Championship clubs have to impose a wage cap to end “unsustainable” expenditure chasing the Premier League dream, according to financial services firm Deloitte.
And the coronavirus crisis should be the catalyst for change with a potential recession reducing the ability of rich owners to subside their clubs – and threatening more clubs going out of business like Bury.
The company’s Annual Review of Football Finance 2020 found each of the three divisions of the English Football League achieved record revenues in 2018-19 and topped a combined £1billion for the first time.
But seeking even more money in the Premier League saw Championship clubs still lose a staggering combined total of £300m on total record revenues of £785m. And the 24 clubs in the second tier had a wages-to-turnover ratio of 107%.
Tim Bridge, director in the Sports Business Group at Deloitte, said: “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.
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“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.”
Current EFL rules require clubs to break even but by this time last year, the aggregate net debt of Championship clubs totalled £1.1bn.
Blackburn and Stoke reported a combined net debt of £248m while eight Championship clubs reported net debt in excess of £50m.
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The solution, according to Deloitte, is a salary cap limiting spending on wages to 70 per cent of revenue.
Dan Jones, the head of Deloitte’s sports business group, said: “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.
“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.”
Despite record revenues of £5.2bn, Premier League clubs still ran up an aggregate loss of £165m with almost half failing to break even.
Premier League wages were up 11 per cent to £3.2m in 2018/19 to surpass £3bn for the first time.
This saw an extra £306m spent on wages and the wages to revenue going up from 59 per cent to 61 per cent.
Only Arsenal and Watford reported decreases in wage cots. The top six clubs had an average wage spend of £284m compared to an average of £110 for the other 14 clubs.
Tottenham Hotspur had the lowest wages to revenue ratio in the league (39 per cent) for the third season running.
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