Championship Finances - Part 2: Expenditure

Apologies for the slight delay getting this post online - I've recently changed jobs so had a little less time to get this complete. If you haven't read Part 1 then I advise you do so before going any further.

But as promised, here is Part 2 of my review of the Championship Finances focussing on club expenditure.

West Ham were the league's highest spenders splashing out just shy of £55m in total. Barnsley, who just avoided relegation, were the only club to spend less than £10m in total, an impressive feat if you consider they were playing against teams who were willing to spend far more on their playing squad.

Total league expenditure rose above half a billion for the first time, but only £4m was paid by clubs in direct taxation. In fact, Middlesbrough received a tidy £3m tax rebate for readjusting their previous financial disclosures.

As you all know, a high proportion of a club's costs are incurred through player salaries and as teams chase that golden promotion to the EPL (and the financial windfall that comes with it) they have been happy to break the bank to bring in better players.

9 clubs in the Championship were happy to pay more in player salaries than the amount the club actually generates, a worrying figure to say the least. Bristol City, who have a limited ability to generate revenue because of the size of their Ashton Gate ground (avg home attendance 13,836), spent £18.7m in player salaries but only generated a total turnover of £11.9m.

Unsurprisingly, the league's biggest spenders were West Ham at £41.6m, with second place going to Southampton who paid out £28.7m.

Reading spent 135% of their revenue (£19.9m) on players (£26.8m) but this gamble obviously paid off as they stormed to the Championship title and got their golden EPL pay day.

The league average was 93% which is far too high to be sustainable.

I included this graph in a separate post the other day as I think it throws up an interesting concept: effective player cost per league point achieved.

In essence what it tells you is this: how much (£,000s) the club paid in player salaries to achieve one Championship point. For example, eventual winners Reading accumulated 89 points by spending £26.8m in player salaries, an effective cost of £301,000 per point.

Peterborough Utd, who were promoted the season before and eventually finished 18th, had the lowest effective cost at £114,000. They paid out just £5.7m in player salaries and finished one spot ahead of Nottm Forest who had spent £17.4m in salaries.

Again, West Ham led the way on this measure, partly because they retained their core Premier League squad in the hope of returning to the EPL at the first attempt (they did through the play-offs). With a total wage bill of £41.6m, they effectively paid £484,000 per point.

Although they failed to return to the EPL, I think Blackpool were the stand out performers when you consider this measure. With an effective cost of £165,000, they were the only team to make the play-offs with a sub-£200k figure.

Total net debt across the league rose to £830m, with Brighton leading the way with net debts totalling £110m partly due to their recent investment in building the new Amex Stadium. The majority of this debt is owed to Brighton owner, Tony Bloom, who has bankrolled the club's recent rise through the league.

Although the graph does show that the majority of clubs in the league owe a substantial amount of money, these figures are likely to fall drastically in the upcoming years with the introduction of Financial Fair Play regulations. I am going to look at FFP in Part 3 when I look at the Profit and Loss Accounts for each club, but the majority of the debts owed across the league are directorship loans which will (probably) be converted into equity in order to bring clubs in line with the new regulations.

The above table shows the net debt to revenue ratio for each club in the league. For those who don't know, a number above 1 says that the club has net debts greater than their annual turnover. For example, Ipswich Town are holding net debts totalling £72.5m but the club only generated £15m in turnover that year, hence their net debt to revenue ratio of 4.8.

Only 8 clubs in the league have a ratio less than 1 (so they owe less than the amount they generate each year) with Leeds leading the way with a ratio value of 0.05 because they only hold a negligible amount of debt.

That pretty much concludes Part 2 of my review of expenditure. I've had a few people ask why I've split my review into three separate articles, so I think it's important to say why here.

In my writing I always try to explain figures and ratios using the simplest explanation or the most suitable graph. In doing so, I feel like I am able to target a greater number of football fans and therefore those who don't have a financial background are still able to understand their club's position. As a result I decided to split the core business of a football club into three simple functions - 1) Revenue 2) Expenditure 3) Operating Profits.

Hope you stick around for Part 3 as this is where the nitty and gritty analysis will be done when I look at Operating Profits (well, pretty much Operating Losses) across the league.


Blackpool fan here: thanks for this and your comments on the AVFTT noticeboard, very informative.

I am very interested in your proposed analysis of Blackpool's accounts over the past 5-6 years, particularly as regards the revenue/salary ratio.

Ideally you should try to start in the 2004-5 season. This was immediately before our Latvian investor, Valeri Belokon, became involved and it would be instructive to see how things changed during and after his period of influence.

Good luck and keep up the good work.


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