‘This club can’t afford to go down!’ A statement often heard in football but rarely backed up with hard evidence because of the difficulty of quantifying the financial hit delivered by relegation. But nonetheless, I’m going to take a stab at it for two reasons. First, because Plymouth Argyle are currently very much in the relegation zone and secondly because the January transfer window is fast approaching. The crude question is how much it would be worth spending on new players next month if it saved us from the financial penalty of dropping down into a lower division.
Three main areas would be affected by relegation. Ticket revenue (assuming either smaller average gates, lower ticket prices or a combination of the two), central payments from the EFL and Premier League and finally, other revenue streams such as food and beverage sales, programme and merchandise sales, hospitality and sponsorship income.
Most clubs don’t publish full accounts, and those that do break down their income in different ways. It’s therefore very tough to look back and see how clubs’ finances have been affected in the past by relegation so we need to make some educated guesses.
Starting with attendances, average gates would certainly fall in the event of relegation. We can make a reasonable estimate at what might happen should the Pilgrims find themselves in League Two next summer by looking back at recent history.
The average gate for Argyle’s final season in League One (2010-11) was 8,613. That fell to 6,915 in the first year back in the bottom tier which ended with a 21st place finish. In the 2016-17 promotion season, average attendance jumped to 9,652, confirming what we all know: a winning team draws bigger crowds.
Since we can’t predict how Argyle would perform should we find ourselves back in League Two, let’s just assume that attendances would be around the 7,863 average for those six years at that level (probably optimistic given that the disappointment of a relegation season usually results in a sharper initial drop in gates). That would be a decline of 2,552 on last season’s 10,415 average, translating to 58,696 fewer bums on Home Park seats over the course of a whole season.
What effect would that have on overall ticket revenue? Here again we need to make some big assumptions. I’ll spare you all the detail, but I assume sales of 4,500 season tickets (compared to around 6,000 this season), that 50% of season tickets and individual match day tickets are full-price with the rest at concessionary rates, and that the cost of all those tickets would be 10% lower in League Two. Factoring in the 25% drop in average gates, relegation would cut £1.2 million off ticket receipts for league matches next season.
The next area to take a hit would be in central payments received by the club. This season Argyle will receive £677,000 for playing in League One as a ‘Basic Award’ payment from the EFL. On current arrangements that would drop by £205,000 to £472,000 if the Pilgrims dropped into League Two. There would be a further drop of £215,000 in the ‘Solidarity Payment’ from the Premier League (£645,000 in League One compared to £430,000 in League Two). That’s a total cut of £420,000.
Finally, having 58,600 fewer bodies passing through the Home Park turnstiles would reduce match day revenues (sales of food and drink, programmes, hospitality etc.) while the lower visibility and reputational impact of relegation would hit advertising and sponsorship income. It’s very tough to put a number on that, but for the sake of argument let’s say £200,000.
Add all that up and the price of relegation comes in at around £1.8 million in lost revenue. So that’s the kind of number we need to keep in mind when talking about how much it’s worth the club spending in the transfer window to avoid the drop. Revenue is not the same as profit, of course. But since higher ticket receipts and central payments do pretty much drop straight through to the bottom line, I think the argument is valid. And of course we might not be looking at this as just a one-season experience. We know how difficult it is to get back up into League One – it took six seasons last time – so the cost of relegation would be ongoing until promotion was secured.
It could be argued that the loss would be mitigated to some extent by the lower wages in League Two. There’s some truth in that since the average annual all-in cost of a League One player is around £127,000 compared to £85,000 for his League Two counterpart. So in theory a 24-man squad would cost £3 million at the higher level and £2 million in the lower. In practice though, a just-relegated squad would probably cost more as it would be tough to cut the wages of existing players to League Two levels across the board, especially for a club aspiring to a quick bounce-back via promotion.
So on the face of it, the maths argues for spending money in the January transfer window to avoid the substantial financial hit that would accompany relegation. What are you going to get in the transfer market compared to the £1.8 million that stands to be lost? It costs on average £127,000 a year to employ a player in League One and then there’s the question of transfer fees. According to www.transfermarkt.co.uk the average market value of a Plymouth Argyle player is £158,000. So the theoretical all-in acquisition cost per player is £285,000 in year one. Even if the club were to pay a premium to acquire above-average talent, that suggests that bringing in three or four players that could make the difference between survival and relegation could be a sound financial decision.
There are a couple of important caveats to all this.
First, a football CEO might look at these calculations and declare that my numbers are way off. But in the absence of any better data (and any profit and loss numbers from Argyle), we have to work with what we’ve got and at least it’s a start. Furthermore, most of the figures here are on the conservative side. The true cost of relegation could well be more. Secondly, it’s all very well making funds available in the transfer window, but then comes the small matter of actually finding the right players. Then there’s no guarantee that that the ‘investment’ will pay off with an escape from the relegation zone. And finally, it’s not my money I’m spending here!
The bottom line: splashing the cash in the January window would certainly be a gamble, but it would be a calculated one. Then again, nobody ever said that running a football club was easy.