In this episode of the University of Liverpool Podcast Kieran Maguire, a Senior Teacher in Accountancy at the University of Liverpool and a football finance expert, discusses the controversial issue of football finance in the UK.
He considers the city of Liverpool's plan to underwrite Everton Football Club’s new stadium and asks: how much risk is too much risk?
When it comes to sport, they say winning isn’t everything, and it’s the taking part that counts. But when the sport in question is English football’s Premier League, where global multi-million dollar brands like Manchester United, Chelsea, Arsenal, Tottenham Hotspur, Liverpool and Manchester City battle for the title, not winning could be the difference between incredible wealth – or financial ruin.
Each year, three football clubs out of 20 are relegated from the Premier League to the league below, the Championship. Relegation is not just a disappointment for fans, it means a huge reduction in income for the club. In the Premier League, average income from television rights is £100m per club. In the Championship, it is just £5m.
And for a significant number of Premier League clubs, television income accounts for most of their turnover.
In those circumstances, how accurately can you assess the creditworthiness of a mid-table club? Liverpool’s ‘other’ club, Everton, for example, want to borrow £300m to fund a new stadium in the city.
As an asset, the stadium will be used 20 or 25 days per year. Over the last 10 years, Everton’s operating loss is well over £100m. And they are only ever a few injuries and a string of bad results away from relegation into the Championship.
Kieran says: “What Everton has in its favour is that it’s not been relegated since the Premier League was started in 1992. And before that, Everton was a successful team in the old English First Division.
“But then, you could perhaps argue that the likes of Aston Villa and Newcastle have also – historically – been successful teams. Both of those teams were relegated to the Championship in 2016. Newcastle have been promoted back up again, but Aston Villa – despite spending huge amounts of money – failed in the Championship and finished mid-table.”
All of which means at least another year of vastly reduced TV income and unexpected financial pressure – making it ever hard to climb back into the top tier, and back into the big time financially.
No ‘normal’ business would base its operating model on such risky foundations, but for Premier League football teams, taking substantial financial risks might be the only way to succeed.
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