Finance directors of Premier League clubs confess that English football is flirting with insolvency, and some clubs risk emulating troubled Leeds United, according to a survey published yesterday.
Despite the massive rise in broadcasting revenue, most clubs are increasingly passing the cash straight to players in escalating wages.
"There are clear warning signs that the football economy is overheating,'' warned Philip Long, of PKF Accountants and Business Advisers, who interviewed 55 finance directors of English and Scottish clubs, including 13 in the Barclays Premier League.
"The fact that 62 per cent of Premier League clubs have increased their overdraft will be ringing alarm bells at the banks," Long said. "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 banks' attitude suggests that, with player costs spiralling, not enough money is going towards the clubs' balance sheets,'' continued Long, whose firm have counted Liverpool, West Ham, Manchester City and Blackburn Rovers among their clients.
"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 pressure is worse for Championship clubs seeking promotion, as the pressure to spend is as great but the available resources are so much less.''
69 per cent of Premier League clubs believe they will make a pre-tax profit, but 62 per cent have raised their overdrafts while 31 per cent of finance directors claim banks are putting the heat on them. First-team wages will rise at more than two-thirds of Premier League clubs this season. Only a quarter are cutting back in the transfer market.
In the Championship, 78 per cent of clubs expect to show a pre-tax loss, and 77 per cent concede they are overspending. "The top half of the Championship is increasing spending, undoubtedly incentivised by the financial rewards of winning promotion,'' PKF's Stuart Barnsdall said. "This is the league where the biggest risks may be taken.''