Newcastle-Online comment: 4th June 2004
From Deloitte & Touche
- Premiership clubs remain the 'Financial Champions of Europe' - Lowest
rate of wage growth since the formation of the Premiership
- Major reduction in overall transfer spending by Premiership clubs
- The Football League 'Play-Off Final' for promotion to the Premiership
is the richest club game in the world, worth at least £35 million
to the winners
- Premiership Clubs' facilities investment now over £1.2 billion in
the post-Taylor era
- Premiership football generates almost £400 million of annual tax
receipts for Government
- In the 2003/04 season just ended, English Premiership clubs are
estimated to have generated revenue of over £1.3 billion
Revenue and profitability of Premiership clubs
Key findings include:
In the 2003/04 season just ended, English Premiership clubs are estimated
to have generated turnover of £1.33 billion, maintaining the League's
position as the 'European Champions' in terms of revenue generation.
The total revenue of Premiership clubs in 2002/03 was £1,246 million,
up 10% on 2001/02 (£1,132 million).
Manchester United headed the 'revenue league table' at £175 million,
followed by Liverpool and Arsenal (both at £104 million). At the other
end of the table was West Bromwich Albion (£28 million). In 2002/03,
the average Premiership club generated revenue of £62 million.
In terms of operating profitability, the Premiership continues to
be the most successful league in the world (with the average club
generating an operating profit before player trading of £6.2 million),
well ahead of the German Bundesliga, (the next most profitable league
with an average operating profit per club in 2002/03 of approximately
£4 million).
Match day income increased to £363 million driven by a 3% increase
in Premiership attendances, more European matches and increased ticket
yield.
Commercial revenue was almost unchanged, at £340 million in total,
in part reflecting the tough market for sponsorship and advertising.
The largest source of revenue is from broadcasting 44% of the total
at £543 million. Looking back a few years, broadcasting was the smallest
revenue source in 1996/97, broadcasting monies were less than £100
million, representing just 21% of Premiership clubs' total revenue
and, in 1991/92, were less than 10% of revenues at a mere £15 million.
Clubs reported overall operating profits of £124 million - a record
high since the formation of the Premier League with 16 of the clubs
making operating profits. By contrast, pre-tax losses rose to £153
million and only five of the clubs made a pre-tax profit.
The apparent paradox - of a record level of operating profits and
pre-tax losses in the same year - is largely the product of high player
amortisation costs (a legacy of high transfer spending in the past)
and much reduced profits on player disposals (as transfer spending
fell in 2002/03 see the transfer market section below).
Commenting on the revenue generation of Premiership clubs, Gerry Boon,
Partner in the Sports Business Group at Deloitte said: "Deloitte has
analysed the financial results of the Premiership clubs every season
since the League's formation. During that time, revenue generation
has improved eight-fold in the 1991/92 season, the last of the 'old'
First Division, the clubs generated an aggregate of £170 million."
Boon added: "Whilst it is the pay packets of the players that receive
most media coverage, the financial success of the Premiership has
delivered other benefits too. For instance, it has helped fuel over
£1.2 billion of facilities investment by Premiership clubs over the
same period and has provided approximately £600 million of total transfer
fees to Football League clubs in those 12 years. One of the other
main beneficiaries has been Government, through its tax take."
Taxation
Key findings include:
The football industry continues to generate substantial tax receipts
for the Government. Deloitte estimate that in 2002/03 Premiership
clubs paid around £395 million in tax (PAYE, National Insurance, VAT
and Corporation Tax).
The estimate of £395 million is over two and a half times greater
than five years previously (1997/98: £152 million).
During the 12 year life of the Premier League, Premiership clubs have
provided a total of around £2.5 billion of tax receipts for Government.
Commenting on the Government's record tax take from Premiership football,
Richard Baldwin, Sports Business Tax Partner at Deloitte said: "Given
the pre-tax losses (after player trading) that the Premiership clubs
suffer as a whole, people often assume that the game does not pay
much tax. However corporation tax is not the whole story. Players'
pay packets being what they are, we estimate income tax and national
insurance alone directly swells the Government coffers to the tune
of around £330 million a year, before adding in VAT and corporation
tax."
Baldwin continued: "This tax contribution, together with the investments
by Premiership clubs into charity and grassroots initiatives, mean
that the clubs are a significant contributor to both their communities
and the wider economy."
Broadcasting
In 2002/03, Premiership clubs earned £404 million from the domestic
television deal. The club figures ranged from £13.5 million (West
Bromwich Albion) to £31.2 million (Manchester United). The equivalent
figure for the 2003/04 season just ended was approximately £440 million,
with an estimated range of £32 million (Arsenal) to £14 million (Wolverhampton
Wanderers), based on the same distribution pattern.
