Post by QPR Report on Jun 4, 2009 6:25:01 GMT
Deloitte Annual Report on Football Finances
- Deloitte's Annual Report on Football Finances has been released. The primary focus in the Foreword and Highlights is on the Premiership Clubs...
Deloitte - Annual Review of Football Finance 2009
FOREWORD -
- ....We publish this year’s edition amidst the gloomiest
global economic environment for decades. The
consensus among economic forecasters seems to be
that the UK economy will decline by at least 4% in
2009, the most severe contraction in a single year since
the Second World War, and other countries are
expected to suffer a similar, or worse, fate. Despite a
recent improvement in the 2010 outlook, football clubs
face extraordinarily turbulent conditions.
The long, hot summer
The Premier League itself was born during the last
recession in the UK. 1991/92 was the last season of the
old First Division. Between 1992 and 2008 the UK
economy experienced an extended bull run, growing at
an average rate of 5.4% in nominal terms. By
comparison the growth rates achieved by England’s
football leagues have been stratospheric.
The Premier League leads the way, its domestic and
international profile reaching unprecedented levels and
in turn driving the clubs’ revenues upwards. Its clubs
have transformed their stadia into state of the art
venues, while the league now attracts the world’s
greatest players, who have attracted a new and
increased fanbase, delivering a virtuous circle of growth.
The collective revenues of the 20 Premier League clubs
have grown at a compound annual rate of over 16%
and in 2007/08 are now more than eleven times those
of the then 22 clubs in 1991/92. Premier League club
revenues now stand on the verge of £2 billion, an
average of £100m per club. This is a telling reminder of
football’s extraordinary performance in revenue terms.
Meanwhile, Football League clubs have also performed
strongly. With the difficulties of the ITV Digital episode
now largely consigned to history, the Championship has
resumed its path of steady growth which has seen
annual revenue growth of almost 12%, while Leagues 1
and 2 have grown at around 10%.
In almost any other
industry this would be lauded as outstanding
performance, and the Football League and its member
clubs should be proud of how far they have come.
Despite revenues having grown so strongly, improved
profitability has remained stubbornly elusive. In 1992/93,
the first year of the Premier League, cumulative operating
profits were £33m with 15 of the 22 clubs in the black.
By 2007/08 operating profits stood at £185m with only
11 of the 20 clubs delivering a positive return. Despite
the increases in revenue, the fiercely competitive nature
of the league has seen potential profits quickly competed
away, with operating margins falling from 16% to below
10%. For many owners, Premier League clubs represent
‘trophy assets’ with the potential to deliver a long term
return but which at best break even annually, rather than
a cash cow delivering an ongoing ‘dividend’.
The Sting
Clubs will face significant challenges in the short term to
maintain current performance given the economic
environment. Football is lucky, to date, to have been
largely insulated from the economic downturn by the
primarily seasonal nature of ticketing and corporate
packages, but the summer renewal period is likely to
present a significant stress test of demand. For larger
clubs, playing to sold out stadia, with strong demand for
corporate packages and wide commercial appeal, the
impact may be limited. However, for smaller clubs, where
demand is more variable, and where significant excess
capacity exists, the downside may be more pronounced.
By the time the 2009/10 season begins in August many
clubs will have a clear indicator of their overall
performance. Price is one of the few variables over
which clubs have complete control and clubs will have
been carefully reviewing marketing and pricing
strategies during the season. In an effort to boost sales,
and perhaps to show solidarity with their key
stakeholders, we have seen a change in policy almost
across the board, with price freezes or even reductions
commonplace for 2009/10.
Although conditions are likely to be difficult it is timely
to remember that the fundamentals supporting the
Game remain strong. Football occupies a key part of
England’s national identity and is deeply integrated into
many people’s everyday lives. Some emerging figures
are encouraging – in the Football League, attendances
exceeded 16m in 2008/09 for the fifth successive season
and some clubs have reported strong demand despite
disappointing on-pitch performances – Norwich City, for
example, have sold over 18,000 season tickets for
2009/10 despite being relegated to League 1. We will
monitor clubs’ performances with interest as the
summer develops.
Football remains a relatively inexpensive hospitality
option compared to other one-off events and seasonal
packages present a variety of individual opportunities.
Furthermore, many corporate hospitality buyers are
small businesses, fans in their own right who have
‘traded up’, rather than large enterprises which may
have weaker brand loyalty.
Some comfort may come from a welcome boost to
broadcasting revenues for many clubs – which may help
to offset any impact on matchday and commercial
revenues. Football League clubs will be looking forward
to a new deal from 2009/10 at more than double its
current value, while a new UEFA Champions League deal
will bring benefits to the leading Premier League clubs.
Looking further ahead, the value of live UK Premier
League rights (for the seasons 2010/11 to 2012/13)
increased by 4%, an excellent performance under the
circumstances, with international deals – likely to show
the strongest growth rates – yet to be concluded.
Road to Perdition
As we have seen in previous turbulent periods, there will
be casualties. In 2009 we have already seen Chester City,
Darlington, Southampton and Stockport County enter
Administration, and there may be others to follow. Since
2004/05, clubs which have entered Administration
receive Sporting Sanctions in terms of points penalties
handed down by the Football League. In 2008/09 AFC
Bournemouth, Luton Town, Rotherham United and the
aforementioned Darlington and Stockport County all
received points sanctions, while Luton also received
further penalties in respect of other transgressions, which
contributed to their relegation from the League itself.
