Championship clubs and the EFL have been urged to introduce a salary cap to end the ‘unsustainable’ amount of money spent chasing the Premier League dream.
As we enter a period of financial uncertainty due to coronavirus, second tier clubs are being told ‘urgent’ changes are required to ensure no other members of the EFL follow Bury into extinction.
Deloitte’s Annual Review of Football Finance 2020 found that despite record revenues of around £785m, Championship clubs lost a combined £350m across the 2018/19 season.
And much of that loss was caused by unsustainable wages with the 24 Championship clubs having a combined wages-to-turnover figure of 107%.
Clubs are largely spending that money to chase the Premier League dream, but there are now serious warning signs – particularly given the financial uncertainty that now faces football and indeed most businesses – that it is simply unsustainable, as Tim Bridge, director in the Sports Business Group, warns.
“Clearly a wage-to-revenue ratio of over 100 per cent does not reflect a sustainable business model unless you have the ability to draw down on some other form of cash funding,” he said.
“And that for Championship clubs is typically an owner who is willing to invest their money in order to gain promotion to the Premier League.
“But the reason that Championship clubs are not self-sustaining is because everyone else is not self-sustaining and so you have to typically spend more in order to achieve more.
“Each club is trying to outdo each other on the pitch and it is perceived that the way to do that is to invest in the best playing talent, and that comes with a cost.
“The issue is that everybody is doing the same so there is competitive tension for those players and that has driven wage costs in excess of revenue over a number of years now.
“What we are experiencing at the moment is a real cash crisis and if you run out of cash, it is an existential issue.
“This feels like a natural time to consider more robust and more significant financial controls at that level of the game. Owners might not now be able to plug deficits. It feels like the timing is neat.”
The solution to the issue could well be a salary cap, similar to what is used in Spain and the US.
“A salary cap is a very blunt instrument, but if you were to say you can only spend 70 per cent of revenue on salary, and apply that in 18-19, you take £300m out of the wage bill and you pretty much wipe out the losses to the Championship at a stroke by that single measure,” said Dan Jones, the head of Deloitte’s sports business group.
“I just think if Formula One can do it, if Premiership Rugby can do it, I don’t see why the Championship can’t do it. The need is more urgent and more long-standing in the Championship than it is even in those other sports.”
The EFL have reportedly already held early discussions over the introduction of a salary cap with League chief Rick Parry said to be keen on a ‘proper reset’.
But the suggestions are that such measures wouldn’t be put in place until next year.