Financial sustainability and governance of English football

There have been longstanding concerns about the financial sustainability and governance of English football. These concerns led to a Fan-led Review of football governance in 2021. The final report (PDF) (November 2021) concluded that a “complete overhaul” of the game’s approach to business regulation was needed to ensure a “long-term and healthy future” for football. The report recommended that this should be led by an independent regulator, set up through primary legislation. The Sunak government introduced a Football Governance Bill but the bill did not complete its parliamentary stages before the 2024 general election. A Library briefing was published on the bill (PDF)(April 2024); section 1 gives details of the challenges facing the English game.

The government introduced a Football Governance Bill [HL] in the House of Lords in October 2024. This is very similar to the previous bill. A House of Lords library briefing on the bill (PDF) has been published; sections 1.2 and 1.3 look at club finances and other issues facing the game. The bill’s report stage is scheduled for 11 March 2025. When it has completed its Lords stages, the bill will be introduced in the House of Commons.

Financial Sustainability statistics

In September 2023, DCMS published a research paper titled Still ill? Assessing the financial sustainability of football (2023).

The report looked at the financial sustainability of clubs based on the following metrics:

• Income based metrics
• Wage control
• Operating cash flow
• Current ratio
• Equity
• Football Net Debt

Income based metrics

The report found that in the Premier League (PL), concerning broadcast income, 7 of the clubs (35%) in the division showed a heavy reliance on broadcasting income as a proportion of their total revenue (over 75%).

In comparison, in the English Football League (EFL), four clubs (17%) exceed the 75% financial dependence limit.

Clubs in the lower tiers of the EFL are less reliant on broadcast revenue and more reliant on match day income.

Wage control ratios

UEFA, football’s governing body in Europe, considers that clubs should have a 70% wage to income ratio for financial stability.

In the PL, in the 2021/22 season, 50% of clubs exceeded the 70% guideline.

Since the inception of the PL in the1992/93 season to the end of the 2021/22 season revenue has grown by 2,559% from £205 million to £5.5 billion. Expenditure on wages though has risen by 3,613%.

In the EFL, the report noted that overspending on wages in the Championship is the prevalent strategy as clubs chase promotion. In the 2021/22 season, 88% of clubs exceeded the 70% UEFA guideline.

Operating Clash Flow (OCF)

Operating Cash Flow is the amount of money that an organisation generates from its day today activities. A positive cash flow allows an organisation to maintain and grow its operations without external financing.

The report notes that most companies have a positive OCF and despite the PL generating more revenue than any league in world football only 11 clubs out of 20 in the PL generated a positive OCF in the 2021/22 season. In the Championship only one did.

Current ratio

The current ratio measures liquidity in organisations (current assets / current liabilities) and indicates the ability of clubs to repay short-term loans.

Low current ratios indicates a liquidity issue within the club and suggest that it is only a matter of time before cash flow becomes a problem. These can be offset by loans paid at a later date or further equity investment by owners.

In the 2021/22 season, 50% of PL clubs had current ratios below 0.6. In the EFL, the club current ratio average in the period 2005-2014 was 0.53. The average current ratio in the Championship in 2021/22 was 0.44, with 18 clubs (75%) below the limit.

Equity

Negative equity occurs when liabilities a club possesses are greater than its assets. At the end of the 2021/22 season, five Premier League clubs (25%), 20 Championship clubs (83%), 10 League One clubs (42%), 13 League Two clubs (54%) and 12 National League clubs (52%) had negative equity at year-end.

Football Net Debt (FND)

FND is an industry specific measure calculated by taking a club’s borrowings minus its cash/cash equivalents and the net balance due on transfers. It looks at the debt owed to lenders and other clubs. The metric was used in order to assess the risk to clubs’ sustainability. The higher the ratio, the higher the perceived risk of the business.

At the end of the 2022 season, FND was over £4.4 billion, £700 million higher than at the end of the 2018/19 (pre-pandemic) season.

The report notes that this would been higher (£6 billion) if the debt of £1.5 billion owed by Chelsea to Roman Abramovich had been taken into account having been forced to sell the club and have his assets frozen following the Russian invasion of Ukraine in February 2022.

Lane, Clark and Peacock Analysis

The Business management consultancy Lane, Clark and Peacock provided analysis on the financial sustainability of football clubs following the 2022/23 season.

Among the key findings were:

• The concentration of wealthamong the traditional 'Big Six' remains clear, accounting for around half of industry revenue.
• Despite increasing revenues (up by 11% to £7.2bn), clubs overall remain hugely loss-making – aggregate losses in 2022-2023 were £1.2bn, and over £3bn for the last three seasons.
• Most clubs (85%) are loss-makingand the scale of losses is accelerating at a faster pace for lower league clubs, which is a concerning trend.
• Clubs are significantly more indebted compared to previous years– across the four leagues, ‘Football Net Debt’ increased by 27% to £7.1bn.
• The increase in total revenues should not mask the fact that much of the football pyramid is financially overextended (ie operating with high levels of debt compared to the scale of the football club), at around 300%, a level that most other capital-intensive industries would consider unduly risky.
• Across the leagues 17 clubs declared a 'material uncertainty' on whether they could continue operating for another 12 months.
• 38 clubs stated that they are dependent on owner funding to continue.