While unfortunate, we do not feel that the penalties are
unreasonable. Allowing clubs to enter/exit
Administration without penalty could be seen as a form
of financial ‘doping’ whereby a club could, theoretically,
irresponsibly overspend in search of an on-pitch
advantage, then, if that failed, clear its debts and
emerge reborn and unscathed. This presents a clear
challenge to the integrity of the competition, especially
when other clubs may be working tirelessly to balance
the books on an ongoing basis – even if that means
putting a brake on their sporting aspirations. The
sanctions present a realistic deterrent to unsustainable
operating practices. We do not see how sanctions
should be seen as a barrier to responsible inward
investment, indeed their moderating impact on
competitor behaviour may provide comfort to potential
new investors.
In addition to the Football League’s well publicised steps
we are seeing further, if at times tentative, steps to
enhance the Game’s off-pitch image. In some cases these
move beyond Sporting Sanctions towards the
development and application of certain financial
regulations, fit and proper person tests for club ownership
and incentives in respect of the development of home
grown players. We applaud these initiatives, which can
only help the Game to further demonstrate its capacity to
regulate itself and achieve common goals.
However, the challenges that the application of criteria
on a supra national basis present should not be
underestimated. Clubs competing in European
competitions are drawn from a wide variety of countries
with significant social, economic and legal
circumstances, different accounting, financial reporting
and auditing environments and wide ranging business
cultures. The development of a centralised system of
financial control may be more challenging to achieve in
practice than in theory....."
DELOITTE HIGHLIGHTS
Europe’s premier leagues•
The total European football market grew by €1 billion
to €14.6 billion in 2007/08. This was primarily due to
a €0.7 billion increase in the ‘big five’ European
leagues’ revenues to €7.7 billion (England’s Premier
League, France’s Ligue 1, Germany’s Bundesliga,
Spain’s Primera and Italy’s Serie A), and the staging of
UEFA Euro 2008.
• The Premier League strengthened its position as the
highest revenue generating league in world football.
Its clubs generated revenues of €2.4 billion in
2007/08 (up 26% in Sterling terms) – extending the
gap to its nearest rivals (the Bundesliga and La Liga) to
over €1 billion despite Sterling’s 15% depreciation
against the Euro.
• Serie A was the fastest growing league. Total revenue
increased by €357m (34%) to €1.4 billion. The
change of mix of clubs in Serie A for 2007/08, notably
Juventus’ return, contributed around two thirds of the
increase. The other clubs increased revenues by
c.€120m aided by new broadcasting contracts
commenced in 2007/08.
• La Liga recorded a €112m (8%) growth in revenue to
€1.4 billion, placing it in joint second with the
Bundesliga (which grew by €59m – 4%). La Liga’s
growth was driven by Real Madrid and FC Barcelona,
the world’s highest and third highest club revenue
earners in 2007/08.
• Total wage costs for the ‘big five’ European leagues
were €4.8 billion, €588m (14%) higher than in
2006/07. All of the ‘big five’ leagues experienced
significant wage costs growth, with Serie A (€250m)
and the Bundesliga (€105m) providing the largest
Euro increases. Premier League wage costs increased
by 23% in Sterling terms to €1.5 billion.
• The wages/revenue ratio of La Liga was 63%, in line
with the 62% reported by the Premier League whilst
Serie A’s wages/revenue ratio was 68%. The Premier
League clubs’ significantly higher revenues meant
they were able to pay, on average, €27m more in
wage costs than Serie A clubs and €31m more than
La Liga clubs whilst still keeping their wages/revenue
ratio below that of their nearest competitors.
• The Premier League returned record operating profits
of €234m in 2007/08, and reclaimed its position as
the most profitable league, from the Bundesliga
(€136m), which it lost temporarily in 2006/07.
• France’s Ligue 1 joined Serie A in returning operating
losses due to limited revenue growth outweighed by
significant wages and other costs growth.
• Looking forward, while the acid test of the ‘big five’
leagues’ ability to withstand the worse of the
challenging economic times will not be known until
2009/10, it is encouraging that total 2008/09
attendances across the leagues increased by 2%.
The Bundesliga, Ligue 1 and the Premier League and
the major clubs in La Liga and Serie A also have
secure long term broadcast deals in place which
deliver significant proportions of total revenue.
The greatest challenge may come in maintaining
commercial revenues and higher priced corporate
hospitality ticketing, while also addressing wage and
other cost inflation.
Revenue and profitability• The overall revenues of the top 92 English
professional clubs increased by 21% to £2,458m.• Total Premier League revenues increased by £402m
(26%) in 2007/08 to £1,932m, with the average club
expected to have generated revenue of £100m in
2008/09.
• Championship revenues increased 2% to £336m in
2007/08. Total revenues of the 72 Football League
clubs exceeded £500m for the first time.• The increased revenues under the new broadcasting
contracts were the main driver of growth in the
Premier League. Their member clubs received £767m
from central broadcasting distributions (£464m in
2006/07). Additional monies, primarily from the UEFA
Champions League helped increase total broadcasting
revenues to £931m.• Premier League clubs increased commercial revenue
to £447m (up 12%). Matchday revenue grew only
modestly to £554m (up 3%) as a result of a number
of clubs freezing ticket prices in 2007/08.
