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How financially powerful is the Championship?

The growing financial muscle of the Championship – A blessing and a curse.

Mention the words “English football” and many will speak of the Premier League, as well as the tangible benefits it has brought. Primarily, it’s global commercial reach and growing popularity in the world: especially in America as of late. Moreover, it’s competitiveness is seen as a strength, where a mid table club can beat one of the elite clubs known as the “Top Four”. And let us not forget the regular mention from fans that it’s “the best league in the world.” However, it’s one selling point is just how rich it is, stemming from the global audience it can reach. The recent 3 year domestic TV rights deal worth £5.1bn speaks for itself. Added to that, the Premier League agreed a six year contract extension to its broadcasting deal with US network NBC worth £2bn.

But scratch beneath the surface of the Premier League, or a division below, and there lies the Championship. The 2nd tier of English football is commonly known as the hardest league to gain promotion, as well as the most competitive. One season a club may challenge to win promotion to the Premier League, while in another fight to stave off relegation to League One – the 3rd tier. Wigan Athletic found out the hard way, by dropping to League One last season, merely two seasons after famously winning the FA Cup as a Premier League club.

Like the Premier League, the Championship has enjoyed the benefits of the growing value of selling its TV rights, negotiated between the broadcasting companies and the Football League. The last TV deal agreed between the Football League (who administrate the Championship, Leagues One and Two) and Sky was £195m – a three year deal that ends at the close of this season.

Compare that with Portugal’s top flight – the Primeria Liga – (renegotiated year by year) from 2011/12 to 2013/14. In 2011/12 the total amount generated from TV rights was £42.4m. The following season it raised to £45.9m. In 2013/14 it was £53m but the big three (Benfica, Sporting Lisbon and FC Porto) pocketed 75% of the spoils.

As a result of this lucrative TV deal, it’s led to the Championship in recent years to post strong figures in terms of revenue. The 2011/12 season is a good example. During that period the Championship had an income of £417.4m of which £168.2m came from TV rights. When comparing it with other 2nd tier leagues in continental Europe during the same period it dwarfs its rivals.

Germany’s 2.Bundesliga had a income of £257.7m where TV rights generated just £76.7m. The income of Italy’s Serie B was £196.3m where £55.3m came from TV rights. In France, Ligue 2’s income was £151.1m, with £76.3m stemming from broadcasting rights. However, the Segunda Division in Spain merely raised £143.3m in income where broadcasting rights attributed £50.7m.

The Championship’s current TV deal and ability to generate a strong income per year has meant clubs in the league have more money to spend on players. During the last few years there has been some eye catching (some would say eyebrow raising) acquisitions.

In 2012 Jordan Rhodes left Huddersfield Town for Blackburn Rovers for £8m. The fee was a surprise but also the choice of club, as the striker’s prolific record for Huddersfield (82 goals in 144 games) meant a move to the Premier League was possible.

Ross McCormack’s move to Fulham from Leeds last summer was a case of a relegated Premier League club utilising the parachute payments (a series of payments over a few years to clubs who suffer relegation to the Championship) in an attempt to win back instant promotion to the top flight. Alas, the Cottagers went through a rough season, barely surviving relegation to League One.

This summer’s transfer window hasn’t curbed the spending of some clubs, as they seek to flex their financial muscle. Burnley, relegated from the Premier League in May, spent £6m (potentially raising to £9m) on Brentford striker Andre Gray. QPR, another club recently relegated from the top flight, spent £3.5m to bring in Massimo Luongo from Swindon Town – who reside in League One.
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But, it’s not just recently relegated clubs who’ve decided to splash the cash. Those who have been in the Championship for a while have looked abroad to acquire players: notably in Spain and Portugal. These are not just young players looking to start out their career but experienced professionals who’ve played in European club competitions.

One example is Christian Stuani, an experienced striker brought in from La Liga club Espanyol for £2.8m. It is surprising a player of his stature should move a level down to the 2nd tier of English football. The Uruguayan scored 15 goals last season, 12 in the league, the type of form that would warrant a move to a Premier League club. But a lucrative offer can always lure a player to the Championship.

Quite a few Spaniards like Middlesborough’s Kike or Brentford’s Jota have made the move to the Football League. Jota’s move to West London was surprising, as he’d been a integral part in guiding Eibar to La Liga for the first time in the club’s history. Moreover, players from Portugal’s top flight have made the move this summer to England’s 2nd tier. Marco Matias went to Leeds Utd from Nacional for £2m while Paolo Hurtado left Pacos de Ferreira for Reading.

