receive is based on a previous reality.
In a recent piece, TTT subscriber Edward Robinson pointed out that “match day revenue for Liverpool is 15%–20% of total income”.
So, that’s up to 20% of income gone, overnight. Obviously the club had already received its matchday income for three-quarters of the season, but it will have also budgeted to spend the season ticket income received in the summer on 2019 on things like wage rises for players which, with improved contracts, it will be committed to paying for the coming few years; now a quarter of the value of those tickets have to be refunded, and the expected gate receipts and all the other income from home matches will be lost for the remaining four Anfield fixtures (whether they are played at home or in a neutral setting without fans, if ‘Project Restart’ goes ahead).
A general rule of thumb within football has been that it’s healthy to keep a wage bill at 50-60% of turnover; not least as clubs will have other costs, beyond paying players. Through no fault of their own (although you can find fault with most clubs and owners in aspects of their approach to business decisions), that number has been skewed in the direction of the 100% mark, if not quite hitting it.
The Athletic recently ran an informative piece by Matt Slater noting the wages-to-turnover ratios of all clubs. But as ever with wage analysis, it was already out of date due to being based on published accounts (the best info you can get on wages); the figures they gave were for 2018/19, with two clubs’ figures based on 2017/18 accounts; but we’re now in 2019/20 – although it feels more like 2035/36. (James Milner is now 59, and still the fittest player around.)
In 2018/19, Liverpool had the 6th-healthiest wages-to-turnover ratio, at 58%. (Everton, as the anti-Liverpool, reverse those digits to 85%, which ranks them joint-worst, aside from the sides that were promoted.) But now it’s 2019/20, and the turnover has tanked.
Liverpool’s wage bill is also very heavily incentivised – a sensible direction in which the club has moved in recent years – which is why wage bill analysis in terms of on-pitch success can at times be misleading, given that on-pitch success, in this case, leads to higher wage bills (all those bonuses). For instance, Liverpool did not win the 2019 Champions League because they had a super-high wage bill, but they ended with a much higher wage bill as a result of winning the 2019 Champions League. (Because winning the Champions League brought in the additional revenue to pay additional bonuses.)
And obviously, if the Reds are allowed to be confirmed champions of England in 2020, that will mean more pre-agreed player bonuses, but from a diminished pot.
Having been at 58%, there’s a good chance Liverpool’s wage-to-turnover ratio could now be at 80% or 90%, especially as there will be no further match-day income this season, and possibly none next season; and far more worryingly, both this season and next season, the TV deals could be slashed. This could be near catastrophic, even if it won’t end up killing off any big clubs.
As a result, transfer business will be nigh-on impossible, as I will go on to explain later in this piece. As things stand, football is unsustainable – possibly for a year or two, possibly longer – and as I noted during the furlough scandal, it needs players to take pay cuts (where most would still be earning absolute fortunes) to put the wheels in motion to get clubs back on an even keel.
Players Are Saints and Sinners; They Are the Game and the Drain
Unlike in almost all other industries, football clubs are committed to paying players over long periods of time – up to five, and even six years – which has pros and cons for the clubs, and pros and cons for the players.
But suddenly, match-day income is down, for all clubs, by between an estimated 10-30%. The big worry, however, is that The Guardian recently reported that even if, as is the aim, the season is completed, the TV companies won’t ask for a £760m refund (bullet dodged!) but will still ask for £300m back; so, almost half the season’s broadcasting value:
“The Premier League’s clubs are set to lose between £300m and £350m in broadcast revenues even if they find a way to finish the season. The penalties will be due because they would not be able to fulfil particular obligations from their contracts with the TV companies.
“They involve the delivery of the product and, principally, the timing of it. The season would not be able to restart until mid-June, at best, meaning that the broadcasters’ preferred slots would have been missed. There is also the issue of how the matches would look without fans – a government stipulation if they are to take place. Again, this was not what the broadcasters signed up to.”
This is through no fault of the clubs, no fault of the players, no fault of the fans, and no fault of the TV companies (although trying to cancel a subscription should be a sport in itself. There should be a law that anything you sign up to online should be cancellable online – something I was moaning about even before phone systems were completely overwhelmed in the post-Covid-19 world, having taken out a digital subscription to the Wall Street Journal online last year, only to be told I have to phone them to stop payments).
If so, some individual clubs are at risk of losing well over £100m this season alone, and if crowds are not allowed next season, as seems plausible, that means even bigger losses: the same match-day losses (except it will apply to the entire season and not just four of five games), and potentially the same TV penalty losses if games cannot be rescheduled to the liking of Sky, BT Sport and Amazon.
