Andy Warren takes a look at the financial implications of Ipswich Town’s drop into the third tier of English football.
Relegation to League One could cost Ipswich Town as much as £9million in income.
The Blues’ relegation to the third-tier was confirmed this weekend, bringing to an end 17 years in the Championship.
Dropping into the third tier of English football results in a major financial hit for the club, with the Blues preparing for a loss of income of anywhere between £6m and £9m.
Owner Marcus Evans has consistently put an average of £6m into the club each season, with the last set of accounts showing that wages accounted for 108% of the club’s turnover and that the debt, owed solely to Evans, has reached £95.5m.
The biggest relegation hit comes in relation to income from television rights, which will see the Blues lose in the region of £6million at a stroke.
Other income streams, including sponsorship and commercial, will be impacted by relegation, which in turn will lead to budget cuts in many areas of the club. There is also the potential for redundancies.
Here we take a look at the impact relegation will have on the Blues.
TV cash
Unlike in the Premier League, where teams’ prize money is awarded based on finishing position, each club in the EFL receives the same figure as the 23 others in their respective division. It’s broken down into ‘basic awards’ and ‘solidarity payments’.
The basic award for the Championship is in the region of £2.5million and is a direct product of the television deal the league has with Sky Sports. This figure drops to less than £750,000 for League One clubs.
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The solidarity payment comes from the Premier League and is designed to ensure the gap between the top two divisions doesn’t become too large.
This currently totals around £4.5million for Championship clubs but drops to £675,000 for third tier sides.
That means an income of more than £7million from these two payments will become £1.5million for the Blues.
Clubs also earn money every time a game is televised, with the financial rewards dropping significantly in League One.
In the Championship, home sides are paid £100,000 for hosting televised games (rising to £120,000 for Sunday games and £140,000 for Thursdays), while away teams receive £10,000.
The Blues have earned around £350,000 from televised games during the course of this season, a figure they will not be able to hit in the third tier.
That income becomes just £30,000 for home games in League One, where significantly fewer matches are televised, with the away figure staying the same.
Sunderland, the highest profile side currently playing in League One, have had three league games televised this season.
Sponsorship
Income from sponsorship is also set to reduce due to the club’s new status as a third-tier side.
The Blues announced a three-and-a-half year sponsorship deal with Magical Vegas in January 2018, with the online gaming company’s branding emblazoned on Town shirts after 10-years of bearing the Marcus Evans Group logo.
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That deal was worth ‘close to £2million’ when announced by the club, but it’s understood there are clauses in place which sees the annual figure drop due to the decreased exposure the third-tier brings.
It’s also understood a number of the Blues’ other sponsorship deals will become less lucrative following relegation.
Tickets
Season ticket details are due to be released this week, with a drop in prices expected.
That means that there will be a loss of income unless there is a significant rise in uptake from the current number of around 10,000.
Attendances have dropped steadily during the course of Evans’ ownership of the club, with the last set of accounts showing gate receipts to have fallen from £5.1m to £4.7m.
Given the loss of TV and sponsorship revenue, gate receipts will be more important to Ipswich Town than ever before as they bid to cover the shortfall.
The hope will be that success on the pitch will entice fans back to Portman Road during the course of next season, with supporters who opted not to buy season tickets paying matchday prices.
However, away attendances for Town’s home games are likely to decrease, given the size of club visiting Portman Road when compared to Championship sides.
Wage cuts
The Ipswich Town players face a significant drop in salary for next season now that relegation is confirmed.
Owner Marcus Evans has confirmed that the club has ‘appropriate contractual terms’ in place so that relegation to League One ‘would not be a total disaster’.
Speaking recently, both Cole Skuse and Bartosz Bialkowski confirmed such clauses are in place, with both players insisting it is only right the players’ wages are adjusted now the club is operating under new financial circumstances.
“Of course it is,” Skuse said when asked if a wage cut is fair. “You get paid a certain amount to play in the Championship. If you fail in the Championship you shouldn’t be earning a certain amount of money in League One.
“If the owner thinks he should be paying you ‘Y’ then he pays you ‘Y’”
It’s understood that it’s commonplace throughout the Championship for players’ contracts to include wage reduction clauses of more than 40 per cent.
League One is governed by the Salary Cost Management Protocol (SCMP) which state clubs can’t spend more than 60% of their turnover on player wages. Ipswich Town’s last set of accounts saw the wage bill reach £18.5m - 108% of the club’s turnover.
Newly relegated clubs get a year’s grace where their expenditure on wages can’t top 75% of turnover and that, along with rules excluding young professionals’ salaries and the wages of those who signed three-year contracts before September of this season, mean these rules should not impact the Blues too heavily – for next season at least.
Staff cuts
The sad reality of relegation, at all levels of professional football in this country, is that cuts will need to be made to budgets throughout the club.
Ipswich Town is no different, with general manager of football operations Lee O’Neill stating recently that the club has been preparing for the potential to be operating in the third tier next season.
It’s understood all departments of the football club have been under review, given budget cuts will be required, while redundancies are likely.
“I think at the end of the day we’ll have to look at the whole club when that financial decision is made,” O’Neill said recently.
“No one intends to want to cut anything, no one wants that, but it’s a reality where situations can occur.
“At this moment in time, we haven’t gone through specifics for what that might look like.”
Academy
Evans’ investment in the Ipswich academy stands at £2million a year to ensure it runs smoothly at Category Two level.
Young players have been put at the heart of Ipswich’s future, meaning there are no plans to downgrade the academy and the investment will remain given certain requirements need to be hit in order to retain that status.
Indeed, O’Neill recently stated that the Blues hope to again bid to reach Category One in the future, which they missed out on by just 0.3% during the audit of 2014.
That status would increase recruitment power and the chance for Ipswich’s young teams to play higher-level opposition.
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