Why are Championship clubs in financial freefall? | The Football Boardroom

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1:25Christian, good to see you absolutely glorious outside blue skies but if you listen to Michael Eisner the owner, chairman of Portsmouth Football Club distinguished businessman he says that there are dark clouds over English football and he says the AFL and particularly the championship with their financial issues there is in danger of collapse and actually the great pyramid, the great edifice of English football might just be left with the Premier League. And these are pretty alarming warnings from a fairly balanced individual. That's kind of your world. You know people like Eisner. I think you were, were you at Harvard when he spoke there?

2:12I was. Yeah, I was a 26-year-old student at business school in 1990 and Michael Eisner was the chairman and chief executive of Disney. And by any standards, you know, I just went to a lecture he gave and I never forgot it really because at the time he was a titan of corporate America over a long career at Disney. He was credited with creating a hugely successful renaissance for Disney, running one of the world's biggest entertainment companies. We take him seriously. I would say that certainly as a young business student, you know, one would look at him as a hugely capable businessman for better or worse.

2:53And so I was struck when nine years ago he invested in Portsmouth. He was not the first American investor to buy into our great game. and let's be honest, he's gone about things in what I would describe in business terms as a responsible, sensible, prudent, these sorts of words, which I think are proven by a couple of interesting facts. The first is he bought into Portsmouth when they were in League One and took sort of seven years or so to get them into the championship where they find themselves now near the bottom of that league. And the second evidence of, shall we say, a more cautious and prudent approach is that when I looked at those championship financials, it is striking that his level of losses at Portsmouth, just over£4 million, are much lower than the average losses in that league and the normal losses in that league, where from top to bottom, and we'll get into this, Henry, clubs are routinely losing£10 million to£20 million a year.

4:02And guess what does he get for running the club in a, shall we say, prudent and cautious way? Well, he gets QPR away when the team have been given a shooing and some of the fans, I think there were 1 ,700 fans, were on the road supporting the team and there were chants of, we want Eisner out. and even the local paper, which is obviously very supportive of the team and the club, even they've had some of the headlines are, is he looking at ownership failure? Because if they go back to League One, is the club... Back to where we started. Square one. You know, so... What do you make of that narrative arc?

4:41I find the narrative arc... I have to say, the more you look into it, the more I actually got some sympathy for Eisner because he's put in, what, 50-odd million, 25 million of it was spent on Fratton Park, which is one of the great atmospheric stadiums, Pompey Chimes and all that, and the way you sort of wiggling past those houses to go there. And they needed that money. Yeah, and let me say again, if the theme of his regime is responsible, prudent, doing things the right way for the long term, and surely following on from one of the most notorious financial meltdowns, a club, Portsmouth, that really looms large in the emergence of the financial fair play regime soon after their meltdown.

5:24We could line up, if I lined up some of the really key decision makers in English football, when FFP finally came in after UEFA, Portsmouth was always name-checked as a case study in what we have to try and prevent. These terrible, irresponsible owners stripping clubs bare and leaving a complete mess. That's what regulation was all about. So for Michael Eisner, as a truly eminent, serious businessman, at the back end of his career, he'd had his corporate career in America, to buy into that club, support a trust-owned, to work with them, another sign of responsible management. Let's improve the infrastructure, Henry, so that actually we're increasing the sustainability over the long term.

6:11Sustainability is absolutely key. And now you're telling me he's getting pelters because they're in the championship and they're in a relegation battle. The narrative arc that we are describing here is not unique, okay? And it is something along the following lines. Owner buys into football club. Owner goes on a journey of improvement, often involving meaningful investment, certainly involving in the championship, certainly involving losing money every year while you're on that journey, which in plain English, Henry, means, you know, I suspect he still lives in California, sending cheques from California every month to pay the wages, okay?

