Nominations are open
Enter now

Two experts give their view on the financial impact of Reading avoiding relegation

By Steve Charnock
27 April 2022
Share

At various points this season, it looked as though Reading FC's men's team were doomed for relegation to the third tier of English football. Points deductions and losing streaks filled Royals' fans' heads with day trips to the likes of Burton, Accrington and Morecambe.

In the end, a combination of a few hard-won results, a couple of other clubs' even poorer form and - crucially - even heftier points deductions handed out elsewhere, saw them survive. Next year, the recently-renamed Select Car Leasing Stadium will host Championship football again.

Dodging relegation was huge for the club. Not just from a football perspective. Going down to League One could have had dire repercussions. We spoke to two experts in football finance to find out exactly what staying in the Championship means for Reading Football Club...

The future looks a fair bit brighter for the Royals now than it did for large parts of the season.

Julie Palmer is a regional managing partner at Begbies Traynor, the corporate rescue and recovery practice behind the Red Flag Alert Football Financial Distress Survey. A report now in its tenth year. She says this about the impact of Reading's survival in the division:

"It has prevented what might have been a fairly serious problem for them due to the financial effects of relegation. They were lucky in a sense that there were three clubs worse than them this season in terms of performance and financial management."

"If Reading had dropped down a division income from playing activities and TV would have declined. Sponsors are less interested in a League One club than they are in a Championship club. Generally, that would have been a difficult thing for them to manage."

It may be a while until the club can celebrate another promotion to the Premier League.

THE CURRENT STATE OF AFFAIRS

Football finance lecturer and The Price of Football podcaster Kieran Maguire echoes Julie's thoughts. He told us this: “In the 2021/22 season, the club had a five points deduction for breaches of the Profitability and Sustainability rules. So they were in a real pickle.”

"Reading FC have dodged a serious bullet by avoiding relegation, but at the same time their finances are precarious. They are very much reliant on the owners. They’ve got borrowings of more than £100m on a business which generates an income of less than a fifth of that figure."

“Trying to work out the motives of the people who control Reading FC is beyond anybody. Communication isn’t exactly a strong point of theirs. The danger is - as we saw with clubs like Wigan Athletic and Derby County - the club’s in dire straits if the club is sold to new owners after a period where debts are paid off by the previous ones."

"So as a case study for what not to invest in, Reading Football Club are poster boys.”

Reading FC manager Paul Ince
New Reading FC manager Paul Ince has done an impressive job since taking over.

WAGE BILL

Julie strongly believes the wage bill needs to be reduced over the summer. "The core issue that the club needs to address is that they look to have a high wage bill. It's a figure of around £32m, which equates to an average of £15k per week per player. There are other clubs in the Championship paying more than that but these are clubs that still benefitting from the more weighty parachute payments."

"The wage bill is absolutely key because whatever way you look at the numbers - part of it is explained by the loss of income as a result of the pandemic - the club is still making a pre-tax loss and is reliant on income from its owner to prop up its losses year-on-year. This is something they have to look at before they think of how they can rebuild their charge towards getting back into the Premier League at some point."

Kieran adds: “Debts exceed £100m. Wages are higher than in 2017, when they were in receipt of parachute payments. In each of the last three seasons, the wage bill has been more than 200% of the club’s revenue, which is crazy. It’s no way to run a business. The new owners appear to write the cheques without realising what they’re getting in return. Of course, it doesn’t help that they’ve bought a lot of players who simply haven’t delivered.”

Reading-FC-Logo
Around for over 150 years, but what's the future for The Royals?

FUTURE STRATEGY

"Parachute payments are something that is accepted now, however some Championship clubs believe it doesn't create a fair and level playing field for them," Julie says. "You have a club that comes down from the Premiership and - for three years - can have fairly hefty handouts. Which gives that club a better chance of getting back into the Premier League. Some clubs play this very effectively - Watford and Norwich for example - clubs that will bounce between the two divisions."

"If you do it properly then you can benefit from some quite nice parachute payments to repair your balance sheet. Maybe that is the next step that Reading need to look at and accept the fact that they will yo-yo between the two divisions and have parachute payments to repair the balance sheet long term. I think that is a strategy that should be the highlight of their ambitions at the moment."

Kieran is also hopeful for Reading, but thinks that future success is not just about finances. “It’s also about getting the culture right in terms of players," he says. "Think of Sheffield United with Chris Wilder and the dressing room they had. Get a couple of decent loan players in... Plus, of course, a bit of luck is needed.”

Football governance has needed looking into for some time. Sanctions are useful when clubs break financial rules, but public trust is still an issue. One positive step heading the game's way looks to be the government's decision to establish an independent regulator in the sport after they endorsed recommendations made in a recent fan-led review.

As for Reading? Well, they got a little lucky this season. Serious changes are needed for next year, however. Survival in the Championship was important, but survival as a club is paramount.

READ MORE: Reading FC record loss of £35.5million