Premier League Promotion Raises Financial Quandaries

Posted By Peter Taberner on October 18, 2019 - Last Updated on February 21, 2020

Promotion to the Premier League usually fills wide-eyed players and supporters with excitement at the thought of facing the biggest names in English football. However, it also comes at a cost. Competing in the top flight can become a financial minefield.

Analysis conducted by the Deloitte Sports Business Group revealed before the Aston Villa and Derby County playoff final last season, that the winner would benefit from an additional £170 million of revenue.

If the promoted club was to survive the first season, the increase in financial muscle could reach £300 million over a five year period.

It’s a huge injection of cash that mostly arrives from broadcasting and commercial revenue generated from playing in the Premier League.

In the ten seasons including 2018/19, a total of 19 clubs out of 30 avoided relegation from the Premier League in the first season.

The 2017/18 season was the first time in six season where all three promoted clubs (Newcastle, Brighton and Huddersfield) eschewed the drop.

Aston Villa Show Financial Power

Of this season’s new Premier League pupils, Aston Villa have displayed the most financial might.

Recently, Villa’s owners Nassef Sawaris and Wes Edens who are reportedly billionaires, have injected £57 million into the club via a share issue.

Since they took control from the previous owner Tony Xia, the duo are thought to have invested over £250 million into the 1982 European Champions.

It’s a level of affluence which has been reflected by manager Dean Smith’s spending over the summer transfer window.

Villa’s transfer outlay climbed to £133.7 million. This come from paying £22.5 million for striker Wesley from Club Brugge and £20 million for central defender Tyrone Mings from Bournemouth.

In return they received little or no proceeds from player sales.

The two other clubs who achieved automatic promotion from the Premier League last season have spent a relative pittance. Norwich City highest transfer paid in the summer was a £2.7 million loan fee for goalkeeper Ralf Fahrmann. The Canaries have only spent £3.75 million overall. Sheffield United have been less parsimonious, with an outlay of just under £43 million, signing forward Oliver McBurnie from Swansea for £17 million.

Money Does Not Always Buy Success

Yet the wealth of clubs and significant investment in the squad can be a risky strategy if the judgement calls are wrong on players, and does not guarantee safety from relegation.

In recent times we have seen how spending a considerable amount of money can result in very opposite fortunes.

Look at Wolves, who are backed by Chinese conglomerate Fosun International. They proceeded on a spending spree which totaled £101 million after promotion. Jonny Otto was the expensive expensive acquisition, bought at just under £18.5 million from Atletico Madrid. Wily Boly has represented great value after his £11 million move from Porto. The Molineux club also pulled off a huge coup with the signing of Joao Moutinho for a bargain £5 million.

In the summer, Wolves backed that spending with a further outlay of £86 million, including the £34 million acquisition of Raul Jimenez.

Yet Fulham showed last season how that money isn’t everything.

Despite an ambitious outlay, their season turned into an unmitigated disaster. The west Londoners splashed out just under £105 million, and assembled what was viewed at the time as an aspiring and competitive squad. Jean Micheal Seri was bought from Nice for £27 million, a player who was once thought to have been courted by Barcelona.

Also arriving to Craven Cottage was Andre Zambo Anguissa for £22 million from Marseille, and there was the signing of Alfie Mawson for £15 million in what was deemed a solid and progressive buy. A loan fee was also paid for German International Andre Schurrle in another bold transfer market move.

Fulham finished in 19th place accumulating just 26 points. They employed three managers throughout the campaign, including the appointment of Claudio Ranieri which lasted just 106 days.

Mawson missed five months of the season through a freak injury, and Seri is now on loan to Galatasaray.

Bournemouth on the other hand have taken a different path since their promotion to the Premier League in the 2014/15 season. In their inaugural season in the top flight, they spent just over £49.5 million, and allowing for transfer inflation that was a tidy sum.

Yet since then they have remained in the Premier League through spending less, £36.6 million for the 2016/7 season, and £31 million for the following year.

The Cherries bought four more players this close season alongside loan deals totalling a relatively thrifty £50.8 million, and currently sit a comfortable tenth in the table.

Second Season Strains on Premier League clubs

Kieran Maguire of the University of Liverpool Management School is an expert in sports finance. He said: “There is a strong correlation between investment and a club’s performance in the Premier League, due to a combination of paying higher wages and transfers.”

“This doesn’t always work as we saw with Fulham last season, although what tends to happen is that if you have more money to spend, you can afford to make more mistakes.”

“We also saw that Cardiff went down last season without spending that much, it’s a very challenging league to survive in.”

He continued: “I think that there is such a thing as a second season syndrome in the Premier League.”

“If you ask chief executives they say that once a club get promoted they tend to start on the front foot, and players are very keen to prove themselves in the Premier League. Its not something that can last forever, and that can manifest in itself in the second season in the top flight.”

“What also tends to happen is that the wage bills go up in that second season. Once players have proved themselves in the Premier League, they will then go back to the chief executives, and say we helped you stay in that league, we want a pay rise.”

Premier League and Championship Financial Disparity Clear

In Deloitte’s annual review of football finance for this year, the total revenues of Premier League clubs reached £4.8 billion in 2017/18, boosted by shirt sleeve sponsorship.

For this season the total income is projected to climb to £5.24 billion, with the average club turnover to increase by £20 million to £261 million (compared with two years ago).

A more telling statistic is that for Championship clubs with a parachute payment after relegation from the Premier League, revenues were an average £51 million for 2017/18, which dropped to £21 million for those without the payment.

According to the Premier League rule book, every club in the league is entitled to an equal share of the revenue created through the broadcasting rights, and one share each of income from overseas television rights.

The parachute payments were implemented to ensure that relegated clubs could adjust their finances to the realities of no longer receiving the advantageous Premier League returns.

In the first season after relegation, a relegated club can receive 55% of the total Premier League earnings.

That falls to 45% in the second season after relegation, and 20% after the third season.

If a club fails to avoid the drop in its first season in the top flight, then they would not be entitled to receive the third season after relegation 20% payment.

Champions Manchester City accumulated a little under £151 million from the Premier League last season, and received the most in merit payments and facility fees for finishing above the rest.

While Huddersfield, despite propping up the other 19 teams in the league, still managed to collect £98 million.

It begs the question what needs to be done to ensure that there is a competitive balance financially, between the clubs that enter into the Premier League from the Championship.

And between clubs in the Premier League and the Championship as a whole.

Kieran Maguire continued: “While I think there are merits in the more equitable redistribution of money it will never happen. The Premier League is an independent body, and it’s a members only club.”

“The members of that club are fully aware that global appeal comes from viewers wanting to watch Manchester United, Liverpool, Chelsea and Arsenal and not much more. There is not so much interest in Crystal Palace, Bournemouth and Watford.”

“Therefore they do not feel as though they should share that money too any greater extent than they do presently, such as with clubs in the Championship and the lower leagues.”

“The bottom placed club in the Premier League received £98 million last season from broadcasting income, compared to some clubs in the Championship who received £7 or £8 million, unless a club received a parachute payment. And there are further gaps between clubs in the Championship and League One.”

“There is no will from the Premier League clubs to share this money out to clubs who they are not deserving of it, because they feel its their clubs who create that demand.”

“And they have said to the English Football League, you are free to negotiate your own TV deals domestically and overseas, and if you are as popular as you claim to be, you can sell them for the appropriate sums.”

In reality, the gap between the Premier League and the rest is only likely to widen as long as the broadcasting contracts remain lucrative.

A situation which presents newly promoted clubs the dilemma on whether to roll the dice on continuing to open the chequebook or not.

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