6:57I think he's putting in an extra£40 million this year. I was reading the Portsmouth News. Exactly. And they were suggesting, I mean, that is quite substantial. And every owner in the championship is writing checks to fund those losses. And this journey is one of hope and initially support from fans as they see a new development in their club's history, hopefully an owner who's going to bring success, gives it a go with varying strategies from the, you know, extremely aggressive bet the ranch strategies at one end of the spectrum. We can talk about some of those through to Eisner's approach at Portsmouth, a more patient and cautious.

7:36And you look at the team, it is loans, it is free transfers, and the occasional million, two million pounds. Yeah, and I suspect the wage bill's the second lowest in that league, I would guess. Twelve or thirteen million, something like that? I don't know, but it will be very low. And the point is, you end up getting criticised by fans, criticised by the local media. In effect, you're being criticised for not losing enough money. i.e. if you spend more money in a loss-making operation, you lose more money. So look, Christian, what are these dark clouds that he's talking about? What are the league-wide losses and what is driving them?

8:17I think a couple of things. He's referring to the fact that whether you are, you know, Oxford or Portsmouth at the lower end, those two clubs with lower levels of turnover, both losing real money. Portsmouth,£4.5 million, Oxford, I think nearly£20 million. through to well-run clubs like Borough and Coventry and Middlesbrough, all losing£10 to£20 million. And of course, parachute clubs coming down, often losing£20,£30 million. The championship is a league where it seems impossible to make money. And the reason for that, very simply, I think, boils down to a couple of things. Firstly, revenues in the championship for clubs that haven't been in the Premier League, we call them non-parachute clubs, are averaging about£25 million.

9:11OK, and we'll break that down in a second. And wage bills in the league for non-parachute clubs, Henry, I stress, are averaging more than£25 million. In other words, clubs in the championship, before they employ a single person, before they turn the floodlights on, before they open the doors to their academy, before they set up their foundation and community activities that you've talked about that are crucial for every club in English football, championship clubs included, before they do any of that, they're losing money. so they're losing real money by the time it all adds up 10 20 million pounds a year and they're doing it year in year out with a high level of predictability because the revenue side of that equation that 25 million pounds breaks out roughly the following way okay three levels of income our audience know it well your match day your attendances your ticket money for those clubs averaging maybe£7-8 million for non-relegated clubs.

10:20Okay? Commercial activity, maybe£10 million. And your TV deal, £10-11 million. So,£10-10. So,£25-26 million. Now, that TV money, let's just talk about that for one second. It's unbelievable. It's really unbelievable. Okay? So, sorry, it's£10 million? £10 million. Of that£10, half of that is what's called Premier League solidarity. Ipswich Town have just spent £11 million on agents. Exactly, exactly. People just take these numbers for granted. Just pause, please, and think about this. So leaving aside the fact the Premier League hand out what's called solidarity, think of it literally as a gift from the Premier League to the EFL of about£5.5 million a team, that approximate amount of money is what teams in the Championship receive from the Sky TV deal that covers the whole of the EFL.

11:15Five to five and a half million pounds, okay? 24 teams, in other words, in that league, Henry, are sharing about 130 million pounds a year in TV money. 24 teams, 135 million a year. You're going to compare it with the Premier League. Premier League, 20 teams are sharing, what do you think that number is? Oh, it's six or seven. Three and a half billion. Is that just domestic or we've got... That's TV money, total TV money. So, and yet, and this is the underlying overall issue that we're all wrestling with in English football, there is a free movement of teams between those two wildly different divisions in terms of their underlying economic situation.

11:58Why don't we come back to the New Deal and why hasn't it actually been broached? They don't even seem to be discussing it in terms of the redistribution of the wealth of the Premier League to keep the pyramid strong. And the reason why, and I spend a lot of my life writing about this and talking to Premier League clubs about the importance, because A, be careful what you wish for, not simply because we've got the Tottenham Hotspur issue this season and they could be an EFL club within three months. Leicester City could well be heading towards League One on the anniversary of the 5 ,000 to 1 winning the Premier League.

