Costly Covid Could be Catastrophic for Football

For far too long football has flirted with financial disaster – and then along comes Covid-19 to hasten the crisis that has been looming for some time. Trust Board member and financial expert Andrew Godden gives us a stark appraisal of the fiscal and practical challenges facing clubs like Swansea City over the next few weeks and beyond…

Professional football, across the globe but particularly in the UK, is facing a crisis that will affect its very existence due to the current Covid-19 crisis. Without drastic action and significant assistance, clubs will fold and professional football, particularly in the lower leagues, will be devastated.

Some may think this is a gross over-reaction, and none of us can know for certain what the future will bring, but let’s think this through based on what we know and what is likely. My apologies in advance, but this will take a while.

In the absence of a vaccine, or some sort of cure, social distancing is here to stay for the foreseeable future. Shops and schools may reopen in some form, people may go back to work, but think about your average match day. Are you ever less than 2 metres away from someone in the pub? Or the queues into the Liberty? Getting into your seats, trying to get past people already in theirs? I daren’t mention the East Stand toilets. Even if we could answer those questions, you would need to reduce capacity. And, if you do that, who would be the ones who get to attend when season tickets account for most tickets? The only conclusion is that social distancing at a football match is impossible. As much as it pains me to say it, it’s difficult to see any of us attending a football game in the near future. Rumours that EFL clubs are already preparing for that date to be in 2021 tell us at the very least that will be many months away.

That’s even assuming players get the green light to return to training and competitive action is restarted. As we’re seeing in Germany, where a competent Government seems to be in place, it is feasible for training to resume although that will require thorough and frequent testing to take place. As those of us glued to the daily news conferences will know, this country is sadly not yet able to provide those facilities to even frontline workers at the moment. The Swansea Bay area, for reasons best known to the Welsh Government, is currently being passed over for a mass testing centre in favour of Cardiff, Newport and Carmarthen. Could the football industry procure its own testing? Possibly but just imagine the furore if Swans players were tested but key workers or the rest of us did not have the same access? It would be a PR disaster.

There is also the question of potential injuries that can happen in any contact sport. In the past ambulances have been on standby and other medical professionals. Surely any increased burden on our NHS isn’t acceptable? Many people will question whether clubs should be allowed to travel long distances for games when the rest of us cannot. Even if those hurdles are cleared, it seems logical that games could only take place behind closed doors, with a skeleton staff on hand to support the logistics of that. All of whom would need to be frequently tested and working within social distancing regulations too. Which brings us back to testing capacity.

No Crowds = No Cash

It’s important we think about all this as it helps us understand the financial impact of such decisions. I’m disclosing no state secrets here when I say that, for any club outside the top-flight, and maybe even some there, finances are always in a perilous state. I heartily recommend @swissramble on Twitter who frequently analyses the financial accounts of football clubs.

Just think about what no games being played in front of crowds, either not at all or behind closed doors, means – no ticket revenue, no bar takings, no questionable “food” items sold, no hospitality, nothing. In League 1 and 2, that is the main source of income. In the Championship too, and even for those on Year 1 or 2 of their parachute payments it’s a substantial part of income. This will be a financial shock many clubs simply cannot cope with for one or two games, let alone longer. If we look to January 2021 being a realistic date, and that may be optimistic, that’s at least half the season without any real match day revenue. Over half your income gone at a stroke. If it’s the entire season, then you’re literally living off nothing.

With that in mind, I struggle with the current focus of much of the conversation regarding football, which seems to settle on two questions, a) whether the 2019/20 season should be continued or not, and b) how clubs and players are contributing to society’s efforts to try and get us all through this crisis. These are side issues in my opinion, when we have the very existence of professional football at stake, however both have the potential to significantly impact our clubs.

Let’s Look at the 2019/20 Season First

Obviously, ideal world scenario, football could resume and, when it does, we’d play all competitions to a completion. If that could happen quickly then, even now, that’s probably still feasible. I think we all realise that isn’t going to happen anytime soon.

