Philip Long, the head of corporate recovery at PKF, a leading firm of accountants and business advisers who have set up The Football Industry Group, is quoted in the Times today as saying, "There are clear warning signs that the football economy is overheating. The fact that 62 per cent of Premier League clubs have increased their overdraft will be ringing alarm bells at the banks. Television money has increased, but the banks will be worried that the money is effectively bypassing the clubs to be spent on buying and paying increasingly expensive players.
"The upcoming campaign is being financed through extra borrowings in an attempt to secure the rewards of a successful season, but there is growing pressure on the clubs which don't win. The excessive spending that brought Leeds to its knees is in danger of being repeated and could end with more clubs facing administration and, ultimately, insolvency.
"Backers like Roman Abramovich have taken the need for profitability out of the financial equation for a few Premier League clubs. But while they can spend money on new players almost at will, other clubs without the same financial muscle are being driven to borrow and spend more - potentially more than they can afford. The combination of increased funding from wealthy owners, higher-value sponsorship and media rights deals and the ease with which Premier League clubs can access finance is driving up player costs. But there is little indication that clubs are becoming more profitable as a result."
Stuart Barnsdall, a PKF partner, has warned that clubs in the Championship are in even more danger. "The top half of the Championship is increasing spending, undoubtedly incentivised by the financial rewards of winning promotion. However, the results suggest that more than half of Championship clubs either believe their squad does not have the capacity to win promotion or, more likely, are not prepared for the financial consequences of mounting a serious but ultimately unsuccessful challenge.
"Ultimately, this is the league where the biggest risks may be taken. The gamble is how much you can afford to spend to win promotion, and some gamblers may spend more than they can afford. If they succeed, the gamble will be worthwhile, but the price of failure could be very high."