12:37So, you know, it's not absolutely completely given. OK, if you're Manchester United or Liverpool or one of these top clubs, absolutely, you are going to stay in the Premier League because, as you say, the accumulated wealth. But it is an issue. And the Premier League cannot continue to think that the EFL, in a way, doesn't matter. They have to do these deals. And they also have to do the deals because where do a lot of them get their players from? Arsenal's goalkeeper, David Ryab, is having a fantastic season. He's played League One and Championship. I think he played Conference as well, briefly, on loan.

13:12Harry Maguire has just got this new contract at Manchester United. He played League One and Championship. we have to protect the pyramid now you've been in there in those boardrooms the Premier League boardrooms the EFL boardrooms you've been in the Championship you've been in the Premier League why is this new deal not being done? Well again for our audience benefit what you mean by the new deal is essentially a recutting of the economic arrangements between the Premier League and the EFL for some time now the solidarity payments we've described have been in place but really in the last I think it probably started with the fan-led review and obviously that culminated in the imposition Do you agree with it?

14:03Do you feel the Premier League clubs should help the EFL clubs? Well they already do that's the first thing to say I've already explained to you that even today Solidarity is as much as the TV deal and that's a new TV deal that is well up on the last TV deal in the championship. So yes, I really do believe that they should and they could do more. Do the owners at the top believe they should? I have some doubt about whether or not there is the same level of support for increasing the amount of money Premier League clubs share with the EFL. Is it an element of trust? I'm just trying to look at it from a sort of John W.

14:45Henry perspective. If you're looking at£411 million of losses in the championship clubs, actually how well run are those clubs? Now, they are very well run clubs and they are just caught in this sort of perfect storm in the championship. But is there that element of, well, actually, why should we help them out when they're overpaying players and they're not necessarily all that well run? And also they're looking at some very wealthy owners like the Coates family at Stoke in the championship. There are lots of reasons why Premier League owners might have reservations about unilaterally sharing more of their television income, as they see it, with a competing league or a league below.

15:31Sorry, are they a competing league, though? They are a supporting league. Well, they're competing at the micro level because every time a team comes out of the championship into the Premier League, by definition, it is competing with a Premier League owner for those hugely valuable 20 seats within the Premier League. So we have to think about that. The realpolitik here is that we have these two leagues, as I have described, with these vastly different economic characteristics. The lowest team in the Premier League earning maybe£110 million of TV money, an average team in the championship earning five million pounds of TV money.

16:12Wage bill differential, the average wage bill in total in the championship, maybe 25, 26 million pounds. The average wage bill in the Premier League outside the big six, maybe 140 million pounds. So 0.1, wildly different economic ranges. By the way, one thing they have in common is most teams in the Premier League also lose money. But the key difference between the proposition for investors in the Premier League versus the championship is that if you can successfully navigate the journey from the championship into the Premier League, firstly, get out of the championship, and then secondly, stay in the Premier League for a few years to become, and I use the word loosely, established because you're never truly established.

16:59but to be there for two or three seasons. I'll give you an example. I think Brentford have navigated that journey brilliantly. Brighton, Bournemouth. The Bees, exactly. And what happens if you do that successfully is you can in theory see a dramatic increase in the value of the owner's investment as proven by the fact in the last 12 months, Brentford's owner, Matthew Benham, has sold a small stake in Brentford. that values Brentford, would you believe, at over 400 million pounds. Now, I promise you when, you know, I took Aston Villa to play Brentford in 2018, 2019, when I was in, when I found myself as CEO of a championship club, nobody in that stadium.

17:50That was the old stadium. Griffin Park, we lost 1-0 in the 20th. Good pubs on the corners. 95th minute goal by Neil Mopay, forget it. Never forgotten it. Nobody could have imagined that Brentford Football Club would be worth 400 million pounds for a minority state. So why is that important? That is, to use the business phrase, an economic incentive. And it has huge power and weight in influencing the strategies that are pursued by EFL owners. Because they look at their league and they see a possibility, maybe a 25%, maybe a bit more. Now they've added a couple of playoff places. Possibility of arriving in a league where if they get there and establish themselves, they may own a football club worth£400 or£500 million.

