Business With Blain: The Losses Keep Coming
A glut of Premier League clubs are under financial scrutiny.
When the Premier League clubs approved the introduction of their first version of Financial Fair Play (FFP) regulations back in 2013, West Ham United's late, former joint-chairman David Gold said: "Some clubs are a little concerned, but the vast majority voted in favour."
It would be interesting to know which way each of the individual clubs voted, considering nine of the twenty teams who did vote are not currently in the Premier League.
Fast forward 10 years, views on the regulations, now called Profitability and Sustainability Rules (PSR), appeared not to have changed too much.
The game might have been shocked, in November 2023, by the level of sanction of the 10-point deduction (reduced to six upon appeal) handed down on Everton. But the views of commentators and rival fans alike was approval — Everton, they said, had been mismanaged and spent too much on players, with a war and the construction of a new stadium not being considered as mitigation, albeit, the Toffees have hardly covered themselves in glory at times.
Four months on, and Nottingham Forest are treading the long and winding road that Everton have already taken: Referral to an Independent Commission (IC) resulted in a four-point deduction, which stimulated anger and frustration that ultimately resulted in an appeal that is expected to be heard in the coming weeks.
Everton, too, have endured a second referral to an IC, with the result of their hearing expected to arrive in the coming days. This could result in another appeal, meaning the final Premier League positions may not be known until after the last games have been played.
Amidst this courtroom drama, the financial accounts of clubs have been getting published over the course of recent weeks, with almost half of them so far posting huge losses.
Aston Villa, Chelsea, and Leicester City have all posted larger losses than Everton, who in turn posted a larger loss than Newcastle United, Tottenham and Southampton, with only Wolves posting a smaller loss than Forest in the 2022-23 financial year.
FY 2022-23 LOSSES (SELECT CLUBS)
Aston Villa — £116.1m
Chelsea — £90.1m
Leicester City — £89.7m
Everton — £89.1m
Southampton — £87m
Tottenham — £86.8m
Newcastle United — £73.4m
Nottingham Forest — £67.3m
Wolves — £67.2m
Independent Commissions may find their hands full in future years, as these clubs seek to avoid potential point deductions.
Or, will they?
Having been ambivalent about these rules for several years, and with some clubs taking a holier-than-thou position when Everton were first penalised, the uncertainty of the not-fit-for-purpose processes that support the rules has introduced doubt and fear to finance directors across the league.
Spurs, of course, have no real chance of facing a sanction; their losses are huge at £232million in the last three years, but over £200m of that is the depreciation of their new stadium, and so they are well within the allowable losses of £105m.
And then look at Brighton and Hove Albion. The darlings of the legacy media and the Premier League, the Seagulls posted record profits of £122.8m for FY 2022-23 — and that is not including the transfers of Robert Sanchez or Moises Caicedo to Chelsea.
Other clubs, though, will not be so lucky. Promotion hopefuls Leicester, for example, have a wage bill that exceeds their annual income, while Villa, Chelsea and Newcastle have either stated publicly or are assumed to need to sell players to comply with the rules and/or develop their squads.
It is believed Chelsea may have to bring in up to £100m in profit to avoid a breach of the PSR, while Villa might have to cash in on Ollie Watkins or academy graduate Jacob Ramsey. Should Newcastle wish to dip into their PIF reserves, then a big star may have to leave, or they will have to get good money for unwanted squad players.
Burnley’s auditors, meanwhile, have stressed the club must recoup money in the event of relegation — the Clarets’ accounts for FY 2022-23 showed a £27.9m loss.
Despite their CEO telling a Parliamentary Select Committee that PSR would not be changed before the start of next season, the Premier League clubs, three of whom of course won’t be in the division by then, agreed at a Shareholders’ Meeting in March to do the exact opposite and (rush to) implement new rules as early as this summer.
With the confidence of a club Chair that is above it all, Spurs’ Daniel Levy said: “The club remains fully compliant with the Premier League Profit and Sustainability Rules (PSR) and is supportive of the enhancement of PSR to ensure the PL remains competitive and sustainable.”
That view was in the majority back in 2013 and indeed probably in 2023, until the existing rules started to bite Everton and Forest and put the brakes on the spending in this year’s January transfer window.
For over ten years these rules had done little but change their name but now they are the subject of huge scrutiny and will potentially compromise the integrity of the competition.
The fourteen clubs most at risk of these rules, and even more so under the likely Squad Ratio-based replacement, or even a ‘luxury tax’ would be wise to avoid being rushed into something that suits the six far more than it does them and instead ask for a high price to be paid for their implementation.
They could start by demanding a more appropriate distribution of the broadcast income not just to the Football League but also within the Premier League itself. Now that would make the league “competitive and sustainable.”
By JohnB
John is a board-level veteran at FTSE-100 companies, specialising in business improvement and organisational change across the Media, Financial Services, Manufacturing and Energy & Utility sectors. John offers an expert perspective on the business behind the game.
(Follow: @John_B58)
We're on a journey to a league with no relegation where all clubs will be profitable. This will lead to state funded clubs becoming more dominant, i.e., City and Newcastle, and others happy to be making money. It's not what the average football fan wants.