SE7 Strategy, Championship Finances and the New Deal

[Mundell]

SE7 Strategy, Championship Finances and the New Deal

Part I The Challenge

On the Charlie Methven podcast thread I wrote the following,

“As I’ve noted previously, the SE7/GFP plan now seems clear. My guess is that the consortium is relatively confident we can win promotion to the Championship, while recognising that this may take longer than is ideal if the breaks don’t go our way. With one of the largest wage budgets in League One, the right infrastructure (Technical Director, Director of Performance et al), good recruitment, a decent Head Coach and a thriving academy, promotion ought to be no more than a question of time.

The challenge, obviously, is what happens when we reach the financial graveyard of the Championship? How do we compete, let alone challenge for promotion? Charlie Methven clearly believes that a combination of bigger EPL handouts with greater enforced financial discipline on clubs in the Championship will mean that we will be able to compete on the field of play and break even, or at least get close to it.”

A friend asked me how much difference I felt the changes to Championship finances Methven is predicting might make and I thought I'd share my high level response here.  

As we know, the challenge we’d face if promoted to the Championship would be how to compete with Clubs with much higher wage bills than we might reasonably be able to afford. Is the only answer very high levels of owner funding which might prove financially ruinous if the club fails to win promotion to the Premier League?

Just as a reminder, for the season 2021-22, the latest for which information is available, the club had an operating loss of £10.1m, partially offset by profits of £3.3m on player sales. This was with total employment costs for all employees, not just players, of £10.6m. If the club was promoted to the Championship and invested the entire increase in its media income in wages, then the wage bill might rise to around £17m. We can discuss and debate the accuracy of that number, but let's go with it for now because its certainly in the right ball park. 

The table below, based on Swiss Ramble data, puts this likely wage bill into perspective, 

Championship wage bills and revenues, 2021-22 season

CLUB	Wages £m	Revenues £m
Fulham	90.4	71.6
Bournemouth	61.4	53.2
Nottingham Forest	58.6	29.7
West Bromwich Albion	42.4	65.4
Sheffield United	42.1	66.7
Derby County	40.5	29.6
Stoke City	37.4	31.2
Birmingham City	32.1	18.1
Bristol City	30.3	29.7
Cardiff City	29.2	20.0
Middlesbrough	28.4	26.9
Queens Park Rangers	27.6	22.1
Reading	25.3	16.9
Swansea City	24.8	19.7
Preston North End	24.6	13.8
Blackburn Rovers	24.4	16.6
Millwall	22.3	18.6
Huddersfield Town	20.3	30.8
Luton Town	17.8	17.7
Coventry City	15.7	18.1
Barnsley	13.1	15.0
Hull City	12.7	15.4
Blackpool	11.6	15.3
Peterborough United	9.1	18.1

Note: Bournemouth, Fulham, Huddersfield, Sheffield United and West Brom all had parachute payments. 

The challenge facing Charlton is immediately obvious. Our wage bill would be bottom six, exactly as it was in each of our last five seasons in the Championship (2012-13 to 2015-16 and 2019-20). That's even with the owners continuing to fund hefty losses. The much higher wage bills at other clubs, and which we've simply not been able to compete with, have been financed in four ways. First, by parachute payments, though this is only the case for a minority of clubs. Second, at some clubs, by much higher underlying revenues than we enjoy. Bristol City is a good example. Third, by owners either gambling on promotion to the Premier League (Nottingham Forest is a good example) or funding significant losses simply to survive. Millwall, for example. And finally, fourth, through player trading profits. It’s essential to successfully trade players, though in 2021-22 only a handful of clubs generated significant sums this way. 

That's the problem. What's the solution? It would appear that SE7 is taking a strategic view that the Premier League will increase distributions to the EFL, with most of the money going to the Championship, but critically, as a quid pro quo, will insist on much greater financial discipline. In his excellent podcasts, Charlie Methven has suggested that we might see a version of the Salary Cost Management Protocol (SCMP) introduced in the Championship, limiting expenditure on wages to 70% of turnover. 

In the table below I've estimated what this might mean for allowable wage bills, based again on data for the 2021-22 season and using Swiss Ramble’s numbers. I've had to make a number of simplifying assumptions in order to do this. The four most important are, first, that each Championship club will receive an additional £7m p.a. from the Premier League, second that total employment costs proxy for player wages because I don't have more granular data, third I've made no allowance for what is known as 'Fortune Income' under the EFL's SCMP rules and finally, for now, I've omitted parachute payments. I'll come back to that topic. 

Allowable wage bills under proposed SCMP discipline 

CLUB	Allowable wage bill £m
Barnsley	14.9
Birmingham City	17.6
Blackburn Rovers	16.6
Blackpool	15.6
Bournemouth	18.1
Bristol City	25.6
Cardiff City	17.6
Coventry City	17.3
Derby County	25.9
Fulham	25.4
Huddersfield Town	17.4
Hull city	16.2
Luton Town	16.2
Middlesbrough	21.2
Millwall	17.5
Nottingham Forest	23.1
Peterborough United	17.6
Preston North End	14.8
Queens Park Rangers	19.9
Reading	16.8
Sheffield United	22.1
Stoke City	26.4
Swansea City	18.1
West Bromwich Albion	20.6

Its immediately obvious that the playing field is now much less uneven with an average wage bill of just £19.3m, a maximum of £26.4m (Stoke City) and a minimum of £14.8m (Preston). By way of comparison, if we take Charlton's turnover in 2021-22 and adjust it for the revised Championship media revenue then our allowable wage bill would be £16.3m, still below average but with a much smaller gap to close than would be the case today. 

I'll leave it there for now, but I'll come back later with some further thoughts on how likely all of this is and what it might mean in practice. 

[bigandy99]

Clubs need to drive down wages.. that’s the challenge.. there is no point moaning about losing money if, as an owner, you’ve agreed the signings and costs..

[Mundell]

SE7 Strategy, Championship Finances and the New Deal

Part II Parachute payments 

In my post above I said I would follow up on some of the key questions central to the debate about Championship finances. I thought I’d start with parachute payments which many agitators for change believe are the root of all evil and the ‘problem’ which most needs to be solved. In my view, they’re wrong and, in any event, as Methven has explained, there are very good reasons for the Premier League believing that parachute payments are essential to the success of its business model. 

Rick Parry, and others, have often quoted a Sheffield Hallam University study, “Parachute payments in English football: Softening the landing or distorting the balance?”, as providing definitive proof that parachute payments are a serious problem and therefore should stop. In my view the paper does no such thing. It’s just another example of flimsy evidence being used to support a predetermined conclusion.

Nobody doubts that parachute payments give teams relegated from the Premier League a revenue advantage or that, on balance, this is likely to increase their chances of promotion while reducing their risk of relegation. The question is how much they undermine ‘competitive balance’ (to use the study’s metric) in the Championship and how much of a problem this is, relative to other factors at play and relative to the competitive balance in other leagues? The study doesn’t satisfactory address this question. 

We can all use casual and selective empiricism, albeit more or less sophisticated, but in last season’s Championship, for example, six of the top eight teams in the final league table did not have parachute payments. Moreover, we’ve played five of those six in League One in recent seasons. The exception being Middlesbrough. As noted in my post above, in the 2021-22 season only five clubs had parachute payments. However, in sharp contrast to what happened last season, four of those clubs finished in the top six, though one of the clubs eventually promoted did not benefit from parachute payments while West Brom, who did, finished only tenth. Even the Sheffield Hallam study reports that there is no ‘statistically significant difference’ between the probability of clubs with or without parachute payments being relegated. That’s actually a remarkable observation. 

It’s obvious that the Championship playing field would be less uneven if there were no parachute payments, but they do not guarantee success or remove completely the risk of failure. Most importantly, they do not prevent clubs without them being promoted. Moreover, my guess is that Sheffield Hallam’s metric for competitive balance may well show that both the Premier League and League One are less ‘competitive’ than the Championship. A more rigorous study would have tested for that. 

In any event, it’s no use anyone discussing any of this with the Premier League if they are not first prepared to listen to why it believes parachute payments are important. Ironically, given the much quoted Sheffield Hallam study’s use of a competitive balance metric, parachute payments are explicitly designed to ensure the right level of competitive balance in the Premier League and, in turn, to make it highly attractive to TV audiences.

Put simply, if the several clubs at risk of relegation had no financial cushion (or insurance) in the event they were actually relegated, they might decide to simply accept their fate. They may choose not to risk signing players on long-term contracts and, instead, accept relegation or a much increased risk of it. The point here being that the best players in the world, who make the Premier League what it is, while attracted by the money Premier League clubs pay, also have opportunities elsewhere and demand long-term contracts. 

