Leicester City could feel the effects of their surprising relegation from the Premier League “for a while”.
Chief executive Susan Whelan issued the ominous warning in a press release announcing that the club had reported a pre-tax loss of £89.7 million ($113 million) in its latest set of accounts following a record loss of £92.5 million the previous season.
In fact, Leicester went from four years of profits, including the £92m made in 2017 from their £70m run to the Champions League, to making a loss in five consecutive years.
In the accounts, which cover the disastrous 2022-23 season in which Leicester fell from an eighth place the previous year to an 18th place and lost their Premier League status after nine seasons, the club admits it may have failed in its benefits and sustainability (PSR). ), but believes that mitigation measures should be considered due to the unexpected and unique nature of their rapid decline. Before relegation, they had won the Premier League, the FA Cup and participated in three European campaigns.
Turnover fell for the second year in a row and this time it plunged from £214.6m to £177.3m. The biggest factor was the absence of any money from UEFA (they earned £25.6 million in 2021-22 for reaching the Conference League semi-finals) and the fall of the Premier League , which they say cost them £15.3 million. although this figure could be higher in reality.
The club’s costs have increased massively from £216 million to £301.8 million, partly due to the extra month in the 2022-23 accounting period, which was increased to 13 months to bring them in line with other top-flight clubs, who usually terminate their contract. exercises in June. This has effectively given Leicester an extra month to make sales, but the problems have more to do with the fact that the club continues to spend heavily on its squad in terms of wages and amortization.
The wage bill increased from £182 million to £205.8 million. This means that the club’s wages-to-turnover ratio, which is a key indicator of sustainability, has reached a massive figure of 116 percent. They were spending £1.16 for every £1 coming in.
The increase follows a salary-to-turnover ratio of 85 percent in 2020-21 and 2021-22, 15 percent higher than the 70 percent team cost rule set by UEFA.
The wage bill in 2021-22 was the seventh highest in the Premier League, as was their salary plus depreciation cost, in line with the club’s stated aim of being the best of the rest. This meant that Leicester would still be vulnerable to a performance-related drop in revenue, as the club’s commercial and matchday revenue streams are effectively mid-table.
Whelan insists the club’s high wage bill and budget were “entirely reasonable”, but it was those costs, coupled with the loss of Premier League merit money and the cost of dismissing the manager Brendan Rodgers – who they had made the highest-paid manager of the year. the history of the club – and his team before the end of the campaign which were the main contributing factors. Rodgers had more than two years left on his contract when he left and was reportedly paid £8million a year.
“Having reached fifth, fifth and eighth places in the Premier League in the previous three seasons, our targets and associated budgets for 2022-23 were entirely reasonable,” she said.
“However, for a club like ours, whose sustained sporting performances have justified the levels of investment required to compete with more established clubs and pursue our ambition, a season of such significant underperformance on the pitch presents challenges financial, in particular due to the perspective of the current rules of profit and sustainability of the game.
Leicester even made a transfer profit of £74.8 million on the sales of Wesley Fofana to Chelsea and James Maddison to Tottenham Hotspur. The extension of their accounting period allowed the Maddison agreement to be included in the accounts. During the same period, Leicester signed Wout Faes, Harry Souttar and Victor Kristiansen for a combined fee of £45 million.
Leicester have already been very good at selling players. According to football finance blog Swiss Ramble, only Chelsea and Liverpool made more money than Leicester from player exchanges between 2017 and 2021.
The club appeared to be following a strategy of one big sale per year to try to balance the books – until 2021-22, when they sold no assets. They made just £9 million on trade that season, but returned to pattern again in those accounts, with the sale of two high-profile players. Others are likely to leave at the end of this season.
However, the sales of Fofana and Maddison were not enough to avoid a possible sanction from the Premier League, which referred the club to an independent commission. If and to what extent he is found to be in breach, which could prove considerable, Leicester would face a points deduction, most likely next season, regardless of which division they are in.