FIFA have stated that the 2019/20 season will be extended indefinitely and have come up with the idea that player registrations are tied to the football season rather than any calendar date and thus players will remain with their current clubs until that season is completed. A lovely idea in theory but, in the UK at least, utterly contrary to the law of the land. If a player has a contract that expires on 30th June, and lots do (especially in SA1), then that’s when their contractual duties end. You can’t legally force someone to work beyond that date. If you were a player, why would you turn up to training and risk an injury that could ruin your economic prospects for the future?

However, from a club perspective, it’s potentially a catastrophic situation too. Remember that clubs will budget for expected income and expenditure for each month and year and have contracts in place accordingly. This problem is exacerbated at some clubs, such as ours, with a decrease in parachute payments to factor in between financial years but is a factor for all clubs to varying degrees. To simply extend current contracts for a period of a few months would blow a massive hole in a club’s finances as there would be a significant increase in cost with no commensurate increase in income. That alone would be too much for some clubs to cope with.

If, somehow, the 2019/20 season resumed in July, we could have some farcical matchups between clubs at full strength versus those with scratch sides as their players were out of contract. Promotions and relegations would be largely dictated by the contractual cycles of their players. Clubs run more prudently with shorter term contracts could be unfairly penalised. The credibility of the competition would be non-existent.

This is why I would argue that, if you cannot complete the season by 30th June, and there’s little indication that is a realistic proposition, then we have no choice but to end the 2019/20 season. Furthermore, if you end it, the fairest way is simply to cancel it. Taking an arbitrary cut-off such as current league tables would be manifestly unfair on clubs who temporarily find themselves outside their target places, a position most acute for the likes of Aston Villa who are in the relegation zone but have a game in hand which, if won, would take them outside the relegation zone at the expense of Watford. What is fair to either club there, current points or points per game? Brighton have to play all the Big 4, so their league place is probably artificially inflated. Should they be relegated instead? Look at the bottom of the Championship with Hull in freefall but currently just above the relegation zone. There was no way they were staying out of the drop zone if the season had been completed.

It is very fair to point out why the above is unfair on the likes of Liverpool and Leeds (not a sentence I would normally write!) and I would agree. I have a lot of sympathy for Liverpool in particular, who have all bar mathematically won the title. The situation is far more nuanced in the Championship with no club in such a commanding position and, in Leeds’s case, not unknown to fall like Devon Loch from a promising position with the finishing line in sight. How do you address the playoff question, both in terms of who takes part and who gets promoted? When could they even take place, and do you expect all other leagues to wait until they do?

There’s no good answer here, which is why you must look for the cleanest solution both now and in the future. I hope someone cleverer than me finds the perfect answer, but I suspect we’d have heard it by now if it was out there. True, this will lead to legal cases from those who lose out. Every scenario will. We’d have our own decent case if the playoffs continued in our absence based on current league positions when we still have a decent shout of getting into the Top 6. I suspect the Premier League would rather face Leeds and WBA and other EFL clubs in court than current PL clubs which are more financially able to take a case all the way to its conclusion. There’s also the question of how long this will go on. The debate is entirely focused on ending this season…

…But What of the 2020/21 Season?

As the news out of Germany this weekend has shown, just a slight easing in restrictions will see the infection rate rise significantly, to the point where restrictions must be re-imposed. Governments, including our own, will be playing whack-a-mole with respective controls to find a sweet spot between trying to save the economy and save lives. There will be pressure on the authorities, particularly from the Premier League due to their TV contracts and cost commitments, to allow football to return in some form because if it doesn’t the economic impact would be seismic. We should anticipate significant disruption over the coming months, even years, just like every other industry.

This is why I can’t get past the conclusion that the football industry needs to wake up to its relevance and all parties, including fans, focus on what is important. Juergen Klopp came up with a quite beautiful line about football being the most important of the least important things. He is right. The credibility of the competition comes a distant second behind the continued existence of football clubs, which comes a distant second behind the health and well-being of us and our loved ones. Clubs who sue are unlikely to garner much public sympathy, probably quite the opposite. The focus of the discussion needs to be about how we protect lives and clubs, not about league positions.

