Earlier this month, Wigan Athletic FC, English FA Cup winners in 2013, collapsed into Administration. The circumstances were unusual, to say the least, with a change of ownership weeks before and the sudden decision of the new Hong Kong based owners to withdraw all operational funding.

This left the club effectively insolvent, handicapped by a twelve-point deduction imposed by the English Football League as a penalty for the Administration and staring relegation in the face. Rumours swirled of a huge bet on the club’s relegation having been struck in the Philippines and the Administration deliberately engineered to ensure the bet comes in.  Bizarre and bewildering news for the fans of a club considered very much part of the community of a small town in the North West of England.

Putting to one side the unusual circumstances surrounding Wigan’s demise, it is clear that the club will not be unique in entering into an insolvency process over the coming months, as the impact of the profound economic shock caused by COVID-19 hits home.  For many clubs across Europe, football is a relatively hand to mouth existence – in Wigan’s division, the Championship, the chase for promotion to the lucrative English Premier League leads many clubs to gamble and as a result the total wage bill for clubs in the division actually exceeds revenue generated.

Lockdown and social distancing led to the immediate suspension of football across the continent and the obvious associated loss of revenue from gate receipts. Clearly, those gate receipts are vital for many clubs, particularly outside the top divisions in the five leading countries (England, Spain, Germany, Italy and France), where revenue from TV deals is far lower, and they’ve had to make difficult decisions regarding playing and non-playing staff in an effort to cut costs.  For some, that has meant making use of government “furlough” schemes, for others it has meant sweeping redundancies.

But the “smaller” clubs are not alone. The European Club Association, which represents professional clubs across Europe, estimates that COVID-19 related disruption will cost clubs in the top ten leagues across the continent over Euros 3.6 billion by the end of next season, despite many of them already having returned to play. In the UK, Tottenham Hotspur, one of England’s most successful sides in recent years are an example of a club that has been heavily impacted.  Having recently moved into their new, £1 billion stadium, they have hefty repayments to make on borrowings estimated to total £850 million including interest. The increased capacity and ticket prices in the new stadium would have helped with that, so the suspension of football and subsequent fan-free restart has been poorly timed for them.  With losses projected at up to £200 million this year, Spurs have moved to head off cash flow challenges by borrowing £175 million from the UK Government’s “COVID Corporate Financing Fund”. 

That’s not to say that Tottenham are at risk of insolvency, the TV cash swilling round the Premier League will see to that, but it is likely to impact their competitiveness in the coming years as it restricts their transfer spending.  They won’t be alone in having their transfer budgets cut, as clubs across the continent (with the exception perhaps of the state or quasi state-owned clubs and those with owners with very deep pockets) are forced to tighten their belts.   It seems likely that advertising revenue will continue to drop for TV channels as companies curb discretionary spending and this will have a knock-on effect for clubs in the top 5 leagues.  

This has already been seen in Germany, where the Bundesliga 1 and 2 were the first leagues in the major countries to negotiate a TV rights deal for screening matches post COVID and after a number of inflationary cycles, agreed a deal that was 200m Euros lower than its predecessor. In Italy, the current domestic and international TV deals expire at the end of the 2020/21 season and it remains to be seen whether the value of the next deal will remain at current levels. I suspect not.

As the top clubs are forced to scale back spending, it follows that the transfer fees commanded for players will drop.  The valuation of a player is driven by two factors – how much the selling club wants or needs to sell and how much the buying club wants or needs to buy.  The market for players is therefore likely to see some bumps as traditional “selling clubs” – the ones that look to develop raw or homegrown talent and sell them on for a profit – have less bargaining power as they seek to convert players to cash. But likewise expect that some of the higher end players move for lower than anticipated fees as their wages become a burden to their incumbent clubs. Even storied clubs like Barcelona can expect lean times as they struggle with the “perfect storm” described by club presidential candidate Victor Font of replacing an aging generation of players, renovating a crumbling stadium and dealing with the unexpected financial uncertainty post-pandemic in a country that was one of Europe’s hardest hit by the virus.

But it really is outside of the elite clubs and leagues that the situation is most dire.  Those clubs rely on gate receipts and matchday income to survive and in most cases, they have seen their 2019/20 seasons prematurely ended and are facing 2020/21 seasons that start without fans.  Whilst clubs are tentatively beginning to plan for reduced capacity opening in late autumn, this will be accompanied by a logistical and security burden that will lead to prohibitive costs.  At Control Risks we have worked with data modelling algorithms to assist clients trying to maximise combinations of socially distanced “bubbles” of fans accessing grounds, but it is clear that full stadiums remain some way off. The spectre of a second wave or localised lockdowns adds to the sense of dread felt by many club owners.

Keith Tully, a Restructuring Partner with Begbies Traynor (Administrators of Wigan) paints a stark picture of the reality for many clubs: “Like with so many other sectors of the economy, a new business model is required for football if it is to survive. Nobody knows what that looks like yet, but it looks set to change the landscape of the game.”  There is talk of Private Equity investment taking advantage of the “distressed assets” that many football clubs are becoming, but there may be other solutions out there that are more creative, ranging from crowd funding to IPOs. In Tully’s view “Fans are likely to be asked to dig deep and contribute even more to their clubs, but in turn that could give them more say in, and control over, how their clubs are run.” 

So it seems clear that Wigan Athletic are likely to be the first of many clubs for whom the exit route from the challenges that lie in front of them is insolvency and a battle to reorganise themselves into a form that enables them to survive. Clubs and owners have difficult days ahead and it is to be hoped that investment in some form can be found for many of them in order that these community assets can be preserved.  

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