Finance expert details Leeds United revenue situation and finds method in transfer ‘madness’
Leeds United’s revenue will fall by 50 per cent thanks to relegation, so slashing the wage bill is vital this summer according to one of the game’s financial gurus.
The Whites have suffered somewhat of an exodus since the transfer window opened, with several Premier League signings departing for clubs in Europe’s big leagues. Brenden Aaronson has gone to the Bundesliga along with Robin Koch. The pair will shortly be joined by Max Wober, if Leeds and Borussia Mönchengladbach can finalise a deal. Diego Llorente and Rasmus Kristensen will play in Serie A next season. Marc Roca has returned to LaLiga.
Adam Davis runs his own financial management consultancy firm, has worked with clubs up and down the country on valuations and took a lead on the financial sustainability aspect of the 2023 Fair Game Index.
He says the financial picture for a relegated top flight side can be a bleak one because the money coming in just isn’t at the same level, and unless you take pre-emptive action the money going out becomes problematic.
“The main problem for Leeds United this year is the fact that revenue will fall by 50 per cent, just through relegation,” he told the YEP.
“There’s three main sources of revenue into a football club normally, which is matchday income, broadcasting and commercial. “Following the Championship over the last three years, we’ve seen clubs experience the average matchday revenue fall by 64 per cent, broadcasting by 49 per cent, and commercial revenue by 50 per cent. So the amount of money coming into Leeds United will fall by roughly a half, but what they do still have is the costs and the very high costs of player wages.
“A lot of these players were signed when Leeds were in the Premier League so are still being paid Premier League wages. Contractually, many of them will have an automatic wage reduction in their contracts following relegation – most forward-thinking clubs should do that, or those that are willing to admit that they aren’t guaranteed to have Premier League football forever. That goes a long way in terms of helping profit and sustainability.”
Leeds protected themselves with the kind of wage reduction clauses that Davis mentioned, with some players experiencing a 60 per cent salary drop. That, for fans, is the good stuff that represents shrewd financial management.
What has not been so well received is the other clauses in contracts, those that permit players to go on loan. None of Aaronson, Koch, Llorente, Kristensen or Roca have been sold. They’re all still Leeds players until at least the summer of 2024.
Only Rodrigo, who has made what could best be described as a lifestyle move to the Qatar Stars League, was sold. The fee for last season’s top scorer was in the region of £3.5m, a world away from the club record £27m it took to prise him from Valencia.
As supporters have pointed out, around £100m worth of signings have been allowed to leave and besides any loan fees or the Rodrigo cash, the return has been minimal.
Although club chiefs are yet to come out and publicly address the strategy behind the proliferation of loan clauses, Davis can see method in the perceived madness.
“Based on the players that have gone out, it will be the fact that their value has plummeted significantly,” he said.
“I’m looking at the list now so Aaronson, Kristensen and Roca are all players that I think many Leeds fans would argue didn’t necessarily have as good of a season as people would have liked. And that will be reflected in their transfer value.
“What you could say though, is once they’re back in the Premier League, they might actually be a better suit for a Premier League team than they would be for the Championship. So Aaronson is most definitely a flair player. He’s incredibly gifted technically, but maybe not necessarily as physical as you might need in the Championship, so maybe they want to hold him back so if they do go back up, he is better suited for the Premier League. It gives a little bit more breathing room and a bit more time to the Leeds staff to really figure out what their squad looks like.”
What that does not take into account, of course, is how welcome these players will be in a year’s time at Elland Road if promotion is achieved.
From a financial standpoint, Leeds would inevitably have incurred serious losses on these top flight signings had they made permanent exits. That, Davis argues, is a symptom of the poor recruitment choices of the recent past.
“Without doubt these players will be going out for significantly reduced sums than what they came in for,” he said.
“Whether they should have been coming in for those sorts of prices at the very start is an entirely separate discussion. You know that comes down to the general strategy of the club, it comes down to the recruitment team and a whole bunch of things. But we know for certain that Aaronson definitely doesn’t go back out the door for £25m. Because it’s Union Berlin that he’s gone on loan to, he’ll still be getting European football, which will probably help his fee. After a good year perhaps then he might be in a better position where he’s probably worth twice what he’s currently worth now, easily.”