The classic response to this point is to argue that clubs could simply insert relegation clauses into player contracts. This fails to recognise the dynamic of any competitive market though. Why would the ‘best’ players (or indeed, any player), accept a contract which includes a relegation clause with Burnley, Luton or Sheffield United, say, or Wolves or Fulham, when a top tier club in Germany, Italy, or Spain is offering a similar deal without one? The Premier League is in a war for talent and it needs all twenty clubs in the fight if it is to retain its edge and it’s dominance of the global media market. 

In his latest podcast Charlie Methven suggested that one option might be to replace the existing structure of parachute payments with a one-off adjustment payment of, say, £50m. That’s an interesting idea and it might well take some of the heat out of the current debate as well as limiting the number of clubs in any one season with a financial advantage. However, this alone wouldn’t solve the question posed in the first post on this thread. How do we compete with clubs with much higher wage bills than we can reasonably afford? As we’ve seen, even without parachute payments that challenge would still be profound.

Parachute payments are here to stay, but in any event they are not the main challenge the club would face if and when we return to the Championship. There are more important elements of the Methven vision and I’ll comment further on those in later posts on this thread.

[valley]

londonnewsonline.co.uk/charlton-boss-michael-appleton-divulges-details-of-meeting-with-garbiel-brener-as-major-shareholder-is-spotted-in-se7/

[seriouslyred]

Mundell We can see that you discuss parachute payments below. It's probably best to look at those clubs separately as they're operating in a completely different ball park. And fishing in a completely different pool when it comes to talent acquisition.

We might also consider looking at some of the larger League One clubs as they are competing with CAFC for players every summer.

The table below considers a handful of clubs - I can add if there's interest and when I have time. The point is that theoretically that some clubs will be impacted by new SCMP rules whereas others may have little impact.

However the numbers from Swiss Ramble are for all wages and all revenue. To fully model the Championship finances correctly one needs to add in player sales revenue, deduct academy costs and depreciation AND know the split between squad wages and the management / administration.

Player sales revenue is available and one might estimate Academy and depreciation at 3M so I can add that once my work is done for the day. However, what about the player / admin split on the wages? One to explore later in the week perhaps.

We might also look at how CAFC might compete through higher media income, an increase in attendances and a boost in commercial revenue so as to match our peer clubs. That boost might be pure speculation but CAFC commercial revenues have been pretty poor forever - on a par with Hull City!

Team	Revenue	Matchday	Broadcast	Commercial	Operating Loss	Wages	Revenue + 7M	New Wage Cap	Impact
Hull	15.4	5.6	7.7	2.1	-7.9	12.7	22.4	15.7	None
Stoke	31.2	5.6	9	16.6	-29.2	37.4	38.2	26.8	Cut 10M
Forest	29.7	8.7	12.2	8.3	-49.5	58.6	36.7	25.7	N/A
Bristol City	29.7	5.2	8.7	15.8	-27.7	30.3	36.7	25.7	Cut 5M
Middlesboro	26.9	6.4	12.1	8.4	-23.2	28.4	33.9	23.7	Cut 5M
QPR	22.1	5.7	9.2	7.3	-24.2	27.6	29.1	20.4	Cut 7M

What we can see above is some eye watering operating losses. Forest would be the exception as those numbers probably include promotion bonuses for players. The losses above look high and would surely be reduced under an effective cost management framework. The average operating losses for clubs without parachute monies were £19M for 2021/22. Add in an additional 7M media revenue on offer and that number comes down to £12M. Then consider what annual limit the EFL might then apply (with EPL support).

PS re. formatting - unclear why the boxes on the table don't appear... and not sure I've applied all the proposed rules correctly - will take another look later

[kings hill addick]

There seems to be a 'journey' that newly promoted teams (to the Premier League for the first time) go through. They spend a fair amount of their higher revenue on players and stadia infrastructure. Both of these look good on the TV and benefit all of the clubs that are in receipt of Premier League money.

Then over time these new Premier League clubs adapt to their new surroundings by starting to pay serious money. There was a Chairman from a Premier League club on the radio (or a podcast) recently (I can't remember which) and he was saying that in the first year you can get away with paying all your players (from the Championship promotion season) £20k to £30k a week. On those kind of wages, with a couple of signings from top Championship clubs on similar money, and the odd free transfer of a player in his 30s from a Premier League club, on slightly more, you will make a trading profit.

That might last for a couple of seasons, maybe, even, three then, assuming the club stay up, the players will all be demanding more money or leaving (for a transfer or a Bosman). Then the 'established' Premier League club have a decision to make. It's a bit of a no-brainer, to be fair, but do they plan for long term Premier League membership or do they continue to gamble that they can stay up while spending less than all the other clubs in the division.

For simplicity, I am ignoring the potential for very good, or very bad transfer activity. Martin Samuel, the journalist, says that every club (outside of the top six) is just one bad transfer window away from relegation.

Anyway, the end result is that there comes a point where the total running costs of a Premier League club exceed what is ever going to be affordable in The Championship - even with Parachute payments. This massive shortfall of money can, and has, in many cases, taken clubs years, and years, to recover from. What makes it tougher is that, in many cases, the owners during the Premier League years don't have the wealth and/or inclination to fund Championship, or League One, football and want out.

A quick look at League One will show six clubs that went through that 'journey' - Portsmouth, Bolton, Derby, Reading, Wigan and us. In the Championship Ipswich, Sunderland, Leeds, Norwich, Hull City, Southampton, Blackburn and Sheffield Wednesday have all been in League One while trying to cope with the fallout from a relegation from the Premier League. Nottingham Forest, Wolves and Sheffield United have all has spells in the Premier League before falling into League One.

We can add to that group Birmingham, Cardiff, West Brom, Swansea, Middlesborough, Watford, Stoke and QPR who have fallen out of the Premier League and, even though they have avoided relegation to League One, they have had significant financial challenges.

What makes this all possible, of course, is that when one team is relegated, a new one in promoted. The new club, like Luton, will have so much money they won't know what to do with it. The three relegated teams have one season to get back or their financial situation becomes a real disaster.

The genuine Premier League's established clubs don't care who they play (and beat most of the time) just as long as the money keeps rolling in. They, also, don't care what happens to clubs after they fall out of the Premier League. Just so long as the TV money keeps coming who cares if Charlton spend ten years in League One after adjusting to the borrowing money spent trying to stay in the Premier League?

This is why football is broken. Realistically, at least ten of the Premier League clubs could fall into League One if they were relegated and failed to get back straight away. This is why they roll the dice on getting back, which is why it is such a disaster if they don't.

We did the same. Pardew was given way too much money to spend. The fact that he wasted it is irrelevant. Those running the club could have used the parachute money to prepare for a decade of being one of the potential challengers for the playoffs. Instead we gambled the club's future in the hope of getting back straight away. We are still paying for that mistake, and we are as far away from the Premier League (top division) as I ever remember us being.

Ironically those running the club, now, have taken the approach I mentioned above, but in a division lower. We keep hearing about our hopes to finish in the top six, which is no better than a one in four chance of promotion. The sad truth is that this is where we are now. However, even seeing us in this position, like several others, the Premier League clubs will spend tens of millions of pounds in January, that they can't afford in the Championship, to avoid being relegated. If they fail to stay up they will spend millions more in the summer to get back. I wonder who the next Charlton will be? I'm confident that there will be one!

[Mundell]

SE7 Strategy, Championship Finances and the New Deal

Part III A New Deal for Football

In the latest "Where's The Money Gone?" podcast, Charlie Methven and Adrian Goldberg discussed what they called 'A New Deal for Football' along with Fair Game CEO Niall Couper. The background to the conversation was the Premier League's recent response to the pressure which has followed Tracey Crouch's fan led review of football for a 'fairer distribution' of revenues within the game. While the Premier League has made no formal offer to the EFL, it seems that details of a proposal it has developed were 'revealed' at a recent EFL General Meeting in Derby. 

Methven has argued that the last resort power conferred on the regulator to "intervene in relation to financial distributions, to deliver a solution if football fails to find one itself" was likely to act as an effective threat ("a pistol at the head"), forcing the Premier League to take action in order to remove, or at least reduce, the risk of an even bigger "giveaway", as it would see it, if the regulator was to become involved.  

Based on what's been said about the Premier League's proposal (discussed on the Fair Game website linked above), it would appear that Methven is right. No doubt there will be lots of water under the bridge before a deal is finally agreed and it may well be that the EFL will try to play hard ball, hoping that the threat of regulatory action will be a useful bargaining chip, but it does seem that the Premier League has taken a big step forwards. Nevertheless, arguments will continue to rage over how much the EPL should give away, or share depending on your perspective, and who gets the additional funding. Fair Game, who represent non league clubs as well as smaller clubs in the EFL, want relatively wide distribution and are very unhappy with the current proposal. For what its worth, I suspect they'll end up disappointed, but that's not likely to be relevant to CAFC.  

