The problem with football finance

English football has become a victim of the financial success of the Premier League, with the top division now being a financial utopia that has trickled down into the lower leagues. 

Since 2019, five Football League clubs have entered administration (see pictures on the left).

In 2022/23, Deloitte reported that the average revenue per club in the Prem was £303m compared to £31.2m in the Championship. 

This disparity has led to a race to the top that has caused clubs in the Champ to spend beyond their means, using money that they do not actually have and instead spending projected incomes that promotion would bring. 

Derby County and Reading, to name a couple, have fell victim to this and were left with major financial blackholes as a result of failing to secure promotions. 

Even in the leagues below that, clubs such as Wrexham have spent huge amounts of money to try and get up the leagues, as the gaps between League Two, League One and the Championship are huge financially. 

Wrexham alone lost £7,841,912 according to their accounts in the two financial years ending 2023 and 2024, with the bill needing to be footed by owners. 

While Hollywood actors Ryan Reynolds and Rob McElhenney can afford it, other clubs are not as fortunate to have owners with deep pockets.

Business management consultancy firm Lane, Clark and Peacock found that 38 clubs out of the 72 in the EFL are dependent on owner funding in continuing operations. 

If that funding is suddenly cut, or an owner becomes disinterested as was Reading’s case, those clubs are not self-sufficient and are at serious risk of going bust. 

The future of many football teams currently depends on how much their owner is willing to lose, instead of trying to become a profit-making enterprise. 

Reading's case

Current owner Dai Yongge acquired the club in May 2017, just a day before Reading's Championship playoff final against Huddersfield Town. The game was dubbed 'The richest game in football' , due to the money that promotion to the Premier League would bring.

Huddersfield won on penalties and became approximately £100 million richer overnight, while Reading had to stay in the second tier.

As a brief bit of context about Yongge , two football clubs had already gone bust under his stewardship, Beijing Renhe and KSV Roeselare.

A representative from Reading protest group Sell Before We Dai spoke on Yongge's suitability of owning a football club given his previous track record.

They said:

“The EFL have let us down by allowing Dai Yongge to become owner of Reading in the first place, bearing in mind his track record with owning two other clubs who were both liquidated. For us that should have been a red flag that he is irresponsible and should not have been allowed to buy Reading.” 

He had also previously failed the Premier League's ownership tests, unsuccessfully trying to buy Hull City in 2016.

For the next couple of years, Yongge funded the club excessively to try and get the club promoted.

The figure on the right shows that in four of the five years listed, Reading spent more on wages than their entire turnover, in a bid to get promoted. (Figures in £s)

2020 was the worst year for it, with £33,296,447 being spent on wages, but only £17,767,865 was actually brought in revenue wise.

While any owner spending a lot of money to try and achieve success is commendable to some extent, it also throws into the balance the future financial sustainability of the club.

Sell Before We Dai explained their views on his spending:

“What the Dai Yongge era has shown is that he is very naïve when it comes to football clubs.” 

Reading soon became a club which was dependent on ownership funding, which put the financial fate of the club in Yongge's hands.

On the pitch, they struggled and got nowhere near to promotion, actually finding themselves near the relegation zone.

As results got worse, the owner became increasingly less interested in funding the club. By this point, the club was no longer financially stable due to the high spending of the past couple of years and the huge gap in revenue that was 'lost' as soon as they failed to beat Huddersfield.

During the 2020/21 season, they were penalised with a six-point deduction following a breach of Financial Fair Play regulations. They had lost £57.8 million between 2017 and 2021, almost £20m more than the maximum £39m that the EFL permits.