The EFL Championship Is A Bubble Waiting To Pop

England’s second division has a financially unstable business model. And it threatens the entire sport.

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The TV money payouts for England’s Premier League were released this week. It’s got to be some pretty frustrating reading for fans of La Liga or Serie A, as the champions of their leagues barely received more income than the worst team in the Premier League. Huddersfield Town, the 20th placed team in the table, earned £97 million in TV revenue.  Liverpool and Manchester City both earned over £150 million.

By contrast, Juventus, the biggest team in Italy and one of the traditional powers of European football, earned £102 million in the 2017-18 season. La Liga teams Real Madrid, Barcelona, and Atlético Madrid fared a bit better than their Italian counterparts, earning between £135 million and £97 million each, but the TV revenue drops off sharply after those three clubs.  No league is as rich as the Premier League, and no league shares as much revenue with teams that do poorly on the pitch or off the pitch in terms of attendance as the Premier League does.  Buying into such a lucrative business might be expensive, but it seems that many owners have tried to find a loophole.

As owners of teams in the EFL Championship, the league below the Premier League, spend far beyond their means in order to get a chance at that sweet, sweet TV money, the debts that are piling up have the capability of crushing more than one football club and perhaps taking down the entire pyramid system along with it. A financial bubble is forming, and when it bursts, because bubbles always do, the fans who have gone to the grounds of historic clubs will ultimately be the ones left out in the cold. The whole system will have to scramble to pick up the pieces left behind.  

There are many examples of teams spending far beyond their means and in almost every case, the teams eventually crashed and burned. In what was probably the most infamous example, Leeds United borrowed money to spend on players in order to try and stay in the Champions League, only to miss out on the extra income two seasons in a row.  The debt payments soon became too much for the club to afford. Peter Ridsdale, the head of Leeds at the time, had counted on being able to sell players for a profit if Leeds failed to qualify for the Champions League, but that turned out to be not the case. Leeds being forced to sell players resulted in lower fees than would have been expected, as fire sales rarely produce value for the seller.

The introduction of petrodollars into football created a perfect storm, as some owners no longer had to really worry about their spending being limited by revenue or by bank loans. Suddenly clubs like Manchester City and PSG could outbid “traditional” powers like Manchester United, Real Madrid, and Barcelona for the top talent in the world.  UEFA’s Financial Fair Play requirements are supposed to limit the club’s ability to spend far beyond their income, with UEFA threatening penalties for those that break the rules, including transfer bans and European football bans. However, in practice it has rarely worked and reducing the money spent on players has proven to be a fool’s errand.

As for money, the Premier League is swimming in it.  While the relative strength of the “big five” European leagues (Italy’s Serie A, Spain’s La Liga, Germany’s Bundesliga, France’s Ligue 1, and England’s Premier League) can be endlessly argued about, the one that earns the most money cannot be. The Premier League has the largest international TV broadcast and streaming rights contracts, earning the clubs that are in it an immense amount of money.

The Premier League sends three teams to the Championship every season, and welcomes three more teams to replace them every year. Besides the glory of playing in front of packed stadiums against some of the best players in the world, the Premier League brings a lot of cash to the teams that are promoted from the Championship. And with parachute payments, money that is sent to teams that are relegated to cushion the blow financially, lasting for at least two years, a promotion to the Premier League is worth roughly £160 million. Quite the payoff for a team that would have been earning less than £40 million, and as little as £12.5 million in revenue in the Championship.

Aston Villa just recently won the “most lucrative match in the world,”, meaning that the team will now get the guaranteed money. The losers, Derby County, will rack up more debts for at least another year in the Championship in their attempt to win promotion.

Along with the increased income in the Premier League, the teams that go up are also worth a lot more money. For example, Dejphon Chansiri bought Sheffield Wednesday for £30 million back in 2015. The sale price of Bolton Wanderers has been reportedly set at £25 million, and Andrea Radrizzani bought Leeds for the price of £45 million, although Leeds earn the most revenue in the Championship.

Recently promoted Brighton & Hove Albion were recently valued at approximately £224 million. While the owner, Tony Bloom, has spent over £300 million to get Brighton where they are now, they’ve guaranteed another year of Premier League football and another £100 million pounds of sweet TV money.

The large increase in club value, along with a huge influx of cash, seems to be driving out-of-control spending in the Championship. Clubs are increasingly spending more and more money on player wages and transfer fees in order to go up and earn a Premier League payday. Over the past five years, clubs in the Championship have lost over £1 billion, with the 2017-18 season seeing the teams in the division lose an incredible £523.1 million.

Losing over £10 million a week as a division is not sustainable. Owners are gambling that they will be able to spend their way into the lucrative Premier League and see a significant return on their investment. However, along the way, they are running up more and more debts that will eventually have to be paid. And remember: only three teams out of 24 go up every season, and with the large parachute payments, which dwarf the revenue from almost every other team in the division, the owners of the other 21 clubs are already starting even further behind the recently relegated teams.

The owners who bought into the Championship as an investment opportunity will, at some point, realize they have been lured into the “sunken-cost fallacy,” in which a poor investment is made worse by continuing to spend money tying in vain to get a return on investment. At some point, the money runs out. It always does. Football owners may seem to have an unlimited amount of cash, but eventually the owners will sell or just walk away.