The four English clubs competing in the Champions' League in 2002/03,
Manchester United (progressing to the Quarter Final), Arsenal (2nd
round group stage), Newcastle United (2nd round group
stage) and Liverpool (1st round group stage) received approximately
£49 million from UEFA between them.
In the 2003/04 season just ended, the three English Champions' League
contestants - Chelsea (progressing to the Semi Final), Arsenal (to
the Quarter Final) and Manchester United (last 16) are estimated to
have earned £55 million directly from UEFA, providing them with a
competitive advantage over other Premiership clubs.
According to the FA Premier League, in the 2002/03 season, more than
31,000 hours of Premiership football was broadcast around the globe
to 159 countries with a worldwide audience for the season, in the
prime markets alone, of 5.7 billion viewers.
Commenting on the media value of the Premier League, Deloitte Partner
Dan Jones said: "With the deals for the next period of media rights
having largely been concluded, the overall value to Premiership clubs
should be at least as much as the previous period. That is as we expected,
unlike some commentators who predicted a collapse. It shows the power
of the Premier League as sporting entertainment."
Winners
and losers: the financial effects of promotion and relegation
Key findings include:
Promotion from Division One to the Premiership for 2004/05 for West
Bromwich Albion, Norwich City and Crystal Palace - will probably be
worth a minimum of £21 million extra revenue per club in the 2004/05
season (or at least £14 million for West Bromwich Albion who were
in receipt of a £7m parachute payment from the Premier League in 2003/04).
The 'May 2004 prize' for winning promotion to the Premiership (even
if the club 'yo-yo's' straight back down) was around £35 million (including
parachute payments for two seasons) making the Division One Play-Off
Final between Crystal Palace and West Ham United the 'richest club
game in the World'.
Relegation from the Premiership to Football League Division One for
Wolverhampton Wanderers, Leeds United and Leicester City will probably
cost each club at least £13 million in reduced revenue in the 2004/05
season.
In 2004/05, other Division One clubs will benefit financially from
playing a 'big club' with a large supporter base, like Leeds United,
as interest and attendances will be boosted.
For clubs moving between Division One and the Premiership, Paul Rawnsley
from the Sports Business Group at Deloitte comments: "Whilst the prize
of promotion to the Premiership is itself immense, consolidation is
the key to maximise their chances of remaining in the top division.
If that is not achieved the more difficult situation occurs when clubs
are relegated. Increasingly, we are seeing clubs taking sensible measures
to help deliver sustainable finances, such as shorter term player
contracts; an in-built adjustment of salary on promotion or relegation;
performance related pay; and an increased prevalence of loan signings."
Wages and Salaries
Key findings include:
The surplus of Premiership clubs' turnover over total wages was at
a record high of £485 million (2001/02: £426 million).
In the 2002/03 season, Premiership clubs' total wages and salaries
(not just players) grew by 8% to £761 million, the lowest rate of
increase since the formation of the Premier League, and well below
the average annual increase of 25% over the previous ten years.
With some notable exceptions, in terms of wage increases, it appears
that clubs have also been relatively restrained in the 2003/04 season
just ended.
The ratio of total wages to turnover a key performance indicator in
football ? for the average club fell to 61% in 2002/03 (2001/02: 62%).
West Bromwich Albion, Manchester United and Newcastle United
all had ratios below 50%. The equivalent ratio for Sunderland, Fulham
and Leeds United was over 80% in each case.
The average total wages and salaries cost for a Premiership club in
2002/03 was £38 million (2001/02: £35 million). Manchester United
had the highest total wages costs of £79.5 million and the lowest
was West Bromwich Albion (£11.5 million).
As in the previous season, in 2002/03 there were five Premiership
clubs with a total wages cost (not just players) of over £50 million
Manchester United (£79.5 million), Arsenal (£60.6 million), Leeds
United (£56.6 million), Chelsea (£54.4 million) and Liverpool (£54.4
million).
Deloitte Partner Dan Jones is cautiously optimistic about English
football's financial future, commenting: "Premiership clubs' total
wages growth of 8% was the lowest since the formation of the Premiership
and well below the average annual increase of 25% in the previous
decade. In turn, the wages to turnover ratio a key indicator that
Deloitte has voiced concerns about since 1993 reduced to 61%. These
are real signs that stronger financial management is being exercised
by club boards. The challenge will be to maintain that strength, which
we applaud, even in the face of the inevitable calls from some quarters
to increase spending."
