Robin Sainty: Boom or bust - time for a proper pyramid scheme
PUBLISHED: 16:37 29 May 2020
This week’s stark warning from Huddersfield Town owner Phil Hodgkinson that up to 60 lower league clubs could go out of business unless the football establishment starts to look beyond the current obsession with finishing the current season and plans effectively for change in the longer term is worrying.
About a month ago I referenced the excellent John Nicholson of Football 365, one of life’s natural iconoclasts, who called for a radical overhaul of professional football’s framework and gave a very similar warning: “With the rising possibility of no football being played in front of crowds for over a year now being far from unlikely, the large-scale destruction of football infrastructure and ecology seems inevitable, with mass lay-offs and many clubs going bust.”
As a result of the pandemic, football in this country is currently in a complete muddle. The National League abandoned their season some time ago, but clubs are currently in suspense as to what is going to happen about promotion as League Two have also decided not to complete the season, but its clubs have yet to agree on how promotion and relegation will be dealt with.
Meanwhile, the League One clubs are split over whether or not to continue, while the Championship clubs are reportedly keen to complete the season and the Premier League has moved to phase two of the stepped training protocols, which will allow full contact and a restart of games on June 17.
Clearly we are going to end up with some sort of variation on points per game in the leagues which don’t finish the season and that could well be the tip of a very big iceberg that could result in legal challenges that will only serve to distract from the need for an effective long-term plan.
At the top end of League One, Darragh MacAnthony, the owner of Peterborough United, has already called for legal action against anyone blocking the completion of the season and removing his club’s chance to win promotion, while Phil Wallace, the chairman of Stevenage Town who are faced with relegation from League Two, is equally exasperated at the thought that his side could be relegated without being able to play, saying: “It would beggar belief if we sleepwalk into this ridiculous scenario where a club is relegated because of a mathematical formula.”
As important as these issues are, they are relatively short-term considerations when the real issue that has to be addressed, particularly in the top two levels, is the way in which money is distributed within the pyramid.
The Premier League clubs are currently faced with a huge rebate to the broadcasters, hence the rush to get games played even while players are testing positive for COVID-19, while those with a chance of promotion from the Championship are desperate to win their places at the top table, and get their noses into the trough of TV rights money.
The problem is that if nothing changes when we get back to ‘normal’, whatever that proves to be, nothing will have been learnt from this crisis. All that will happen is that the gravy train is restarted with more and more money concentrated at the top of the game while the clubs lower down continue to scrape by.
Earlier this month, the Guardian reported that of the £400m a year that the Premier League transfers to the EFL each year, £260m goes to just nine clubs (those relegated in the previous three seasons) in the form of parachute payments, something that Rick Parry, chairman of the EFL, has described as “an evil which needs to be eradicated”.
The remaining Championship clubs receive £4.5m each, those in League One receive £675,000 while those in League Two get £450,000.
Parry wants a more even distribution, and while he has a valid point, it’s not that simple in practice. Parachute payments are designed to ease the financial shock of the huge loss of income suffered by a relegated club as a result of no longer being party to the Premier League’s TV rights deal and to help the transition to lower player costs. Take them away and, just as Parry feels that the current system gives relegated clubs an unfair advantage, you create a situation where they are actually put at a significant disadvantage.
Clearly any change would have to be gradual, but if parachute payments are to be phased out then action also has to be taken to stop Championship clubs attempting to buy promotion and endangering their existence in the process.
Deloitte’s analysis of Championship club finances for the 2017/18 season, released just before Christmas, showed amongst other things that overall spending on player and staff wages exceeded revenue by 11pc across the league, with more than half the clubs spending more on wages than they made in income.
I have no issue with players earning big money, but unless clubs are encouraged (or forced) to build up capital reserves rather than spending every penny and more on transfers, players’ wages and agents fees, the policy of fiscal brinksmanship that has brought so many clubs to the cliff edge in this crisis will just continue.
According to Deloitte, only five Championship clubs (including Norwich City) made a pre-tax profit in that season, while title winners Wolves made an eye-watering loss of £57.2m. This is clearly madness and would result in business collapse in any other industry, but of course promotion can make it all worthwhile while failure to achieve it can mean administration.
Former Wigan chairman David Sharpe feels that this gambling approach can’t continue much longer: “The Championship is not financially sustainable, it’s a bubble waiting to burst.
“It can’t continue if the model is just having enough billionaire owners to keep funding it – that’s a strange, crazy model because there are only so many people you can attract.”
However, the central problem is that year on year the Premier League has grown richer while passing relatively little down the pyramid and so the temptation for Championship clubs to bet everything on promotion has increased.
Even if the system survives the current crisis, it surely can’t avoid either radical reform or the big clubs finally splitting off to an even more money-drenched European Super League and leaving the rest to compete in a system that isn’t hopelessly skewed against the more frugal clubs.
I’ll leave the last word to Nicholson: “The Premier League curtain has been pulled back and has revealed a Bruegel painting of hell, only with everyone dressed in gambling company-sponsored sportswear.”