How to cope with relegation from the English Premier League

The Premiership - General Discussion

Postby Reg » Wed Mar 30, 2016 4:14 am

How to cope with relegation from the English Premier League
Mar 26th 2016, The Economist

IT IS beginning to look very lonely at the bottom of the Premier League for Aston Villa. Fans of the Midlands side—the fifth most successful English team of all time in terms of league titles—are now preparing for life in the Championship, the second tier of English football. After four uninterrupted months at the bottom of the Premier League, with 12 points lying between them and the safety of seventeenth place, bookmakers give Villa odds of 150-to-one of escaping relegation; Michael Caley, a blogger on football statistics, calculates that their probability of surviving is closer to one-in-50,000.

The question for Aston Villa’s owners is no longer if, or even when, they will be condemned to the drop, but how to pick themselves up afterwards. A spell in the Championship holds little appeal. According to Deloitte’s annual surveys of football wealth, second-tier clubs earned an average of  £20m ($28m) in the 2013-14 season, eight times less than their peers in the Premier League. The increase in Premier League television revenue alone that season (£569m) was greater than the earnings of the entire Championship put together (£491m).

So many second-tier clubs spend aggressively in the hope of a crack at the big time. For every £1m they earn, they spend £1.05m on player wages (a rate that falls to £0.58m in the top division). Subsequently, Championship teams made an alarming combined pre-tax loss of £247m in 2013-14, while the Premier League finished with £187m profits. Villa will begin next season amongst opponents who are risking everything for a shot at promotion.

If Villa’s current accounts are anything to go by, they will be no exception. An analysis by The Swiss Ramble, a football-finance blogger, shows that the club posted the biggest reported pre-tax loss (£28m) of any Premier League club last season, and had the second highest wages-to-turnover ratio. Since Randy Lerner acquired the team in 2006, fans have been irked by his willingness to sell players to bigger clubs. But the American has also overseen nine successive seasons of pre-tax losses, costing him a quarter of a billion pounds in total; he spent £53m on players in the summer. He may well be tempted to gamble further for a rapid promotion.

Historical analyses have leant support to the idea that the longer a club spends in exile, the harder it is to return. Jonathan Liew, a writer at the Telegraph, found that of the 85 teams relegated from the top tier over the past 28 seasons, only 20 were promoted back the following season. That proportion remained unchanged even after the introduction of “parachute payments” in 2004, which offer relegated Premier League teams £64m over three years to adjust to life outside the top tier.

If a less-than-one-in-four chance of bouncing back immediately seems slim, then in subsequent seasons the chances get even worse. Former Premier League clubs spending a second year in the Championship have just a 14% chance of promotion; by the time they begin a third campaign, they are actually slightly worse than the average team in the division, typically finishing in the bottom half. In fact, of the 37 teams demoted from the Premier League in its 24-year history, nine are now in the third division or lower.

All of which suggests that relegated teams should go for broke to regain their former status. Mr Liew advises teams to push for promotion “as quickly as humanly possible”. But reckless spending in the expectation of short-term success can have severe consequences.

The first is that many clubs who gamble successfully for a place in the top tier find themselves back where they started within a couple of years. Of the 65 promotions to the Premier League that occurred between 1993 and 2013, 39 (or 60%) were relegated again within three seasons. The “yo-yo club” phenomenon, in which teams move frequently up and down the divisions, has become familiar for some fans: Birmingham City, Bolton Wanderers, Middlesbrough, Norwich City, Nottingham Forest, Sunderland and West Bromwich Albion have each been relegated from the Premier League three times.

The second risk is insolvency. Eleven sides that have lost their Premier League status have subsequently entered administration, at which point they are legally required to sell players and other assets in order to pay off debts, and are deducted league points (often leading to further relegations). Leeds United’s hubristic descent from the semi finals of the Champions League to the third tier of English football is the most notorious example of how a “bounce-back” mentality can prove disastrous for a once-great club. (Profligate clubs who end up stuck in the lower divisions are now commonly said to have “done a Leeds”.)