Revenue and profitability• The overall revenues of the top 92 English
professional clubs increased by 21% to £2,458m.
• Total Premier League revenues increased by £402m
(26%) in 2007/08 to £1,932m, with the average club
expected to have generated revenue of £100m in
2008/09.
• Championship revenues increased 2% to £336m in
2007/08. Total revenues of the 72 Football League
clubs exceeded £500m for the first time
The increased revenues under the new broadcasting
contracts were the main driver of growth in the
Premier League. Their member clubs received £767m
from central broadcasting distributions (£464m in
2006/07). Additional monies, primarily from the UEFA
Champions League helped increase total broadcasting
revenues to £931m.
• Premier League clubs increased commercial revenue
to £447m (up 12%). Matchday revenue grew only
modestly to £554m (up 3%) as a result of a number
of clubs freezing ticket prices in 2007/08.
The distribution mechanism for Premier League
broadcasting revenue meant that all clubs benefited
from marked revenue increases. Even the bottom
placed club, Derby County, received £29.5m in
broadcasting revenue from the Premier League. By
comparison Watford received £16.7m when finishing
bottom in 2006/07.• We estimate that Premier League clubs’ revenues in
2008/09 will have exceeded £2 billion. In 2009/10 we
still expect some revenue growth will be driven by the
stepped increase in domestic broadcasting deals and
higher UEFA Champions League distributions, but
with relatively flat commercial and matchday revenues
due to the economic climate. The relegation of
Newcastle United to the Championship will also have
a dampening effect on aggregate Premier League
revenue growth.• Operating profits for the Premier League increased to
a record £185m in 2007/08. 11 Premier League clubs
recorded operating profits, up from eight in 2006/07.
• An increase of £85m in other operating costs
(i.e. excluding wage costs) in 2007/08 dampened the
increase in operating profits. This total has now
increased by £164m (42%) in two years suggesting
renewed emphasis must be placed on controlling
these costs.
• Operating losses for Championship clubs increased
from £75m to a record £102m despite increased
parachute payments to relegated clubs, and the first
solidarity payment to the rest of the Football League.
The new improved Football League broadcasting deal
which starts in 2009/10 provides a much needed
opportunity to address the losses in the Championship.
• The total tax take from the 92 professional football
clubs in 2007/08 increased by 21% to a record
£860m, and is expected to exceed £1 billion per year
with the introduction of the 50% tax rate on earnings
over £150,000. The total taxes borne by the top 92
clubs since the Premier League began in 1992/93 is
now in excess of £6.5 billion.• In 2006/07, Manchester United were the first English
club to earn revenue of over £200m in a season. In
2007/08 they increased revenues by 21% to a record
£257m, with both Arsenal and Chelsea also breaking
the £200m threshold.
• In order to maintain operating profits, clubs will need
to really focus on controlling wage inflation. It is
unlikely that overall revenues will experience
significant growth in the current economic climate,
and therefore focussing on controlling costs will
become increasingly important.
Wages and transfers
• Wage costs in the Premier League exceeded £1 billion
for the first time in 2007/08, reaching £1.2 billion.
The increase in total wage costs of £227m (23%) is
the biggest annual absolute increase recorded by the
Premier League.
• Premier League clubs’ increase in total wages of
£342m in the two years to 2007/08 is broadly
equivalent to the £351m increase in their broadcast
revenue over this period repeating the experience of
previous significant increases in broadcasting deals.
• Despite the increase in wage costs, the surplus of
revenue over wages for Premier League clubs has
increased to a record high of £736m (2006/07:
£561m). The wages/revenue ratio for the Premier
League fell slightly to 62% in 2007/08 (2006/07: 63%),
as revenue growth of 26% outpaced wages growth.
• Chelsea, with wage costs of £172m remains the
highest spender by some distance, over £50m above
the next highest club, Manchester United, who spent
£121m. The other top five wages spenders in 2007/08
are, for the sixth season in succession, Arsenal £101m,
Liverpool £90m, and Newcastle United £75m.
• Championship clubs’ total wage costs increased by
£32m (12%) in 2007/08 to £291m, the second
consecutive year of double digit growth. The increase
in wages over the last two seasons has been over
three times greater than the increase in revenue
resulting in the wages/revenue ratio increasing to
87% (2006/07:79%; 2005/06: 72%).
Across Premier League clubs there is a relatively strong
correlation between wages and league position.
However, in the Championship there is no clear link,
which highlights the division’s unpredictability and
proof that high wages are not a guarantee of onpitch
success at this level.•
Player wages across the 92 top professional clubs exceeded £1 billion for the first time in 2007/08,
increasing by £158m (18%) to reach £1,050m.
Growth is driven by the £118m (18%) increase in
player wages of Premier League clubs however, there
has been a significant year on year increase across
each division (Championship up 17%; League 1 up
27%; and League 2 up 8%).• Gross transfer spending across the 92 top professional
clubs grew to £779m in 2007/08, up 35% from
2006/07, the vast majority was spent by Premier
League clubs – £664m (2006/07: £492m).
