FINANCIAL FOOTBALL NEWS

2018 was another unpredictable season in the Championship with Wolves’ mega spending seeing them clinch promotion and the title. However, Cardiff were the surprise package, sealing the other automatic promotion spot while Fulham won the play-offs.

At the bottom of the table it was misery for Sunderland who were condemned to back-to-back relegations alongside Barnsley and Burton to League One.

However, this article is about finances, and more specifically wages and which clubs are teetering on financial ruin (most of them) and which clubs are being financially sensible (hardly any).

The 2017/18 season saw record levels of wages as the year on year growth in player salaries continued due to lure of the riches of the Premier League which saw financially gambling at large by owners.

Wages increased from an already high £693m to £748m, an 8% increase and the equivalent of an extra £1.1m a week in wages.

This is even more outstanding in context, Championship clubs’ combined revenue was only £701m, meaning clubs as a whole were losing money after just paying wages, not taking into account all other expenses a club faces, showing the huge financial issues clubs are facing in trying to compete.

The average wage bill of a Championship club is £34m (or £654k a week), ranging from £10m to £73m, showing the vast difference financially between many of the clubs, partly due to those clubs relegated.

This average increases to £54m across the top 6, showcasing that high wages do in fact correlate to some degree to position, although it is worth noting that at the bottom, the average falls to £28m (excl. Bolton), which isn’t far below the average of the whole league, showing that wages do not really decide much outside those at the top in terms of final league position.

Please note that Bolton are yet to release their finances due to their ongoing financial troubles while Sheffield Wednesday have so far yet to file their accounts which are long overdue.

The Big Spenders

The big wage spender was Aston Villa in 2018, with their much publicised near financial destruction caused largely by spending a huge £73m on wages, this was partly helped by bringing in £69m (due to parachute payments).

Outside of this, Fulham (£54m), Norwich (£54m) and Wolves (£51m) all spent in excess of £50m on wages as Fulham and Wolves successfully secured promotion by big spending, although it is worth noting that these wages include significant promotion bonuses which wouldn’t have been payable without promotion.

Norwich’s wages were surprisingly high (after failing to reduce wages further following relegation two years ago) as they unsuccessfully gunned for a return to the Premier League, although they did manage it in 2019.

Modest Means

The less fortunate of the Championship teams this year were Burton (£10m), Barnsley (£11m), Millwall (£13m), Preston (£15m), Brentford (£17m), Ipswich (£19m) and Sheffield United (£19m) who all spent less than £20m on wages.

Unsurprisingly, Sheffield United and Millwall are near the bottom having both been promoted from League One the previous season and top half finishes for both far exceeded their modest budgets.

Barnsley and Burton were unsurprisingly relegated with their meagre budgets, doing well to survive in the prior season, with wages way below the average in the Championship.

Brentford, Preston and Ipswich all massively exceeded expectations on their budgets by securing top half finishes with Preston missing out on the play-offs by 2 points to a Derby County side who spent over triple their wages (£47m).

Best of the Rest

Everyone else is somewhere in between this gulf and we are going to have a look at a few of the more notable wage bills.

The relegated Premier League clubs all had relatively high wages but were not right at the top as Middlesbrough (£49m), Sunderland (£47m) and Hull (£31m) all successfully cut their wages following relegation to try and get their finances in order.

Cardiff’s wage bill was relatively high at £48m, although promotion was secured making the expense more than worth the risk.

Birmingham (£38m), Reading (£35m) and QPR (£31m) all flirted with financial disaster with high wages that massively exceed their lowly revenues and league positions and will need to be addressed going forward to avoid further financial issues and Financial Fair Play penalties.

Leeds continue their resurgence with surprisingly modest wages considering the talk around the club, spending a respectable £31m, although this is likely to be considerably higher under Bielsa in 2019.

Wage growth

There was a mixture of growth and declines in wages with 16 out of the 22 teams analysed experiencing some level of wage growth.

Sheffield United were the big movers with wages nearly doubling from £10m to £19m (90%) on the back of promotion. Despite this huge jump, the increase still left them near the bottom of the wage bills in the Championship as a £173k a week extra in wages is a lot less of an increase than many of the clubs.

Wolves unsurprisingly saw a huge increase in wages due to the special relationship they now have with Jorge Mendes under their new ownership and new star players. Wages increased from £28m to £51m (80%), a huge extra £433k a week in wages as they plotted their promotion.

Birmingham (71%) and Cardiff (67%) both showed renewed levels of ambition that saw wages increase by £304k and £373k a week and experienced very different experiences from their new high-earners.

Leeds began their new era with an increase in wages of 52% to £41m, an extra £206k a week in wages.

Aston Villa increased their wages by 19% and £223k a week despite their unravelling finances with the board unable to see the issues (or recklessly gamble) until it was nearly too late.

On the other end of the scale, Hull saw wages drop by 49% to £31m following relegation, saving a huge £581k a week in wages as they looked to get their affairs in orders.

It was a similar picture for Sunderland who dropped wages by 43% to £47m, saving £691k a week in the process, a figure that will need to reduce once again in League One.

Middlesbrough cut wages by a quarter (25%) on the back of relegation, saving a more modest £312k a week as they looked to keep some players and gain promotion straight back to the Premier League, being unsuccessful with that to date.

Financial Instability

The wage to revenue ratio measures financial sustainability and prudence. If the ratio exceeds 100%, a club is spending more on wages than the revenue they bring in, which means the club is loss making before taking into all other costs they face, a situation that will lead to financial ruin in the long run.

The higher the ratio, the less profitable a club can be and the less sustainable they are. A club’s wage/turnover ratio should be around 60%, with one higher than 90% largely unsustainable and one lower than 40% a poor use of resources and essentially ‘too safe’.

Figures in excess of 100% are financially reckless and will be expensive for the owners as they have to fund large losses (unless players are sold).

The average in the Championship was a suicidal 115% in 2018, ranging from 56% to over 200%.

The lowest by a distance was Hull at 56% after successfully cutting wages following relegation and benefitted from parachute payments, although these will fall next season and this ratio will rise.

Sunderland (74%), Barnsley (76%), Leeds (77%), Burton (78%) and Middlesbrough (79%) all had ratios below 80% which is just about okay for financial sustainability. These ratios were all from clubs who were either relegated or promoted to the Championship, a usual trend.

Birmingham increased wages by 71% and this led to a wage/revenue ratio of 202%, meaning they are spending more than double their revenue on wages, hardly a good idea! This is likely to bring on various Financial Fair Play issues (as seen by their point deduction) as well as a burning hole in their owners’ pockets.

Other clubs at huge financial risk at their current wage and revenue levels are Reading (197%), Derby (161%), Brentford (135%), Nottingham Forest (122%) and Preston (113%) who are all putting themselves at risk of prolonged heavy losses and Financial Fair Play penalties.

Wolves (192%), Cardiff (148%) and Fulham (142%) all have high ratios that are skewed due to heavy promotion bonuses, although it is likely to still have been in excess of 100% without them, showing they were also playing with financial fire, however were more successful with their gamble.

All in all, Championship clubs are risking their financial future more than ever in an attempt to reach the Premier League promised land where riches await. However, as always only three clubs can reach their goals each year, leaving 10 to 15 teams disappointed and at significant financial risk.

It will be interesting to see how the EFL reacts to these increased financial gambles and the clubs who continue to side step Financial Fair Play sanctions by playing the rules.

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