What would relegation mean for Leicester?

Relegation from the Premier League looks inevitable for Leicester City with two matches to play and Dean Smith’s side appearing incapable of raising their game. If results go against them this weekend and they lose away to Newcastle United on Monday night, their fate will be sealed and a number of tough decisions will await the owners and board.

The latest financial results, released this year, revealed losses of £92.5 million and showed that Leicester had the seventh-highest wage bill in the Premier League at £182 million. Their wage-to-turnover ratio is 85 per cent — only Everton’s and Newcastle’s are higher.

Such figures would be unsustainable in the Sky Bet Championship, where the club’s income would drop by about two thirds without the broadcast money earned in the top flight. While Leicester are confident that their commercial revenue figures are increasing, they are still a world away from competing with the bigger clubs, which means they are further restricted by Financial Fair Play (FFP) rules when it comes to spending.

In recent years Leicester’s transfer spending has been supported by the sale of a key asset, such as Riyad Mahrez to Manchester City for £60 million in 2018 and Harry Maguire to Manchester United for £80 million the following summer.

It is understood that players have clauses written into their contracts which would mean a salary reduction of between 30 and 50 per cent should the club go down — this is commonplace for many Premier League clubs — but Leicester will also have to look to cash in on assets to aid their financial prospects.

While having eight players out of contract at once is positive for the wage bill, Leicester cannot make money on any of them. James Maddison, who has another year left on his contract, is expected to leave this summer. Despite other clubs knowing Leicester’s need to sell, the playmaker will still likely command a sizeable fee, with numerous clubs including Newcastle interested in landing him.

Another consideration for the club is the loans with the Australian bank Macquarie that they have taken out to help finance their spending. The loans were secured against Premier League TV payments and, in the event of relegation, parachute payments. Leicester would be in line to receive about £42 million in parachute money if they go down.

In a show of commitment from the owners, the chairman, Aiyawatt Srivaddhanaprabha, relieved the club of £194 million of debt this year. The club’s expenditure over recent years has been supported by loans from their parent company King Power, but all of those repayments and relevant interest were effectively relieved after they were converted to shares.

In the grand scheme of things it does not mean too much, but it did show that Leicester’s owners are committed to the club going forward. King Power operates duty-free retail in Thailand and like many companies was hit hard by the pandemic, but they have remained committed to the club.