• The majority of Premier League clubs’ transfer
spending continues to be with overseas clubs, with
£351m spent in 2007/08 (2006/07: £275m), however
the proportion of intra Premier League transfers has
increased. Once Football League clubs are considered
the net transfer spending leaving English football (to
non-English clubs and agents) remained steady at
£276m (2006/07: £277m).
• Chelsea became the first club to report over £80m
gross transfer spending in one season. Three others,
Liverpool (£70m), Manchester City (£62m)
and Portsmouth (£53m) had gross transfer
spend in excess of £50m.
• The net transfer movement between the
Premier League and the Football League
in 2007/08 was a net outflow from the
Premier League of £59m, an increase
of 69% from £35m in 2006/07.• Total transfer spending by Football
League clubs has increased by 34%
to £115m (2006/07: £86m),
with ten clubs recording
transfer fees in excess of £5m
Stadia developments and operations
• Aggregate 2008/09 attendances for the Premier
League and Football League of 29.9m equalled
2007/08 levels illustrating the apparent resilience, to
date, of English football to the economic downturn.
• In the Premier League total aggregate attendances of
13.5m and an average attendance level of 35,594
per match are the second highest figures in Premier
League history, beaten only by the 13.7m from
2007/08, and underline the competition’s continued
pulling power.
• At 92%, capacity utilisation in the Premier League
stayed above the 90% mark for the 12th season in a
row with half the clubs in the Premier League
achieving capacity utilisation of more than 96% –
effectively representing a sold-out stadium.
• In the Football League 2008/09 attendances were
above 16m for the fifth year in a row, with a 1% yearon-
year increase to 16.4m. The Championship
increased attendances by 5% and is now the third
best attended league in Europe.•
Many clubs are freezing or reducing ticket prices for
2009/10 and introducing finance schemes to ease the
burden on their fans’ potentially constricted matchday
budgets arising from the economic climate. Initiatives
to attract the next generation of fans are also
increasingly evident across a number of clubs.
• Despite the absence of new landmark projects on a
scale seen in prior years, English football clubs
continue to improve their stadia and associated
facilities with £187m being invested in 2007/08. This
is the eleventh year in a row that total investment
levels have exceeded £150m.
• Cumulative investment in stadium facilities across all
professional English clubs since 1992/93 has now
comfortably exceeded £2.5 billion and we expect
investment by Premier League clubs to pass the
£2 billion mark when we compile our analysis of
the 2008/09 season’s results.
Investment in facilities over the last 16 years has led
to an aggregate stadium capacity across the season
for all 92 professional clubs of 43m, the highest level
since well before the introduction of all-seater stadia.
• Football League clubs invested £50m in facilities in
2007/08, with Championship clubs spending £43m.
Since 2007 MK Dons, Shrewsbury Town and
Colchester United have all opened new stadia and
Cardiff City are due to join them for the 2009/10
season. Brighton & Hove Albion and Chesterfield have
also begun construction on their new stadia.
Enabling development and/or the support of local
government have been important factors in the
opening of these stadia.
• As construction costs are now falling the biggest
barrier to larger stadia projects is the inability of clubs
to secure sufficient finance given the impact of the
credit crunch on debt markets.
Club financing
• Net debt in respect of Premier League clubs at the
end of the 2007/08 season increased to £3.1 billion
(2007: £2.7 billion). This includes £1.2 billion of noninterest
bearing soft loans from club owners. If these
soft loans were reclassified as, or swapped for, equity,
the total net debt in respect of Premier League clubs
would reduce by almost 40%.
• Almost two-thirds (almost £2.0 billion) of the total net
debt related to Arsenal, Chelsea, Liverpool and
Manchester United. On the positive side of the
balance sheet, in aggregate these four clubs had a
carrying value of £1 billion in respect of investment in
facilities, and a carrying value of £450m from
investment in players.
• Net interest charges in respect of Premier League
clubs in 2007/08 were £188m. The non-interest
bearing nature of loans at a number of clubs help to
keep the net debt service charge at around 6% of the
overall debt balance.
Around £1.5 billion has changed hands in respect of
over 20 changes of ownership of English clubs in the
top two divisions since the start of 2005. By the end
of 2007/08 around £250m had been injected into
clubs from these new owners to help fund operations
and investment (in facilities and playing talent).
Looking forward, this figure may increase significantly,
particularly in respect of the new owner’s investment
plans at Manchester City.
• As well as this, Roman Abramovich injected a further
£123m into Chelsea in 2007/08, to take his overall
investment in the club to around £760m in the five
years under his control. Chelsea’s management have
stated the target is for zero cash funding from the
owner in 2009/10.
• Net debt in respect of the 22 Championship clubs
who reported results at the end of the 2007/08
season was £326m (2007: £298m in respect of 20
clubs). In general, a Championship club can only hope
to significantly reduce its net debt in the
short/medium term via either promotion to the
Premier League or an injection of equity funding from
its owner.•
Below the top two divisions, managing a club’s
financial position remains a challenge from one
season to the next. Legacy debt issues and the risks
taken by some boards of directors will, without
correction, inevitably lead to a continuing flow of
insolvency cases in the seasons to come.
• The economic downturn, driven and compounded by the unprecedented liquidity crisis, has led to a reduction in the amount of active investor interest in
football clubs, and has also made some clubs’
proposed refinancing and fundraising more difficult to
achieve until credit market conditions improve in due
course. However, the fundamentals underpinning the
development of the football business in England
remain strong.
