Leicester City’s fairytale has become a PSR nightmare and going bust is a very real possibility | OneFootball

When you think of Leicester City you probably picture Wes Morgan and Claudio Ranieri lifting the Premier League title back in May 2016.

Now take that image in your mind, throw it into the middle of the nearby M1 and watch as several lorries run it over. That is the state of modern Leicester City.

The club that completed one of the greatest fairytales in all of sport faces not just being relegated to the third division but very real questions of whether there will even be a club at all.

The plight of Leicester City can be summed up by bad luck mixed with a whole lot of naivety.

The modern Leicester City story begins when Vichai Srivaddhanaprabha, owner of the largest of Thailand’s duty-free retailers King Power, purchases the club in 2010. For the first few years, Leicester’s story was not a remarkable one and resembled many modern Championship clubs with ambitious owners.

But the Foxes’ fortunes changed when they unearthed a few transfer gems who would become the bedrock of a team that somehow won the Premier League title.

That moment should have been a story-defining one in Leicester’s history and while winning the title does not immediately give you the money or infrastructure needed to be a consistent challenger, it should at least prevent you from ever worrying about playing in the second division again.

The start of Leicester’s problems can be traced back to a moment almost as memorable as their Premier League win, the shock death of the then-beloved owner Vichai Srivaddhanaprabha. In his place came Vichai’s son Aiyawatt who very much did not follow in the footsteps of his father.

The Foxes were spending like a mainstay Champions League club. They built a shiny new £100m training complex, complete with its own golf course and 14 pitches. They did not break the bank with transfer fees but enticed players with handsome contracts and all the good luck they had in years previous reversed in 2020 when COVID struck.

Given King Power’s primary business relied on air travel, profits began to drop rapidly and King Power was at risk of a total collapse. That, naturally, prompts cost-cutting measures which makes the ownership of a football club suddenly seem like an expenditure you could do without.

In another life, Leicester may have got away with the money exiting their coffers given the finances floating around the Premier League but the history of the club took a catastrophic turn for the worse when a team that was definitely too good to go down (take note Tottenham) did in fact go down.

This came at a time when Leicester reportedly had a wage bill of £206m and the naivety of Srivaddhanaprabha Jnr meant almost none of those players had relegation clauses in their contract, which would have prompted an immediate salary reduction. Instead, Leicester were met with an enormous wage bill for the Championship, one that was 102% of their revenue at a time when a good standard was in the 50 to 60% range.

Leicester did manage to go straight back up but like the engineers at Chernobyl pushing the emergency shutdown button, the chain of unstoppable events had already begun.

Ahead of their return to the Premier League, the club was referred to an independent commission over an alleged breach of the Profit and Sustainability Rules (PSR) for the 2022-23 season. The club exposed a loophole in these financial laws by arguing they could not have broken Premier League financial rules as they were not in the Premier League and so, somehow, they avoided punishment.

Even without a points deduction, Leicester went back down. A month later, they were again charged by the Premier League for three separate PSR breaches but the loophole that saved them before had been closed.

A hearing took place in November focused on the 2023-24 season, the year Leicester spent in the Championship, as well as charges for failing to co-operate and submit financial accounts on time.

The result of that hearing was, in many onlookers’ eyes, a light punishment of six points, taking Leicester to just outside of the drop zone in 20th.

Across the three seasons in question, Leicester had breached the £83m maximum permitted loss threshold by £20.8m, a figure large enough for many to wonder why just six points had been deducted. Sheffield Wednesday, for example, had been docked double that for going into administration.

The decision, which was made by an independent commission, has had the rare effect of leaving no party happy. Leicester, who are now in the relegation zone, argued it was too harsh and have appealed by again suggesting the EFL should not be allowed to impose sanctions on behalf of the Premier League while the Premier League has appealed over no sanction being applied for late submission of the club’s annual accounts.

In its statement announcing the appeal, the Premier League said it wants “the appeal resolved urgently, and in any event before the end of the EFL season” but the result is a club, and many around it, waiting in purgatory.

It would not be overdramatic to suggest Leicester’s very survival as a club depends on this season.

Leicester’s wage bill is reportedly around the £43m mark per year. To put that into context, that is £11m more than the next two most expensive, Sheffield United and Southampton. Coventry, who top the league currently, has a wage bill at 35% of that. Leicester’s problem is not only that they have an enormous wage bill but are giving it to players that have managed 10 wins in 32 games.

Right now, Leicester’s wage budget is ‘manageable’ because of parachute payments which are designed for this exact type of situation but Leicester’s enormous spending is coupled with the very real threat of relegation which would increase their problems tenfold.

Teams who stay in the Premier League for one year only are entitled to two seasons of parachute payments. Should Leicester go down, they will be given parachute payments for their first season in League One but the real existential question comes if they do not make it back out of League One at the first attempt.

Since being relegated back to the Championship, Leicester has attempted to curb spending by making no fee-paying signings and allowing players on excessive wages to depart but the club is still losing a lot of money, not least via the expensive training ground which, now built, costs a lot to run.

Football clubs go bust when owners are either unwilling or unable to match a cash shortfall and when prospective owners are put off because they believe that the debt and cost of running a club is higher than the value of it. For Leicester, there is a very real chance that situation occurs.

Rumours would suggest the football authorities who decided on a six-point deduction recognised this existential threat and gave Leicester what they believed was enough of a penalty to not condemn them to the drop. What those authorities cannot count on is a club that has lost five of the last six and has the worst form in the league of any club not called Sheffield Wednesday.

So, 10 years on from Ranieri and Morgan lifting the trophy, Leicester fans find themselves staring at the abyss. Stay up and maybe the money in the Championship can save them but go down and their future looks to only be heading in one way.