REVENUE DISTRIBUTION
Ms. Crouch sets out some key principles up front :
• the way that revenue is distributed needs to be determined for the good of the game as a whole
• this means that the EPL needs to guarantee a proper level of support for the pyramid as a whole, even if that means it has to contribute more to it than it does now
• the FA should have more discretion over how it distributes its revenue around the game ; the current 50/50 split between the professional and amateur game is no longer sustainable
What evidence is there to say the system is unfair?
There is a starling disparity between the revenue that the EPL retains and what it hands down to everyone else. The distribution of TV monies in 2018/19 graphically demonstrated this :
• Huddersfield Town, who finished 20th in the EPL, received £96.8m in TV revenue
• Norwich City, who won the Championship (effectively one place below) received £8.5m
• League 2 clubs that year received £0.4m each
Over the period 2019/22 :
• only around 16% of TV revenue that the EPL received was distributed to the EFL. The EFL are lobbying for that figure to rise to 25%
• of the money that the EFL does get, during this period 52% of it was given to a handful of clubs as parachute payments
• setting clubs in receipt of parachute payments to one side, the distribution of the TV money that the EFL gets is also hugely unbalanced. Championship clubs take 80% of it ; L1 clubs around 12%, L2 clubs around 8%
There are therefore two huge cliff edges in the system, between the EPL and the Championship, and between the Championship and L1.
Given the above, it is hardly surprising that the biggest problems with overspending have been in the Championship, as clubs fight for the riches on offer in the League above, or at least, to avoid falling back to the relative poverty of L1.
What are the issues around parachute payments?
Parachute payments were originally introduced to protect clubs relegated from the EPL into the EFL from the worst of the financial impact.
However, this device has had some unwanted consequences. Clubs in receipt of these payments currently receive around £40m a year, and this extra spending power has actually given them a huge competitive advantage in the Division below. They are increasingly featuring amongst the teams promoted from the Championship every year (they are thought perhaps twice as likely to go back to the EPL immediately as they were previously) ; and clubs with parachute payment being relegated below the Championship are becoming increasingly rare.
Don’t they need this protection though?
Some protection is probably needed, even if the current way that money is distributed changes in the way that the EFL is pressing for (see above). But clubs could do far more to mitigate the impact themselves.
Such as what?
A more flexible and imaginative approach to player contracts should be possible. Clubs don’t have to give out long term contracts to players that commit them to huge expense. And they could introduce performance related pay which means that a players wage is in part determined by success on the field - this kind of arrangement is very common throughout most industries. Ms. Crouch specifically recommends that this should become the standard for football too.
It is also open to all clubs to recruit up and coming talent from the lower leagues, instead of paying huge transfer fees for established players.
Isn’t that risky?
There are of course risks with all these possible steps. But managing risk and protecting the long term financial health of the club ought to be part of the job of managing it properly.
Are there any other considerations?
Parachute payments also have a potentially huge impact on the behaviour of clubs who DON’T get them. Some club owners, faced with the bigger spending powers of other clubs, are becoming increasingly reckless in their own spending.
Championship clubs spending more in wages than they receive in turnover is becoming increasingly commonplace. Some owners have become increasingly creative in trying to find ways around the EFL’s rules on Profitability & Sustainability, and have got into hot water as a result. Sheffield Wednesday, Reading and Derby County are good examples of how badly wrong clubs can go.
What is the answer to these problems?
If there was an easy answer, it would probably have been found by now. But addressing some of the issues above will challenge some vested interests and mean asking some clubs and their Leagues to give up power, change their behaviour, or both.
Ms. Crouch believes that a voluntary, negotiated solution would be the ideal way forward and in her report said that she thought the EPL and EFL should be a give the chance to come up with a solution themselves.
Her challenge to them was :
• to try to reach an agreement by the end of 2021 (this has NOT been achieved)
• If there was no agreement, they should jointly commission external advice to help them to do so
• and if this didn’t work, she placed them on notice that the regulator would be given powers to impose a solution, should one be needed
Isn’t making the regulator responsible for this the easiest way to deal with it? Wouldn’t it save time?
Ms. Crouch points out that there pros and cons to any approach. Part of the thinking behind inviting the EPL and EFL to sort this out themselves was that they would be far more likely to honour new arrangements if they had designed them in the first place.
But asking the EPL to give up significant amounts of money is always likely to be difficult. Asking the EFL to change the way that it allocates its share of the money and confront reckless owners is also very challenging. A backstop to sort these problems out was always likely to be needed.
The regulator will at least have no vested interests in what the eventual answer is, and can broker a new arrangement in good faith. And given that the long term financial health of the game is at stake, finding an answer to these problems would be very much “core business” for it. But it also would swallow up significant resources that the regulator could allocate to other important issues.
How important is this issue?
Potentially crucial. It has the potential to :
• make the transition between different Divisions easier to manage
• make the Championship in particular more competitive
• have a profound impact on owner behaviour
• affect the way that clubs negotiate and award contracts, particularly if progress can be made towards standardising contract provisions in this area
Solidarity payments via a transfer levy
The other main way in which Ms. Crouch recommends that the distribution of revenue be equalised is through the introduction of a further transfer levy.
Such a levy already exists, but Ms. Crouch thinks that the concept should be extended. She does NOT recommend a rate at which it should be set - although she does set out some detail on what could be achieved if the levy was set at different levels.
What is she proposing ?
• that the new levy should apply to all player transfers between EPL clubs, and between EPL clubs and clubs overseas
• that the rate at which the levy is applied should be set after consultation
Why?
there are a number of benefits :
• the levy would be progressive in nature - moving money from the well off to the less well off
• EPL clubs making extensive use of overseas markets would pay a premium for doing so that would go straight back into the domestic game….
• …. at the same time, the fact of the levy would make EFL players in particular more commercially attractive (as they would represent better value for money)…
• … and over time would also steer more money into the EFL
The principle of a transfer levy is already established ; EPL clubs already pay 4% of transfer fees into the Professional Footballer’s Pension Scheme, and are also subject to levies from FIFA that are set to rise to 6%.
There is one significant risk which would require careful monitoring, in that paying a premium for overseas players could affect the ability of richer EFL clubs to participate in foreign markets. But set against this, the purchasing power of the EFL due to TV revenues is significantly higher than of their counterparts in Spain, Italy, Germany and France.