- Deloitte's Annual Report on Football Finances has been released. The primary focus in the Foreword and Highlights is on the Premiership Clubs...
Deloitte - Annual Review of Football Finance 2009
FOREWORD -
- ....We publish this year’s edition amidst the gloomiest
global economic environment for decades. The
consensus among economic forecasters seems to be
that the UK economy will decline by at least 4% in
2009, the most severe contraction in a single year since
the Second World War, and other countries are
expected to suffer a similar, or worse, fate. Despite a
recent improvement in the 2010 outlook, football clubs
face extraordinarily turbulent conditions.
The long, hot summer
The Premier League itself was born during the last
recession in the UK. 1991/92 was the last season of the
old First Division. Between 1992 and 2008 the UK
economy experienced an extended bull run, growing at
an average rate of 5.4% in nominal terms. By
comparison the growth rates achieved by England’s
football leagues have been stratospheric.
The Premier League leads the way, its domestic and
international profile reaching unprecedented levels and
in turn driving the clubs’ revenues upwards. Its clubs
have transformed their stadia into state of the art
venues, while the league now attracts the world’s
greatest players, who have attracted a new and
increased fanbase, delivering a virtuous circle of growth.
The collective revenues of the 20 Premier League clubs
have grown at a compound annual rate of over 16%
and in 2007/08 are now more than eleven times those
of the then 22 clubs in 1991/92. Premier League club
revenues now stand on the verge of £2 billion, an
average of £100m per club. This is a telling reminder of
football’s extraordinary performance in revenue terms.
Meanwhile, Football League clubs have also performed
strongly. With the difficulties of the ITV Digital episode
now largely consigned to history, the Championship has
resumed its path of steady growth which has seen
annual revenue growth of almost 12%, while Leagues 1
and 2 have grown at around 10%.
In almost any other
industry this would be lauded as outstanding
performance, and the Football League and its member
clubs should be proud of how far they have come.
Despite revenues having grown so strongly, improved
profitability has remained stubbornly elusive. In 1992/93,
the first year of the Premier League, cumulative operating
profits were £33m with 15 of the 22 clubs in the black.
By 2007/08 operating profits stood at £185m with only
11 of the 20 clubs delivering a positive return. Despite
the increases in revenue, the fiercely competitive nature
of the league has seen potential profits quickly competed
away, with operating margins falling from 16% to below
10%. For many owners, Premier League clubs represent
‘trophy assets’ with the potential to deliver a long term
return but which at best break even annually, rather than
a cash cow delivering an ongoing ‘dividend’.
The Sting
Clubs will face significant challenges in the short term to
maintain current performance given the economic
environment. Football is lucky, to date, to have been
largely insulated from the economic downturn by the
primarily seasonal nature of ticketing and corporate
packages, but the summer renewal period is likely to
present a significant stress test of demand. For larger
clubs, playing to sold out stadia, with strong demand for
corporate packages and wide commercial appeal, the
impact may be limited. However, for smaller clubs, where
demand is more variable, and where significant excess
capacity exists, the downside may be more pronounced.
By the time the 2009/10 season begins in August many
clubs will have a clear indicator of their overall
performance. Price is one of the few variables over
which clubs have complete control and clubs will have
been carefully reviewing marketing and pricing
strategies during the season. In an effort to boost sales,
and perhaps to show solidarity with their key
stakeholders, we have seen a change in policy almost
across the board, with price freezes or even reductions
commonplace for 2009/10.
Although conditions are likely to be difficult it is timely
to remember that the fundamentals supporting the
Game remain strong. Football occupies a key part of
England’s national identity and is deeply integrated into
many people’s everyday lives. Some emerging figures
are encouraging – in the Football League, attendances
exceeded 16m in 2008/09 for the fifth successive season
and some clubs have reported strong demand despite
disappointing on-pitch performances – Norwich City, for
example, have sold over 18,000 season tickets for
2009/10 despite being relegated to League 1. We will
monitor clubs’ performances with interest as the
summer develops.
Football remains a relatively inexpensive hospitality
option compared to other one-off events and seasonal
packages present a variety of individual opportunities.
Furthermore, many corporate hospitality buyers are
small businesses, fans in their own right who have
‘traded up’, rather than large enterprises which may
have weaker brand loyalty.
Some comfort may come from a welcome boost to
broadcasting revenues for many clubs – which may help
to offset any impact on matchday and commercial
revenues. Football League clubs will be looking forward
to a new deal from 2009/10 at more than double its
current value, while a new UEFA Champions League deal
will bring benefits to the leading Premier League clubs.
Looking further ahead, the value of live UK Premier
League rights (for the seasons 2010/11 to 2012/13)
increased by 4%, an excellent performance under the
circumstances, with international deals – likely to show
the strongest growth rates – yet to be concluded.
Road to Perdition
As we have seen in previous turbulent periods, there will
be casualties. In 2009 we have already seen Chester City,
Darlington, Southampton and Stockport County enter
Administration, and there may be others to follow. Since
2004/05, clubs which have entered Administration
receive Sporting Sanctions in terms of points penalties
handed down by the Football League. In 2008/09 AFC
Bournemouth, Luton Town, Rotherham United and the
aforementioned Darlington and Stockport County all
received points sanctions, while Luton also received
further penalties in respect of other transgressions, which
contributed to their relegation from the League itself.
