Leicester’s financial problems
The Foxes’ regular encounters with the football authorities over profit and sustainability rules are well-known. As I have written before, breaking these rules is not necessarily a sign that Leicester City is getting into financial trouble. This is because PSR is only designed to ensure that clubs do not spend too far over the revenue that is raised from football activities (transfer fees, gate receipts, commercial activities and prize money) but, of course, the owners of football clubs are often billionaires who can invest their own money derived from non-footballing sources to plug any gaps.
Leicester’s spending has risen sharply since 2016. The remarkable title triumph in that year was achieved through relatively small investment from the Thailand-based King Power group who took over the club in 2010. As Foxes’ fans well know, the likes of Jamie Vardy, Riyad Mahrez and N’ Golo Kante were bought for a relative pittance.
After 2016, though, the club spent more and more trying to compete with the traditional big-six in the Premier League. Not only were increasingly large transfer fees paid but the wage bill increased exponentially. By the early 2020s, the amount spent on wages alone was over 100 per cent of the club’s revenue. Added to this was the £100 million spent on a state-of-the-art training complex boasting 14 full-sized pitches, a nine-hole golf course and a hotel. Managing such a resource is, of course, massively expensive, costing millions every year.
All of this expenditure was manageable whilst two factors prevailed. The first was that Leicester remained in the Premier League. But, of course, relegation in 2023 significantly reduced the club’s revenue and only one season back in the Premier League for the 2024-25 season wasn’t enough to fill the coffers once more.
But even that wouldn’t matter too much if King Power were still prepared and able to bankroll the club. And this is where it gets very scary for Foxes’ fans. For, as Charlie Methven, the noted football administrator and financier – partly responsible for rescuing Sunderland – has documented in one of The Business of Sport’s podcasts, there are doubts about the company’s continuing viability.
King Power was enormously profitable whilst Vichai Srivaddhanaprabha was at its head, but then Covid struck. The company was heavily reliant on Chinese tourists travelling to Thailand to buy duty free goods but this trade all but disappeared because of the pandemic and, for whatever reason, it has yet to recover. The business was, according to Methven, close to going under and last year it was restructured with Vichai’s son, Top, removed as the chairman.
The worst-case scenario
Leicester, as the latest accounts reveal, has cut its costs considerably since being relegated for the second time in three seasons. This explains why the Foxes haven’t been able to invest in players and have been happy to see high earners depart. There is a chance that financial dependence on King Power can be reduced further so that the future of the club is not entirely determined by the company’s performance.
The reduction in dependence on King Power, though, is going to be difficult to pull off. The club still has a huge wage bill for the Championship and will continue to have the running costs of the Seagrave training complex as well as the expensively run women’s team. Administration can’t be ruled out, though, unless further cost-cutting measures - such as the degrading of the category one academy – are implemented. It may even be helpful if Leicester City women are relegated because that would save a few millions more.
Relegation to League One, on the other hand – and the further reduction in revenue that will involve – makes administration even more likely, as King Power could be unwilling or unable to meet the financial shortfall.
Moreover, relegation would mean that the financial value of Leicester City further decreases. This could mean that the debt is higher than the value of the club, making finding a new owner that more difficult. Methven even speculates that the football authorities dished out a six, rather than nine or 12, point penalty to give the Foxes a fighting chance of avoiding the drop, precisely because they recognise the gravity of relegation to the club.
These are dark days for Leicester City and, if the above analysis is correct, the next few weeks are vital for the future of the club. With a protest planned before the next home league game, one does wonder what is in the mind of the owners. One option would be to jump ship now whilst there is still, just about, some financial benefit for King Power of doing so.