Methven made a guess about what the new deal would mean for clubs in the EFL, suggesting we might see circa £1m go to clubs in League Two, £1.5m to clubs in League One and £6-7m to clubs in the Championship. In my analysis above I've assumed, for illustrative purposes, that clubs in Championship will receive an additional £7m each season. £7m would be a nice windfall and no doubt much welcomed by SE7 Partners, as and when the club returns to the Championship. However, notwithstanding the bigger numbers, the additional monies are likely to be much more important to clubs in Leagues One and Two.    

Given the current behaviour of clubs in the Championship the odds are that if revenues rose by £7m, they'd simply spend another £7m on wages, in a continuing arms race in which everyone loses, save for those clubs that happen to win the Premier League lottery. Critically though, more money from the Premier League is not the key assumption on which Methven has developed the strategy for SE7 and Charlton Athletic. He strongly believes that the Premier League will simply refuse to agree to a deal which gives very wealthy owners of clubs in the Championship another £7m unless they are explicitly prevented from spending it on ever higher wage bills. Its this belief, and the possibilities it might create, which is what really matters.  

SE7's strategy for the club, and quite probably the business case Methevn put to the investors in GFP/SE7, is based on the assumption that in exchange for the increased financial distributions which are being forced upon it, the Premier League will, in turn, insist on much greater financial disciplines being imposed on clubs in the Championship. This could be a very significant gamechanger and I'll return to this absolutely critical issue when I next post on this thread.   

[earlpurple]

The bottom two clubs in the Bundesliga at present are FC Koln and Mainz.
Do their players get paid anywhere near the level of players currently at, say, Bournemouth who may well go down this season?

Mainz finished 9th last season and Koln 11th. So who knows if they were relegation favourites and if they will even go down, but apart from the fact that this league has a few "big" clubs, in particular Bayern Munich, plus "the rest", does it also have a massive revenue difference to the division below due to TV money distribution?

Incidentally, those abroad who are paying to watch the English Premier League will be interested in watching Arsenal play Manchester City, but not that excited about Crystal Palace playing Nottingham Forest, just like if I'm going to watch La Liga, I'd want to watch Barcelona play Real Madrid but not likely to care about Celta Viga playing against Villareal.

[seriouslyred]

Oct 9, 2023 11:46:13 GMT earlpurple said:

The bottom two clubs in the Bundesliga at present are FC Koln and Mainz.
Do their players get paid anywhere near the level of players currently at, say, Bournemouth who may well go down this season?

Mainz finished 9th last season and Koln 11th. So who knows if they were relegation favourites and if they will even go down, but apart from the fact that this league has a few "big" clubs, in particular Bayern Munich, plus "the rest", does it also have a massive revenue difference to the division below due to TV money distribution?

Incidentally, those abroad who are paying to watch the English Premier League will be interested in watching Arsenal play Manchester City, but not that excited about Crystal Palace playing Nottingham Forest, just like if I'm going to watch La Liga, I'd want to watch Barcelona play Real Madrid but not likely to care about Celta Viga playing against Villareal.

From Swiss Ramble - behind a pay wall these days but only a fiver a month. It looks like Coln and Mainz have wage bills similar to high end Championship clubs.

Bundesliga:

In Germany Bayern Munich’s £295m wage bill was by far the highest, over 50% (around £100m) more than the closest challenger, Borussia Dortmund £196m. Four other clubs have broken through the £100m barrier: RB Leipzig £139m, Bayer Leverkusen £120m, Eintracht Frankfurt £109m and Wolfsburg £103m.

Six clubs paid less than £50m, including Greuther Fürth, who were a fair way adrift with just £19m.

In Spain Real Madrid £405m and Barcelona £340m comfortably lead the way. There is a significant drop to Atletico Madrid £215m, then another large gap to Sevilla £133m. Half of the division have wage bills below £50m.

Premier League
Manchester United’s £384m wage bill was not only the highest in the 2021/22 Premier League, but actually the highest ever reported in England. Three other clubs paid more than £300m in wages, namely Liverpool £366m, Manchester City £354m and Chelsea £340m.

There was then a big gap of more than £100m to the two North London clubs, Arsenal £212m and Tottenham £209m, so in terms of wages people should really talk about a Big Four, as opposed to a Big Six.

Seria A
It’s a similar story in Italy, where Juventus’ £285m wage bill is significantly higher than the rest of Serie A. The next highest is Inter £210m, followed by Roma £155m and Milan £144m and Napoli £110m. There is then a big gap to Lazio £84m and Atalanta £75m.

Six clubs were below £40m with the smallest wage bills at Spezia £30m, Venezia £31m and Empoli £31m. Genoa ended up being relegated, even though they benefited from the ninth highest wages in Italy.

Three clubs had a wage bill below £100m, including two that were relegated (Burnley £92m and Watford £79m). However, lowest of all were Brentford, who got more bang for their buck than any other Premier Club, as they finished in a very impressive 13th place despite wages of just £68m.

[kings hill addick]

I listened to the Methven podcast today. Not the latest one, the one about the offer from the Premier League.

Two things stood out to me. One was the chap from Fair Game suggesting that the Premier League revenues should, also, be bankrolling the non-league clubs. Methven pointed out that subsidising 92 clubs was more than enough.

The other, and more significant thing that caught my attention was the suggestion that they should take the current offer from the Premier League, bank it for now, and then 'suggest' although I thought they meant 'demand' that when the regulator was up and running they should make the top division pay more.

I assumed that this 'Fair Deal' was a way for the Premier League to stop the regulator from dictating to them. Either the EPL and the EFL can come up with a deal now or the regulator decides one, in due course. Surely they can't have it both ways.

[southnorwoodaddick]

Thanks for this Mundell the adjusted revenue numbers are very interesting and it sounds like I'll have to give the podcast a listen!

[Mundell]

SE7 Strategy, Championship Finances and the New Deal

Part IV Salary Cost Management Protocol (SCMP) in the Championship?

When I started this thread my primary objective was to seek to understand SE7's strategy for Charlton Athletic, but I also wanted to set out a framework so that as we move forwards we'll be in a position to assess any new information, whether that be internal CAFC news or in relation to the environment in which we are operating, and answer the question "Is this good news for CAFC, or not?"

I suspect that nowhere will the latter be of more value than when it comes to understanding the significance of any changes in the governance of English Football. I suggested in Parts 2 and 3 above that the issues of first, parachute payments and of second, a 'fairer distribution' of Premier League media revenues, were of much less significance to CAFC than the possibility of a defacto wage cap being imposed on clubs in the Championship. Charlie Methven has made it very clear that he expects to see what he describes as an extension of the SCMP into the Championship with the result that wages will be limited to 70% of turnover. 

This would be a very big deal, but even more significant is that fact that it is now clear that Methven's vision around this change in regulation is a central part of the strategy he has developed for CAFC. The table below makes it clear just how significant the change he is proposing would be. 

Impact on Championship wage bills of an SCMP wage cap, based on wages for the 2021-22 season

Club	Wages  21-22	Allowable wage bill	Wage cut
	£m	£m	£m
Barnsley	13.1	14.9	1.8
Birmingham City	32.1	17.6	-14.5
Blackburn Rovers	24.4	16.6	-7.8
Blackpool	11.6	15.6	4.0
Bournemouth	61.4	18.1	-43.3
Bristol City	30.3	25.6	-4.7
Cardiff City	29.2	17.6	-11.6
Coventry City	15.7	17.3	1.6
Derby County	40.5	25.9	-14.6
Fulham	90.4	25.4	-65.0
Huddersfield Town	20.3	17.4	-2.9
Hull City	12.7	16.2	3.5
Luton Town	17.8	16.2	-1.6
Middlesbrough	28.4	21.2	-7.2
Millwall	22.3	17.5	-4.8
Nottingham Forest	58.6	23.1	-35.5
Peterborough United	9.1	17.6	8.5
Preston North End	24.6	14.8	-9.8
Queens Park Rangers	27.6	19.9	-7.7
Reading	25.3	16.8	-8.5
Sheffield United	42.1	22.1	-20.0
Stoke City	37.4	26.4	-11.0
Swansea City	24.8	18.1	-6.7
West Bromwich Albion	42.4	20.6	-21.8
		Total cut in wages	279.6
		Average cut in wages	11.7

[Note: I've made the same assumptions in putting together the table above as I did in my first post, i.e. in Part 1. The size of the cut in wages required is perhaps distorted by the fact that I've excluded parachute payments in the calculation of allowable wage bill. However, the cuts required do nevertheless illustrate how much clubs with parachute payments today would have to cut their wage bills as they adjust to life without them. Moreover, if Methven's idea that instead of receiving three years of parachute payments relegated clubs get a one-off adjustment payment of, say, £50m was eventually agreed, then the wage cuts shown above might well provide a very good illustration of the extent of the deleveraging that would need to take place.]     