While unfortunate, we do not feel that the penalties are
unreasonable. Allowing clubs to enter/exit
Administration without penalty could be seen as a form
of financial ‘doping’ whereby a club could, theoretically,
irresponsibly overspend in search of an on-pitch
advantage, then, if that failed, clear its debts and
emerge reborn and unscathed. This presents a clear
challenge to the integrity of the competition, especially
when other clubs may be working tirelessly to balance
the books on an ongoing basis – even if that means
putting a brake on their sporting aspirations. The
sanctions present a realistic deterrent to unsustainable
operating practices. We do not see how sanctions
should be seen as a barrier to responsible inward
investment, indeed their moderating impact on
competitor behaviour may provide comfort to potential
new investors.
In addition to the Football League’s well publicised steps
we are seeing further, if at times tentative, steps to
enhance the Game’s off-pitch image. In some cases these
move beyond Sporting Sanctions towards the
development and application of certain financial
regulations, fit and proper person tests for club ownership
and incentives in respect of the development of home
grown players. We applaud these initiatives, which can
only help the Game to further demonstrate its capacity to
regulate itself and achieve common goals.
However, the challenges that the application of criteria
on a supra national basis present should not be
underestimated. Clubs competing in European
competitions are drawn from a wide variety of countries
with significant social, economic and legal
circumstances, different accounting, financial reporting
and auditing environments and wide ranging business
cultures. The development of a centralised system of
financial control may be more challenging to achieve in
practice than in theory....."
DELOITTE HIGHLIGHTS
Europe’s premier leagues•
The total European football market grew by €1 billion
to €14.6 billion in 2007/08. This was primarily due to
a €0.7 billion increase in the ‘big five’ European
leagues’ revenues to €7.7 billion (England’s Premier
League, France’s Ligue 1, Germany’s Bundesliga,
Spain’s Primera and Italy’s Serie A), and the staging of
UEFA Euro 2008.
• The Premier League strengthened its position as the
highest revenue generating league in world football.
Its clubs generated revenues of €2.4 billion in
2007/08 (up 26% in Sterling terms) – extending the
gap to its nearest rivals (the Bundesliga and La Liga) to
over €1 billion despite Sterling’s 15% depreciation
against the Euro.
• Serie A was the fastest growing league. Total revenue
increased by €357m (34%) to €1.4 billion. The
change of mix of clubs in Serie A for 2007/08, notably
Juventus’ return, contributed around two thirds of the
increase. The other clubs increased revenues by
c.€120m aided by new broadcasting contracts
commenced in 2007/08.
• La Liga recorded a €112m (8%) growth in revenue to
€1.4 billion, placing it in joint second with the
Bundesliga (which grew by €59m – 4%). La Liga’s
growth was driven by Real Madrid and FC Barcelona,
the world’s highest and third highest club revenue
earners in 2007/08.
• Total wage costs for the ‘big five’ European leagues
were €4.8 billion, €588m (14%) higher than in
2006/07. All of the ‘big five’ leagues experienced
significant wage costs growth, with Serie A (€250m)
and the Bundesliga (€105m) providing the largest
Euro increases. Premier League wage costs increased
by 23% in Sterling terms to €1.5 billion.
• The wages/revenue ratio of La Liga was 63%, in line
with the 62% reported by the Premier League whilst
Serie A’s wages/revenue ratio was 68%. The Premier
League clubs’ significantly higher revenues meant
they were able to pay, on average, €27m more in
wage costs than Serie A clubs and €31m more than
La Liga clubs whilst still keeping their wages/revenue
ratio below that of their nearest competitors.
• The Premier League returned record operating profits
of €234m in 2007/08, and reclaimed its position as
the most profitable league, from the Bundesliga
(€136m), which it lost temporarily in 2006/07.
• France’s Ligue 1 joined Serie A in returning operating
losses due to limited revenue growth outweighed by
significant wages and other costs growth.
• Looking forward, while the acid test of the ‘big five’
leagues’ ability to withstand the worse of the
challenging economic times will not be known until
2009/10, it is encouraging that total 2008/09
attendances across the leagues increased by 2%.
The Bundesliga, Ligue 1 and the Premier League and
the major clubs in La Liga and Serie A also have
secure long term broadcast deals in place which
deliver significant proportions of total revenue.
The greatest challenge may come in maintaining
commercial revenues and higher priced corporate
hospitality ticketing, while also addressing wage and
other cost inflation.
Revenue and profitability• The overall revenues of the top 92 English
professional clubs increased by 21% to £2,458m.• Total Premier League revenues increased by £402m
(26%) in 2007/08 to £1,932m, with the average club
expected to have generated revenue of £100m in
2008/09.
• Championship revenues increased 2% to £336m in
2007/08. Total revenues of the 72 Football League
clubs exceeded £500m for the first time.• The increased revenues under the new broadcasting
contracts were the main driver of growth in the
Premier League. Their member clubs received £767m
from central broadcasting distributions (£464m in
2006/07). Additional monies, primarily from the UEFA
Champions League helped increase total broadcasting
revenues to £931m.• Premier League clubs increased commercial revenue
to £447m (up 12%). Matchday revenue grew only
modestly to £554m (up 3%) as a result of a number
of clubs freezing ticket prices in 2007/08.
