New Financial Reality: League One Financial Context vs League Two

[Faivish]

Promotion begs the question: What is the financial context for League One Clubs (on average) vs League Two clubs?

Deloitte showed some data (a bit old) but good enough to as we say in 'merica "to ballpark" [a ballpark to us is a stadium over there].

https://www2.deloitte.com/uk/en/pag...f-football-finance-football-league-clubs.html

I chose these figures because Wrexham has distorted the financial picture of National League for the 21-22 and 22-23 seasons, as well as will distort the financial picture for League Two for the 23-24 season. Essentially, Wrexham were a League Two team playing in National League two years prior (in terms of turnover and wage bill), and have been a League One team playing in League Two this year. What you say? Let's look at the numbers of what sweetheart marketing deals from Aviation, Betty Buzz, United, Tik Tok, HP, Vistaprint, Expedia, SToK, have done to distort the picture along with all that Hulu/Disney money.

Coming out of Covid with significant political and economic corrections and subsequent disruptions, the Average League Two revenues were only 3.9 million pounds per club for the 2020-21 season. Things normalized as onerous social distancing restrictions were abandoned and League Two revenues recovered to 5.2 million pounds per club for the 21-22 season. For the 23-24 season Wrexham's revenues will distort the picture somewhat, pulling the average revenue per club (arithmetic mean) towards a number not representative of what the 'average' club in League Two actually realizes.

League One saw a more substantial correction, post-Covid with Average League One revenues moving from 5.4 million pounds per club in 2020-21, to 9.2 million pounds per club in 2021-22.

Why does this matter? In a politically and social distancing environment where club revenues, and subsequently turnover [per EFL Salary Cost Management Protocols (SMCP)], were severely curtailed, the difference between average club revenues for the 2020-21 season was significant between League One and League Two.

League One Average club Revenue
2020-21 Season: 5.4 Million pounds (per club)
League Two Average club Revenue
2020-21 Season: 3.9 Million pounds (per club)

In a more normalized environment, during the 2021-22 season where revenues and income streams receovered as social distances mandates and decrees were relaxed (and deemed to have been a bit of an overcorrection in retrospect causing more economic damage than actually had any efficacy actually preventing the spread of Covid)

League One Average club Revenue
2021-22 Season:9.2 Million pounds (per club)
League Two Average club Revenue
2021-22 Season: 5.2 Million pounds (per club)

So the variance between League One and League Two in an aberrant season was 1.5 million pounds in additional revenue per club, but the variance as things adjusted to more normalized business of football envirionment, between League One and League Two was 4 million pounds.

For clubs that are financially sustainable, or at least willing to infuse capital into the club from ownership and incur losses via "loans" from the ownership group, this matters because the SCMP rules allow League One clubs to spend 60% of their turnover on wages but only allows League Two clubs to spend 55% of their turnover on wages.

Clubs with higher turnover, as the SCMP protocols define, can obviously spend more. This is why the conversation of BIG clubs vs small clubs matter. Clubs do not have the same financial reality.

The Average League Two club would roughly be able to spend around 2.8 million pounds on their wage bill in 2021-22 season.

The Average League One club would roughly be able to spend 5.52 Million pounds on their wage bill in the 2021-22 season.

So League One clubs don't just have MORE money, they are allowed to spend a greater proportion of their revenues on player wages as well without running afoul of the SCMP rules. That is significant.

League Two clubs can within the SCMP rules roughly spend 55% of turnover on wages, but League One clubs can spend 60%.

A club like Wrexham, that essentially receives MILLIONS in marketing and advertising value added from the goodwill of their famous owners, which drives revenues and subsequently, caculated turnover, are allowed to spend more on player wages than their impoverished rivals. That is the Wrexham experiment, a competitive advantage that has allowed them to rocket through the EFL via subsequent promotions. Wrexham is essentially redlining their economic engine distorting club revenues, and calculated turnover per SCMP, to find that upper bound of what is allowable spend in League Two, to the boundary of that 55% League Two limit.

This is why the temporary stand matters, even though erecting it is not 'profitable' in a business sense, it allows the club to increase ticketing revenues, and thus increasing turnover, getting to a different turnover possibilty frontier, and thus allowing a higher allowable wage bill.

If League One clubs were 'allowed' to spend 5.52 million pounds on wages per the 60% wages/turnover SCMP rule, what did they actually spend?

Well in the 2021-22 season League One clubs actually spent 6.8 million pounds per club on wages, there being a significant incentive to get "move up" in the EFL. Many clubs are unsustainable economically and are leveraging losses hoping to find value adding on "going up" just as Wrexham have done. So there is almost a 1.28 million pound differenc in League One on what clubs should have been spending in the 2021-22 season vs what they were spending. 1.28 millions pounds of "overspend" if you will.

