I take no pleasure in the rapid decline of Leicester City. Many moons ago I went to university in Leicester and my personal tutor and many other staff were keen supporters. I was delighted when they won the Premier League.
What follows is a summary of points made by the authoritative
Swiss Ramble. Much more analysis and charts
are available on his Substack page, there is often a free trial.
Going down last season represented a significant
under-performance, as they enjoyed one of the highest budgets in the
Championship, boosted by a hefty parachute payment, and a squad that contained
internationals and numerous players with Premier League experience.
Points deduction
Leicester weren’t helped by being hit with a six-point
deduction for breaching the EFL’s Profitability and Sustainability Rules (PSR)
by £20.8m for the 3-year monitoring period up to 2023/24. The club appealed,
but every one of its arguments was dismissed.
They had managed to avoid a similar fate for the 2022/23
assessment, when 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 (or by finding a loophole in the rules), but this
ultimately turned out to be something of a Pyrrhic victory when the authorities
finally caught up with them.
Whatever people might think about PSR, Leicester’s breach
was essentially driven by their own actions, specifically by spending their
money badly on transfer fees and wages.
On the basis that “it never rains but it pours”, Leicester
are now also facing a claim for damages after Leeds United started legal
proceedings, having been denied automatic promotion in 2023/24, when the Foxes
were found to have broken financial rules.
Of course, Leicester were also hit hard by the tragic death
of owner Vichai Srivaddhanaprabha from a helicopter accident outside the
stadium in October 2018 with control passing to his son Aiyawatt.
Profit/(Loss) 2024/25
Despite promotion to the Premier League, Leicester’s pre-tax
loss significantly increased from £19.4m to £71.1m, largely due to a steep
reduction in profit on player sales from £71.8m to just £7.3m and the absence
of £12.5m non-recurring other operating income.
Revenue rose £81.2m (77%) from £105.3m to £186.5m, but this
was partly offset by an increase in operating expenses, which were up £56.4m
(28%) from £198.9m to £255.3m. Net interest payable slightly educed from £10.4m
to £9.8m.
Importance of player sales
One reason for Leicester’s hefty loss was their very low £7m
profit on player sales, which was massively down from the previous season’s
£72m. Despite the small profit in
2024/25, Leicester have often boosted their results (or reduced the size of
their losses) with decent profits from player sales, e.g. they generated £72m
in each of their previous two seasons.
The tried and tested business model was to sell a big name
each season to one of the Big Six clubs (often to Chelsea) to help balance the
books, including James Maddison, Wesley Fofana, 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 Top explained, “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.”
The importance of player sales to Leicester is amply
demonstrated by their significant operating losses. In the last four years,
their £393m deficit was the third highest in the Premier League, only better
than Chelsea £913m and Aston Villa £511m.
Revenue after relegatikon
Leicester’s revenue will have significantly reduced
after relegation. The last time that this occurred, it fell 41% (£72m) from
£177m to £105m, hence the need for player sales.
Next season in League One, as Leicester will benefit from
the second year of parachute payments. The current revenue record for England’s
third tier is Sunderland’s £59m in 2018/19, when they were also boosted by a
parachute, but Leicester are likely to smash this.
They will still get a parachute payment next season, despite
relegation to League One, though this will be lower. Based on current payments
this would be £40m, though it is likely to be a bit higher at £41m following
the increase in the Premier League TV rights.
As Leicester were relegated after just one season in the top
flight, they are only eligible for two years of parachutes, instead of the
normal three years, so they will lose this advantage in 2027/28, whatever
division they are playing in.
The other sizeable problem for Leicester is that the
parachute payments have been used as collateral for part of the debt taken out
with Macquarie Bank.
One of the reasons for Leicester’s decline was their failure
to consistently 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 £22m TV money, comprising £16m from the Europa League plus another £6m from
the Conference League.
Leicester’s average attendance slightly increased from
31,238 to 31,448, which was pretty good, considering their dismal form. This
was the 12th highest in the Premier League, though five clubs regularly attract
crowds above 60,000, led by Manchester United’s 73,815.
Following relegation, attendances slumped to 28,907, which
was significantly lower than the promotion-winning season, as fans showed their
unhappiness by voting with their feet. Nevertheless, this was still the second
best in the Championship, only below Coventry City 30,290.
Wages, transfer spend and debt
Leicester’s wage bill rose £46m (43%) from £107m to £153m,
though the underlying increase would have been higher, as the previous season
featured a sizeable promotion bonus. Even
after the increase, Leicester’s £153m wage bill was towards the lower end of
the Premier League, though it was a lot more than the other relegated clubs
(Southampton £116m and Ipswich Town £77m).
There has been a clear slowdown in Leicester’s gross
transfer spend, which averaged £105m in the four seasons between 2016/17 and
2019/20, before falling to an average of just £61m in the last five seasons. Leicester’s transfer spend history goes a
long way in explaining how the club found itself in financial strife. For a
while, they really went for it, e.g. their gross spend in the four seasons up
to 2019/20 was only beaten by the Big Six.
Leicester’s gross financial debt decreased by £63m from
£226m to £163m, as owner debt fell £111m from £171m to £60m, though external
debt nearly doubled £49m from £55m to £104m.
This was much lower than the £346m peak in 2022, but debt is still
significantly higher than the £25m owed just seven years ago.
Leicester benefited from the owners converting £124m of debt
(including related interest) into equity in 2024/25, which means that King
Power have effectively written-off £422m in this way since their arrival. Since King Power acquired Leicester City in
August 2010, the owners have put in an incredible half a billion, including
around £300m in the last six years alone.
Not so attractive to investors
The Swiss Ramble concludes:’Leicester’s story is
instructive, as they soared high, but clearly spent beyond their means in doing
so and are now paying the price. In
fairness, it is almost impossible for an aspirational club to break through the
glass ceiling without spending big, so it’s a minor miracle that Leicester
actually won the Premier League.
However, it’s difficult for clubs like Leicester to
consistently punch above their weight, especially when they effectively waste
much of their expenditure with poor recruitment choices.
The harsh reality is that Leicester are not as attractive a
proposition as they once were, having slipped down the football pyramid. The
good news is that they will be better resourced than any other club in League
One, but that was also the case last season in the Championship – and that did
not end well. Martin clearly has a huge task on his hands to change momentum,
especially following the enormous turnover in the squad.
Moreover, in light of the rumours about new investors, the
question is whether King Power are still willing to provide the levels of
financial support required to cover the club’s losses?’
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