Revenue and profitability• The overall revenues of the top 92 English
professional clubs increased by 21% to £2,458m.
• Total Premier League revenues increased by £402m
(26%) in 2007/08 to £1,932m, with the average club
expected to have generated revenue of £100m in
2008/09.
• Championship revenues increased 2% to £336m in
2007/08. Total revenues of the 72 Football League
clubs exceeded £500m for the first time
The increased revenues under the new broadcasting
contracts were the main driver of growth in the
Premier League. Their member clubs received £767m
from central broadcasting distributions (£464m in
2006/07). Additional monies, primarily from the UEFA
Champions League helped increase total broadcasting
revenues to £931m.
• Premier League clubs increased commercial revenue
to £447m (up 12%). Matchday revenue grew only
modestly to £554m (up 3%) as a result of a number
of clubs freezing ticket prices in 2007/08.
The distribution mechanism for Premier League
broadcasting revenue meant that all clubs benefited
from marked revenue increases. Even the bottom
placed club, Derby County, received £29.5m in
broadcasting revenue from the Premier League. By
comparison Watford received £16.7m when finishing
bottom in 2006/07.• We estimate that Premier League clubs’ revenues in
2008/09 will have exceeded £2 billion. In 2009/10 we
still expect some revenue growth will be driven by the
stepped increase in domestic broadcasting deals and
higher UEFA Champions League distributions, but
with relatively flat commercial and matchday revenues
due to the economic climate. The relegation of
Newcastle United to the Championship will also have
a dampening effect on aggregate Premier League
revenue growth.• Operating profits for the Premier League increased to
a record £185m in 2007/08. 11 Premier League clubs
recorded operating profits, up from eight in 2006/07.
• An increase of £85m in other operating costs
(i.e. excluding wage costs) in 2007/08 dampened the
increase in operating profits. This total has now
increased by £164m (42%) in two years suggesting
renewed emphasis must be placed on controlling
these costs.
• Operating losses for Championship clubs increased
from £75m to a record £102m despite increased
parachute payments to relegated clubs, and the first
solidarity payment to the rest of the Football League.
The new improved Football League broadcasting deal
which starts in 2009/10 provides a much needed
opportunity to address the losses in the Championship.
• The total tax take from the 92 professional football
clubs in 2007/08 increased by 21% to a record
£860m, and is expected to exceed £1 billion per year
with the introduction of the 50% tax rate on earnings
over £150,000. The total taxes borne by the top 92
clubs since the Premier League began in 1992/93 is
now in excess of £6.5 billion.• In 2006/07, Manchester United were the first English
club to earn revenue of over £200m in a season. In
2007/08 they increased revenues by 21% to a record
£257m, with both Arsenal and Chelsea also breaking
the £200m threshold.
• In order to maintain operating profits, clubs will need
to really focus on controlling wage inflation. It is
unlikely that overall revenues will experience
significant growth in the current economic climate,
and therefore focussing on controlling costs will
become increasingly important.
Wages and transfers
• Wage costs in the Premier League exceeded £1 billion
for the first time in 2007/08, reaching £1.2 billion.
The increase in total wage costs of £227m (23%) is
the biggest annual absolute increase recorded by the
Premier League.
• Premier League clubs’ increase in total wages of
£342m in the two years to 2007/08 is broadly
equivalent to the £351m increase in their broadcast
revenue over this period repeating the experience of
previous significant increases in broadcasting deals.
• Despite the increase in wage costs, the surplus of
revenue over wages for Premier League clubs has
increased to a record high of £736m (2006/07:
£561m). The wages/revenue ratio for the Premier
League fell slightly to 62% in 2007/08 (2006/07: 63%),
as revenue growth of 26% outpaced wages growth.
• Chelsea, with wage costs of £172m remains the
highest spender by some distance, over £50m above
the next highest club, Manchester United, who spent
£121m. The other top five wages spenders in 2007/08
are, for the sixth season in succession, Arsenal £101m,
Liverpool £90m, and Newcastle United £75m.
• Championship clubs’ total wage costs increased by
£32m (12%) in 2007/08 to £291m, the second
consecutive year of double digit growth. The increase
in wages over the last two seasons has been over
three times greater than the increase in revenue
resulting in the wages/revenue ratio increasing to
87% (2006/07:79%; 2005/06: 72%).
Across Premier League clubs there is a relatively strong
correlation between wages and league position.
However, in the Championship there is no clear link,
which highlights the division’s unpredictability and
proof that high wages are not a guarantee of onpitch
success at this level.•
Player wages across the 92 top professional clubs exceeded £1 billion for the first time in 2007/08,
increasing by £158m (18%) to reach £1,050m.
Growth is driven by the £118m (18%) increase in
player wages of Premier League clubs however, there
has been a significant year on year increase across
each division (Championship up 17%; League 1 up
27%; and League 2 up 8%).• Gross transfer spending across the 92 top professional
clubs grew to £779m in 2007/08, up 35% from
2006/07, the vast majority was spent by Premier
League clubs – £664m (2006/07: £492m).
• The majority of Premier League clubs’ transfer
spending continues to be with overseas clubs, with
£351m spent in 2007/08 (2006/07: £275m), however
the proportion of intra Premier League transfers has
increased. Once Football League clubs are considered
the net transfer spending leaving English football (to
non-English clubs and agents) remained steady at
£276m (2006/07: £277m).