It is no exaggeration to say that a cap on Championship wages of the kind illustrated here would be one of the biggest structural changes in the English game since the launch of the Premier League. The ruinous arms race which has made the Championship such a financial graveyard over the last 10-20 years would be brought to an end overnight. Suddenly, Charlton Athletic, and other clubs like us, could view promotion to the Championship in a very different light. It would be possible to be competitive, and even to challenge at the top end of the table, without the need for a very wealthy benefactor willing and able to fund losses in the tens of millions of pounds, year in and year out. The question, of course, is how likely such a change might be and what might it look like? 

In discussing this question I've heard two main arguments which might imply that new financial controls may not work in the way Methven envisages and/or may not have quite the impact he is assuming. The first of these concerns the way in which the SCMP works. Here is an excerpt from the section on the SCMP in the EFL Handbook for the 2023-24 season, 

"SCMP Requirement

1.1 All League One Clubs (hereafter Clubs or Club) are required to meet the SCMP Requirement

(as defined in Note 1.2) for each Reporting Period (as defined in Note 1.3).

1.2 The SCMP Requirement is a measure whereby a Club’s Player Related Expenditure (as

defined in Appendix B) shall not exceed the sum of:

1.2.1 60% of the Club’s Relevant Turnover (as defined in Paragraph 1 of Appendix A)

for the Reporting Period, plus

1.2.2 100% of the club’s Football Fortune Income (as defined in Paragraph 2 of

Appendix A) for the Reporting Period."

The key here is the final bullet point. There are a number of elements to Football Fortune Income, but the most important are equity injections in the relevant reporting period. The effect of this provision is that, in practice, there is no cap on wages in League One. Owners can spend what they want. There are some potentially important tax related reasons why owners tend to prefer to fund operating losses via loans rather than via equity, but these don't necessarily apply in all situations and there is nothing whatsoever to prevent an EFL club funding via equity and using the cash raised to increase their club's wage bill. The owners of Ipswich Town, for example, provided the club with significant equity in the 2021-22 season. Moreover, clubs in the Championship are used to working with rules which require them to prove 'secure funding' to cover £8m out of a total of £13m of allowable losses per season.  

It follows that the implementation of the EFL's current version SCMP in the Championship would not necessarily lead to any reduction of wages, let alone one on the scale shown in the table above. The second concern floated around the potential introduction of SCMP style wage controls in the Championship relates to the nature of the Championship's current Profitability and Sustainability rulebook. It is argued that it was the Premier League which insisted on the introduction of this regime in the first place and that, at least in part, the objective was to align the approach in the Championship with the Profitability and Sustainability rules in operation in the Premier League. The EPL rules allow for even bigger losses than in the Championship (£105m over three years v £39m over three years), but work in a very similar way and allow for a phasing of the limits on losses for clubs that move between the Premier League and the Championship during any three year period. The question asked is why would the Premier League change it's position now? 

The reason is simple, the Premier League itself is having to change. And the clue to this change can be found in Article 93.01 of the UEFA Club Licensing and Financial Sustainability Regulations, published on July 1st this year, 

"Article 93 Squad cost rule. 93.01 A licensee’s squad cost ratio for the licence season must be no greater than the defined limit of 70%." 

This is an important development and The Premier League will need to respond to UEFA's lead. Sky Sports reported the following in an article published last November, 

"The new financial rules mean the Premier League will be out of step with UEFA, whose rules state clubs can only spend 70 per cent of their total revenue on players' wages and transfer fees. But Premier League clubs have decided they will allow a higher percentage to be spent in England - although the actual number remains confidential at this stage.

That means England's top clubs who compete in Europe will face different financial rules in their domestic league compared to those set by UEFA. For example, if the new rules were in effect this season, Manchester City, Liverpool, Chelsea, Tottenham, Arsenal, Manchester United and West Ham - the clubs currently in European competition - could face UEFA penalties for over-spending, even if they have remained within Premier League financial limits.

At Tuesday's vote, it is understood Premier League clubs were adamant the percentage limit had to be higher for English clubs to allow for 'aspirational spending' as clubs try to compete with the 'big six'."

I'm not aware that we've had any official update on this position, but while it may be that clubs in the EPL are still debating precisely where they want to land, it now appears to be very clear that direct controls on spending relative to income are coming. If this is planned for the Premier League then the implementation of a similar regime in the Championship seems almost inevitable, especially if, as Methven has argued, the Premier League will in any event see spending controls in the Championship as an essential quid pro quo for yet more significant financial support. There is an irony about the potential threat of intervention by the regulator here too. It is inconceivable the regulator wouldn't side with the EPL in support of spending controls on highly indebted clubs in the Championship.  

It is entirely possible that many Championship clubs will resist spending controls, arguing they ought to be able to spend freely to progress their clubs, providing they can demonstrate their funding of operational losses is 'secure'. However, it seems that the tide has now turned, decisively. The big clubs in the Premier League will need to comply with UEFA's rules while all of the established Premier League clubs, especially those with American owners, may now feel more philosophically aligned than before with the introduction of wage controls because this will finally enable them to profit from the hugely valuable franchises they own. Perhaps the Premier League is finally coming of age.  

Charlie Methven may or may not be right about the precise mechanism through which meaningful controls on spending by Championship clubs are introduced, but it seems he is very much right that one way or another those controls are on the way. We'll need to watch this space for news which confirms that this central plank of SE7's strategy is evolving as expected. 

Note: I've linked here, for reference (if only for me), 1) UEFA Club Licensing and Sustainability Regulations 2) The Premier League Handbook Season 23-24 and 3) The EFL Handbook 23/24

[Mundell]

SE7 Strategy, Championship Finances and the New Deal

Note: UEFA's Squad Cost Control Ratio 2023 - UEFA's Squad Cost Control Ratio will be phased in with the target ratio of 70% set for the 2025-26 season. In the context of the discussion above about the impact of this regulation on the Premier League, and hence on the Championship, it is important to note that most clubs in the Premier League are already well positioned to comply. The excellent Swiss Ramble posted a blog on this question earlier this month and put together a detailed assessment of ten Premier League clubs. Five of those ten already comply with the 70% target, Liverpool, Manchester City, Brighton, West Ham and Tottenham, with Aston Villa and Arsenal close to compliance. Only Newcastle exceeds the 90% transitional ratio set for this season, but that's before account is taken of additional revenues from the Champions League and new sponsorship deals, etc. If Premier League clubs are going to comply with a 70% Squad Cost Control Ratio (which is similar to SCMP, but excludes Fortune Income) then they're unlikely to have much sympathy with Championship clubs that are unable to do so.   

[Mundell]

SE7 Strategy, Championship Finances and the New Deal

Part V CAFC Strategy

This will be my final post on this thread for now, but I thought it was important to briefly summarise what we can now say about the SE7 strategy for CAFC and where the new owners are starting from.

In short, the ambition is to win promotion to the Championship, ideally this season or next, and once there to be competitive but sustainable and without the need for ongoing owner funding, or at least without meaningful owner funding. Such an outcome would immediately create significant value for the owners (because the club would then have a value of £30-50m, or perhaps more) and hence would justify their initial investment and validate the business case. Promotion to the Premier League might also be a realistic possibility at this point, even if only an outside bet. However, this outcome is simply not going to be possible without the 'New Deal' and strict controls on Championship wage bills discussed in Parts I-IV. 

Even with those wage controls in place though SE7 clearly has a lot of work to do. In short, it needs to increase revenue, both to mitigate losses now and to prepare for life in the Championship when revenues will drive wage bill, and at the same time significantly upgrade the quality of football management to secure much greater value for the money from the affordable wage bill, while also generating larger profits on player trading. 

seriouslyred and others might want to comment on this challenge, but in the meantime I'll try to set the scene with a few high level comments. All the numbers below are based on the latest CAFC accounts or from Swiss Ramble and relate to the 2021-22 season. Its highly likely that the position last season was very similar.  

1. The club had the fifth highest total wage bill in League One, and one that was at least £3m ahead of any club outside of the six clubs with the highest wage bills. Despite this we never looked remotely like a team that might qualify for the playoffs. It is very clear from this very simple data point that under the previous owner the quality of football management, broadly defined, simply wasn't professional enough. Addressing this has clearly already been a major priority for SE7.

2. The club's loss before tax was £7.4m and was the third highest loss in League One. This simply isn't sustainable. And this was the result despite a profit of £3.3m on player sales which was the second highest in League One. Revenues need to increase, money needs to be spent more efficiently and losses need to be reduced. Charlie Methven has made it very clear that this is the plan. 

3. Although CAFC is a big club by League One standards, revenues were only the eighth highest in the division and behind some smaller clubs. This was partly about match day revenues, but only Sunderland, Sheffield Wednesday and Ipswich Town enjoyed higher average attendances. Commercial income has long been a laggard and was behind that generated at much smaller clubs, including AFC Wimbledon for example. This can't be acceptable and I'm sure addressing this glaring weakness will be a major focus for the club and perhaps for Methven personally. 

