Leicester face big challenges off the pitch

As Leicester City approach this new season, they will hope to repeat the feat of immediately returning to the Premier League, as they managed on the previous occasion they were relegated.

After a troubled year in the top flight, which their former striker Jamie Vardy memorably described as “a shitshow”, Leicester will again be one of the best resourced clubs in the Championship, but their problems have mounted up off the pitch.

There is also the threat of a points deduction hanging over Leicester after the Premier League referred the club to an independent commission for an alleged breach of Profitability and Sustainability Regulations (PSR) for the 2023/24 monitoring period.

Leicester had managed to avoid a similar fate for the 2022/23 assessment, as they successfully argued that they could not be charged for a breach, as they were no longer a member of the Premier League when the PSR calculation was carried out, having been relegated to the Championship.

Their legal team played a blinder here, effectively winning the appeal on a technicality, due to some poor wording in the rules.

However, this may well turn out to be something of a Pyrrhic victory, as any points deduction this season is likely to be substantial, especially as the Premier League is likely to charge Leicester with an aggravated breach.  The talk is of a 12-point penalty (at least), which would be applied in this season’s Championship, thus making promotion that much more difficult

Leicester’s pre-tax loss in 2023/24 (the last available accounts) significantly reduced from £89.5m to £19.4m, despite revenue dropping £72m (41%) from £177m to £105m following relegation, as this was more than offset by a steep reduction in operating expenses, which fell £128m (39%) from £327m to £199m.  Profit from player sales was virtually unchanged at £72m, while the club benefited from £12.7m other operating income. Net interest payable also reduced from £12.0m to £10.4m.

The main driver of Leicester’s revenue decrease was broadcasting, which more than halved, falling by £61m from £115m to £54m, as TV rights are significantly lower in the Championship compared to the Premier League.  Commercial income was also down as a result of relegation, falling by £11.6m (26%) from £44.4m to £32.8m, but gate receipts were unchanged at £18.4m.

Even after the substantial year-on-year improvement, Leicester’s £19m pre-tax loss was still one of the worst results in the Championship, though a fair bit better than Leeds United £61m, Ipswich Town £39m, WBA £34m and Stoke City £26m.

Losses mount up

Leicester have now reported six consecutive years of losses, adding up to £322m, which is in stark contrast to the four years of profits that they generated after promotion to the Premier League in 2014, amounting to £137m.   The good news is that their £19m loss in 2023/24 was a significant improvement on the huge £92m and £90m losses in the previous two seasons.

Leicester made an impressive £144m profit from player sales in the last two seasons, as 2022/23 included the big money transfers of James Maddison to Tottenham and Wesley Fofana to Chelsea.

This was a return to the club’s tried and tested business model, which is to sell a big name each season to one of the Big Six clubs (often Chelsea) to help balance the books, e.g. N’Golo Kanté, Danny Drinkwater, Riyad Mahrez, Harry Maguire and Ben Chilwell.

Many of Leicester’s problems with PSR were caused by the abandonment of this policy for a while, as explained by chairman “Top” Srivaddhanaprabha, “Our short-term means of offsetting expenditure is generating profits through player trading. We did that successfully for five straight summer windows before 2021, where we opted to make further investments in the squad without a significant sale.”

This summer has already seen some big departures, most notably goalkeeper Mads Hermansen has been sold to West Ham, while Wilfred Ndidi and Conor Coady have moved to Besiktas and Wrexham respectively. Others might still leave before the window closes, e.g. midfielder Bilal El Khannouss will certainly attract some interest.

Revenue falls

Leicester’s reported revenue has fallen three years in a row, though 2020/21 did include £33m of deferred revenue from the extended 2019/20 season, as some games were played after the accounting close due to COVID delays.

Nevertheless, it is clear that revenue is well down on the club’s £233m peak in 2016/17, which included £70m from the Champions League. Since those heady days, it has dropped by £128m (55%), due to a £137m reduction in broadcasting income, partly offset by growth in both commercial £7m and gate receipts £2m.

Of course, promotion will have had a massive impact on Leicester’s revenue last season, e.g. the team that finished 18th in the Premier League in 2023/24 received £115m in TV money alone.

One of the reasons for Leicester’s decline was their failure to qualify for a European competition. The high point was when they earned €70m from their Champions League adventure in 2016/17, but as recently as 2021/22 they got €24m TV money, comprising €18m from the Europa League plus another €6m from the Europa Conference.

Despite relegation, Leicester’s average attendance only dipped slightly from 31,887 to 31,238, which was the third best in the Championship in 2023/24, only surpassed by Sunderland 41,028 and Leeds United 35,989.  They averaged 31,448 in the Premier League last season, which was pretty good, considering their dismal form. However, no fewer than five clubs enjoyed attendances over 60,000, led by Manchester United with nearly 74,000.

Leicester’s £107m wages were comfortably the highest in the 2023/24 Championship, miles above Leeds United £84m and Southampton £81m, then another big gap to Norwich City £52m.  Various studies have shown that wages are closely correlated with success in the football world, evidenced once again by Leicester’s first place in the 2023/24 Championship being in line with their wages ranking (even after adjusting for the promotion bonus).

However, Leicester’s relatively high wage bill was the root cause of Leicester’s large losses and consequent PSR issues.  As an example, in 2022/23 their £206m wages were the seventh highest in the Premier League, only behind the Big Six clubs. Indeed, they were also in this elevated position for the preceding three seasons – and the one before that they were 8th.

Although the majority of Leicester’s debt is of the soft variety, being provided by the owners, they still carry a lot of loans from Macquarie Bank, so their £55m eternal debt was the second highest in the Championship, only below Southampton £71m.

Since King Power acquired Leicester City in August 2010, the owners have put in an incredible £481m, including nearly £300m in the last five years alone.

Leicester will approach the new season in a slightly strange position. On the one hand, they will be better resourced than any other club in the Championship, but on the other hand they have the threat of a significant points deduction hanging over them for a PSR breach.

Leicester’s story over the last few years is quite instructive, as they soared high, but clearly spent beyond their means, so the club is now paying the price.  In fairness, it is almost impossible for an aspirational club to break through the glass ceiling without spending big, and it was a minor miracle that Leicester actually won the Premier League, an achievement that was applauded by neutrals everywhere.

However, it’s incredibly difficult for clubs like Leicester to consistently punch above their weight, especially when they effectively waste much of their expenditure with poor recruitment choices.

Nevertheless, it does look like the club has got a good new manager in Marti Cifuentes, though he will have more of a challenge on his hands than is normally the case for relegated clubs, unless the decision in the pending PSR case somehow goes their way.

As the Spaniard said after yesterday’s narrow victory against a beleaguered Sheffield Wednesday team, “The Championship is a ruthless league. It was a good lesson for everyone to understand that we cannot take anything for granted.”