Financial Instability Running Rampant among English Soccer Clubs
By: Ben Pawlak
October 24, 2023
Photo Credit: Getty Images
In 1888, the world’s first soccer league system was established in Manchester, England. Simply named “The Football League”, the founding members included 12 English clubs, and incredibly, 11 of them are still actively competing in the English game. England’s brightest minds within the sport created the English Football League (EFL) pyramid system as a means to organize the entire scope of professional soccer in the country under one figurative umbrella.
The EFL pyramid is bound together by the concept of promotion and relegation, with EFL clubs having the ability to move up or down one division at a time depending on their performance in a given season. Theoretically, any club can be promoted all the way up (or down) the EFL pyramid based on performance. In fact, the current Premier League (PL) season features newcomers, Luton Town F.C., who were playing in the fifth division of the EFL as recently as nine seasons ago. They were promoted from the second division last summer to reach the summit of the pyramid for the first time in club history.
A great example of the extreme financial stakes that exist in the EFL is the promotion play-off final. Known as “the richest game in soccer”, two teams who didn’t finish in the top two places of the second division that season play a winner-take-all match for the right to earn the final promotion spot to the first tier. As I alluded to earlier, last season’s promotion play-off final saw Luton Town beat Coventry City on penalties to secure promotion to the Premier League. Luton Town instantly secured $200 million in additional revenue as a reward, and this season, they will earn much more money than ever before as they compete in the most watched professional sports league on the planet. Meanwhile, Coventry City returned back to the EFL Championship without a cushty sack of cash, and the club and its fans shook off the heartbreaking loss to push for promotion once again.
Photo Credit: Pitchero
The English Football Association (FA) oversees the top four divisions in the country, serving as the regulatory body to the pyramid system that was established 135 years ago. Today, the EFL continues to not only function, but economically thrive like never before as the country’s sporting product garners an ever-growing amount of attention across the globe.
The problem is that the FA is asleep at the wheel while many of the EFL’s most historically successful clubs teeter on the edge of collapse.
The financial crisis occurring within the EFL pyramid system has nothing to do with the fact that it is (and always has been) an ultra-capitalistic system where winning is rewarded and losing is punished. After all, soccer clubs are businesses, and not every business can succeed. Apart from the most prestigious and famous members of the EFL, most clubs have always lived on the margins. These clubs struggle to pay the wages of their players, and without ownership who are able to overcome adversity (both through strong character and an open wallet), they risk going under. In fact, a report conducted during the 2021-22 season by LCP, a leading business consulting firm based in London, found that most clubs are “heavily reliant” on their owners to provide cash injections on a regular basis to stay afloat. Despite the fact that the FA regularly assesses owners and board members of EFL clubs with a “Fit and Proper Person” test to ensure that the clubs aren’t falling into the wrong hands, recent trends in the industry indicate that these tests are a formality. The truth is, shady businessmen have routinely been allowed to take the reigns of EFL clubs by the FA, and the consequences have been dire.
Here are the key findings from the LCP’s scathing report on the financial state of the EFL:
The Premier League accounts for an alarming 85% of the EFL’s annual revenue.
A whopping 48% of the EFL’s annual revenue is generated by just six clubs (Manchester City, Manchester United, Arsenal, Tottenham, Liverpool, and Chelsea).
63 of the 92 clubs in the top four divisions of England are recording annual losses, and those 63 clubs racked up $1.56 billion in total losses.
EFL Championship (second division) clubs spend, on average, 102% of their annual revenue on player wages. For context, the majority of European club soccer is governed by the Union of European Football Associations (UEFA), which forbids clubs under their jurisdiction from spending 70% or more of their annual revenue on player wages.
Notable clubs who are currently being operated without sustained and adequate funding from the club’s owner(s) include Everton (PL), Sheffield United (PL), Wolves (PL), West Brom (EFL Championship), and Sheffield Wednesday (EFL Championship).
To conclude their findings, the LCP called for more transparency and consistency from the English FA, urging them to be more vigilant when reviewing the financial reports of the clubs they oversee. They also proposed creating an independent regulatory body dedicated to “protecting the future of English soccer”, with their main objective being to help bridge the financial imbalance between the clubs in the Premier League and the clubs in the lower tiers of the EFL.
Beyond the immense cultural significance of the game in the country, the industry of professional soccer impacts local economies and brings together local communities. These clubs—and by extension, those economies and communities connected to the clubs who represent them on the pitch—are not just the victims of their unscrupulous owners who are either unwilling or unable to get their finances in order, but are also the victims of the English FA’s inability to recognize and respond to a crisis happening right under their nose.