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It is within this landscape that the club’s cost base comes into focus, primarily the high earners such as the playing staff and the senior leadership. As you will know, the Swans, like most others in the EFL, took the decision to utilise the Government furlough scheme to place many members of staff, particularly those involved in match day activities, on paid leave for the coming months. As the Government scheme only covers 80% of wages, the club’s decision to top up those wages to 100% to ensure those staff are still paid in full is to be commended. Not all clubs are doing that.

However, there is increasing disquiet across the footballing community about football clubs taking advantage of this Government scheme, using taxpayers (i.e. our) money, without first trying to get its own house in order. The question is simple and stark – should taxpayers be funding the furlough of club staff just so those clubs can continue to pay tens of thousands a week to certain footballers? The likes of Spurs and Liverpool have received a lot of criticism for taking advantage of the furlough scheme, to the point where both have reversed their decision to do so.

You Can Pay Me…Later…

With that in mind, there has been increased pressure on players and club executives to help alleviate the financial impact of the current crisis so that clubs do not need to make use of that last resort of Government assistance. We have seen several clubs, such as the Swans, agree a short-term deferral of a proportion of player and executive salaries. These are fine gestures, but let’s remember what deferral means – it is simply a promise to pay something later. In the short term they can help from a cash flow perspective. In the long term, they solve little. It’s kicking the can down the road, to a time when the tab is unlikely to be able to be paid.

For Premier League clubs, this is probably a more nuanced debate. They are clubs generally far better placed to cope financially with this crisis, so there is less need for highly paid staff to take pay cuts to help the club owners out. The approach of Premier League players to give a proportion of their salaries to worthy causes such as NHS charities would seem to be more morally appropriate than giving a rebate to their billionaire owners. On that note I have to say I found the scapegoating of footballers by certain politicians and media outlets quite distasteful. I don’t see the same people attacking bankers and hedge fund managers with the same vitriol.

The question is different at the lower levels where finances were already stretched to the limit and a major financial shock has the potential to affect the very existence of the football club. Remember what the realities are likely to be, no match day income between now and 2021, at best. In this scenario it is critical that clubs reduce their cost base to more closely reflect their income. As wages are the biggest part of that, reducing the amounts paid to players and management becomes a fundamental part of that.

This may seem unfair on a personal level. Who amongst us would want to take a pay cut? Who would voluntarily do so? Not many, I’d wager, and certainly not all of us who would be calling for others to do it. Being a footballer is a well-paid career but it’s not the longest or most secure. They’re not as wealthy as most club owners. It’s easy to get blinded by the headline figures and many are paid well beyond our dreams, but many are not and most will have mortgages and bills to pay. Many will be the sole breadwinners for their close, and even extended, family. This could hit them and their families hard, particularly in the lower leagues.

Cloth Cutting

As a Swans fan we’re better placed than many others to know that a club that isn’t run in a financially competent manner will find itself in all sorts of difficulties very quickly. Anyone expecting football club owners to dip into their pockets and produce millions of pounds to bankroll things during this crisis is, with one or two exceptions, living in cloud cuckoo land. It won’t happen, at least not to the extent that it is needed without other measures. In many cases they simply wouldn’t have the capacity to. FFP limits such things anyway, although I expect those rules to be relaxed or suspended in the short term. As such, clubs need to cut their cloth accordingly.

It is worth noting that leaders in other industries are grasping this. Even businesses with strong balance sheets like BA are laying off large chunks of their staff and cutting their cloth accordingly. Areas of the business are being mothballed to a time when they can be used. There is a general acceptance amongst the business community that businesses taking public money should reflect that in a cut in executive salaries. This is based on strong shareholder and public sentiment, and what industry relies more on public sentiment than the football industry?

Unfortunately, as we are seeing with the likes of Gordon Taylor at the PFA and various press articles by football agents, there is significant resistance to any reduction in wage bills. Any reduction in wages would need the agreement of these parties. Unlike the days of Jimmy Hill, football contracts are relatively well protected, particularly through the football creditor rule enshrined in FA rules that means that, even if a club is in administration, it can only exit if it comes to a voluntary arrangement with its players. Even if a club is sold, the new owner would have to honour those debts. This rule is unsustainable at times such as these and clubs will fold because of it.