4. The New Deal for English football and the likely reform of Championship finances presents a major opportunity for SE7 and CAFC, but if the club is to take full advantage it is going to need to improve its game significantly. We need to see much better management of the football side of the business, better management of the cost base (not random cost cutting for the sake of it) and a determined effort to increase revenues, especially commercial income, in order to increase both affordable and allowable wage bill. 

From my perspective, GFP/SE7 have made a very good start, but there is lots to do. I'm really looking forward to it and will update this thread whenever there is something new to say and/or to report. It would also be interesting to hear the perspectives of others. 

COYRs!!

[bigandy99]

SE7 needs to realise that if it’s right at the top of the pyramid it filters down onto the pitch eventually.. it’s not rocket science…

[earlpurple]

Ipswich put in a lot of money at the start of the 2021-22 season but it didn't work out immediately. We had Ged Roddy and Steve Gallen in charge of that transfer window, in which we were expecting a big rebuild and strengthening, as was Nigel Adkins, but we were all underwhelmed, although we did bring in George Dobson.

I guess the plan is that we'll never get that level of investment - our aim will always be top 6 but not top 2, hoping we can get through the playoffs.

[petetongthereturn]

Oct 12, 2023 15:39:01 GMT bigandy99 said:

SE7 needs to realise that if it’s right at the top of the pyramid it filters down onto the pitch eventually.. it’s not rocket science…

Though I’m not seeing much effort trying to advertise the club to the local population.

At least Katrien Meire tried to do this with poster board, radio adverts and even that dodgy centre circle video. All we got now is a retired temporary commercial manager.

I thought that the Yanks were experts in marketing? These billionaires must have links to Marketing teams and companies who would sponsor the club. Surely the board should stress this to them I.e. ‘we need help and investment in this area’ and to paint the west stand whilst they are at it.

[seriouslyred]

I've taken a fresh look at the numbers and the rules and have concluded that there are going to quite a few Championship clubs under pressure to cut wages and expenses in order to comply should a new Championship SCMP come into effect. Allowing for an additional £7M of media revenue from the EPL the picture might look like this:

	CAFC	Controlled Club	Out of Control
Revenue	9.8M	16.8M	22.3M
Player Sales	3M	2.5M	3.7M
Losses	-7.4M	-6.2M	-22.5M
Additions	7M + 7M	7M	7M
Impact	+10M	+3.8M	-12.5M

The out of control list based upon most recent accounts filed for 2021/22 features Reading who are already relegated and in financial trouble. Concurring with the detail from Mundell  , I'd suggest that Bristol City, Cardiff, Birmingham, QPR, Preston, Middlesbro and Stoke need to get themselves promoted to the EFL ASAP or make cuts in excess of £10M each.

These adjustments may also make decent talent cheaper seeing as less clubs will be bidding if some are struggling to meet a cap. And they will have less headroom to spend.

I've not looked at Championship clubs with parachute monies as each club will have its own story and will either fall over, cut its cloth, or secure promotion over the three year period they receive the parachute.

As for CAFC, the picture is particularly rosy! Should a new SCMP be introduced with the parameters suggested then we will receive £7M more media revenue for being promoted AND an additional £7M solidarity payment. We should also expect an increase in attendances worth £1M+ and commercial income might trend towards the typical £5M that many clubs enjoy. That would tot up to a massive £17M increase in revenue taking us to a turnover of £30M (including player sales).

Given that this is some £17M more than what we currently receive, there's ample headroom to reward the best in the squad AND to pay the going rate for additions to replace those whom the management feel won't add to a CAFC Championsip squad. Note that as posted before, it's hard to comment on the 60% wage bill cap as a proportion of revenue since clubs don't publish splits between players and admin wages. However, it's possible to state that 18M wage cap is significantly larger than the current squad wage bill - perhaps three times the size?!

Having said all that, this only works for CAFC should we secure promotion over the next 20 months. Ideally we make it to sixth place this time and take it from there.

PS one could speculate more on current numbers, growth and the ability to increase the wage budget for next season without promotion. But probably best to await the accounts for last season, any announcements and let's see how we go over the next six months. Ideally there's headroom to make a couple of signings in January?

[kings hill addick]

Oct 14, 2023 18:41:27 GMT seriouslyred said:

I've taken a fresh look at the numbers and the rules and have concluded that there are going to quite a few Championship clubs under pressure to cut wages and expenses in order to comply should a new Championship SCMP come into effect. Allowing for an additional £7M of media revenue from the EPL the picture might look like this:

	CAFC	Controlled Club	Out of Control
Revenue	9.8M	16.8M	22.3M
Player Sales	3M	2.5M	3.7M
Losses	-7.4M	-6.2M	-22.5M
Additions	7M + 7M	7M	7M
Impact	+10M	+3.8M	-12.5M

The out of control list based upon most recent accounts filed for 2021/22 features Reading who are already relegated and in financial trouble. Concurring with the detail from Mundell  , I'd suggest that Bristol City, Cardiff, Birmingham, QPR, Preston, Middlesbro and Stoke need to get themselves promoted to the EFL ASAP or make cuts in excess of £10M each.

These adjustments may also make decent talent cheaper seeing as less clubs will be bidding if some are struggling to meet a cap. And they will have less headroom to spend.

I've not looked at Championship clubs with parachute monies as each club will have its own story and will either fall over, cut its cloth, or secure promotion over the three year period they receive the parachute.

As for CAFC, the picture is particularly rosy! Should a new SCMP be introduced with the parameters suggested then we will receive £7M more media revenue for being promoted AND an additional £7M solidarity payment. We should also expect an increase in attendances worth £1M+ and commercial income might trend towards the typical £5M that many clubs enjoy. That would tot up to a massive £17M increase in revenue taking us to a turnover of £30M (including player sales).

Given that this is some £17M more than what we currently receive, there's ample headroom to reward the best in the squad AND to pay the going rate for additions to replace those whom the management feel won't add to a CAFC Championsip squad. Note that as posted before, it's hard to comment on the 60% wage bill cap as a proportion of revenue since clubs don't publish splits between players and admin wages. However, it's possible to state that 18M wage cap is significantly larger than the current squad wage bill - perhaps three times the size?!

Having said all that, this only works for CAFC should we secure promotion over the next 20 months. Ideally we make it to sixth place this time and take it from there.

PS one could speculate more on current numbers, growth and the ability to increase the wage budget for next season without promotion. But probably best to await the accounts for last season, any announcements and let's see how we go over the next six months. Ideally there's headroom to make a couple of signings in January?

I suspect that this will make it harder to offload the overpaid players that we are, already, stuck with.

On the flip side the likes of Charlie Kirk should start saving as much money as he can from now on as his next contract is likely to be nothing like what he’s on currently.

[seriouslyred]

Oct 14, 2023 19:56:49 GMT kings hill addick said:

Oct 14, 2023 18:41:27 GMT seriouslyred said:

I've taken a fresh look at the numbers and the rules and have concluded that there are going to quite a few Championship clubs under pressure to cut wages and expenses in order to comply should a new Championship SCMP come into effect. Allowing for an additional £7M of media revenue from the EPL the picture might look like this:

	CAFC	Controlled Club	Out of Control
Revenue	9.8M	16.8M	22.3M
Player Sales	3M	2.5M	3.7M
Losses	-7.4M	-6.2M	-22.5M
Additions	7M + 7M	7M	7M
Impact	+10M	+3.8M	-12.5M

The out of control list based upon most recent accounts filed for 2021/22 features Reading who are already relegated and in financial trouble. Concurring with the detail from Mundell  , I'd suggest that Bristol City, Cardiff, Birmingham, QPR, Preston, Middlesbro and Stoke need to get themselves promoted to the EFL ASAP or make cuts in excess of £10M each.

These adjustments may also make decent talent cheaper seeing as less clubs will be bidding if some are struggling to meet a cap. And they will have less headroom to spend.

I've not looked at Championship clubs with parachute monies as each club will have its own story and will either fall over, cut its cloth, or secure promotion over the three year period they receive the parachute.

As for CAFC, the picture is particularly rosy! Should a new SCMP be introduced with the parameters suggested then we will receive £7M more media revenue for being promoted AND an additional £7M solidarity payment. We should also expect an increase in attendances worth £1M+ and commercial income might trend towards the typical £5M that many clubs enjoy. That would tot up to a massive £17M increase in revenue taking us to a turnover of £30M (including player sales).

