Football finance expert on Leeds United and Birmingham City wage deferral, Championship cash flow and sustainability

Proposed wage deferrals for high earners at Leeds United and many other Championship clubs does not necessarily mean they are already in dire straights with cash flow according to a football finance expert.
Leeds United have already missed two home games at Elland Road due to the coronavirus pandemic (Pic: Tony Johnson)Leeds United have already missed two home games at Elland Road due to the coronavirus pandemic (Pic: Tony Johnson)
Leeds United have already missed two home games at Elland Road due to the coronavirus pandemic (Pic: Tony Johnson)

The Leeds squad is one of many in English football considering a wage deferral to help financially safeguard their club during the EFL’s suspension, due to the coronavirus pandemic.

Talks are on-going between the club’s senior management and the playing staff, some of whom would be affected by a proposed deferral for those earning above a certain amount.

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It was first mooted in a briefing with chief executive Angus Kinnear and director of football Victor Orta and the players are thought to be receptive.

Some could see their weekly wage packet slashed drastically, but their salary would be paid in full at a later date.

Agents have told the YEP that while they would seek legal advice as a matter of course to ensure their players at various clubs, including Leeds, were fully protected under the proposals, players are willing to co-operate and fully understand the circumstances clubs are facing.

Some of Birmingham City’s players have reportedly agreed to take a 50 per cent deferral to ensure non-playing staff continue to be paid in full and the Professional Footballers’ Association have requested urgent talks with the EFL and Premier League to discuss the impact on players.

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Leeds have missed two home games of five that were due to take place before 2nd May and owner Andrea Radrizzani has revealed it will cost the club around £2.5m in matchday revenue.

But proposing to defer wages may not be an indication that clubs are already experiencing cashflow problems, says University Campus of Football Business (UCFB) finance academic and former co-author of the Deloitte Annual Review of Football Finance Chris Winn.

He says it may simply be forward planning, based on projected losses from the absence of games.

“You expect they’re being pragmatic,” he said.

“All the clubs appreciate that whatever happens there are not going to be games before the end of April and depending on the playing schedule up to four or five home games will be missed.

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“At this stage you would imagine they’re simply looking forward and if they’re forecasting to lose £2.5m just from the lack of general admission matchday income, concessions and catering from those games, and given the loss-making status of many Championship clubs, not just Leeds, then they are anticipating there is going to be a cash shortfall.

“It has to be funded somehow.

“Making that request at this stage might not be symptomatic of what they’re experiencing right here, right now, but that they’re looking forward to what that cashflow is going to look like in a month’s time.

"They're not helped in essence that in the normal reality with football every week and no coronavirus, you've still got, going from the 17/18 accounts, a general wage-to-revenue ratio of around 106 per cent for Championship clubs on average. I think over half of them were over 100 per cent, with some as high as 170, 180 per cent of their revenue which is clearly not sustainable. Then put coronavirus on top of it and they're losing matchday income, which in the Championship can be large proportions of income, sometimes 25, 30 per cent.

"Looking at Leeds' 17/18 numbers 41 per cent of their revenue was matchdays. A proportion of that, I'm estimating about 25 per cent would be season tickets and money up front. But the rest is what they're missing out on week by week.

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"While you already have clubs on the precipice of financial instability, you do wonder what this will be doing to those clubs on a day to day basis at the moment.

"Barnet have laid off their entire non-playing staff in the short term, you've got wage deferral requests coming out of Leeds and Birmingham. Big clubs and smaller clubs are having to make sacrifices to make ends meet in the absence of matchday revenues. "

The EFL have come up with a £50m relief package to help clubs during the suspension. But Winn says that may only stretch so far.

"The message the EFL was getting from the clubs was that there would be a £50m shortfall if we had no more games through to the end of April," he said.

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"They've acted upon that with amounts according to clubs being in the Championship, League One or League Two. If we get to the end of April and we're in the same boat or behind closed doors, that lack of matchday cash is going to extend.

"The government will be helping in one respect with the relief fund up to 80 per cent for wages of staff in companies that can't afford to keep paying them without making them redundant.

"That could swing into play. Some clubs are hoping to rely on that, Forest Green being one.

"It remains to be seen how much further we go. We've got to restart when it's safe to do so and if that's behind closed doors then that's the way it's got to go. Ideally you'd hope fans can return to stadia because they're the bread and butter if football but it they can't, income is going to dwindle further.

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"If we get to a point where the league can't restart then all that season ticket income that clubs have banked but fans have not actually used for this last set of games, they'll be due a refund I imagine which will add further to that cash outflow situation."

Winn says that while the pandemic was not something anyone in football could have foreseen, it may present a chance to address the sustainability of clubs.

"What it could lead to and I've seen [EFL chief] Rick Parry mention this, is the opportunity for clubs to take a step back when we are upright again, and look at the business models in the Championship - are they sustainable with so many losses, are the revenue mechanisms in terms of amounts being distributed by the Premier League further down the pyramid sufficient? A situation like this provides a lot of context and rationale to look at those situations, when they weren't sustainable in the first place.

"Is there something to be done going forward that can safeguard clubs?"

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Leeds, whose accounts are due to be published next week, had a weekly cost base of wages plus operating costs of approximately £1m according to the 2017/18 accounts.

But Winn expects their costs to have risen significantly.

“Given [head coach] Marcelo Bielsa coming in from 18/19 onwards – the accounts of which should be out in about a week or so – I would expect that wage base to rise much further, based on his cost and the players they’ve brought in,” he said.

“You could see that operating expense base go well past that £1m a week mark which would add credence to the £8m to £10m losses quoted [by Radrizzani].

“It will be interesting to see how the revenue [for 18/19] compares to their wage base now, which with Bielsa I imagine would have significantly increased as well.”

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