Bournemouth's 'perfect storm' could lead to a 'domino effect'

REVEALED: Bournemouth are heading for a ‘perfect storm’ if TV money that accounted for 88 per cent of their revenue isn’t paid with £77m still owed in outstanding payments… they could be in real trouble

  • Eddie Howe and other Bournemouth staff took significant pay cuts on April 1
  • It was latest evidence that the Premier League is not immune to coronavirus
  • The picture remains cloudy and the warnings have grown ever more stark
  • In 2018/19, the Cherries generated £131.1m and received £115.6m from TV money
  • Learn more about how to help people impacted by COVID

There was no joke and, as the club themselves admitted, ‘no script for moments like this’. Instead, only ‘far more questions than answers’.

On April 1, Bournemouth confirmed that manager Eddie Howe and other members of the club hierarchy had taken ‘significant’ pay cuts to help curb the costs of coronavirus.

For many, the unprecedented step only reinforced what they thought: that the Bournemouth boss was one of football’s good guys. His decision spoke to more than character, though. This was the latest evidence that even the behemoth of the Premier League was not immune to this pandemic.

On April 1, Eddie Howe and other members of Bournemouth staff took ‘significant’ pay cuts

Ten days on, the picture remains cloudy and the warnings have grown ever more stark.

Other clubs, and other managers have followed Howe’s lead. The common thread: this is going to affect everyone throughout the English pyramid.

For many it could prove an existential threat; experts warn that even clubs in the Premier League could go bust. Kieran Maguire, a lecturer in football finance at the University of Liverpool, fears Bournemouth could be heading towards ‘a perfect storm’.

There are no such concerns at the club. Bournemouth are totally confident that they and owner Maxim Demin can survive this. The club have furloughed around 50 members of non-playing staff but insist they are people who work in areas – such as the club shop and hospitality team – who simply can’t function during the lockdown.

That doesn’t mean, though, that this period is not going to hurt.

Bournemouth remain confident they can survive the financial effects of the coronavirus crisis

Like many sides in the top flight, the richest of their revenue streams comes from television.

Between domestic and international broadcasters, TV revenue is now worth £9.2billion to the English top flight. It is a reflection of the league’s worldwide appeal and, for many, a growing lifeboat which had shown no signs of slowing down. Until now.

Last season, according to data from vysyble, TV money accounted for more than two thirds of total revenue for every club outside the top six. For many it was more than four-fifths. For no other side was it more important than Bournemouth.

In 2018/19, the club generated £131.1million and received £115.6m from Sky, BT et al. 

That equates to more than 88 per cent of the total money coming in. Their other major revenue streams – matchday (3.81 per cent) and commercial (8.04) income – pale in insignificance.

After all, Bournemouth is a small place and the Vitality Stadium holds only 11,329 supporters. That makes it even harder for them to compete with the likes of Manchester United and their pillow partners. Even if Howe’s side are popular with neutrals.

In normal times, TV money seemed a safe bet. The value of broadcasting deals has risen dramatically over the past decade, even if that steep upward curve began to flatten with the latest three-year agreement.

In 2018/19, the club generated £131.1m and received £115.6m of that figure from TV money

Problems would arise only if that revenue was ever threatened.

Now, with no live sport to show, the question is rightly being asked: what are broadcasters paying for?

Streaming service DAZN have already asked to defer payments during the current shutdown, while other overseas broadcasters have reportedly explored the possibility of suing the Premier League if this season isn’t completed. A worrying trend that could become ‘very dangerous,’ Maguire admits.

Should the season be cancelled, top-flight clubs face a potential repayment of up to £762million.

That would be disastrous for many teams. Several already run the wrong side of the line. Bournemouth, for example, made a loss of £32.4m last season – up £21.5m – even with last season’s TV money.

Further unintended consequences would await.

