A financial spectre haunts the EFL Championship. The spectre is “parachute payments”.
The North West’s three EFL Championship clubs, Lancashire rivals along the M65, have had different experiences of payments that were originally designed to cushion the blow of relegation, and make up for the loss of television rights money from the Premier League.
Blackburn Rovers squandered theirs, which they pocketed after relegation in 2012. Preston North End have never been in the Premier League, so they’ve always had to budget to compete with the relegated clubs that have got that immediate financial boost to the their annual income. Burnley funded their 20222-23 campaign with parachute money (and loans).
And while arguments rage that the payments give the relegated clubs a chance to meet their salary obligations to those players who remain, it’s still not enough.
So much so that in their notes to the last annual accounts, when the Clarets were last relegated, Burnley’s auditors, BDO, nodded in the direction of a “material uncertainty” about the club’s ability to operate as a “going concern” should they fail to slash their Premier League sized wage bill.
American owned Burnley lost £27.9milliom post-tax loss – a big fall from the £26m profit made in the previous financial year. Turnover plunged from £123.4million in the previous year to £64.9million. This was largely due to the loss of broadcast revenue which fell from £104.9million to £47.8million. As part of their own cost cutting measures, the wage bill was reduced significantly from £92million to £53.7million.
The accounts state: “In the event of relegation, the group as with all such clubs will incur a significant reduction in turnover as Premier League broadcasting revenue is replaced with parachute payments. The group will be required to take steps to reduce costs and borrowings to a level more sustainable for a Championship club.
“In this scenario the group would expect significant reduction in wages and salaries, which will be largely achieved by contractual means existing in player and employee contracts and player transfers.
“The group has also forecast a net inflow of cash from player trading, as is common for many clubs relegated from the Premier League. In such a case, to support the group’s obligations, the directors will consider and utilise financing options available, including but not limited to, player receivable financing.
But Burnley’s American owners ALK Capital, led by chairman Alan Pace, now have to demonstrate that they are able to sustain a ‘Premier League-ready’ infrastructure after taking what will be a significant financial dent in the current financial year.
The annual accounts also show that bank debt soared from £45m to £70m, initially from MSD, an investment fund set up by computer magnate Michael Dell.
Now however, that debt is with an investment group MGG based in New York called MGG. Their CEO Kevin F Griffin says he comes to work each day “excited about tackling new opportunities and finding solutions”. He says his goal is “always find the best risk-adjusted returns for our investors”.
In the case of Burnley, that’s an interest rate of 11.23%.
Wild Rovers
Chief executive Steve Waggott (in tie) meets fans, including Ian Herbert (far left)
Further down the M65 motorway, the mood at Ewood Park is grim.
Much hangs on a court case in India, due to be heard on 20th August, which may lift the restrictions on owners Venky’s investing in the club that needed an unlikely win to avoid the drop to League One on the last day.
As reported on TheBusinessDesk.com in March 2024 a second delay to a court hearing in India means Blackburn Rovers will be starting the 2024/25 season with the uncertainty over the finances still hanging over them.
The case has to be seen in the context of a wider crackdown by the Indian government on money leaving the country.
The judge hearing the case, Honorable Mr Justice Subramonium Prasad, delayed the hearing and said “the matter is likely to take some time” and rescheduled it for 20 August 2024.
TheBusinessDesk.com said then that this means that with the EFL season starting on the weekend of the 10/11 August 2024, the club will be none the wiser as to whether the Indian government will allow the owners to fund a foreign business, or at least to the extent it has been.
Earlier this year theBusinessDesk.com had reported that the Lancashire club’s financial destiny hung in the balance due to the case.
It had emerged that in June 2023, the poultry and pharma group Venky’s, which has owned Rovers since 2011, had to apply to the High Court in the capital New Delhi for emergency permission to pay an outstanding tax bill. An earlier application to send £26m to Blackburn was turned down when the Indian government’s Economic Directorate refused to issue a ‘No Objection Certificate’ to payments to Rovers.
Ian Herbert, producer of the Rovers Inc podcast, says: “What seems abundantly clear, is that the money that used to flow from India to the tune of c.£18m p.a. to provide Rovers with working capital, has dried up whilst this litigation continues. Will the taps be turned on again?”
Player sales, Herbert says, “keep the lights on for the time being”.
The revolving door in the board room and executive leadership of the club doesn’t contribute to an atmosphere of stability.
Gone are long standing servants of the club Ian Silvester, club secretary, and finance director Mike Cheston, hot on the heels of the departures of director of football Gregg Broughton and commercial supremo Paul Fielder, who arrived with big plans, before departing for a new job in Australia.
The one constant is 67 year old chief executive Steve Waggott, a former agent. This year he has been the target of rising fan anger, not helped when details of his pay rise emerged, showing a leap of £37, 475, from £271,413 in 2022 to £308,888 in 2023, plus £12,001 in company pension contributions, up from £1,321. It angered fans, as the news broke of the resignation of former manager Jon Dahl Tomasson.
The January transfer window saw highly rated teenager midfielder Adam Wharton depart for Crystal Palace for a reported £17m, which has eased short term cash flow issues, but a catastrophic comedy of errors saw the collapse of a deal to sign USA international Duncan McGuire from Orlando City.
Since then, protests against Waggott and the Venky’s ownership have stepped up, not helped by Rovers issuing a statement dismissing “social media speculation” that has done little to dampen concerns over the ability of the owners of the Championship club to fund the club in the long term.
Preston for sale?
PNE chairman Craig Hemmings (pic from PNE)
On the face of it, and compared to other local rivals, Championship side Preston North End are stable. They have local owners who talk a good game and rarely look to be in danger of going down, or up.
Yet it has emerged this year that North End could be up for sale.
One of the founder members of the English Football League in 1888, the controlling Hemmings family are working with advisers from Rothschild regarding the issue of its future ownership.
It is reported that Rothschild, which is a renowned adviser in the field of football and elite sport, and acted on the sale of Blackburn Rovers in 2011, is working with the club on “a strategic review”.
Local speculation has failed to identify anything more solid than “a Miami-based consortium” and “interest from New York investors” and North End have admitted that the process may not lead to a sale, but could lead to future opportunities for the club, and its owners.
Preston North End was taken over in 2010 by Trevor Hemmings, the horse racing enthusiast and property and industrial and leisure magnate, following a winding-up petition served by HM Revenue and Customs.
Billionaire Hemmings, who had an estimated wealth of £1.1bn, rescued Preston North End by acquiring a 51% stake in the club to save it from collapse.
Though he lived on the Isle of Man, he also controlled the Chorley-based Northern Trust Group – established in 1962, and boasted a successful track record in property investment, development and strategic land promotion – and once owned Blackpool Tower and the holiday camp chain Pontins.
Hemmings died in 2021, aged 86, and the club is now managed by his family trustees including two of his four children, Patrick and Craig, who insist they will keep on investing until someone better comes along. They are mindful, no doubt, about what can happen when a wealthy local family sells to an unknown overseas bidder.
A source has told Sky that the review could offer the current owners of the Lilywhites the opportunity of discussions with prospective buyers who could be open to a long term commitment to PNE.
Although lossmaking, unlike many other football clubs, Preston has enjoyed a relatively stable period of ownership since the 2010 takeover. However, in the annual report last year chairman Craig Hemmings complained of the imbalance in revenue between clubs of similar scale.
Craig Hemmings explained that the family invests £12m a season to maintain to contribute to costs of £24m while ‘Parachute’ payments of a further £95m for three years prop up a rival like Burnley.
