By Matt Slater, The Athletic 7th Apr 2020
Famed investor Warren Buffett once said it was “only when the tide goes out that you learn who has been swimming naked” and the gravity of the coronavirus pandemic has dragged football’s tide way out beyond the pier, forcing lots of embarrassed bathers to scurry back to their beach huts.
Since the Premier League was suspended in March, the news cycle has been dominated by talk of bail-outs, pay-cuts and potential lawsuits. The professional game has struggled with the greatest financial threat it has faced in peacetime.
Football is far from alone in this regard: construction, retail, travel… any sector that depends on people being able to go out, congregate and spend freely is in a fight for survival.
Getting through this will depend on a combination of luck, nimble management and what state you were in when it started. To paraphrase former British prime minister David Cameron’s favourite criticism of his predecessor, did you fix the roof while the sun was shining?
The Athletic has analysed all the Premier League club accounts filed at Companies House over the last few months and the answer for the majority of them would appear to be there has been very little DIY done ahead of this storm.
“The accounts are awful,” says John Purcell, the co-founder of financial analysis firm Vysyble. “The numbers had fallen off a cliff for some of the clubs long before this crisis.”
While Dr Dan Plumley, a sports finance expert at Sheffield Hallam University, says the financial shock of COVID-19 has “brought to light just how stretched the industry is and how many clubs live from hand to mouth”.
Most clubs published their accounts in April but Crystal Palace and Newcastle United took advantage of an emergency measure that gave businesses three extra months to publish their year-end figures. This article has been updated to reflect the impact the 2018-19 season had on their books.
The league’s total income last season was £4.8 billion, with most clubs reporting rises, albeit mainly small ones, in all three revenue streams: broadcast, commercial and match-day. Unfortunately, as that other great business sage and former Tottenham owner Alan Sugar memorably pointed out, this money goes through clubs like prune juice.
Only Watford reduced their wage bill year-on-year. The league’s overall staff costs topped £3 billion. This means they spent 64 per cent of their income on wages.
But that is the average. Bournemouth, Everton and Leicester all spent more than 80 per cent of their turnover on staff. Exactly half the league spent more than 70 per cent of their income on wages, a level that automatically raises red flags for European football’s governing body UEFA.
According to Deloitte’s Annual Review of Football Finance last May, the wage/turnover ratio was rising across Europe’s “big five” leagues — England, France, Germany, Italy and Spain — with the Premier League’s figure rising from 55 per cent in 2016-17 to 59 per cent 12 months later.
premier league accounts turnover
The wage/turnover figures for three promoted teams, Aston Villa, Norwich City and Sheffield United, are even worse at 175 per cent, 161 per cent and 195 per cent, respectively, but that is par for the course in the Championship, which is a disaster zone for those who like balanced books and tidy profits. Just to underline what those figures mean, Sheffield United spend £1.95p on wages for every £1 that came in.
Travel costs, utility bills, repairs, insurance, paper clips… they all add up and pretty soon they started nibbling into the overdraft.
“Lots of the clubs are in a terrible state,” says Purcell. “I’m not picking on them but I was not surprised to see reports this week that West Ham are looking for extra financing of £30 million. It’s so predictable.”
The use of averages and totals also irons out perhaps the most obvious point to make about the state of the industry before the pandemic struck: the Premier League is not a collection of equals.
The six richest clubs account for nearly £3 billion, or 62 per cent, of that total turnover. Arsenal, who have slid in recent seasons to sixth in the big-six mini-league, earned £367.5 million in 2017-18 — £176.8 million more than West Ham’s best-of-the-rest total of £190.7 million. That deficit is about the same as Bournemouth and Aston Villa brought in between them, as you can see below.
Manchester United, the league’s biggest earner, turns over more than three times as much as West Ham and four times as much as Southampton. Manchester City and Liverpool, second and third in the money list and as competitive off the pitch as they were on the pitch that season, earn four times the amount Bournemouth bring in.
The only way the clubs further down the economic ladder can even hope to compete with the big-earners on the pitch is to spend a higher percentage of their income on salaries and ask their owners to keep topping up the shortfalls. These clubs also tend to be more reliant on the league’s main source of income: broadcast rights.
If there was one economic marker that tells the story of English football’s rise from the ignominies and tragedies of the Bradford City fire and Heysel Stadium disaster in 1985 and Hillsborough in 1989, it would be the incredible amount of money companies around the world have been willing to pay to televise it.
When the Premier League split from the English Football League (EFL) in 1992, the top flight’s domestic rights were worth less than £40 million a season. Nobody even noticed what the international rights were worth.
This season, the clubs will share about £2.5 billion in broadcasting rights between them, with the rest going in parachute and solidarity payments to the EFL, assorted good causes and central costs. These rights deals have been negotiated centrally, usually on a three-year basis, and distributed more evenly than any other big league in Europe. The best clubs still get more than the worst but the margin is tighter than in France, Germany, Italy or Spain, creating the idea the Premier League is more competitive.