• Chelsea became the first club to report over £80m
gross transfer spending in one season. Three others,
Liverpool (£70m), Manchester City (£62m)
and Portsmouth (£53m) had gross transfer
spend in excess of £50m.
• The net transfer movement between the
Premier League and the Football League
in 2007/08 was a net outflow from the
Premier League of £59m, an increase
of 69% from £35m in 2006/07.• Total transfer spending by Football
League clubs has increased by 34%
to £115m (2006/07: £86m),
with ten clubs recording
transfer fees in excess of £5m
Stadia developments and operations
• Aggregate 2008/09 attendances for the Premier
League and Football League of 29.9m equalled
2007/08 levels illustrating the apparent resilience, to
date, of English football to the economic downturn.
• In the Premier League total aggregate attendances of
13.5m and an average attendance level of 35,594
per match are the second highest figures in Premier
League history, beaten only by the 13.7m from
2007/08, and underline the competition’s continued
pulling power.
• At 92%, capacity utilisation in the Premier League
stayed above the 90% mark for the 12th season in a
row with half the clubs in the Premier League
achieving capacity utilisation of more than 96% –
effectively representing a sold-out stadium.
• In the Football League 2008/09 attendances were
above 16m for the fifth year in a row, with a 1% yearon-
year increase to 16.4m. The Championship
increased attendances by 5% and is now the third
best attended league in Europe.•
Many clubs are freezing or reducing ticket prices for
2009/10 and introducing finance schemes to ease the
burden on their fans’ potentially constricted matchday
budgets arising from the economic climate. Initiatives
to attract the next generation of fans are also
increasingly evident across a number of clubs.
• Despite the absence of new landmark projects on a
scale seen in prior years, English football clubs
continue to improve their stadia and associated
facilities with £187m being invested in 2007/08. This
is the eleventh year in a row that total investment
levels have exceeded £150m.
• Cumulative investment in stadium facilities across all
professional English clubs since 1992/93 has now
comfortably exceeded £2.5 billion and we expect
investment by Premier League clubs to pass the
£2 billion mark when we compile our analysis of
the 2008/09 season’s results.
Investment in facilities over the last 16 years has led
to an aggregate stadium capacity across the season
for all 92 professional clubs of 43m, the highest level
since well before the introduction of all-seater stadia.
• Football League clubs invested £50m in facilities in
2007/08, with Championship clubs spending £43m.
Since 2007 MK Dons, Shrewsbury Town and
Colchester United have all opened new stadia and
Cardiff City are due to join them for the 2009/10
season. Brighton & Hove Albion and Chesterfield have
also begun construction on their new stadia.
Enabling development and/or the support of local
government have been important factors in the
opening of these stadia.
• As construction costs are now falling the biggest
barrier to larger stadia projects is the inability of clubs
to secure sufficient finance given the impact of the
credit crunch on debt markets.
Club financing
• Net debt in respect of Premier League clubs at the
end of the 2007/08 season increased to £3.1 billion
(2007: £2.7 billion). This includes £1.2 billion of noninterest
bearing soft loans from club owners. If these
soft loans were reclassified as, or swapped for, equity,
the total net debt in respect of Premier League clubs
would reduce by almost 40%.
• Almost two-thirds (almost £2.0 billion) of the total net
debt related to Arsenal, Chelsea, Liverpool and
Manchester United. On the positive side of the
balance sheet, in aggregate these four clubs had a
carrying value of £1 billion in respect of investment in
facilities, and a carrying value of £450m from
investment in players.
• Net interest charges in respect of Premier League
clubs in 2007/08 were £188m. The non-interest
bearing nature of loans at a number of clubs help to
keep the net debt service charge at around 6% of the
overall debt balance.
Around £1.5 billion has changed hands in respect of
over 20 changes of ownership of English clubs in the
top two divisions since the start of 2005. By the end
of 2007/08 around £250m had been injected into
clubs from these new owners to help fund operations
and investment (in facilities and playing talent).
Looking forward, this figure may increase significantly,
particularly in respect of the new owner’s investment
plans at Manchester City.
• As well as this, Roman Abramovich injected a further
£123m into Chelsea in 2007/08, to take his overall
investment in the club to around £760m in the five
years under his control. Chelsea’s management have
stated the target is for zero cash funding from the
owner in 2009/10.
• Net debt in respect of the 22 Championship clubs
who reported results at the end of the 2007/08
season was £326m (2007: £298m in respect of 20
clubs). In general, a Championship club can only hope
to significantly reduce its net debt in the
short/medium term via either promotion to the
Premier League or an injection of equity funding from
its owner.•
Below the top two divisions, managing a club’s
financial position remains a challenge from one
season to the next. Legacy debt issues and the risks
taken by some boards of directors will, without
correction, inevitably lead to a continuing flow of
insolvency cases in the seasons to come.
• The economic downturn, driven and compounded by the unprecedented liquidity crisis, has led to a reduction in the amount of active investor interest in
football clubs, and has also made some clubs’
proposed refinancing and fundraising more difficult to
achieve until credit market conditions improve in due
course. However, the fundamentals underpinning the
development of the football business in England
remain strong.