When it comes to profit and sustainability, players like Aaronson will not be as much of a hindrance as they might have been, because Leeds set their stall out for full salary recovery with outgoing loanees. Other than the money committed to his initial transfer from Salzburg, the American won’t be costing Leeds.
Getting rid of those Premier League wages – even with the reductions built in – had to happen, says Davis.
“It will be a necessary thing for Leeds to do to get them back down to a more reasonable level,” he said.
“Keeping Premier League wages but with Championship revenues is going to spell massive problems, so you’ve got to cut your cloth accordingly, and knock off as much of those wages as you possibly can, as soon as you can really.”
The downside, that aforementioned lack of incoming transfer cash this summer, has a knock-on impact on new owners 49ers Enterprises. Profit and sustainability rules in the EFL limit the losses you can make and therefore if transfer cash isn’t coming in, there’s a limit to your spending in the market.
“Well all it means in my view is that it limits the amount of money that can be pumped in by the new owners to get new players in,” said Davis.
“You can’t go and spend a lot of money bringing in Championship quality talent to try and get yourself back into the Premier League. So having flawed transfers in those positions, you’re unfortunately suffering from mistakes that were made one, two and three years ago. So from a fan perspective, it is very frustrating. The 49ers can’t necessarily invest huge sums of money – whether they were ever going to is a different matter – but obviously the vast majority of fans are going to want them to do that. And the mistakes made a few years ago make that a lot harder.”
The good news for supporters concerned by the spate of temporary exits is that Leeds are almost at the limit for outgoing international loans. The bad news is that key players who would generate a profit could yet be sold. They might have to be sold.
“What that will do is reduce the losses that Leeds make,” said Davis.
“So the receiving of transfer revenue can go straight into their profit and loss. The fact that Gnonto goes for say £20m, on their books that will effectively be an additional £20m in revenue, and therefore your losses are smaller and therefore you’re not going to get hit by P&S. You either sell the high value assets or ideally you get rid of the high earners, the two things many clubs do following relegation.
“What we’ve got to do is look at what Leicester have done this summer, and in an ideal world they would have definitely wanted to keep Maddison and Barnes but between the two of them they’ve made probably £70m or £80m so they’ll be in a really good position, not necessarily to put that money immediately back into the squad but it just simply covers the fact that you’re no longer earning Premier League revenues.”
What stands in the Whites’ favour is the parachute payments that will flow into the coffers for the next three seasons. That money has been a difference maker for clubs who have successfully bounced straight back up following relegation.
Another potential positive is that they still have some Premier League players in the squad who could feature in the Championship this season and will help give Farke the foundations of a competitive squad.
And they have owners who are ready and willing to make cash available to bring players in. Because of P&S rules it won’t be wild spending – although fans might wonder why 49ers Enterprises don’t just go for it, gamble on promotion and splash as much as they can afford.
The very nature of the Championship means there is no such thing as a safe bet, however.
“The fact that the Championship is incredibly competitive, and many, many clubs are doing the exact same thing,” said Davis.
“We could reel off a list of 10 different clubs in the last five years out of the Championship, if not more, that have taken the gamble to try and get back up into the Premier League. Some have succeeded. But look at Birmingham, Reading and Derby and we see the huge issues that have taken place afterwards. You could have eight or nine of them that are spending unsustainable levels of expenditure and yet three only ever get promoted.
“Football is still largely very unpredictable. The results might not necessarily go their way and Farke could bring in all these different players and some of them simply might not work and we’ll find that Leeds might have an off season. You just have to look at Stoke and Huddersfield, for example, in the last couple of years who have had to slowly resort back to type so to speak, to comply with the legal limits of what we see in the Championship. This is why we see so many clubs with so many issues in the Championship, a vast majority of them are spending more on player wages than they receive in revenue, which is simply not a sustainable business model. And Leeds could take that gamble, they might go ‘well we’re going to be better than everybody else and we’ll get promoted so it won’t be a problem’ but there’s an awful lot of risk involved there.”
