Blame it on the COVID - Part One

And so - the 2020-21 Premier League season has finally come to an end. Manchester City won yet another title; Manchester United, Chelsea and Liverpool claimed the remaining three Champions League places; and two of the recently promoted sides are headed straight back down to the Championship. Yet, to describe this as a ‘normal’ domestic campaign couldn’t be further from the truth – since no one was in the stands to witness it.

Instead of purchasing a ticket, a scarf and a drink - all you needed was a remote, a TV and a Sky subscription. With this, club owners and directors have begun to understand the value of fans as it has been their pocket, not ours, which has finally started to feel a little lighter.

With the end of the season comes the conclusion of each club’s financial year, which will allow us to assess the damage that the COVID-19 pandemic has brought on each club’s piggy bank. As mere members of the public, it may take up to 9 months (the typical reporting deadline for accounts submission) to see the data, but we did manage to get a glimpse of what to expect after the 2019-20 year-end accounts were released for each club not too long ago – and it suggested a bleak position.

And so, with Financial Controllers up and down the country continuing to utilise “creative accounting” methods as a means to superficially reduce the overall damage on the face of their annual reports, I will be analysing the 2019/20 statements released by each top flight club – assessing the damage of the pandemic on revenues and profits, as well as making predictions of what to expect for the 2020-21 edition.

Loss of Matchday Revenue

Rewind to March 2020 - the outbreak of the COVID-19 virus in the UK led to the Premier League season being halted for the first time in its history. The return of the sport a few months later in June, was highly anticipated - and since then it’s felt like there has barely been a day without it. The remaining fixtures of the 2019/20 season were played in empty stadiums, with the pandemic forcing millions to follow their favourite teams behind a television screen.

Having been paused after game-week 30, each side were still left with between 3 to 5 home matches before the end of the season. With no fans allowed in the stadiums, one of three key sources of income for majority of clubs was removed: matchday revenue. No longer could these clubs rely on match-goers (particularly those coming from abroad) to not only pay the absurd ticket prices, but also spend hundreds of pounds in their stores to mark the occasion of their visit.

To understand the impact this had on matchday revenue, it is important to first establish a benchmark to measure the season against. Taking a look at the 2018/19 seasons’ annual reports, we note that from the 380 home fixtures that took place, a total matchday revenue of £677 million was recorded by the twenty Premier League clubs - equivalent to £1.78 million per match.

By contrast, from the 288 home matches that had taken place with full-capacity stadiums in 2019/20, a total revenue of £603 million* was recorded. Had this trajectory continued on, the twenty clubs were on course to pocket £764 million by the end of the season – meaning the closure of stadiums led to an estimated loss of £161 million in revenue.

Who is most affected?

If we analyse matchday revenue as a percentage of their total revenue in Figure 1 (see below), it appears that Arsenal, Tottenham Hotspur and Manchester United were most affected by the closure of stadiums to fans. No real surprises there then, considering the astronomical prices that Arsenal and Tottenham charge with their new stadiums and the fact that Manchester United have the largest stadium in the country. Liverpool and Chelsea are next in this list, further illustrating the spending power (or revenue attributable to) of international fans - with them being far more likely to purchase premium seating and club merchandise than your typical match-goer.

With capacities of 11,000, 20,000 and 24,000 respectively, it will also be no surprise that Bournemouth, Burnley and Huddersfield Town appear to be three of the least affected clubs by this loss in revenue. Rather than gate receipts, clubs of this size tend to rely more heavily on broadcasting revenue – with this component making up over 80% of their yearly earnings.

(Figure 1: A comparison of matchday revenue as a percentage of each club's total revenue in the 2018/19 Premier League season)

*I should caveat that this figure of £603 million is an estimate as the 2019/20 results have not yet been published for Crystal Palace, Newcastle United and Watford. The estimate has been based on the 2018/19 figures, pro-rated for the total number of home games played by the start of the pandemic.

Further drops in Broadcasting and Commercial Revenue

The 2019/20 accounts across the board also demonstrated a year-on-year decrease in broadcasting revenue, but this was primarily due to timing differences in accounting year ends. As football clubs choose to adopt a year-end that corresponds with the end of the playing season (typically May/June), the football restart in late June/July of last year meant that much of the broadcasting revenue could not be recognised in the 2019/20 accounts, and has therefore been deferred into the following year.

Revenues were also impacted by rebates being given back to domestic and international broadcasters, with a total of £330 million being recognised by the twenty Premier League clubs.

The closure of non-matchday activities, reduced sponsorship activities as well as a decrease in pre-season revenue has also undoubtedly led to a drop in commercial revenues, albeit far less than that of the broadcasting and matchday revenues.

Record losses

With revenue reductions as significant as these, it is no surprise that a hefty net loss of £867 million was recorded by the 17 clubs who have already released their financial accounts. Everton (with two of their priciest transfers pictured to the right), Manchester City and Aston Villa were the largest contributors to this balance.

Widely regarded as one of the most well-run clubs in England, Burnley somehow still managed to post a profit without sacrificing their final league position; Chelsea also managed to escape this slippery slope, largely owing to the profits recorded from Eden Hazard’s departure to Real Madrid as well as their temporary ban in the transfer market.

(Figure 2: A comparison of each club's reported total profit/loss in the 2019/20 Premier League season)

Limiting the damage

Clubs have attempted to reduce this loss in a number of ways. Newcastle United, Norwich City, Tottenham Hotspur and Liverpool outrageously made use of the Government’s job retention scheme for their non-playing staff, with the latter two only revoking their decision following severe scrutiny in the media. Shamefully but perhaps unsurprisingly - Mike Ashley did not flinch to this scrutiny, happily allowing his clubs to continue squeezing public funds.

Tottenham’s management decided to take out a loan of £175 million from the Bank of England at a rate of 0.5%, out of desperation for cash in order to meet payment instalments due for their new stadium. Their actions were then copied by North London rivals Arsenal, who took out a loan on similar terms of £120 million this January.

Arsenal also pioneered a reduction in wage bills, with their first team players (for the most part) and coaching staff agreeing to a 12.5% wage cut to their salaries. Many other clubs in the league later followed suit, albeit to a smaller scale – with perhaps only their board of directors, and/or some members of the coaching staff taking pay cuts.

The proposals for Project Big Picture and the European Super League were also put forward by the ‘Big 6’ clubs in pursuit of greater revenues, but this effort was rightfully stopped very early on – again, thanks to intense public scrutiny.

What to expect in the 2020/21 annual reports

Aside from a brief period towards the end of 2020 (when certain clubs were allowed spectators depending on which lockdown tier they were placed in geographically) and all the final home league matches of the season, the 2020/21 campaign was completed without a single spectator in sight. Whilst certain expenses were spared (think security, stewards, catering etc.), the overall effects on the final profit figure is expected to be damning. Total losses will break the £1 billion mark – and then some. Recognition of broadcasting revenue that was deferred from the previous season may offset some of the lost revenue, but not significantly.

Ultimately, whilst the effects of COVID-19 on the finances of Premier League clubs is damaging, it will not impact their ability to continue as a going concern. They have the resources and the necessary revenue streams to deal with it. The new broadcasting deal alone, which has been agreed on the same terms as the previous, will distribute enough revenue to tide these clubs along.

It is amongst the lower divisions of English football where the damage lies, where years of financial mismanagement in a bid to make it to the big time had already left many clubs on the brink of liquidation - only for the pandemic to come in and push it over the edge. There, the risks lie in the livelihood of the everyday workers, working for both the club and in the community - and is something I will explore further in part 2 of this article…