As a result of these big spending signings the wage bills of Championship clubs have considerably increased over the last few years. The accounts for the 2012/13 season show 13 clubs in the division go over 100% in terms of wages as a proportion of turnover. Massimo Cellino, owner of Leeds Utd and former president of Serie B side Cagliari, summed up the Championship’s financial strength when comparing Cagliari’s time in Serie A:

“Here clubs have revenue of €45m (£32.6m) every year, selling almost 100,000 shirts per season and all this is not including TV rights. Just consider the fact that in Serie A Cagliari get a little more than €35m (£25.3m) revenue with the TV rights included. It’s another world financially,”

The Championship’s ability to broaden its muscles in the transfer window, as well as generate vast sums of money whether from TV rights, sponsors or ticket sales is a strength. But at times the money available to owners can mean it’s also a curse. None more so than certain teams in the league displaying recklessness in their spending thereby plunging into debt. One factor determines why clubs pay these big transfer fees and lavish wages.

It is their desire to reach the Premier League, nicknamed “The Promised Land”, with its financial benefits tantalising to those in the Championship: whether they be fans, players or owners. The story of Swansea City is an inspiring tale of what promotion to the Premier League can do to a club’s prospects but also its city. Since winning promotion to the top flight in May 2011, they’ve established themselves as a Premier League club, played in the Europa League and brought in quality players who have Champions League experience.

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Economically, promotion has brought about a significant boost to the city. A commissioned study by Cardiff University said the Swans’ first season in the top flight generated £58m to the Welsh economy. In addition, 340 jobs in Swansea were created or protected, with the job figures and monetary boost to the economy likely to rise due to establishing themselves as a Premier League club.

Moreover, the benefits Bournemouth, Watford and Norwich City earned from promotion to the Premier League show just why Championship clubs are willing to spend so much. Bournemouth and Watford will earn £130m as a result of automatic promotion, while Norwich earn £120m, due to gaining promotion from the playoffs. The figures also includes parachute payments should they fall back into the Championship.

Another factor that makes clubs in the English 2nd tier open up their chequebooks is just how high the stakes are. Those promoted to the Premier League next season will access the £5bn TV rights deal and will earn more money than ever before. Therefore, as a result of the lucrative broadcasting rights package, should the promoted clubs avoid relegation then according to accountancy firm Deloitte could stand to pocket at least £230m.

The pressure to win promotion to the top flight is so extreme the sacking of managers by impatient owners is high. Last season 20 were sacked – the highest since the 1991/92 season. The average shelf life of a manager in the Championship is 0.86 years. One brutal example of how gruelling managing a team in the English 2nd tier can be is the story of then Huddersfield Town manager Mark Robins. He was sacked on the first day of the 2014/15 season after losing 4-0 at home to Bournemouth.

The owners’ insatiable need to be in the Premier League can lead to reckless spending, which as said earlier, unnecessary puts their clubs under financial pressure. Debt is a huge problem with clubs posting quite shocking losses. Bolton Wanderers typifies this. Relegated from the Premier League in the 2011/12 season their losses up to June 2013 (during their first season in the Championship) was £50.7m – raising their debt to £163.8m.

As a result of failing to win back promotion to the top flight, causing to languish in the 2nd tier, recent financial results do not bode well for the club. The 2014 financial year showed Bolton’s debt increase to £172.9m. Bolton Wanderers may be an extreme example of clubs going into debt but sadly the division is racked with it. Deloitte in June posted figures showing Championship clubs having a collective debt of £1.1bn – twice the annual revenue made by all 24 teams.

Deloitte’s report may highlight the financial muscle of the league but also the crassness in which clubs spend what money they generate. Other key points made include::

• Championship clubs making a loss of £247m overall during the 2013/14 season.

• In the very same season clubs hit the £500m mark for the first time on player’s salaries: a increase of 12% from 2012/13.

• 105% of the clubs’ revenue was spent on players – including transfer fees and wages.

• Only 3 teams in the league kept their wage bill below 70% of their overall revenue.

Though Financial Fair Play (FFP) is in existence to try and curb financial losses, so to avoid another Portsmouth, the lure of the Premier League means clubs will keep on spending to try and win promotion so to access the pot of gold available in the top flight.

Furthermore, the Championship will stand to benefit even more as a result of the new Premier League TV deal. The Premier League agreed to share 20% of the £5bn TV deal to the Football League but also in grassroots football, facilities and fan engagement.

The Championship may be able to generate money from TV rights, sponsors or matchday revenue. But that strength can be turned into a negative, especially if teams spend themselves into financial ruin, such is their desperation at times for promotion. Bolton Wanderers found out the cost of failing to win back promotion straight away, as they are now saddled with such a high debt, despite recent cost cutting efforts.

The Championship may be the hardest league to get out of but one thing is for sure: no other division among the 2nd tiers of European football can match it. For better or worse.

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