That Leicester City are one of nine Championship clubs likely to fail the first Financial Fair Play test this December should not come as a surprise.
But what exactly is Leicester’s financial position like, and is it feasible the club can comply with the new rules before they start to have consequences?
All spending from 1st June 2013 will count towards the new Financial Fair Play limits.
Therefore the quickest and best way for Leicester City to avoid Financial Fair Play penalties is to get promoted this season.
At the moment the signs are promising. City have made an excellent start and look to be settling in to a side both difficult to beat, and capable of scoring plenty of goals.
But what if Leicester don’t get promoted? What happens then?
Well there are a few things we know, and a few things we don’t. At the moment, the answer to whether Leicester City will manage to wrestle their finances within the Financial Fair Play limits rests on your opinion of the owners.
Let’s start with what the club takes in.
In 2010/11 the club received income in five major areas;
Match Receipts – £6m
Other Football Income – £6m
Retailing and merchandise – £1.4m
Conference, banqueting and catering £0.9m
Sponsorship, executive suites, advertising and other income – £3.1m
A total of £17.4m.
How much scope is there for that income to rise? Attendances have been patchy, so match receipts are unlikely to have increased significantly despite increased ticket prices. The Championship TV deal which started this season is worth 26 per cent less than the old one, meaning the club will have less TV money to play with. The recession is also likely to have impacted on the club’s attempts to expand significantly on its retail business.
The club say they’ve signed sponsorship deals with Air Asia, Amazing Thailand and King Power which “provide for a significant increase in the commercial income of the club” but contracts were signed some time after 1st June 2011 so the accounts give no details as to how large these deals are.
As for outgoings £16.5m (95 per cent of the club’s income) was spent on salaries. This will have undoubtedly risen in the 2011/12 accounts as the contracts of the likes of Matt Mills, Sol Bamba and Jermaine Beckford hit the books.
Is spending on wages falling now? That’s unclear.
Mills, Bamba and Beckford may be out the door (temporarily in the case of the latter) and many fringe players have been released, but several big contracts remain.
Kasper Schmeichel, Paul Konchesky, Neil Danns, David Nugent and Andy King all signed deals under Sven. And just how cheap are the new signings? The truth is we don’t know.
And whilst it’s true the club can offset some losses against youth development and investment in facilities again it’s not clear exactly how much is being spent in this area at the moment.
In the end, Leicester’s ability to stay within the Financial Fair Play rules should they fail to win promotion this year probably depends on whether the owners are willing to buy equity in the club. Without that support, Leicester can only make a loss of £3m next season, almost five times less than the loss they posted in 2010/11. If the owners buy up to £5m in equity that loss can increase £8m. Not exactly an easy ask, especially as unlike the loans, the owners risk never seeing that investment again.
Promotion looks more important than ever.
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If you’re interested in learning more about Financial Fair Play – check out the documentary below.
‘Financial Fair Play – The Answer?’ looks at the new system and how it will affect clubs in the Championship. The 15 minute documentary features interviews with;
- Tad Detko, Finance Director at the Football League
- Dr John Beech, Senior Research Fellow at Coventry University and author of Football Management (@JohnBeech)
- Don Rowing, General Manager at Barnsley FC
- Ian Stringer, Sport Journalist and Leicester City commentator for BBC Radio Leicester (@StringerSport)
- Ian Bason, Chairman of the Foxes Trust
You can listen below or download the mp3.
If you subscribe to the Foxblogger Podcast the documentary will download automatically.
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NB: Portsmouth went into administration during 2010/11 and did not publish accounts. The results above therefore do not include the club.