In League Two for the 2021-22 Season clubs were 'allowed' to spend 2.8 million pounds per club, but actually spent only 2.7 million pounds per club, recouping some of financial losses incurred from Covid that just wrecked these small clubs.

This is the context that Wrexham entered League Two in for the 2023-24 season, that some clubs were recouping losses, and not actually spending one wages to the allowable 55% limit, on average. Whereas Wrexham were like a economics experiment to determine how RR could possibly drive tunover by making more and more and more social media appearances to drive sponsorship.

For the 2023-24 season there are reports that Wrexham spent upwards of 7.15 million pounds on wages for the season.

https://salarysport.com/en-us/football/league-two/wrexham/

for context Derby County is reported as having the highest Wage Bill in League One for the 2023-24 season, with an overspend of 8.2 million pounds for the season.

Even if we use more conservative values putting Wrexham's wage bill closer to 6.5 million pounds, that puts Wrexham in the context of having a top club in terms of Wage spend, in LEAGUE ONE for the 2023-24 season, not League Two.

Only 10 clubs in League One for the 2023-24 season are reported to have a Wage spend of over 5 million pounds:

https://www.capology.com/uk/league-one/payrolls/

Only 3 clubs in League One for the 2023-24 are reported to have a Wage spend of over 6 million pounds per Capology.com

Only 1 club in League One, per Capology.com had a Wage spend above what Wrexham were reported to have spent 6.5 million to 7.15 million pounds.

So what should the expectations be for Wrexham upon promoting to League One? Great Question. Immediately following Covid, for the 2020-21 season, clubs in League One saw almost 40% higher club revenues vs clubs in League Two. For the following season, 2021-22, League One clubs saw almost 76% higher club revenues vs clubs in League Two. Leverage that with League One clubs being allowed to spend an ADDITIONAL 5% of turnover on wages without running afould of the SCMP rules...and Wrexham are sitting pretty. Why?

because Wrexham is not a typical League One club. Wrexham has income streams, merchandise and ticket demand that are atypical.

Wrexham already would have been top-2 in League One for Wage spend, on just their League Two revenues.

With the temporary KOP stand Wrexham would have been around 12th in League One for Stadium Capacity this season:

https://footballleagueworld.co.uk/all-24-league-one-stadiums-in-order-of-capacity/

Wrexham as a club actually is a sleeping giant, with excess demand for tickets, merchandising, and even sponsorship relationships vs "normal" clubs.

Wrexham leveraged all of of that to spend nearly double the arithmetic mean Wage bill for League Two. Wrexham (using the most conservative numbers from Capology of only a 5.5 million wage spend by Wrexham) spent more than 82% on wages compared to the average spend. 72.460 million pounds were spent in League Two wages and 24 clubs, or 3.019 million pounds per club vs Wrexham's 5.5 million wage spend:

https://www.capology.com/uk/league-two/payrolls/

What is reasonable for Wrexham in League One? Many fans are saying to temper expectations, that League One will require setting expectations. On paper, Wrexham would already have had top-6 wages per Capology for League One in 2023-24 using their very conservative 5.5 million pound figure:

Derby County 8.2 million
Portsmouth 6.2 million
Reading 6.1 million
Bolton 5.9 million
Oxford 5.8 million
Wigan 5.5 millon
Wrexham 5.5 million

actually top-5 as per Capology Wrexham had a hgher wage spend than Wigan by 50k

so add in additional revnues driving turnover calculations, and factor in the allowable spend to 60% of turnover to be spent on wages in League One, where the limit in League Two was just 55%, and where should Wrexham finish in League One next season?

Well...if wage spend drives on the pitch success, and it certainly correlates in aggregate, then Wrexham should be competing for promotion next season in a playoff spot. Two teams promote out of League One as automatic qualifiers, and 4 teams compete for the remaining playoff winner promotion spot. Wrexham without increasing revenues AT ALL, competing only with their League Two revenues, should have been competitive for the top-5 or top-6 level in terms of wage spend. Right there in the mix for that last playioff spot, barring injuries and assuming form.

Now can the club sign Arthur in net? Can the boys compete in League One with a higher tactical, athletic, and competitive floor? On paper they should b able to...if wage bill means anything.

The problem is the assumptions. One would assume that Wrexham have had to overpay, a bit, to get League One players to come and play with them in the National League and League Two, so the squad probably is really not quite equivalent to their wage spend.