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The English Football League has also imposed a registration embargo on Leicester this season for what it believes is a potential breach of its PSR, which limits clubs to just £13 million in losses per season, instead of the £35 million allowed in the Premier League. A total loss of £105 million over a three-year cycle has been allowed under Premier League rules, which will be reduced to £83 million for future accounts.
Due to the embargo, they cannot register any new signings and may not be able to offer new contracts to existing players Jamie Vardy, Wilfred Ndidi, Kelechi Iheanacho and Jannik Vestergaard when their contracts expire at the end of June.
Interestingly, in the 2022-23 accounts the club stressed that they believed they were under the jurisdiction of the Premier League for this set of accounts and would only be under the jurisdiction of the EFL for their next accounts.
“The club is determined to ensure that all charges against it are resolved in an appropriate and proportionate manner, in accordance with the applicable rules, by the appropriate bodies and at the right time,” said the club, which said last month it had launched legal proceedings against the two men. the Premier League and EFL, said in a statement.
Commercial revenue increased, with gate receipts up £1.4 million, sponsorship revenue up £1.3 million and commercial revenue up £1 million. pound sterling. The extra month must be taken into account, but the club’s membership also increased by around six per cent, from 467 to 495, and there was also a one-off fine of £880,000 from the Authority competitions and markets for overcharging supporters for their merchandise.
Having finished on average in the top eight in their previous eight seasons in the Premier League, Leicester had anticipated a similar result and, although they had not planned to include prize money for participation in Premier League competitions, UEFA, which had been included in the two previous accounts. , this was always the objective stated in the club’s previous statements and they increased their playing budget in an attempt to maintain the competitiveness of their team.
As Leicester pushed their limits to compete with clubs with much higher turnovers, player trading provided their safety net but, even with two big player sales, it was still not enough to make up the losses .
What is clear from these accounts is how dependent the club is on its owners, the Srivaddhanaprabha family and King Power International. Debt to KPI totaling £194 million has been converted into equity. Not only did this clean up the balance sheet, but it also saved them over £6 million in interest, with their annual interest bill falling from £18.9 million to £12.5 million pounds sterling.
In his notes in today’s magazine ahead of Monday’s win over Norwich City, chairman Aiyawatt Srivaddhanaprabha, known as Khun Top, outlined his and the company’s commitment to the club in an attempt to reassure supporters worried.
Leicester still have a loan facility with KPI that they can draw on, as they are set to repay an £80m loan facility with Australian bank Macquarie, having also agreed a £40 million credit agreement.
“The continued, long-term financial security and commitment provided by Khun Aiyawatt, the Srivaddhanaprabha family and King Power International allows the club to rebuild with certainty and confidence,” said Whelan, who took a £327,000 pay cut at £301,000.
The PSR does not take into account investment in the academy, women’s team and club infrastructure, with plans still in place to develop the ground adjacent to the King Power Stadium and to increase the capacity of the East Stand.
The club has also invested in environmental works at the King Power Stadium and its Seagrave training ground, including bee hives, log hotels and electric vehicle charging points to reduce the club’s carbon footprint. the operation.
None of this is likely to have any bearing on Leicester’s mitigation before the PSR committee. Neither will their hope of not expecting the 2022-23 season to happen or having to fire Rodgers. The committee will likely look at the raw figures and conclude that for too long Leicester have been spending more than their revenue to compete with the Premier League’s elite and, with the seventh highest wage bill in the division, they have fallen further behind than any club before.
“Leicester’s accounts reveal a complete loss of control over costs, particularly salaries,” said Kieran Maguire, who teaches football finance at the University of Liverpool. “They have certainly exceeded the Premier League’s upper threshold for losses allowed for the period up to the end of June 2023 and they are in serious danger of doing an Everton and breaching it again for the current season, especially since they can only lose £83m over this period.”
Leicester had big ambitions and didn’t believe a season as terrible as 2022-23 could happen.
It remains to be seen how they recover. As Whelan states, it might take Leicester a while to get to where they were before.
(Top photo: Nathan Stirk/Getty Images)