With regard to Leeds United, Jones added: "The media coverage of the
financial difficulties at Elland Road should not overshadow the good
work of management at the majority of Premiership clubs whereby costs
are being better balanced with revenue."
The
transfer market
Key findings include:
The total of transfer fees committed by Premiership clubs in 2002/03
(of £187 million) was down 42% on the total in the previous season
(2001/02: £323 million).
The most significant change in 2002/03 was the reduction in the amount
of transfer spending by the Premiership clubs with overseas clubs.
In 2001/02, Premiership clubs had spent £195 million on acquiring
players from overseas clubs. In 2002/03, this figure dropped by 48%
to only £101 million, thereby keeping more money within the English
game.
Of the £187 million committed by Premiership clubs, a net £32 million
was re-distributed to Football League clubs.
Over the 12 year life of the Premier League, Premiership clubs have
provided a total of around £600 million in transfer fees to Football
League clubs.
Significant transfer spending by Chelsea over the past year reportedly
over £120 million means total transfer spending by Premiership clubs
in 2003/04 has risen again, to around £260 million. However, this
is still well below the peak of £364 million in 2000/01, which is
unlikely to be exceeded again.
The January 2004 transfer window spending by Premiership clubs was
estimated by Deloitte at under £50 million, and overseas clubs barely
spent at all (less than £10 million across Italy, Spain, Germany and
France combined).
As previously predicted by Deloitte, 2001/02 has proved to be a watershed
for the transfer market. Dan Jones comments: "The player transfer
market has peaked in terms of overall value, but not in terms of values
for the big stars. The excitement of Euro 2004 will fuel acres of
back page speculation this summer. We expect there will be a few blockbuster
deals involving Premiership clubs and maybe even a few around Continental
Europe. However, that won't obscure the main picture of a trickle,
not a flood, of deals over £5 million."
Paul Rawnsley added: "It is important to understand that English football's
competitive advantage does not just derive from wealthy individuals
providing deep pockets. As a direct result of Premiership clubs improved
business discipline, this summer many English clubs are better placed
than their European rivals to attract the best playing talent."
Football facilities
Key findings include:
Spending by Premiership clubs on stadia and facilities was £133 million
in 2002/03. This was the sixth successive year when facilities investment
by Premiership clubs exceeded £100 million.
In the post-Taylor era, Premiership clubs have now invested a total
of over £1.2 billion in football's infrastructure.
Arsenal was, by far, the club which invested most in facilities in
2002/03, comprising £80 million of the £133 million total. Arsenal
is expected to stay at the head of the list until completion of Ashburton
Grove - which is planned in time for the 2006/07 season.
In 2002/03, average attendances at Premiership matches broke the 35,000
mark the highest top division figure since the 1950/51 season a 3%
increase on the previous season. Overall capacity utilisation rose
to 93.7%.
Largely due to a change in the 'mix' of clubs, the average Premiership
attendance in 2003/04 season just ended fell slightly to 35,010, although
capacity utilisation improved further to 94.3%.
The total capacity of Premiership stadia in 2003/04 (of 740,000) is
90,000 greater than just six years ago (1997/98: 650,000).
Whilst capacity utilisation now stands at 94%+, Deloitte estimate
that there was still £20 million worth of empty seats at Premiership
matches.
Whilst acknowledging that Premiership clubs lead the way in terms
of revenue generation from stadia, Gerry Boon comments on further
potential: "Premiership clubs have generated impressive increases
from match day income over the last eleven years, to reach a £363
million total for the Premiership clubs in 2002/03. Yet many clubs
could further improve their bottom line by adopting a more scientific
approach to pricing season tickets and corporate facilities. It is
hard for them to sell more seats. However, they could improve the
yield on the seats they do sell."
Financing
Key findings include:
There was £1.05 billion of total 'Capital Employed' in the Premiership
in summer 2003. Only 15% was from bank borrowings bank loans and overdrafts,
net of cash at bank, was £161 million. Total borrowings were £705
million, such that the overall gearing ratio (of debt to shareholders
equity) was 205% (2002: 120%).
Over recent years, several clubs have used alternative forms of financing
mechanisms in particular, securitisation of ticket receipts and specialised
player financing methods to supplement traditional finance sources.
Such deals appear to have 'dried up' since late 2002.
Dividend payments to shareholders were a modest £16 million (2002/03:
£11 million) with the main payments coming from Manchester United
(£10.4 million) and Newcastle United (£4.1 million).
Interest costs paid to finance providers amounted to £48 million (2002/03:
£30 million).
Newcastle's Comparative League Table On & Off The Field Results
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