Simon Stone noted on the BBC that, “Business analysts Vysyble estimate Premier League clubs will lose £878m if matches have to be played behind closed doors until the end of the 2020-21 season. The bigger clubs suffer the heaviest losses, with Manchester United set to lose £140m and Arsenal £122m. Bournemouth’s income would reduce by £6.7m.”
And these figures don’t include the far bigger burden of paying back part of the TV deal.
If there are successive waves of Covid-19 – as seems plausible, given that the R-number will likely rise and then further lockdowns are needed to get it back under control – and if it lingers or returns in conjunction with the upcoming winter’s flu season in just a few months’ time (which means a greater need for hospital beds than in the summer), then the league could have to be shut down again in 2020/21, at least temporarily.
Now, this is the worst case scenario (beyond the virus mutating and killing everyone!), but you should always try and plan for the worst, and that included governments planning for the clear risk of a global pandemic, which has been top of the warning list for years.
After all, if there’s a 20% chance of a life-ending asteroid hitting Earth you’d expect 100% immediate effort to destroy it, or at least to alter its path; you wouldn’t use the 80% chance that it wouldn’t hit Earth to wait until it was too late, before planning how to deal with it (beyond perhaps making a phone call to Bruce Willis). Obviously it’s far harder for football clubs to plan for force majeure; it’s not their job to worry about all scientific warnings given to governments, as they don’t have the staff to deal with such issues; although even then, they should have some stipulations for ‘the unknown’ in contracts.
Liverpool-born Tranmere owner Mark Palios is a chartered accountant, football administrator and most tellingly – as poacher turned gamekeeper – a former professional footballer, who made over 400 career appearances for Tranmere (mostly) and Crewe. As such, he is in a fairly unique position to comment with a view of all sides.
Writing in The Guardian at the start of May, he noted the difficulties faced lower down the pyramid, where gate receipts are obviously the main driver of income; as such, it would be easy to respond by saying that the Premier League is so much richer, and not reliant on crowds – but of course, the Premier League relies mostly on TV money, merchandising and sponsorship, in addition to gate receipts, and all four areas are under some kind of threat.
“The fact it proved so hard to agree a modest wage deferral, following difficulties in agreeing a position on furloughing players, does not suggest the industry is well-placed for the more complicated second phase of the Covid crisis.”
With players arguably not doing enough to help clubs (and with clubs essentially funded by the common fan), many clubs themselves are fighting for selfish gains.
When, in late January, I asked what the protocol was for a season being suddenly cancelled, I was ignored; because no one knew (and also, because no one thought that would ever happen). It turns out, there doesn’t seem to have been one. This, despite the possibility of wars, natural disasters, nuclear reactor leakages, and the constant warning that a global pandemic – all of which could cause issues lasting from months to years – was only a matter of time.
On the first TTT podcast we’ve recorded in years, taped back in April, I tried to recall the major volcanic eruptions in history (not so much Eyjafjallajökull in 2010, although weirdly that also coincided with a game against Atletico Madrid, where the Reds had to travel by road and rail to Spain) that blackened the skies of Europe for a whole year, causing crops to fail and animals to die due to the lack of sunlight permeating the pall and the massive drop in temperature, which in turn led to many human deaths. Such an event could happen at any time, even if it probably won’t happen today or tomorrow.
As such, there should have already been in place the methods to decide how the league’s issues would be resolved, such as weighting it to home and away games played on a points-per-game basis, or using something like the Ratings Performance Index – a model from American sports, in which not every team gets to play every other team (due to the great distances involved), and which we’ve been using on this site for a few years now to gauge Liverpool’s performance after nine or ten league games – when the league table starts to take shape, but a club may have faced seven or eight tricky fixtures or seven or eight tough fixtures.
(Graeme Riley, with whom I created the Transfer Price Index over a decade ago, recently wrote about the latest Ratings Performance Index results, which I would refer to by its acronym of RPI but for the confusion it would create with the Retail Price Index – another RPI – which calculates standard inflation. Just to confuse things further, TPI suggests football inflation runs at 20-30x the speed of RPI, but the RPI I’m talking about here is calculating league tables based on the form and quality of opponents at the time they are faced, and nothing to do with money.)
Instead we have the ludicrous scenario of clubs wanting the rules to be created to suit their current self-interests.
The Eternal Player-Club Contract Dispute
Players like the stability of long-term contracts when it suits them (bumper pay rises and the security of having that money even if they are dropped due to poor form, see their powers wane, or if they are out injured), and hate being tied to them when it does not (they are not in the team and are eager to play football, and/or another club wants to pay them more or offer greater chances of silverware).
