Clubs in the Championship lost £366 million in 2015/16, and that figure could easily be exceeded in 2016/17, as many clubs gambled on big signings and big wages to try to make the £100 million a year broadcasting income of the Premier League.
Preston haven’t taken such a route, but they have still managed to finish 11th in the Championship in the last two seasons, without troubling either the playoff chasers, or those in the relegation scrap.
That has come at a cost, as the club lost £67,000 a week last season, but that is chickenfeed compared to the losses of some other Championship clubs.
Football club income is broadly split into three areas, matchday, broadcasting and commercial.
Less that half the clubs in the Championship have reported their results to date, but the gap between those who receive parachute payments and clubs such as PNE who don’t, is significant.
PNE’s income was a fifth of the sum received by Norwich and Villa (and will be the same in relation to Newcastle when they publish their results), so to finish mid-table was a creditable achievement.
PNE have increased their income over the last few years as a result of promotion to the Championship and benefitted from the new Premier League TV deal too. This ripples through to the Championship in what are called ‘solidarity’ payments. These are worth about £6.5 million a year to Championship clubs.
Matchday income is mainly ticket sales. Preston’s crowds averaged 12,600 in 2016/17, about 400 lower than the previous season. This puts them in the bottom half of attendances in the division. Preston’s matchday income is about a quarter of the total.
The big difference in the division is broadcast income. In the Championship it is a case of the have’s and the have nots, due to parachute payments. Clubs who are not in receipt of these earn about £6.5-7 million in solidarity payments from the Premier League, less than half the sum earned by the lowest paid parachute recipient.
The main costs for a club, especially in the Championship, are wages. During 2015/16 clubs paid out on average £101 in wages for every £100 of income. There’s been a slight improvement in 2016/17 to date, with the figure dropping to £93 (mainly due to parachute payments boosting income, rather than wages decreasing).
For Preston, it appears that any increase in income each season is paid out in wages. Every time money earned goes up, there is an immediate increase in the money going out of the club. Alan Sugar describes this as the ‘prune juice effect’, although I cannot remember the last time that anyone ever ate any prunes.
Even when Preston were in League One, they paid out all their income in wages. This leaves relatively little room to sign players and pay the day to day overheads of running the club.
Player amortisation costs are the cost of transfer fees divided by the length of the contracts signed by players. So if PNE sign a player for £1 million on a four year contract, the amortisation cost is £250k a year for four years.
Fortunately, the club’s losses are underwritten by the owner, Trevor Hemmings.
Profits (or in the case of most non-Premier League football clubs losses) are the difference between income and expenses.
Clubs in the Championship lose money because so many owners are willing to gamble on promotion by investing in players and wages.
PNE don’t seem to have taken such an extreme approach, but to be competitive they have made losses every year.
Trevor Hemmings seems happy for PNE to lose about £70-80,000 a week. This has been the level of losses over the last five years, which have totalled £19.5 million. The club has sold some players at a profit over that period, such as Joe Garner, but in the main the club has been relatively quiet in terms of big money signings in and out.
PNE spent big by their own standards in 2016/17, buying players for just over £2 million, compared to an average of £300,000 in the previous four seasons. By Championship standards PNE’s activities were very modest. They didn’t need to sell players to satisfy Financial Fair Play, and there were not a long line of suitors for their stars. Consequently the club was rarely mentioned on the back pages of the national newspapers.
The above table shows the amount spent by clubs on new players (Gross signings) and the amount after taking into account player sales too (Net signings).
PNE seem to be happy to be towards the bottom of the table, and hope for a good season, perhaps unearth a gem or two, and some successful loan signings, to then challenge in a similar manner to the likes of Burnley, Blackpool, Wigan, Huddersfield and small London outfit Crystal Palace have done in recent years. If it works, then the club could earn a lot of money.
PNE have shown it is possible to survive with relative ease in the Championship without spending huge sums of money. At the same time they have achieved that by spending every penny they earn on player wages, and relying on an owner to cover the remaining costs of running the club.
They have significant debts due to the owner of about £30 million, but it’s unlikely that there will be a request to repay these sums.
It’s a model that could turn out to be successful, with PNE presently just three points off a playoff place, and if they do get that far the rest is a lottery, with a big prize for the winning ticket.