Rise of ‘football zombie clubs’ looms with 100% rise in financial difficulties since Covid onset

Financial distress is now affecting a total of 34 football clubs in England and Wales, double the number before football grounds around the UK were closed in March 2020 according to latest research by Begbies Traynor.

The latest Football Distress Survey has highlighted a continuing credit crisis among English clubs outside of the Premier League since the onset of Covid.

Two EFL clubs, Wigan Athletic and Derby County, have entered administration, triggered in part by the pandemic.

Despite the return of fans to grounds in August, there has been little immediate change in the fortunes of the national game below the Premier League, with the temporary financial boost generated by the package of Covid relief measures now ended for most clubs.

In a direct comparison of data between the period immediately before Covid restrictions were imposed on clubs in March 2020, when only 17 clubs were flagged as having financial problems, and the end of September 2021, the survey reveals a 100% rise in the number of clubs showing early signs of financial distress.

Since the end of March 2021, the number of English clubs displaying signs of credit trouble has remained relatively steady, climbing from 33 in England and Wales to 34 in the most recent period to 30 September 2021, while Derby County was placed in administration in September.

Gerald Krasner of Begbies Traynor. said “The rates relief, Premier League payments and furlough measures did prevent a slew of clubs going to the wall in 2020, and with the exception of Derby County there hasn’t been significant change in the creditworthiness of the clubs in the last six months, but that means the return of fans hasn’t been a magic bullet either.”

“That we now have twice as many clubs in peril, in addition to the failures of Wigan and Derby County, should be concerning to fans and governing bodies alike. These have been exceptional times and perhaps there is an argument to be made that they may require exceptional remedies or exemptions in future if the game isn’t to see a whole raft of ‘zombie clubs’ staggering through to avoid deductions and financially-driven relegations.”

“We are even seeing small indicators of falling creditworthiness in the Premier League, and it’s a long time since that was a factor to even mention.”

Krasner, who was one of the team of three administrators that successfully sold Wigan Athletic FC out of administration in March this year, was previously chairman of Leeds United and is one of the UK’s leading football restructuring experts.

Since March 2020 the number of clubs in Scotland showing signals of financial distress has fallen marginally from nine to just eight clubs.

Krasner continued “Scotland’s clubs have seen less negative impact, and whether that’s due to lower wage bills, or a generally prudent approach to financial housekeeping, or a combination of both those factors, the Scottish League faces far fewer financial threats than clubs do south of the border.”

Ken Pattullo, who leads Begbies Traynor in Scotland said “The rates relief, government-backed bank loans and other furlough measures seem to have done their job in terms of protecting Scottish clubs. There was a significant rise in distress when we saw the last data six months ago 2021, but the clubs have recovered and we’re now seeing levels of distress below those in March 2020.”

“There’s no doubt that Scottish clubs, with just a fraction of most EFL clubs’ TV revenues, have had to be more prudent for a long time, and it seems that they have been better able to pivot strategies to conserve their resources, despite having more dependence on ticket sales and match day attendances.”

“Although we tend to envy the relative fortunes of the game south of the border, the trends revealed by this survey show that English clubs’ ability to spend more freely pre-Covid has proved to be a double-edged sword. We should be thankful that the Scottish leagues won’t see a whole raft of ‘zombie clubs’, staggering through to avoid failure and financially-driven relegations that are likely in England.

“The survey even shows small early indicators of falling credit worthiness in the Premier League, and it’s a long time since that was a factor to even mention.”