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Championship clubs have strained finances

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The finances of Championship clubs continue to be strained, even perilous, according to the latest report from Deloitte Sports Business.

Championship clubs generated combined revenues
of £548m in 2014/15, 12% up on the previous year
and a new record.  The division’s revenue continues
to be heavily influenced by parachute payments and
solidarity distributions from the Premier League.

The number of Championship clubs
receiving parachute payments increased from eight to
ten, which led to a £26m increase in these amounts (to
£166m). Larger matchday and commercial revenues at the
six clubs who replaced those promoted and relegated from
the Championship in 2013/14 also contributed to the uplift.

 Across the ten clubs in receipt of parachute payments
(ranging from c.£10m – £25m each), these amounts
comprised over half of their combined total revenue.

However, their revenue advantage did not manifest itself
on the pitch in 2014/15, with only one of the top six places
taken by a parachute-recipient club and five finishing in the
bottom eight, including two clubs that were relegated.
Including solidarity payments, distributions from the
Premier League account for almost £200m (36%) of total
Championship clubs’ revenue.

Despite the theory that increased revenue from parachute
payments should lead to an on-pitch advantage,
historically this has not been the case. Of the 15 clubs
relegated from the Premier League in the five seasons to
2013/14, only three gained promotion back to the top
flight within two seasons.

This picture could soon change.   The quantum is increasing due to the new broadcast
deals, and relegated clubs can now expect to receive
parachute payments of up to c.£90m over three seasons
compared to the current c.£65m over four seasons.
Given this significant increase from 2016/17, it remains
to be seen whether more clubs in receipt of them will be
consistently finishing in the promotion places.

Championship clubs’ wage costs rose by 4% to £541m
in 2014/15. Despite a reduction in the overall wages/
revenue ratio, clubs spent almost as much on wages
as they generated in revenue, which remains an
unsustainable level of spending without the support of
owner funding. The aggregate wage costs of Championship clubs dropped
below total revenue such that the wages/revenue ratio
reduced to 99%, following two seasons in which it
exceeded 100%. However, this still represents the fourth
highest ratio ever.

Wage costs were greater than total revenue at nine clubs,
with AFC Bournemouth (234%), Nottingham Forest (186%)
and Brentford (164%) having the largest wages/revenue
ratios. Only two clubs reported a ratio below 70%. Such a
level of spending provides an indication of the desire for
clubs to gamble on achieving promotion to the Premier
League, as the financial rewards for reaching the top division
are greater than ever.

It also reveals why Championship
clubs are so reliant on owner support, and are left
vulnerable should that support no longer be available.
The average Championship club wage cost was £23m,
with the three clubs relegated from the Premier League the
previous season – Cardiff City, Fulham and Norwich City –
the highest spenders. All three received £25m in parachute payments.