The key landmarks are the back-to-back increases of 70 per cent the Premier League managed to persuade domestic rivals BT and Sky Sports to cough up in 2012 and 2015. The two broadcasters declared a truce before the 2018 rights auction, resulting in a slightly reduced return for the league, but nobody minded as the appetite for English football abroad means the international rights are now nearly as valuable as the domestic ones. With a 30 per cent increase from overseas deals, the overall 2019-22 broadcast pot is 8 per cent up on 2016-19.
Before the current crisis, Deloitte estimated that Premier League clubs would earn £5.25 billion this season, £2 billion clear of the totals in the Bundesliga and La Liga. But English clubs spend twice as much on wages as German clubs do and 50 per cent more than Spanish sides.
Kieran Maguire, a lecturer on football finance at the University of Liverpool and the man behind the “Price of Football” blog, sees an industry that did not believe the cheques would ever stop arriving.
“Broadcast income accounts for about 60 per cent of Premier League clubs’ turnover but if you are that reliant on a single income source and don’t have contingency plans, you will always be at risk,” he says.
“Football is a part of the entertainment industry. Like all other businesses in this sector, it will be hit hard by the lockdown. The difference is football has higher fixed costs than most and these are the wages and transfer instalments.
“As of last June, the clubs owed £1.6 billion in instalments and had £700 million coming in. Some of this money is circulating within the division and some will be flowing downwards to the EFL, but there is a £900 million deficit. The concern is that financial problems in one league could spread throughout the industry just like the pandemic.”
The fees clubs pay for players are spread across the length of those players’ contracts in their annual accounts, a process known as amortisation. Maguire points out that if you take amortisation and staff costs together, they amount to 86 per cent of Premier League turnover.
“That does not leave much over for anything else and the number will be much worse for the Championship, where this crisis will cause havoc,” he adds.
A good example of how these fixed costs can cause an explosion of red ink at even the richest of clubs can be seen in Chelsea’s accounts for 2018-19. A high wage bill, a net transfer spend and a season outside the Champions League left them with a £101.8 million pre-tax loss. They can point, at least, to the Europa League trophy in their cabinet and the return of Champions League cash to their accounts this season. Everton, on the other hand, only have an eighth-place finish in the league to show for their record £107 million loss, as you can see below.
And for proof of Maguire’s point about the reliance on broadcast money, look no further than the response of every major league and governing body to the suspension of play: all possible avenues for completing the season must be explored to honour the various contracts associated to that season.
The Premier League has already spelt this out to its clubs, saying that broadcast partners would demand £762 million back if they were unable to show any Premier League football for the rest of the season. With football now set to resume on June 17, that doomsday scenario looks unlikely. However, at a Premier League meeting at the end of May, top-flight sides were informed they will lose a minimum of £330 million to broadcasters, even if the season was completed. The shock of that figure was offset slightly once Sky agreed that £170 million would not need to be paid until the 2021-22 season.
premier league tv revenue
The good news for the Premier League, however, is the final year of a three-year broadcast cycle usually results in losses, and most clubs return to profit when the cycle starts again. Crystal Palace also turned a £36 million loss in 2017-18 into a £5 million profit last time around.
“We’ve been tracking the data since 2009 and you can see these three-year cycles in the accounts are tied to the new TV deals,” says Purcell. “So, in 2014 and 2017, there are these walls of money that arrive in year one but by year three, most of them are losing lots of money again.”
The bad news is that there has been a deterioration over time.
“This set of accounts is a real shocker,” explains Purcell. “The tail-off over the previous two cycles wasn’t as bad as this time.”
Unlike most other analysts, Purcell’s firm uses a measure called economic profit, which is all the usual things analysts measure plus the cost of equity or, in other words, the cost of investing in this particular business as opposed to any other.
“We think it is a better reflection of how much money the owners are putting into these clubs every year to keep them afloat,” he says. “If we look at the previous three-year cycle, from 2013-14 to 2015-16, there was a league-wide deficit of £380 million. Before Palace and Newcastle had submitted their accounts, the deficit from 2016-17 to 2018-19 was £624 million. We’d never seen anything like that before.
“Since 2009, we believe the Premier League has made an economic loss of £2.74 billion.”
Sheffield Hallam’s Plumley also ties the league’s cost-control issues to the revolving door of bumper broadcast deals and the players’ demands for their fair share of that booty.
“Costs have been the issue for football for more than 20 years: you can trace it right back to the start of the Premier League era,” he says. “Whenever a new broadcast deal has been announced, most of the clubs have immediately pushed the envelope in terms of what they can afford.”