The Premier League has been suspended since mid-March with no return date in sight 

The value of top-flight TV money has accelerated a race at both ends of the table. Each year most clubs – including Bournemouth – battle to avoid the drop. Among the top six, meanwhile, the race for Champions League revenue has grown ever more ferocious.

‘What that does is have that pull effect to the rest of the division,’ John Purcell of vysyble explains. ‘The rest of the division is having to spend more money because obviously the cost of talent is going up. Talent costs in the Premier League have experienced double-digit percentage increases for the last five years and it looks like 2018/19 is going to come in around 10 per cent. Revenue is not going up by chunks of 10 per cent but staff costs are.’

Before the shutdown, Bournemouth sat in the relegation zone – despite a significant outlay in recent seasons.

They are building a new £35m training ground, which the club hope to complete by 2021 and, as transfer fees have become increasingly bloated, Bournemouth have spent nearly £250m since 2015/16. In that time, according to Transfermarkt, they have recouped just under £73m.

According to last year’s accounts, Bournemouth’s ‘player registration costs’ rose £38.4m to £94.2m and their staff costs increased from £101.9m in 2018 to 110.9m. All while turnover dropped by £3.8m.

The value of top-flight TV money has accelerated a race at both ends of the table 

Aston Villa and Fulham are among those who have also spent lavishly to try and secure Premier League status. Wages add up, too. Across the board, staff salaries total around 60 per cent of Premier League clubs’ revenue.

At Bournemouth last year, that figure was 84.56 per cent (£110.89m), according to vysysble. Only Everton spent a higher proportion. Any wriggle room is squeezed even more at a time when incomings are disappearing.

That’s why clubs need players – their largest wedge of staff costs – to take pay cuts or deferrals. Only on Thursday, Brighton chief Paul Barber pleaded with the PFA to end the stand-off as clubs need help now.

Yet in this age of swelling player values, clubs have been deferring transfer fees for years.

It’s common for clubs to spread the cost of buying their prize-assets over several more manageable installments. This has created a tangled web of intra-club loans.

‘In total, Premier League clubs owe around £1.59billion in outstanding payments,’ Maguire explains. ‘Some of that money will circulate around the Premier League itself… but they’re only due to receive around £685m, so there is a net significant payment due from Premier League clubs. Some of those payments will have been made last summer and some will be outstanding payments.’

According to his figures, based on last year’s accounts, Bournemouth owe £76.6m. Above them only Manchester City, Manchester United and Tottenham.

If one medium-sized club default on a payment it could cause a domino effect across league

Again, this system works fine when the sun shines. But what happens if the coffers dry up? ‘It would just take one medium-sized club to default on a payment which is due,’ Maguire admits. ‘That could cause a domino effect.’ Purcell, meanwhile, compares this crisis to inter-bank lending around the 2008 financial crash. ‘All it takes is that element of doubt to creep in and suddenly that house of cards collapses.’

Even if that D-Day never arrives, there are fears the transfer market will collapse this summer, hampering many clubs’ hopes of recouping money through player sales.

In times of trouble, clubs often rely on the generosity of their owners. In 2018/19 for example, Roman Abramovich pumped £247m into Chelsea, up £180m from the previous year. The club still made a net loss of nearly £100m after they missed out on the Champions League. Bournemouth chief Demin, meanwhile, has reportedly invested more than £120m in the club.

But like many other clubs, Bournemouth also turn elsewhere for injections of money. It is common for teams – particularly outside the top six – to take out short-term loans between TV payments to fund transfers or to maintain cash flow. It’s claimed these can be hedged against the likes of incoming money or season ticket sales – both of which are currently under threat.

Bournemouth are no different. They received £16m from Australian bank Macquarie in anticipation of further instalments due for the sales of Tyrone Mings (£12m from Aston Villa) and Lys Mousset (£4m, Sheffield United). As with everything, these rely on the necessary revenue coming in.

‘Now obviously the question is,’ Purcell adds. ‘If that money doesn’t arrive, what happens next?’

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