In recent years, however, an alternative, sustainable model of gaining a place at the top table has emerged. It is typified by two small clubs, Stoke City and Swansea City. Each won promotion to the Premier League for the first time (the former in 2008, the latter in 2011) and have yet to lose their places. Since their arrival, five other clubs have arrived in the Premier League without suffering a subsequent relegation: Southampton, Crystal Palace, Leicester City, Bournemouth and Watford, all of whom will probably survive this year. Indeed, modest Leicester City, 5000-to-one outsiders on the opening day of this season, are currently favourites to win the title.

What lessons do these teams offer? Above all else, patience. All spent at least five seasons before promotion in the lower divisions; Bournemouth, Southampton, Stoke and Swansea each played third-tier football in that time. While Mr Liew’s data show that toiling in the Championship for three seasons reduces the chance of a return to the Premier League, one benefit might be that teams have more time to rebuild and develop a sensible transfer strategy. On average, these seven clubs ran transfer surpluses in the season that they gained promotion, spending £800,000 less on player purchases than they received in sales.

Far from gambling everything on a fast return, they were building for the future.  Another lesson is to focus on the academy of youth players. Of the 20 most expensive player purchases in Championship history, 14 were made in the last three seasons: to date, only one has helped his club gain promotion. By contrast, the Southampton side that returned to the Premier League in 2012 was filled with starlets developed by the club. (Indeed, the Saints academy has supplied more players to the England national side than any other over the past year.) A good youth system might also buy time: when fans see their club slowly building a team of homegrown players, they are more likely to wait for success.

As Aston Villa ponders its fate, it might take consolation from one further thing. Villa Park is the seventh largest club stadium in England. Over the past five years there has been a correlation coefficient of 0.78 between stadium capacity and finishing position within the four English divisions (with 0 indicating no relationship at all and 1 suggesting a perfect match). Selling more tickets means more money to spend on players. So far in this miserable season, Villa’s loyal fans have yet to abandon their club: around 35,000 turn up for every home game. With enough patience in the boardroom and in the stands, one of the worst  teams in Premier League history might be able to recover.
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Postby Reg » Wed Mar 30, 2016 4:15 am

Interesting reply/comment on the above:

guest-ialienlMar 27th, 12:17
As an Aston Villa fan I enjoyed (is that the word?) this article but there are some significant problems with it.

Firstly, someone needs to kill this myth that Stoke and Bournemouth provide great examples of how to get promoted under a sustainable model. In fact, Peter Coates rescued Stoke from potential ruin under their previous ownership and then funded a massive splurge which continued into their first few seasons in the Premier League. In February of their promotion season Stoke paid £575,000 to loan Shola Ameobi until the end of the season and their wages to turnover ratio was 106%! The strategy was to invest heavily in order to compete with clubs receiving parachute payments. Similarly, Maxim Demin ensured that Bournemouth outspent all their rivals in League One by £1m and that they were also amongst the biggest spenders in the Championship.

It is also worth remarking that as well as Stoke and Bournemouth, Southampton, Swansea and Palace went right to the financial brink before new ownership took them in a new "patient" direction. I really hope Lerner continues to absorb our losses so this does not need to happen!

Using figures for Championship earnings from 2013/14 is misleading given that the new Premier League TV deal and resulting parachute payment agreement is set to completely change this from next season. Villa should get around £35m in the first year down with Championship clubs without parachute payments only receiving £5m. Interestingly, clubs that yo-yo will now also see their parachute payments reduced once they come back down.

Financial Fair Play is also worth a mention, where is QPR in this article? Basically, teams do not face sanctions during their first season after relegation to the Football League unless they were in breach of Premier League FFP.

As there is a strong correlation between spending on wages and transfers and promotion, Villa will have the greatest chance of going up during the 3 years that they receive parachute payments and the first year in particular as they will not have to tackle sanctions for their losses.
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