Football’s Future And Covid-19 – Trust Chair Writes

Trust chair Keith Morgan

Trust chair Keith Morgan writes in a personal capacity in two discussion papers about collapse of Wigan into Administration and football finance post Covid-19. Keith is a Chartered Accountant and Licenced Insolvency Practitioner with a specialism in football finance. 

Wigan Athletic FC Administration – How did it happen and what happens next?

How did it happen?

After several years without any financial failures of EFL clubs, we recently have had the failures of Bury, Bolton and now Wigan.

Wigan, like the vast majority of EFL clubs, will undoubtedly have been badly affected by the sudden loss of income arising from the three month shutdown of the game due to the Coronavirus pandemic but in their case there remain some unanswered questions as to why they find themselves in such a predicament.

When long-time owner of the club David Whelan sold it in 2018 to a Chinese-backed consortium , he almost certainly did so in the firm belief that their promised access to very substantial new funds was in the best interests of the club and would enable its long term future to be more secure.

The sale would have had to have received the approval of the EFL under their new Owner and Director tests. They are supposed to receive verified evidence that any new owner and any directors those owners appoint to the club have both the necessary funding and experience of running a football club needed to keep the club going for at least a future full season of activity. How they made that decision, and what expertise they brought to the decision making process, is not in the public domain.

Then, very recently the owners who bought from David Whelan, themselves sold on the club to another consortium (in which the consortium owner also had a material financial stake). That deal should also have been reviewed and approved by the EFL yet, within a month or so, Wigan Athletic FC is placed in Administration.

For several years the Football Supporters’ Association and its predecessors Supporters Direct and Football Supporters’ Federation (in which Cardiff City Supporters’ Trust have long played a part), have been pressing the football authorities and the UK government to tighten up and improve the tests on new owners and directors. There have been promises to do so, but the Wigan example suggests they have yet to implement any such improved procedures. The need for change has, therefore, become even more pressing and I am sure that FSA will continue to champion the issue before any club suffers from the same problem of lack of EFL control procedures.

What happens next?

Wigan Athletic FC is now in Administration and under the control of insolvency practitioner firm BegbiesTraynor.  Administration is, in itself, not a financial solution. It merely protects the company from being wound up through the courts and put into liquidation, from having its assets seized by creditors such as finance companies, landlords etc. Without court approval, The Administrator’s job is to find a buyer for the club’s business, who can inject enough new money into the club to pay off the creditors it needs to under the EFL insolvency rules, and ensures its future financial viability.

Those creditors will include paying off in full or adopting liability for, creditors who have secured charges over assets and also paying off in full football creditors (unpaid salaries, transfer fees etc). In addition, other unsecured creditors need to be paid off at least 25p in £ of the debts due to them and financial projections prepared proving that any new owner can fund the business going forward ( hopefully tested far better than in Wigan’s previous sale).

The fact that the 12 point deduction Wigan will suffer because of Administration is highly likely to get them relegated to League 1 risks making them a less attractive buy for new owners under the above cost adoption restraints. If Wigan end up relegated even before the 12 point deduction, then the 12 point deduction will be imposed at the start of next season rather than 2019-20.

Covid-19 – Impact on Football Club Finances

Who has suffered the most?

For Premier League clubs, match day income from walk up crowds, catering etc. represents a relatively small percentage of their total income. Much of their money derives from TV and other media deals, which are still in place and their sponsors, are still getting exposure for their products through this media so there is little income lost from this source. Even for matchday income, a high proportion of this income comes from season ticket sales most of which will probably not need to be refunded (access to club TV etc).There will be some loss of income from catering contracts where their contractors are not able to make sales, so will look for refunds on their agreements but overall adverse financial impact will be relatively low.

League1 and League 2 clubs rely far more heavily on match day income from walk-up crowds as their media income is only a very small percentage of that of Premier League clubs and even many Championship clubs and they tend to have a far lower ratio of season ticket holders to total match attendees. They will have been likely to put more staff on furlough to reduce costs and, of course, this government support will be reduced very soon and end by the end of October under currently announced plans.

Redundancies and other cost savings appear inevitable and even that may not be enough to save some clubs from financial failure unless they can raise money from new investors, crowdfunding schemes etc. I would not be surprised to see a number of clubs at this level seeking the remedy of Administration or other creditor payment arrangements to save themselves.

Championship club impact is likely to be a bit of a mixed bag. A number of clubs, like Cardiff City, are in receipt of “parachute payments” to help their finances but some of those clubs (not us) might just have spent that additional money on new players in an attempt to boost their promotion prospects.

 Those clubs that don’t have that “bonus” source of income are likely to be in a more precarious financial position as again match day income represents a high level of their total income and many clubs don`t have high levels of season ticket holder money in hand. Most, if not all clubs at this level, will have put non-playing staff on furlough but this is due to end soon and in any case their wage cost tends to be only a small proportion of their total wage bill. Reports suggest that most players at clubs have only agreed a deferment of their wages rather than a permanent reduction, so those costs are just a “kicking the can down the road” exercise rather than a cost saving going forward.

In summary, clubs across the board face a financial difficulty arising from the Covid -19 shutdown but some are far better able to cope with it than others.

An encouraging statement as far as our club is concerned came from the Chair Mehmet Dalman recently. He was quoted as saying that whilst Cardiff City  fans should not be looking to the club to spend much on improving the club playing squad going forward, the club is in a more stable financial position than some of our Championship rivals.