Given that this is some £17M more than what we currently receive, there's ample headroom to reward the best in the squad AND to pay the going rate for additions to replace those whom the management feel won't add to a CAFC Championsip squad. Note that as posted before, it's hard to comment on the 60% wage bill cap as a proportion of revenue since clubs don't publish splits between players and admin wages. However, it's possible to state that 18M wage cap is significantly larger than the current squad wage bill - perhaps three times the size?!

Having said all that, this only works for CAFC should we secure promotion over the next 20 months. Ideally we make it to sixth place this time and take it from there.

PS one could speculate more on current numbers, growth and the ability to increase the wage budget for next season without promotion. But probably best to await the accounts for last season, any announcements and let's see how we go over the next six months. Ideally there's headroom to make a couple of signings in January?

I suspect that this will make it harder to offload the overpaid players that we are, already, stuck with.

On the flip side the likes of Charlie Kirk should start saving as much money as he can from now on as his next contract is likely to be nothing like what he’s on currently.

No club in the Championship that has recently come up from League One is anywhere near breaching these new limits. This is due to the EFL SCMP operating in League One.

For sure we might have one or two players on big money (in League One terms) delivering little value. But our wage bill is a fraction of the £30-40M paid out by many in the Championship.

In this new scenario it will be a distinct advantage not to bear these legacy liabilities 😀

We might not be able to sell all of the players acquired by Sandgaard and Gallen before their contracts end, but their wages won't make too big a dent in our budgets, nor where we're going.

[Mundell]

Matt Slater wrote a piece for the The Athletic yesterday on the very subject of this thread. I can't link it because its behind a paywall so even though its a bit long I thought I'd copy in full below. While there is still some uncertainty about how all this will play out, Matt has covered a lot of ground in the article. It is very hard to overstate just how significant these developments are for CAFC. The Championship may no longer be a place where simply to survive the Club will need a wealthy benefactor to provide financially ruinous levels of owner funding. Charlie Methven's vision for a club that can be both sustainable and competitive in the Championship appears to be entirely realistic. 

Here is the article.

The Premier League’s ‘new deal for football’ and what it means for the EFL

The late Quentin Crisp is not quoted in many football stories, but the gay icon could have been talking about the negotiations between the English Football League and Premier League when he noted that “euphemisms are unpleasant truths wearing diplomatic cologne”.

Under pressure from the government to sort out the game’s structural cash-flow problems, the two tribes have been talking about how best to share the Premier League’s wealth for at least three years and are edging towards a deal that will probably annoy everyone a bit but disappoint nobody entirely. A result, then.

Last month, the EFL’s 72 clubs — the have-nots — met at Derby County’s stadium to discuss what the Premier League — the haves — were offering: a “new deal for football”.

Politicians everywhere have been calling their ideas “new deals” ever since President Franklin D Roosevelt came up with the package of projects and reforms that helped to lead the United States of America out of the Great Depression. It is a tough act to follow, but the Premier League seems up for it.

The EFL issued a statement after the meeting that said “a draft proposal” was examined and “an appraisal of conditions linked to future funding… was also provided to clubs”.

An appraisal of conditions, you say?

Rotherham United owner Tony Stewart is presumably not a fan of cologne. Speaking to The League Paper, the Championship club’s boss said: “What they’ve offered is an insult, quite frankly.”

Niall Couper, the chief executive of Fair Game, a lobby group comprised of 34 EFL and non-League clubs, was another not fooled by the distracting odour.

“This deal has more strings than a puppet show and EFL clubs should show it the short shrift it deserves,” he said.

And yet The Athletic has spoken to several EFL club executives who think the Premier League’s offer is “not bad”, some even say “generous”, and everyone in the EFL would acknowledge it does promise more money for clubs in the Championship, League One and League Two than they currently get. Money most of them need right now.

So, we have the framework of an offer, some euphemistic language about the strings attached and a range of opinions on whether the extra money being dangled in front of the clubs is worth the concessions the Premier League clubs want in return.

Without further ado, let’s get into the details of the offer, the conditions, the EFL’s concerns and where the talks might end up.

How much extra money is the Premier League offering?

The short answer is… no, sorry, there is no short answer. You are going to have to make do with a long one.

The simplest place to start is to look at what the EFL clubs get now. They receive £132million ($160m) from the EFL’s own central revenues (media rights, sponsorships and various levies) and £130million in solidarity payments from the Premier League.

However, half a dozen or so clubs share north of £200million in parachute payments, handouts provided by the Premier League to clubs recently relegated. Leeds United, Leicester City and Southampton, the trio cast out of Eden last season, receive £47.8million each this season and will get another £39.1million next season if they fail to bounce back and — because they spent at least two years in the Premier League — £17.4million if they are still in the EFL the season after.

So, in terms of what the Premier League sends down the pipe, it is about £350million in parachute and solidarity payments.

On a per-club basis, each Championship side receives £5.19million in solidarity money, League One teams get £780,000 each and League Two sides £520,000 each. It is worth noting that the Championship solidarity payment is capped at 11 per cent of a year-one parachute payment.

And the EFL itself gives each Championship club £3.92million from its central income, with £950,000 going to each League One club and £640,000 to teams in League Two.

OK, that’s the here and now.

If you add up all the money the Premier League distributes to clubs and organisations outside the Premier League, you get to about 16 per cent of the more than £3billion a year it earns in media-rights income every year. But do not forget that about half goes into payments designed to encourage promoted clubs to invest in talent when they join the league — the idea being that parachute payments act as a relegation-insurance scheme.

The EFL wants to scrap them, put that money in the solidarity pot, combine the four leagues’ media-rights incomes and share 25 per cent of that much bigger number with the EFL’s 72 clubs.

This, it claims, would reduce the current “cliff edge” between the Premier League and the Championship. In 2019, for example, the Premier League’s bottom club, Huddersfield Town, had central receipts of £96million, while Norwich City, top of the Championship, earned £8million.

The EFL believes if you share 25 per cent of the leagues’ combined media wealth, you halve that gap, thereby removing the need for parachute payments, which only force non-recipient clubs to spend unsustainable amounts of money simply to compete.

The Premier League, however, does not want to give up its parachute payments or share quite that much of its broadcast income. It points out that no league on the planet is that generous and giving so much away would threaten its position as the world’s most successful domestic football competition. And if you do that, there would be less money for the rest of the pyramid anyway.

There is a large streak of self-interest running through that argument, but there is also a reasonable amount of common sense, and no British government would want to risk damaging one of the UK’s strongest global brands.

Therefore, the counter-proposal — the new deal — is for the leagues to combine their net media rights and share 14.75 per cent of that figure in solidarity payments, with a further 4.56 per cent ring-fenced for relegated clubs. But — and here’s my new favourite euphemism — those cheques will now be called “financial sustainability payments”, not parachute payments.

Those of you who are quick with numbers will have worked out already that those percentages add up to 19.36 per cent — short of the EFL’s goal of 25 per cent, but a significant increase on 16 per cent. The Premier League believes we should give it credit for sharing closer to 21 per cent of the net media rights total, as it also gives money to the Professional Footballers’ Association, the National League and numerous football-related charities.

OK, same question: how much extra money is that?

Well, the plan is for a two-season transition period, with the only change this season being an immediate £88million boost to the solidarity pot. On the 80/12/8 formula, that works out at £3.52million for Championship clubs, £528,000 in League One and £352,000 in League Two.

Next season, the solidarity pot will be 13.8 per cent of the net media rights, which will boost the amount the non-parachute… sorry, non-financial sustainability payment clubs receive from a “no deal” estimate of £295million to £396million, while a small decrease in those financial sustainability payments would reduce that pot from a projected £289million to £263million.

And then in 2025-26 — what the plan calls the first “steady state” season — the solidarity payments rise to 14.75 per cent of net media rights, with the parachute pot moving to a new formula of 1.442 per cent for year-one payments, 1.124 per cent for year-two payments and 0.557 per cent in year three. That money comes direct from the Premier League.

While that looks fiendishly complicated, it actually works out at about £52million in year one, £41million in year two and £20million in year three, which is broadly in line with where we are now.

Oh, sorry, there is one more wrinkle to the new parachutes. Unlike now, those clubs will actually receive their share of the EFL solidarity payment, as it includes a big chunk of what was previously part of the EFL’s own central distribution, and the parachute payments will come as top-ups to get the relegated clubs to the desired level.

Wait, there is something else we need to tell you. All of these payments are going to include a merit-based element as the EFL is moving to a “merit rake”, like the Premier League, where a portion of your central distribution depends on where you finish.

We will come back to that. The important bit is that, by 2025-26, non-parachute clubs in the EFL will be sharing an estimated £466million, which is £169million more than the projected no-deal amount. If you add £267million in parachute payments to that figure, you get £733million — £234million more than all EFL clubs would receive this year without a deal.

Hold on… one more thing! The 14.75 per cent includes 0.25 per cent that will be ring-fenced to create an infrastructure fund for clubs in Leagues One and Two. This money, which will be split on a 60/40 basis between the divisions, cannot be spent on wages and will be targeted at broadcast infrastructure to help clubs generate more revenue.