Clubs like the stability of long-term contracts when it suits them (the player is a hot property wanted by others, who, due to the contract, can’t then have them), and hate being tied to them when it does not (the player is not giving his all, and still picking up £200,000 a week for arsing around. Note: I originally typed £200,000 a wee, and maybe that’s more to do with doping…).
Equally, players love being free agents if they are in demand; but being out of contract and unwanted, as happens to so many players if their career hits the skids (perhaps due to injury), is a disaster.
Players try to weasel their way out of contracts if they have a better offer elsewhere, and clubs try to force exits upon players they wish they’d never signed in the first place, or who have prematurely melted or been diminished by injury. It’s a constant shifting of priorities and self-interest, with both the clubs and the players at times the guilty party and at times the victim. Players talk secretly to other clubs when it suits them, and clubs talk secretly to other clubs’ players when it suits them. As such, there are often no clear moral delineations, just the individual cases, which in turn relate to self-interest in that particular moment.
But this is an unprecedented crisis, and I feel players have to take the lead; not least because clubs can’t force anything on them, but where TV companies do appear to be able to force repayments from the clubs. If you argue that the clubs got greedy about TV revenue, then most of that money goes on transfer fees and wages.
The biggest Premier League clubs have wage bills in excess of £300m a year. On average, from the low of Spurs at 39% and the high of Everton and Newcastle at 85% (all based on the 2018/19 accounts referenced earlier), about 70% of all the money Premier League clubs earn goes straight to players in wages. Then, any money that gets spent on transfers goes, in part, to the players’ agents; and transfers accounts for most of the 30% that remains. (A big club may spend £300m a year on wages but have a net spend of £100m.)
Without players there would be no game; but equally, they are the drain, too. That wage money – unlike transfer fees (beyond the agents’ cuts) – does not get recirculated. In some cases it goes on charitable foundations and, for some foreign players, hospitals back in their homelands, all of which is great; but it also goes towards Ferraris and mansions, and £6,000 rucksacks for preening prima donnas. It goes to casinos, sex worker parties and all kinds of unnecessary things. While it’s up to the players what they spend their money on, in a time of a crisis it’s not like the ones at the top level are going to go short.
These are the activities that the fans – not the owners – essentially fund. Fans pay the steep ticket prices, fans buy ever more expensive TV subscriptions from an increasing gaggle of companies, and fans buy all the merchandise that accounts for the rest of a club’s income (excluding player sales). Mostly, all the owners do is distribute that money.
Most owners do not take a cut of this money, nor do they put their own money in, beyond a reasonable sum here and there. Usually this self-sustaining model, as practiced by FSG, is the most desirable: it is fairer for the sport (after all, it’s not petrodollar-doping), and it means the club could survive if the owners suddenly lost their fortunes. (It’s also far better than owners who buy a club with leveraged debt, where they are borrowing money to pay the cost of buying it; and they take money out of the club to fund interest payments – as George Gillett and Tom Hicks did with Liverpool in 2007, and the Glazers did with Manchester United.)
But of course, Covid-19 has cost most owners money (as economies tank), but has cost the clubs themselves – in terms of what they owe – even more money. As I noted a couple of months ago, football clubs themselves may be ‘worth’ a lot of money, and they may generate a lot of money, but they are not rich. A club’s value is tied up mostly in the players’ values, just as its expenses are tied up with salaries. The money never stops in club bank accounts long enough to accrue, not least because pretty much all fans demand that their clubs to spend every last penny on transfers (and less obviously, but just as importantly, on pay-rises to retain the best players).
This is why I see transfers as a near impossibility right now. I may be wrong – it’s just my hunch – but how does the market move?
Until the players take a wage cut in line with a club’s losses, clubs cannot bring in new players. Some of the big clubs in Europe have seen players take a wage cut, but it still remains unusual in the Premier League, with the furloughing of non-playing staff also hugely unpopular despite its logical merits (clubs pay a lot of tax, therefore they are entitled to make use of such money; unlike unscrupulous businesses who are registered overseas and who pay no tax in this country).
And this is, at the same time, great for players at clubs and terrible for players at clubs. They cannot be ousted without having their contracts torn up, and clubs don’t want to do that as it could mean writing off £10m or £100m (or whatever); but equally, some clubs may have to do so, if they are looking to save £10m or £100m (or whatever) in wages – in other words, write off the transfer loss to save the more pressing wage-bill losses. Clubs often do this with expensive flops, cutting their losses.
