The cost of going up increases

After Derby County published their financial results for the 2023/24 season, many observers expressed surprise at the amount of money the Rams had lost while securing promotion from League One to the Championship.

The bottom line of promoted clubs is adversely impacted by the payment of promotion bonuses, which can be quite substantial, so there is clearly a cost to be paid for teams that go up.

As you would expect, the cost of promotion increases the higher the division, so in 2022/23 (the last season where all clubs have published accounts) the average pre-tax loss in the Championship was £27.9m, compared to £9.6m in League One and £1.4m in League Two.

Championship to Premier League

Five clubs have reached the Premier League in the last decade despite generating less than £20m: Luton Town (2022/23) £18m, Watford (2014/15) £18m, Huddersfield Town (2016/17) £16m, Brentford (2021/21) £15m and Bournemouth (2014/15) £13m.

Parachute payments give clubs relegated from the Premier League a major advantage. In 2023/24, this award was worth £48m in the first year after relegation, £39m in year two and £18m in year three.

Moreover, this has become an increasingly important factor. In the five years up to 2018/19, seven of the 15 promoted clubs received parachute payments, i.e. 47%. This was up to 10 in the last five years, which works out to 67%.

The three highest wages for clubs promoted from the Championship are Fulham (2021/22) £90m, Aston Villa (2018/19) £83m and Newcastle United (2016/17) £80m, while Leeds United’s £78m in 2019/20 is the most paid by a non-parachute club.

League One to the Championship

The average revenue of clubs promoted from League One to the Championship has significantly increased in the last three seasons, partly because those going up included some traditional big clubs.

In this way, the average revenue in the three years up to 2023/24 was £17.6m, which was more than twice as much as the £8.0m in the preceding 7-year period, partly due to COVID adversely impacting 2019/20 and 2020/21.  The highest revenue was Sunderland’s £26.1m in 2021/22, followed by Ipswich Town (2022/23) £21.8m, Derby County (2023/24) £19.m and Sheffield Wednesday (2022/23) £19.3m.

In contrast, four clubs won promotion on less than £6m revenue, namely Burton Albion (2015/16) £4.2m, Coventry City (2019/20) £5.1m, Milton Keynes Dons (2014/15) £5.2m and Blackpool (2020/21) £5.4m.

There has also been substantial growth in the wages of the League One promoted clubs, which averaged £16.3m in the last three seasons, compared to £8.7m in the previous seven years.

Derby had the third highest loss before tax ever for clubs promoted from League One, only surpassed by Ipswich Town (2022/23) £18.2m and Blackburn Rovers (2017/18) £16.8m. Two more clubs had double digit losses while securing promotion, namely Bristol City (2014/15) and Charlton Athletic (2018/19) with £10.1m apiece.

The average revenue of clubs promoted from League Two has remained in a fairly narrow range over the last eight seasons, averaging £5.4m in this time.

Gains and losses from promotion

All but four of the 24 clubs promoted from the Championship between 2014/15 and 2021/22 have seen an improvement in their bottom line, though it should be noted that every club whose finances have deteriorated was promoted in the last four seasons.

Some clubs did much better after promotion with five clubs improving their bottom line by more than £50m, led by Wolves (2017/18) £77m, who swung from a £57m loss to a £20m profit, Newcastle United (2016/17) £70m and Hull City (2015/16) £56m.

In contrast, four clubs lost more in the Premier League than their promotion season in the Championship, namely Fulham (2019/20) £45m, Norwich City (2020/21) £45m, Aston Villa (2018/19) £31m and Nottingham Forest (2021/22) £21m.

Of the 23 clubs promoted from League One to the Championship in our review, 16 clubs improved their bottom line. However, the financial results at seven clubs deteriorated, including two from the most recent promotion in 2021/22.

Five clubs improved their financials by more than £5m with Barnsley (2015/16) leading the way with £13.4m, mainly due to £13.5m profit from player sales, followed by Charlton Athletic (2018/19) £8.9m and Wigan Athletic (2015/16) £6.6m.  However, Wigan (2021/22) also had the largest decline with £5.7m, followed by Bristol City (2014/15) £4.8m and Milton Keynes Dons (2014/15) £3.9m.

Of the 30 clubs promoted from League Two to League One in our analysis (where accounts were available), 17 clubs improved their bottom line, while the financial performance at 13 clubs deteriorated, so this was not far off 50:50.

The largest improvements following promotion were made by Oxford United (2015/16) and Coventry City (2017/18) with £2.5m apiece, while the biggest increases in reported losses were at Port Vale (2021/22) and Bolton Wanderers (2020/21), both with £2.3m.

Losses of promoted clubs in League Two and especially League One have been steadily increasing. This was also the case in the Championship - with the exception of 2022/23. This was mainly because the three clubs that went up from England’s second tier that season are all fairly cost conscious.

The majority of promoted clubs see better financials in the following season in the higher division, but this is far from guaranteed. Year-on-year improvement becomes less likely the lower down the football pyramid we go, i.e. almost all clubs promoted from the Championship do better, but this is the case for only around half of the clubs promoted from League Two.

What this means is that any investors that hope to make a quick buck by investing in a lower league club, then guiding it to promotion, need to appreciate that they will almost certainly have to cover operating losses on top of the initial cost of acquisition.  In short, the cost of going up is, er, going up.