OK, steady state achieved, the leagues can live together in perfect harmony forever and ever, amen.

Really?

No, of course not. We should probably get into those conditions now.

The first is the most obvious: the Premier League is not budging on parachute payments. This is despite a growing body of research that shows they give relegated clubs an enormous advantage in the Championship and that advantage causes the other clubs to lose their minds.

Over the last 10 years, parachute clubs have filled 12 of the 20 automatic-promotion positions, with six more coming through the play-offs. This means 60 per cent of all promoted clubs in the last decade have had this leg-up.

And it has been getting worse. Over the last five years, eight of the 10 automatic-promotion places have been filled by parachute clubs and 67 per cent of all promoted clubs have been in receipt of a Premier League insurance policy. In the last three seasons, all six automatic-promotion places have gone to parachute clubs.

So, we have a situation where the 16 to 18 clubs in the Championship that start the season without a parachute payment are playing for one promotion spot, and it is usually via the play-offs. Relegation, then, is only a temporary hindrance for the 25 clubs in England that just so happened to be good when the Premier League became a premium entertainment offering around the globe, showering unprecedented riches on those clubs.

The second condition can be split into two parts, with the first part being the entirely non-controversial move to the same cost-control system UEFA has recently adopted — the squad cost ratio rule. This means clubs in all four divisions, including the Premier League, will only be allowed to spend a set percentage of their revenues on their teams, with the latter determined by how much they spend in wages on players and coaches, plus annual transfer costs and agents’ fees.

This system is similar to the EFL’s salary cost management protocol, which operates in League One and League Two, and The Athletic has not spoken to a single EFL club owner or executive who objects to the basic concept. In fact, the vast majority welcome the idea.

But part B of the second condition is very controversial. Premier League clubs want the squad cost ratio to be set at 85 per cent for them, as opposed to UEFA’s 70 per cent. Fair enough, you might think. They do have their own competitive balance to think about and, if you set the ratio too low, nobody will ever be able to break into the Champions League gang.

But the Premier League is not just thinking of its own competitive balance, as it also wants clubs in receipt of parachute payments to be able to spend 85 per cent of their already-inflated revenues on their teams. The rest of the Championship, however, should be capped at 70 per cent, with limits of 50 per cent in the bottom two divisions.

Several EFL executives have told The Athletic this would create a revolving door between the Premier League and the Championship. They have also pointed out that, by allowing clubs to include profits from player sales in their revenues for the squad cost calculation, the relegated clubs receive a third helping hand as they will have better players to sell.

The EFL is suggesting only a percentage of the player-trading profits are allowed, perhaps 70 per cent, and that clubs in receipt of year-two payments can only spend 75 per cent, not 85 per cent, of their revenues on the team, before moving to the same 70 per cent mark as everyone else in year three.

There is another argument around the amount of “equity” owners can inject into their clubs to cover a loss, with the EFL believing this should be capped at £10million a season, with an average of no more than £5million a season over a five-year period.

What about those merit rakes you mentioned?

Another bone of contention.

The Premier League currently uses a merit rake of 1.8:1, which means one-quarter of the total it hands over to its clubs is performance-related, with each place in the finishing table worth nearly £3million. Another quarter is based on how often each team is on domestic television, what is known as a “facility fee”, with each club guaranteed a minimum number of appearances. And the rest, half of the pot, is shared equally.

The new deal calls for the Championship to operate a steeper rake of 2:1, which means the team that finishes first has a merit payment twice as big as the team that comes last, with League One on a 1.5:1 rake and League Two at 1.25:1.

This is a significant change for a league that has always shared its money equally within each division. The proposal also suggests that the Championship’s distribution model should be even more performance-related than the Premier League’s, with a 33/67 split between the merit and equal shares. The proposed splits in League One and League Two are a much flatter 80/20 and 90/10.

The reason for the more aggressive rake in the Championship is to close the gap between the top of the second tier and the bottom of the Premier League, and this should help. However, the EFL has pointed out that the gap would be even smaller if the Premier League had a steeper merit rake, too, but that argument has not found many backers in the lower half of the top flight.

Any other contentious bits?

Yep. In fact, if you ask a dozen different EFL clubs — and we have — for their view on the new deal, you get a dozen different complaints.

Some are upset about the Premier League using its financial muscle to force the EFL, and the Football Association, to accept the scrapping of all cup replays. Once a staple of the English sporting calendar, replays have become an endangered species in recent years and the new deal will kill them off completely.

The other big change to the FA Cup, the world’s oldest club competition, would be to move the final from its traditional slot at the end of the season to the penultimate weekend of the Premier League campaign.

The only significant proposed change to the EFL Cup, the league’s most valuable broadcast asset, is less controversial, as it will lose its two-leg semi-finals. Whether these single legs will be at a neutral venue or not remains to be decided.

There are, however, fairly radical plans for the EFL’s other cup competition, the lesser-spotted EFL Trophy. The Premier League has been subsidising it since 2016, when 16 invited teams from Category 1 academies in the Premier League and Championship were added to a competition that was previously reserved for League One and League Two clubs.

The current format splits the 64 teams into 16 groups of four, eight in the north and eight in the south, with the top two in each group moving into a knockout competition that stays regional until the quarter-finals. Attendances for these games have remained stubbornly poor, although everyone seems to enjoy a trip to Wembley if your team is lucky enough to get that far.

The Premier League, however, likes the EFL Trophy as it provides competitive senior football for its youngsters, and it wants to increase the number of guaranteed games the invited clubs get. So, the group stage must grow. One possible solution is to invite some or all of the National League’s teams to take part, too. Whether any of these tweaks will bring more fans through the turnstiles on a Tuesday evening is highly debatable.

Another common grumble from EFL club executives is that the Premier League wants set tariffs for how much compensation one club should pay to another for a talented youngster. These tariffs would be based on the player’s age and how long they had been with the first club.

This, the EFL executives claim, would make it easier for Premier League clubs to “poach” players, as they would have more certainty on how much it will cost them. At present, these matters go to a compensation committee and the outcomes are uncertain.

And then there is the matter of the independent regulator for football, which is coming to the English game whether the English game wants it or not. Legislation to create the new watchdog will be announced next month and it has cross-party support.

The Premier League has been opposed to the idea ever since it was first mooted and, though it eventually read the room and accepted a regulator is coming, it is still trying to persuade the government that only the lightest of light-touch regimes is required.

The EFL started in much the same place as the Premier League but has become a much more enthusiastic supporter of independent regulation, particularly the concept of “backstop powers” to force the Premier League to share more money. As ever with football, self-interest reigns thereby proving, for the 257th time, that the game cannot regulate itself.

However, the government is desperate to avoid having to use those powers and really, really wants football to agree a deal, new, old, pre-worn, whatever — which brings us back to the proposal on the table and those conditions.

While it is not the Premier League’s official stance, several of its clubs have made it clear that they will not vote for the new deal at a league shareholders’ meeting if the EFL refuses to back the Premier League’s counter-proposal to the government for a very diluted form of regulation. That message has been delivered to EFL clubs by some prominent Premier League club executives in the bilateral “new deal” meetings that have been taking place in recent weeks.

“The regulator proposal is far too intrusive and costly — it’s not good for any league,” said one Premier League chief executive, speaking anonymously like all those contacted by The Athletic for this article given the negotiations between the leagues and government are so sensitive.

“The new deal for football is crucial to get over the line, but even EFL clubs would agree that it can’t go ahead until there’s comfort that the regulator isn’t going to be too much of a risk to the game.”

And he is right, up to a point, as The Athletic has heard some support for this position from EFL clubs, several of whom remain unconvinced that independent regulation is needed and very uncertain as to how it will work in practice.

However, none of those EFL clubs like the idea of Premier League clubs connecting a game-wide debate about governance to the very specific issue of fixing football’s chronic financial problems by sharing the cake more fairly.

As one League Two club owner puts it: “The Premier League blackmailing us to water down the regulator is particularly difficult to stomach.”

So, deal or no deal?

Deal. The EFL might not like the strings and the parachutes but the extra money is very hard to ignore. Very.

Projected impact on club payments 23-24

LEAGUE	NO DEAL	PROPOSAL	INCREASE
Championship	£9.1m	£12.6m	£3.5m
League One	£1.7m	£2.2m	£0.5m
League Two	£1.1m	£1.5m	£0.4M

Under the draft proposal, a non-parachute club that finishes 13th in the Championship in 2025-26 will receive £17.5million, £8.4million more than they will get this season from the EFL’s central distribution and Premier League solidarity. A mid-table League One team will receive £3.8million, £2.1million more than this season, with a League Two side getting £2.5million, £1.4million more.