But it also means those players who moan that the owners or managers aren’t investing in new players to take the team to the next level – as happens at most clubs from time to time – will have to make do with some inept teammates. (Thankfully for Liverpool this hasn’t happened at a time when we’d be stuck with a load of older highly-paid “free transfers” and “bargains”, as happened in the early 2010s; although this has of course temporarily postponed the Reds’ title charge.)
But who will be buying players? If every club has seen its wage bill spike to dangerous levels due to the sudden and largely unforeseeable loss of income, its priority will be reducing that wage bill, not adding to it (and not adding transfer fees on top). If a club needs to sell to buy, who will buy so that they may then sell? As with any chain, it needs something to start the reaction in motion. And right now, conditions don’t seem ripe for a chain reaction (and that’s ignoring all the after midnight action).
That start may come from petrodollar and state-backed clubs, whose flouting of FFP rules is not their problem for the time being, with FFP temporarily relaxed, although presumably those clubs will still have to be careful to not be locked in to excessive costs after the relaxation ends, that then see them excluded from the Champions League (assuming that the Champions League is able to resume, which seems less likely than domestic football, given the international travel and the different rates of infection in different countries, either due to mismanagement or simply being hit earlier or later by an outbreak).
So, someone like Timo Werner, with a c.£50m-buyout clause, looked a bargain for Liverpool in January, but now looks closer to that value equating to £100m. After all, it could easily be that player values have halved in the world of Covid-19.
As Graeme Riley and I have shown with our Transfer Price Index work, the average price of a Premier League football rises and falls in line with the money circulating via the TV deals. So when ITV Digital collapsed in 2002, and following the credit crisis of 2008, the average price of a player declined. So, just as someone bought in 2015 for £50m would have been the equivalent of £100m to someone bought in 2019 – when the market was awash with more money than four years earlier – someone bought for £100m in 2019 is likely to be the equivalent of £50m in 2020.
For the time being, any recent big-money signings are likely to look massively overpriced due to the collapse of the market. If clubs lose half the TV money from this season and a quarter of their match-day revenue, then that means losing almost half their entire income; and as such, that money is no longer sloshing around in the game, ready to go to players and agents.
Clubs may still be able to exploit the market, and pick up great players for free or on the cheap from rival clubs who have to have a fire-sale, but when Leeds United basically sold off their entire squad between 2002 and 2004 – after their own financial bubble burst (due to lavish overspending, and the hubris of budgeting for being in the Champions League) – there was the financial might of Manchester United (who, at the peak of their marketing and on-pitch powers, didn’t suffer any great losses during the temporary deflation of the TV deals at that time), and the oligarchical billions of Roman Abramovich, who was pumping fresh money into the game that had nothing to do with TV deals, merchandising, or on-field success, back in the pre-FFP era. Both those clubs could essential ignore the financial realities faced by everyone else.
The reason our transfer analysis places so many of Chelsea and Man United’s signings from that time – circa 2002-2007 – as amongst the most expensive – when every single transfer since 1992 is adjusted for inflation – is because they were spending £25-£30m per player at a time when the other richest clubs were struggling to even pay £15m. (See Liverpool’s record signing, as of 2004: Djibril Cissé, at just over £14m; less than half what Manchester United paid for Rio Ferdinand a full two years earlier.)
Could Man United do the same again in 2020? And could City join them?
If FFP were totally abolished, and City’s owners turn out not to be too damaged by the financial implications of Covid-19, then perhaps they could. But FFP is only being relaxed, and even Man United are facing losses of £100m-£200m this season and possibly again next season, in addition to the annual debt repayments. Remember, United didn’t have the Glazers draining fortunes from them during the early- to-mid-2000s. And Chelsea (unlike City now) didn’t have the realities of FFP to stop them joining Alex Ferguson in outspending rivals by the largest margin seen between 1992-2020, when there were two clubs and everyone else miles adrift.
Looking further afield, clubs like Barcelona, who have spent massively in recent years based on expected income, could be in a world of trouble, although I don’t know the specific ins and outs of the finances at the Catalan club; plus, their players have agreed to wage cuts.
But it’s clear that in paying £100m+ apiece on at least three players since 2018 – when they already had two ageing superstar forwards – they were gambling with money they probably didn’t have. Will they now be able to even give away Philippe Coutinho and Ousmane Dembélé? How canny does it look now to have spent over £100m on Antoine Griezmann, who is 29?
There’s talk that they would accept £53m for the discipline-averse Dembélé, but who even has £53m right now? Remember, this is a global crisis, and has affected every nation – albeit the matchday and TV income varies from club to club and country to country. Having given Covid-19 to the world (if only via wet markets, and not wild conspiracies), perhaps China can return to their recently prohibited state pastime of overpaying for footballers?
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