How far off is that premium wage bill they've had to pay to get Lee, Mullin, Fletcher, Bolton, Marriot, and everyone else to join them on this ride? We'll see.

Or as we say in 'merica...

we are fixin' to find out.

 

[Ooh aah Paskin]

Wow, that's some research...I have started to read but will definitely dive in fully later...
Good job! And will no doubt create some interesting discussion

 

[Faivish]

the real game is all about revenues and wages, the score recorded at full time is just bookkeeping...

allowing the 'extra' 5% of wage spend as a function of turnover (60% SCMP League One allowable frontier vs 55% allowable in League Two) per Capology's very conservative Wage spend numbers puts Wrexham:

Derby County 8.2 million
Portsmouth 6.2 million
Reading 6.1 million
Wrexham 6.0 million

so ASSUMING there has been a Wage premium or 'overpay' to get League One players to come and play in the National League, and then League Two, and that not all the Wage spend correlates to quality, then Wrexham should be competing for probably the 5th/6th position, and a chance to compete for promotion to the Championship in the last playoff spots. If the 'overpay' is more pronounced then Wrexham finishes below 6th and outside the playoff positions...if Wrexham have NOT had to overpay or pay a premium to get players to come and "play down" and their Wage bill is reflective on squad quality, and IF Wrexham make some smart summer transfer signings, and IF Premier League teams recognize that playing for Wrexham is a high expectation/exposure environment (a microcosm of the fishbowl of top-level EPL clubs fishbowl) then Wrexham should get high level Loan opportunities for not quite ready for primetime Premier League player talent...Premier League clubs WANT their young players playing and developing in good environments, and Wrexham's exposure is a great environment, and IF Wrexham can resign Arthur, and IF someone doesn't hurt a key Wrexham player, and IF the club can carry form through after the celebration in Vegas...then Wrexham just might be in a position to be competing to promote to the Championship at this time next season

after that Premier League financials are so grossly distorted that Wrexham no longer have a competitive economic advantage trying to promote...but have the opposite, a disadvantage.

Hopefully, Rob and Ryan can get the new KOP built at capacity around their original goals...7,500 instead of aroudnd 5000 capacity. You don't build for capacity to compete in League One when promotion to Championship and ostensibly the Premier League, are possibilities. Those "missing" 2,500 seats after capacity was 'reduced' in negotiations with the Planning commission are really the biggest limiting factor affecting Wrexham over the past 2 years. That "missing" revenue will be significant going forward...not for League One, but for the push to the Premier League from Championship

 

[rob_1072]

I drank too much to make sense of that this morning, I’ll come back later

 

[Prodigal Dragon]

5% of £20m is an extra spend of £1m on players, compared to being in EFL2. That should equate to 2 very good new players on the books. Strikers cost megabucks, so it could, in theory, go on a salary for one striker to play alongside Mullin.

With a limited number of seats (12,500) -- which will reduce once the temporary stand is dismantled to start construction work -- means we need to keep upping the revenue from sponsorships.

It would also seem likely R&R will attract extra private investment towards redeveloping the ground and building a new training facility.

Great work, Faivish. Get yourself a job with R&R!

 

[Wiltshire_Red]

Very interesting read, so in a nutshell we will be financially competitive with the big boys of League One, which obviously doesn’t guarantee success, but at least Parky and Co will have the financial backing to entice more quality players to the club.

 

[Vambo]

Thanks, that's an interesting and positive read.
I think the increased revenues in L1 are less likely to be reflected in Wxm figures because attendances can't grow, and are most likely to drop in the short term as stadium capacity restricts attendance.
I wonder how much further advertising and media revenues can increase with the promotion, I don't think that's the driving force for revenue, playing Donny compared to Rotherham for example is no great change and won't excite advertisers or the international audience significantly, it's all about what RnR bring and how they can step it up.
We were a very big fish in the NL pond, a big fish in the L2 pond, and in L1 we will have to wait and see.

As fans were certainly getting the exciting ride we hoped for, long may it continue.

 

[Royal welsh red]

So what you’re saying is we’re going to **** league 1?

I’m all for it!

 

[Lamestatto]

Fascinating read, great post Faivish!
If, as looks likely, Portsmouth and Derby go up, where does that leave Wrexham in the wage bill/league position correlation?
Will the teams coming down from the Championship have the highest wage bills in league 1?

 

[Back of the Kop]

As much as some people get excited by playing in the big stadiums I'd leave the likes of Birmingham and Sheffield Wednesday where they belong, in the Championship.

We can't control what happens but I won't be wishing for 2 clubs to come down who will likely take up both automatic spots