18:44But how many Brentfords are there? Not so many. But if you are faced with the proposition year in, year out of the Championship of losing somewhere between£5 and£20 million, five being Portsmouth, 20 being any number of championship clubs. The one way you're going to get that funding back is if you successfully navigate promotion, successfully establish yourself in the Premier League, and then maybe realise your investment in your club and sell for hundreds of millions of pounds. That's the dream on the field. That's the dream off the field of an incentive to chase promotion. And we see different strategies for chasing promotion.

19:30You're quite right. From throwing everything at it, from, you know, risky January bets on a centre forward to try and push you into the playoffs, maybe to push you into the final automatic slots. But the common denominator is that hugely powerful incentive. And the alternative is what we're seeing with Michael Eisner and the criticism he's now getting is that you conclude that the price of trying to do that is just too much. Can we drill into the price a bit and particularly player wages? Because if the top wage in the championship at the moment is a reported 90 ,000 a week, how is that sustainable?

20:16Well, I agree with you that the core driver of these clubs all being loss-making is the fact that wages are at or above turnover before you employ any other person in the building. But we know this. We've been having this conversation for years, arguably post-Bosman. So, look, the players are the stars of the show and, look, they absolutely deserve, you know, what they can try and get. But surely, surely there has to be some logic, and I'm sure the PFA won't like this, but they have to make it more performance-related. So cash on delivery, and then you have, look, you've negotiated with players, you've set wage bills, and I'm sure cut wage bills as well.

21:01Surely you can make these contracts more performance-related. So you have a more sensible basic, which people can understand, and then the additional elements to it. Well, plenty of that has crept into the game over the last few years. But everyone says that. But we then have these unbelievable, actually unsustainable wage bills. Because if you look at them, the core issue of the championship has to be the high wage bills. Birmingham City's accounts came out today and wages 107 % of turnover. Yeah, the norm is over 100%. Sorry, without getting all Mr. McCorbish about it, how on earth is that financial sense?

21:44Well, as I've said to you, it is utterly and completely owner-dependent. It isn't. The definition of unsustainable is relying on an owner to fund losses indefinitely. In the end, Henry, I have always believed that, and this is really what Michael Eisner, this is what Michael Eisner is really saying, relying on the sort of greater fool theory that there'll always be somebody willing to step in and buy that ticket, the ticket, owning a championship club and signing on to lose money indefinitely unless and until you pull off the miracle, the dream of promotion. Sorry, do you think there's a limitless supply of potential owners?

22:30Michael Eisner is essentially saying do not rely on there being a limitless supply of those investors and that system that we are describing is the definition of unsustainable. And that is why, as you say, if you were trying to fix it permanently, if you're trying just to improve things meaningfully, i.e. reduce losses meaningfully, I would say the only way to do that would be to see meaningful control on spending. And let me just say, it's not just me and you who thinks that. and I'm going to take one minute on this because it probably merits a whole episode. But many of our audience will be aware that we now have this thing called the independent football regulator gradually coming into focus, getting up and running in the game.

23:23And this was the culmination of really... It began with something called the fan-led review. And you were part of that process? Yes, I was part of that process. most clubs were given a chance to input into... But you contributed to Tracey Crouch's report. I did. And I'm concertining four, five, six years of development here from the Super League and COVID to the authoring and creation of that report through numerous consultation processes through to ultimately a bill in Parliament and ultimately the emergence of a regulator. I'm concertining that down to address... Nicely concertined, by the way.

24:01To your key point, which is the heart of that regulation is really a two-pronged approach to this sustainability issue. And they come in sequence. And the argument is, in order to encourage the Premier League to have confidence that they can distribute more money into the championship and that money will be used productively and sensibly, not just blown on more player wages, before that happens we have the emergence of a licensing regime in the championship where championship clubs indeed all efl clubs will be required in effect annually to submit comprehensive financial information to the regulator that's a good thing it's a good thing to demonstrate that they are prudently planning their revenues prudently planning their spending and most importantly have cash in place to meet their business plan under sensible and prudent outcomes.