Ramon Vega enjoyed a 13-year career as a professional footballer in his native Switzerland, Italy, England, Scotland and France, playing for sides such as Celtic, Spurs and Watford, before retiring in 2003 and becoming an asset manager and sports business consultant.
“Ten years ago, many of the Premier League clubs were bankrupt from a balance sheet point of view but then they got those two big TV deals in a row and it lifted them all out of the red,” says Vega.
“Those huge increases saved them. OK, nearly all of that money has gone to the players but, as an ex-player myself, I don’t blame them at all. If you’re offered it, you take it. You’d do it, too, that’s human nature. But as a businessman, I’d worry about the wage to turnover ratio. Were the clubs prepared for this crisis? No. Was any other industry? No.
“The strange thing is most of these guys are very good businessmen away from football but very few of them run their clubs like their other businesses. I think Mike Ashley at Newcastle is the exception but even he does haven’t lots of money in reserve.”
Purcell agrees. “Who signs these contracts on behalf of the clubs? It’s not the players or their agents. It’s the owners,” he says.
“You’ll never find a bricklayer who refuses a wage because it’s morally reprehensible. This isn’t the players’ fault. Good luck to them. This about the ambitions and agendas of the owners.
“Of course, nobody predicted this particular crisis but good businesses can and do predict a crisis. Football should have been able to model some kind of shock to the system that would have an impact on broadcast income because they’re all on such a fine tightrope. Any shock would see some of them fall off that tightrope.”
Dr Dan Parnell is a senior lecturer in sports business at the University of Liverpool’s management school and the chief executive of the Association of Sporting Directors. For him, football’s cost-control problems could be sorted out at a stroke if the big calls were left to the experts.
“There are lots of good, well-intentioned people in the game who desperately want to make good decisions for their clubs but all too often those people are either not making the final decisions or those intentions go out of the window when the owners get involved,” Parnell explains.
“You can see it in the Sunderland ‘Til I Die documentary (on Netflix), where you have the manager and head of recruitment saying, ‘don’t pay any more than this for that player’ but then go ahead and do it anyway. It’s like they’re playing with a new toy.
“This is where a really good sporting director can help. Look at Stuart Webber at Norwich. OK, it looks like they’re going down but nobody can say they are not in better shape as a club than when he started.
“He’s overseen the new training ground, he’s changed the way they recruit and develop players and he’s got them on a secure footing financially. Any player he will have signed this season will have been signed with the thought that they might go down and his contract will have to work in the Championship. It’s a more honest and sensible approach than lots of other clubs.”
Maguire, Parnell, Plumley and Purcell all told The Athletic they hope the Premier League will learn something from the current crisis, either bringing in a salary cap, increasing the amount it shares with the EFL or simply persuading the owners to let their staff get on with it.
But Vega is not so sure this will be the “enormous wake-up call” the industry needs. “I don’t think football people ever learn,” he says. “The game is so geared up around today. Nobody thinks about tomorrow.
“That’s why they’re panicking now. You can see that they’re not thinking straight with these decisions to furlough non-playing staff. How much money is that really saving them? But with no Champions League income, no match-day income, maybe they have to repay some of the broadcast money… they’re thinking, ‘Shit, what do I do?’”
Not everyone is quite so sure football has arrived at this point in such terrible shape. Not compared to any business sector, anyway.
Dr Stefan Szymanski teaches sports management at the University of Michigan and is the author of the best-seller Soccernomics.
In an exchange with The Athletic, he said: “The problem is that all this analysis is in a vacuum. If you’re going to say that everything that ever goes wrong is due to incompetence without considering any other benchmarks or comparators, then there’s no defence.
“The Premier League is not perfect. But why are they held to a standard of perfection? Who else are we holding to that standard? Is there any business not in a state of panic right now? What other sport is faring better in this crisis than the Premier League?
“This is one of the most successful organisations in the world, measured by year-on-year growth over 30 years. They deliver an outstanding product for consumers. Who cares if they can’t control their costs?”
Szymanski is right. The Premier League has been giving people around the world what they want for nearly 30 years. But now, for reasons beyond its control, it cannot. And because it has perhaps been a little too generous with its players (and their representatives), it is not in as robust a position as a business of its stature should be.
You do not need to be an accountant to know that Bournemouth, who get 88 per cent of their revenue from broadcasters and spend almost all of that on wages, are in a tough spot. Even frugal Burnley, with their balanced books, lean very heavily on the league’s biggest backers. Getting football back on fans’ screens is of paramount importance to them.
But nobody is immune. Manchester City, perhaps, with the almost limitless wealth of Abu Dhabi behind them, will emerge relatively unscathed and Manchester United’s many mattress and noodles partners do not look so stupid now everyone is looking for other sources of income. But they, and the other big clubs, need the exposure the Premier League and Champions League give them to make their numbers add up.
There is a link to the article which has some lovely graphs for your delectation if you’re interested