Additionally, the EFL’s own FFP spending rules will eventually limit the amount of money that is able to be spent above and beyond the club’s revenue. Derby County, who just lost out on promotion, used a sale of Pride Park to one of owner Mel Morris other companies as a way to comply with the EFL’s spending rules, which limit losses to £39 million over a rolling three-year period. Middlesbrough chief Steve Gibson intends on suing Derby over the creative accounting move and while the sale of Pride Park hasn’t broken any rules, such a move can only really be used only once. If Derby fail to get promotion again, then austerity will certainly hit and there will be little hope for Morris to get any sort of return on his investment.

Had these owners been operating the clubs with more fiscal prudence, a number of them probably would have walked away by now, but with ego comes clouded decision making. At some point, clarity will be reached by the owners, and if buyers are not found for the clubs, they will just simply walk away from the clubs, allowing them to just twist in the wind.

The saga of American Mike Piazza, the baseball Hall of Famer who purchased Regianna in Italy, is an example of what happens when an owner just decides to give up on his investment. After purchasing the club, and promising that he would restore the club to its former glory, Piazza simply walked away after failing to get promoted to Serie B in the second attempt. Piazza ended up even refusing to even pay the league registration fee, meaning that a club with over 100 years of history ended up going out of business and ceased to exist.

Specially to the Championship consider Bolton Wanderers. The staff and players were not paid for months, forcing the staff to rely on food banks and the generosity of other clubs and fans in order to eat. If nothing changes, it will almost certainly not be an outlier. Ken Anderson, the Bolton owner, failed to pay his players and his staff multiple times during the year, either unwilling or unable to continue funding the club. Anderson was even did not pay the wages of a loan player from Forest Green Rovers.. The loan deal, which was supposed to be made permanent, was cancelled after Rovers chairman Dale Vince claimed that contractual promises were broken.

It’s happened before in a number of places, to clubs such as Chester, Hereford, and even Gretna in Scotland, where an owner spent millions getting a village team into the SPL, only for the club to be liquidated when the owner, Brooks Mileson, became too ill to fund the club anymore.

So what, the argument goes, if a few clubs go bust? No one forced those owners to spend all that money on an ego-fueled quest to get clubs promoted, right? For every club that goes down or goes bust, there will be one from the lower leagues that takes its place, right?

There are two problems with this line of thinking. First, when these clubs go bust owing millions of dollars, those debts do not simply just go away. One or two clubs going bust can be absorbed by the system as a whole, but if multiple clubs start failing to pay their bills, it’s going to be a significant problem, one that could have an impact on the entire pyramid of English football.

Football clubs are usually considered secured creditors in administration, but it’s going to be difficult to pay off any transfer fees that are still owed when there are no assets, leading to more clubs running into trouble as the money that they had counted on being available to pay off their own debts start disappearing. Not to mention all of the communities and local institutions that usually end up losing out. Directors of football clubs and banks might be made whole, but it’s the ambulance services, local police, and local vendors that end up getting a much smaller percentage of what they are owed in these deals. Average working people, not footballers and directors, will ultimately bear the greatest burden of the cost of a club liquidating, as they will be the ones without jobs and with unpaid bills from the local football club.

Secondly: to what end is a football club? Is it just a business or is it something else, like a community asset? It is surprising to many English fans that in American sports, teams relocate on the whim of an owner and the league. American sports are usually run as businesses meant to turn a profit, and there are literally hundreds of defunct lower league clubs in American soccer. And America isn’t alone. There are dozens of examples in Mexico, for example, of relocation and shenanigans involving clubs purchasing places in the top division taking place. However, in many places where a football club has played in the same town and in the same ground for over a century, the club is directly tied to the place and the people that grow up going to the same ground as their fathers and grandfathers and great-grandfathers before them. For all of the glitz and glamor of the Premier League and the Championship, the soul of English football is found in the local grounds, surrounded by your family and your neighbors. Football supplies a sense of identity that cannot be replaced by video games and YouTube.

While overseas owners may be interested in a profit, it’s the local fans that will suffer the most if their club and their regional identity is lost to the pages of history. Without the success of the phoenix AFC Wimbledon, the history of the Dons in south London could have been reduced to a historical footnote after the club left for Milton Keynes, just as Bradford Park Avenue seems to be more an answer to a trivia question rather than an actual club that still competes in non-league football.

If the English Football League is serious about preventing a total collapse of the transfer market below the Premier League and the destruction of multiple clubs, then it needs to take action. A better test for potential owners needs to be implemented and increased regulation and recognition that a club is not simply just a business, but a community icon  And action that is not just preventing owners from being “ridiculed,” as outgoing EFL chief executive Shaun Harvey recently said. Those owners might have invested money in those clubs, but when they walk away, they’re not going to be the ones to pick up the pieces. Owners come and go, but at the end of the day, the clubs belong to the community they play in.


Pete Schlenker is a freelance writer and soccer blogger. He writes for multiple SB Nation sites, covering Leeds United, AC Milan and Liga MX. Follow him on Twitter at @FutbolPete717.