25:09Now, and the argument goes, Henry, and I happen to support this argument, that if the Premier League, the top of the pyramid, have more confidence that the EFL have their finances in order and that that regulatory framework of making clubs every year apply for a license. I thought the Premier League didn't like the regulator. I don't know if they do or they don't, but I am telling you the argument, the regulatory argument is that if we help get lower league football's finances in order, you can have more confidence to distribute more money down the pyramid. Now, the second part of the regulatory powers is the idea that they will mediate what you already called the New Deal.

25:55In other words, that if the Premier League and the EFL can't bilaterally, as football, sit in a room like you and me and figure out an update to the economic relationship between the Premier League and the Championship, just an update. There's always been an economic relationship. We've already talked about the fact that they already pay solidarity. But the idea is so big of the Premier League revenues become today, so much greater than the championship. These arrangements need updating. But if they can't agree that, and let's face it, they haven't done so far, then in effect, the regulator, the government appointed regulator, can basically mediate those discussions.

26:40can enforce or persuade or demand that agreement is reached. And you agree with that? Look, I think... Because at the moment, you've got two, you've got a big kid, a smaller kid, who actually should be getting on together and getting on well because there's mutual benefits. We've talked about players being developed for the elite. We've talked about, I mean, there were three or four managers, maybe more in the Premier League who cut their teeth in the EFL, whether it's a David Moyes, whether it's an Eddie Howe. It's important that particularly the Premier League and some of the owners understand that it has to be, you're protecting one ecosystem.

27:24The leagues are stronger together. They are. Listen, when I arrived at Aston Villa, I couldn't believe what I found in terms of just how parlous the financials of that club and the rest of the championship were. and I personally set up a working group of 10 championship clubs to try and figure out how we could fix this issue. That's where the phrase Cliff Edge came from originally, Henry. I couldn't feel more strongly about the fact that these arrangements do need to be reset, updated, and that's why it is. Truly, it would be a new deal. But I do want our audience to understand what we've been saying in this show so far today, which is the scale of losses are so high in the championship because the revenues are so low relative to the Premier League.

28:20And because there is in fact one system, there is interconnectedness between these two leagues. Players do move between these leagues. You have talked about somebody in the championship, I can't believe it, true, but you're the guru on 90 grand a week. That's a player who's been earning maybe 140 grand a week in the Premier League, has taken some sort of relegation clause and is still earning 90, which is a multiple of average salaries in that league. You're simply demonstrating the point that these divisions are completely interconnected. And we have the worst of all possible worlds if you're a championship club because you have the inflationary effect on wages, your biggest outgoing, but the one variable that can't be controlled is the market for television rights being so wildly different between the Premier League and the Championship.

29:15Do you know the crazy thing is, if the Premier League didn't exist and we had the Championship to watch, the viewing figures would be great because the Championship is fantastic. I agree. The drama, the characters, you know, when we talk about Coventry City, it's now Frank Lampard's Coventry City. When we talk about Southampton, we look at the impact they've had there in the FA Cup, you know, what they did to Arsenal. You look at the drama down the bottom. You look at Leicester City. I mean, it is a soap opera, but it's also a great sporting contest, great sporting jeopardy. I agree. So, actually, coming back to your point.

29:52Let me pick up on that because you're absolutely right. Why isn't the TV money more? for the championship. That's the key issue. And if I can land one thing today. I'm listening. With you, because I want you to get this, because I don't think you do get it. Yes, of course you can pressurise Premier League clubs to make some sort of handout, some sort of charitable gift, have some of our money. The deal that nearly got done when I was still in the Premier League, if done, and you told me you think it's further away today than it was when I was in the Premier League, I don't know if that's true.