What the changing financial climate in football and potential EFL changes could mean for Sunderland
It feels increasingly as if March 22nd could turn out to be a defining day in the modern history of the Football League.
This was the moment that Birmingham City became the first Championship side to be handed a points deduction for breaking the second tier’s profitability and sustainability rules, with nine taken off their then total.
The rules limit teams in the Championship to a loss of £39 million over a three-year period. Birmingham City had lost £49 million.
The punishment was seen as quite cute in some quarters, given that it ended any slim play-off hopes Garry Monk’s side had, but also made a relegation League One unlikely in the extreme.
Nevertheless, the message was clear and it was noticeable that spending this summer, while still significant, seemed somewhat more cautious.
Leeds United CEO Angus Kinnear told the Athletic that the decision ‘changed the world’ for Championship clubs.
Wage budgets, in particular, were clearly becoming a cause for major concern in boardrooms right across the league.
The long-term effect, he hoped and believed, could be to hand a competitive advantage to the Black Cats, whose significant fanbase drives a healthy turnover the envy of most clubs outside the Premier League.
This was shorly before the second and even more seismic events that have the capacity to transform modern football.
Bury were expelled from the league and there were fears for a lengthy period that Bolton Wanderers could go the same way.
The EFL were subject to stinging criticism and have subsequently announced an independent review of the regulations and proceedures that govern finance.
It will be delivered two stages. Firstly, it is to set out the reasons for Bury’s collapse and establish key lessons to learn for the future.
The second part of the review will look at and recommend potential changes to the current rules. Clubs are expected to be given the chance to vote on those at the EFL’s AGM in 2020.
At this stage, it is impossible to say with certainty what that could involve but the first port of call will surely be a rethinking of the Owners’ and Directors Test.
It is a process derided by fans, given how spectacularly it has failed to prevent a number of clubs in the league suffering at the hands of abject ownership.
Put simply, it sets the bar incredibly low with regards to the disqualifying conditions for owning a football club, something ruthlessly and spectacularly exposed by the collapse of Bury.
Here, clear and simple improvements can surely be made to tighten up the process.
Clubs have in fact already agreed to this in principle, with a new rule established in the wake of the Owen Oyston scandal at Blackpool.
The rule will theoretically allow for the EFL to take direction action in the case of: “A very serious single act or persistent serious acts – where the individual’s conduct is clearly damaging to the standing and reputation of the wider profession and the game of football.”
However, the exact detail and scope is yet to be agreed.
Many want changes to go far further. For example, giving an indepedent body the task of screening potential owners, scrutinising funding plans, intentions and past record in business.
This last point is particularly key and somewhere lessons have to be learned.
Of course, even making these obvious improvements will not potentially prevent a club hitting serious financial trouble.
So it was interesting to see EFL Executive Chair Debbie Jevans, conducting media interviews in the wake of Bury’s explusion, urge clubs to consider the possibility of salary caps.
Speaking to the BBC, she said: “Player wages do need to be considered, without question.
"If your revenue is X amount and your outgoings are X-plus, clearly in the long term that is not going to be sustainable.
"Salary caps are something I absolutely want clubs to consider. We need to think and look at that and I will ask the clubs to consider it.
"Ultimately it is their decision and I respect that. All I am saying is that is we must look at that."
It is here that football potentially faces its biggest decision.
Of course, League One and League Two already operates with a salary cap, of sorts.
These two tiers operate not under the profitability and sustainability rules, but under SCMP, or Salary cost management protocol. This limits clubs to spending 60% of their turnover on wages. However, it can easily be circumvented by owners who want to overspend, as they can inject money so long as it is in shares, rather than loans.
Owners can therefore spend purely with short-term success in mind, and leave clubs with liabilities that have the potential to utterly ruinous in the long run.
There is the obvious issue, too, that an owner who at one stage is reliably investing in a club can leave that side in dire straits should they suffer financial difficulties in their other business ventures, or simply lose interest when success does not occur.
Enforcing a cap on spending is perhaps the one single step the league can take to prevent further financial issues.
Calls for a greater redistribution of the obscene wealth at the top end of the game are fair, and always seem fairer still when the levels of money exchanging hands in transfer deals and new contracts are released by the FA on an annual basis.
However, it would only have an impact on the stability of clubs if the structures were in place to ensure that money is spent sustainably and by owners with the right interests. Those are the two steps that must be properly addressed first.
So would clubs vote for a cap?
It’s a fascinating bind.
Ultimately, a wage cap might stabilise the financial environment but its greatest impact could also be to entrench the established clubs in the game, who can rely on significant revenues driven by their support.
It is very difficult to imagine, for example, the rise of Bournemouth in such a climate.
Is that healthy for sporting competition?
Clubs without big attendances would be heavily reliant on selling players for a major profit, as well as bringing through youngsters who can command a big fee. That, though, is difficult in a climate that encourages Category One academies to secure the best talent early.
Brentford have shown it can be done, but would it be fair, for example, if their owner were to be prevented from one year deciding to fund a significant tilt at Championship glory?
It is a debate that will rumble on for a long time to come.
In the interim, what can be said with some certainty is that overspending will not be reccomended for football league sides.
It’s worth considering as Sunderland’s takeover draws ever nearer.
There is no question that the size of the club’s support, as well as the significant financial capital the potential new investors command, will leave it in a strong position whatever path the game goes down.
Just don’t expect excessive spending in the short term.
Firstly, it makes little business sense and secondly, the repercussions could be about to get more significant than ever before.