As I say, I have great sympathy with the players here. They aren’t the only ones earning large salaries at football clubs, and the same need to reduce salaries will equally apply to management teams and executive leadership. Club owners needs to act too. This needs to be a collaborative approach. However, and this is the key point, all parties need to work together otherwise football clubs will simply not be able to cope, and then all parties lose out. Hopefully the open book approach of the EFL, and the PFA working with the audit firm Deloitte to view club accounts to see what action is necessary, is a good first step towards a more collaborative approach.

If clubs can’t save themselves, could someone else do so? Could the Government? We are seeing the Government offering loans to various industries, which may well be part of the solution, although saddling clubs with large levels of debt is likely to be impractical for many clubs in the medium term let alone the long term, who simply would be unable to service those debts. One solution that gets a fair bit of airtime is the idea of the Premier League providing financial support, possibly leveraging future TV revenues to support the lower leagues. This would be a very helpful move but, in an industry where self-interest is endemic, I really struggle to see that happening.

The Premier League will not do anything that would risk its competitive edge, plus I suspect there will be many clubs in the top-flight that would enjoy pulling up the drawbridge and leave the EFL to their own devices.

Broken Hearts or Broken Habits?

I have been struck by the number of comments online from people that are starting to question their attachment to their football clubs, partly due to realising they’re not missing things as much as they expected, but partly due to disappointment with the way that they are acting during this crisis. That is a massive shame. Swansea City Football club has played a major part in many of the best times of my life. It is part of the family. It is also tragic to hear when we see the good stuff that some clubs are doing. Locally we have seen the Swans do a lot of good work, such as providing meals to the homeless and those in need as well as making their facilities available to the NHS. I really can’t speak highly enough about the Swansea City Community Trust. Helen Elton and her team are, quite frankly, doing incredible work, and it’s a shame they don’t get the help or publicity they deserve (a situation not helped by the fans view of the chair of their board of trustees). This isn’t a new feeling, but the short-termism and self-interest of those involved with the football industry is likely to have a long-term impact on the positive activities associated with football clubs, and that is a damn shame.

The reality of the current crisis is clear. Football economics were already built on sand, but in the main there were enough wealthy fans/speculators/mugs (delete as appropriate) to fill the financial deficit and take a punt. Those deficits will now be astronomical, even at L1/2 level. The very idea of football clubs being self-sufficient while their main source of income goes away is fanciful. Many clubs were already only keeping their heads above water due to the largesse of their owners, a scenario that invariably sees chickens coming home to roost once they lose interest or run out of money and, make no mistake, the football industry is about to find money extremely hard to come by. Others were already relying on selling promising players to the cash rich Premier League or reckless Championship clubs. That market is going to be a lot tougher and less lucrative in the future.

The implications for EFL clubs, such as ours, are clear. Clubs will fold, even relatively well-run ones, without significant financial support or, most likely, if they are unable to match their costs to their revenues. Probably it will require both. There is a real argument for mothballing professional football in the lower leagues until crowds can attend matches but, given the football creditor rules, that’s possibly not feasible without changes in the regulations and the extension of the Government furlough scheme. Is there the will to do that? Doubtful, but clubs can’t survive without income. Playing behind closed doors might, just might, be financially feasible in the Championship (I have my doubts) but there is no way it is feasible in League 1 and 2. Looking beyond this crisis, we’re way past the point where salary caps, and stronger financial rules, need to be applied. The football creditor rule needs to be ditched in the event of administration, but penalties for exiting administration should be much tougher when down to mismanagement. We need a broader discussion about the inequality of revenues between the PL and the EFL, which is why so many Championship clubs are running at a deficit and why there is increasing inequality within the EFL itself. Football clubs have been given the chance to self-police and get their collective houses in order. They have spectacularly failed to do so. They need to be saved from themselves. They are important community assets that have an impact on the lives of all of us. I do worry that, by failing to act responsibly and putting self-interest first, they are losing that key place within the community.

Either way, if all parties don’t react to the financial realities of this crisis, many of them won’t be around in their current forms anyway.