Why Championship clubs' overspending and financial troubles are stalling Premier League's EFL bailout

After another summer of £1 billion transfer spending by the biggest clubs, the Premier League is gaining little sympathy as negotiations rumble on over a bailout for the cash-strapped English Football League.

Richard Masters,  the top tier chief executive, remains determined to establish some ground rules, however, after scant progress was made in the latest round of talks with Rick Parry, the EFL chairman.

Ongoing reluctance at Premier League HQ boils down to exasperation amongst executives at a decade of financial mismanagement by clubs in the second tier. A counter-offer to the EFL's £250 million request appears close, but only if executives can get assurances that the Championship will finally get its house in order.

Financial returns by the clubs in football's second tier support Masters' case – wage to revenue spending is as unsustainable as anywhere in the world of sport, and previous handouts from the Premier League had inadvertently helped push the second tier off the cliff long before Covid-19.

Overall, operating losses have more than doubled in five years, from £282 million in 2014 to £603 million last year. Meanwhile, clubs have been spending 100 per cent or more of their revenue on salaries in six of the last seven years.

Number crunching by both Deloitte and leading football finance expert Kieran Maguire  brings into clearer focus a direct correlation with parachute and solidarity payments that have fueled a rank overspending on salaries.

A surge in payouts from the Premier League following record-breaking £1.7 billion domestic TV rights sell off ahead of the 2016/17 season was spent almost entirely on wage increases, Maguire explains. "When the Premier League TV deal was renewed in 2017, there was an extra £148 million in the Championship mainly due to higher parachute and solidarity payments, but clubs simply spent this on wages, which went up by £153 million," he told the Telegraph Sport. 

The smaller Premier League clubs – in a division that has lost around £1 billion since lockdown in March – have a good case to argue they are in little better shape than their rivals in the league below. Brighton, for example, have said they will have to shed jobs before contributing to a bail-out. Other smaller elite clubs estimate they are losing up to double the average £1 million-a-month hit that each Championship club is taking.

Much of the £250 million requested by the EFL would end up being a Championship sticking plaster, they believe. While in desperate search of promotion, Aston Villa, Derby County, Sheffield Wednesday, Reading and Birmingham have generated nearly a quarter of a billion pounds from selling their stadiums to companies controlled by club owners in 2018.

"Given the large sums coming to these clubs you can see the reticence of PL clubs from providing additional funding, although this is harsh on clubs such as Rotherham, Luton and Millwall who operate at much lower income and wage levels." Maguire adds.

The Premier League currently gives about £350 million a year to EFL clubs via parachute and solidarity payments. With no curbs on wage spending, the last available accounts show Aston Villa, Norwich, Derby, Sheffield Wednesday and Wigan all spent beyond 150 per cent of revenue on wages. Reading were worst hit of all, recording figures of 226 per cent.

As Telegraph Sport disclosed on the weekend, the EFL and Premier League might find common ground in agreeing on a new Championship salary cap as part of a long-term potential reset. EFL board director Mark Ashton, a chief executive at Bristol City, said he could see wage limits introduced within months. "We're in an emotional business and clubs stretch too far, making decisions you probably wouldn't make in normal business, particularly in the Championship because everyone's reaching for that Promised Land of the Premier League," he said.

Maguire, meanwhile, says he has some sympathy for the Premier League's plight. "Whether current parachute and solidarity payments are sufficient or fairly distributed is up for debate," says Maguire, adding the PL "isn’t in as strong a position as some claim"