Projected impact on club payments 25-26

LEAGUE	NO DEAL	PROPOSAL	INCREASE
Championship	£11.6m	£17.5m	£5.9m
League One	£2.2m	£3.8M	£1.6m
League Two	£1.5m	£2.5m	£1.0m

These are significant sums that should go a long way — particularly when combined with the squad-cost-ratio rule — to making EFL teams financially sustainable, which was the starting point of the “fan-led review” conducted by former sports minister Tracey Crouch on behalf of the government in 2021.

But that does not mean EFL clubs will be celebrating.

“The new deal is papering over the cracks and leaves parachute clubs with an even bigger trampoline,” said one Championship club executive. “But EFL clubs can’t turn it down as the financial state of the Championship is shot to pieces. There’s a risk of clubs going under. We have to accept the crumbs we are thrown.

“Don’t get me wrong, the money is OK; the conditions are shocking.”

In other words, there is still no such thing as a free lunch.

[seriouslyred]

Many thanks for that Mundell

The key takeaways from that are:

- CAFC are on course to receive an increase of £15M in media revenues if promoted... my estimate the other day (before this article was published) was £7M for promotion and £7M for this new deal
- Two clubs with parachute monies secure promotion in every one of the last five seasons leaving just one spot for a "new entrant" - Eg Luton
- Clubs with parachute monies will have to follow a form of SCMP but less onerous: more revenues and a higher % of revenue
- There's a proposed maximum equity contribution per season and on a five year basis. How this is managed and how quickly sanctions are applied is key, but this appears to be a game changer
- Without detailed analysis of the competition we can definitely say this is advantageous to CAFC but it's hard to evaluate just how competitive we might be. Too many variables and unknowns right now - perhaps best to concentrate on the current League One challenge?

[aaronaldo]

Oct 17, 2023 15:35:14 GMT seriouslyred said:

Many thanks for that Mundell

The key takeaways from that are:

- CAFC are on course to receive an increase of £15M in media revenues if promoted... my estimate the other day (before this article was published) was £7M for promotion and £7M for this new deal
- Two clubs with parachute monies secure promotion in every one of the last five seasons leaving just one spot for a "new entrant" - Eg Luton
- Clubs with parachute monies will have to follow a form of SCMP but less onerous: more revenues and a higher % of revenue
- There's a proposed maximum equity contribution per season and on a five year basis. How this is managed and how quickly sanctions are applied is key, but this appears to be a game changer
- Without detailed analysis of the competition we can definitely say this is advantageous to CAFC but it's hard to evaluate just how competitive we might be. Too many variables and unknowns right now - perhaps best to concentrate on the current League One challenge?

Advantegous IF we get promoted or advantageous when we are in League One again next year?

[Mundell]

The game changer here is the proposed introduction of UEFA’s Squad Cost Control Ratio in the EFL. That’s potentially transformational for CAFC’s prospects because it means that once promoted to the Championship we can look forward to a wage bill that is at least broadly competitive without the need for very high levels of funding from a mega wealthy and generous benefactor.

It’s hard to overstate how significant this could be. We clearly need to get promoted from League One first, and that’s obviously not easy and may take time, but the big question for the club’s owners has always been “What next?” “How do we survive in the Championship?” To an important extent we now have an in principle answer to that question and that’s a very big deal.

[lewisham]

Could have read War and Peace quicker than this thread 😂

[seriouslyred]

Oct 19, 2023 15:34:22 GMT lewisham said:

Could have read War and Peace quicker than this thread 😂

For sure!

But this is the only thread you need to read and follow to evolve an understanding as to why SE7 Partners stuck to their guns and paid hard cash to Sandgaard for our club.

[tonaddick]

I've finally had the chance to go through this thread; been having a terrible time at work but now on holiday and with a bit of space to concentrate. Huge thanks to Mundell, and the others, for the thoughtful analysis and modelling of what this might mean for CAFC. I agree that SE7 appear to be making a good fist of things so far, and the appointment of Appleton has made a difference. First time I've felt vaguely positive about CAFC since RD's ownership; i.e. it looks as if the EFL may provide the conditions that RD was looking for.

[995632]

Oct 19, 2023 19:29:21 GMT tonaddick said:

I've finally had the chance to go through this thread; been having a terrible time at work but now on holiday and with a bit of space to concentrate. Huge thanks to Mundell, and the others, for the thoughtful analysis and modelling of what this might mean for CAFC. I agree that SE7 appear to be making a good fist of things so far, and the appointment of Appleton has made a difference. First time I've felt vaguely positive about CAFC since RD's ownership; i.e. it looks as if the EFL may provide the conditions that RD was looking for.

Now you have a bit of headspace, recommend extending this thread with the "Where's the money gone podcast"...

Check out this podcast: Where's The Money Gone? #wheresTheMoneyGone
podcastaddict.com/podcast/where-s-the-money-gone/4564333 via @podcastaddict

Interesting listen!

[kings hill addick]

Oct 19, 2023 19:41:03 GMT 995632 said:

Oct 19, 2023 19:29:21 GMT tonaddick said:

I've finally had the chance to go through this thread; been having a terrible time at work but now on holiday and with a bit of space to concentrate. Huge thanks to Mundell, and the others, for the thoughtful analysis and modelling of what this might mean for CAFC. I agree that SE7 appear to be making a good fist of things so far, and the appointment of Appleton has made a difference. First time I've felt vaguely positive about CAFC since RD's ownership; i.e. it looks as if the EFL may provide the conditions that RD was looking for.

Now you have a bit of headspace, recommend extending this thread with the "Where's the money gone podcast"...

Check out this podcast: Where's The Money Gone? #wheresTheMoneyGone
podcastaddict.com/podcast/where-s-the-money-gone/4564333 via @podcastaddict

Interesting listen!

I'll second that. It is an excellent podcast.

[Mundell]

I've copy pasted below an article from this morning's Times on the New Deal. Despite the headline (which isn't very helpful in my view), consistent with the theme of this thread, this development is an extremely positive one for Charlton Athletic. Indeed, its critically important because, as I've argued, this profound change in Championship finances is clearly a central plank in SE7's strategy for the club. 

Clubs relegated from Premier League ‘will get new financial edge’

"EFL sides believe they have little choice but to accept ‘New Deal’ settlement, even though they fear it will only make it harder to bridge gap to elite Clubs relegated from the Premier League who will be able to spend a higher proportion of their income on player wages than their Sky Bet Championship rivals under the terms of a proposed financial settlement.

There are growing fears among second-tier clubs that teams relegated from the top flight will get extra spending advantages under the “New Deal” agreement between the Premier League and the EFL.

The top-flight clubs are due to vote on a six-year New Deal for football on November 21, under which an average of about £150 million extra per year would be given to the 72 clubs in the EFL. It would be worth £915 million over the six years but backloaded so that more is paid in the later years.

The settlement is set to include radical new controls that will limit EFL clubs to spending 70 per cent of their revenue on wages, but the figure would be 85 per cent for Premier League clubs and those newly relegated from the top flight. That figure would drop to 80 per cent for the second year after the team’s relegation and fall in line with the rest of the Championship thereafter.

Most EFL clubs believe they have little option but to accept the offer. Although the parachute payment system will change — the first year of payments is worth £44 million at present — relegated clubs will still receive significantly more than others in the Championship. One club chief in the second tier told The Times there were concerns among many teams that the New Deal would hand even more advantages to relegated sides.

“There is already a massive financial gap with the parachute clubs and allowing them to spend more than the rest of the Championship will only increase that gap — it’s going to be really tough to bridge it,” he said.

“There is a danger that instead of the cliff edge between the Premier League and the Championship there is going to be a new one between those relegated teams who get more money, and can spend 85 per cent on wages, and the rest.”

Premier League insiders dispute the claims that the relegated clubs will get an extra advantage, saying there will be significant increases in funding to the EFL overall, and that relegated clubs will have to manage squad costs incurred from when they were in the top flight.

The issue of how much money relegated clubs should receive has been a bugbear for the EFL. Research conducted on behalf of the Football League in April highlighted a widening gap between clubs receiving parachute payments and the rest of the Championship. Amid a “continuing, alarming and upward trend”, it found that clubs receiving parachute payments were three times more likely to be promoted than their rivals.

The money from the New Deal would be on top of the existing £110 million solidarity payments and £40 million youth development funding.

There is expected to be a merit system for distributing the extra money based on league position throughout the three EFL divisions — the same system used by the Premier League now.

This season each Championship club — apart from those receiving parachute payments — will get £5.19 million in solidarity payments from the Premier League, those in League One will receive £778,500 and League Two clubs will get £519,000. The new distribution model could mean clubs at the top of the Championship each receive about £4 million extra a year.

The government has made clear that the incoming independent football regulator will have “backstop” powers to impose a settlement if a new funding deal cannot be agreed by the leagues."