Skip to main content

Rising wages hit Premier League profits

Premier League clubs’ combined revenues for 2017/18 rose to a record £4.8 billion, up 6% from 2016/17 (£4.6 billion) reports Deloitte Sports Business. Clubs’ combined wage expenditure increased by £0.4 billion to a record £2.9 billion in 2017/18, with Premier League average wage/revenue ratio rising from 55% to 59%. Wage growth impacted Premier League clubs’ operating profits, falling 16% to £0.9 billion (2016/17: £1 billion). Clubs generated pre-tax profits of £0.4 billion, falling from the record £0.5 billion set in 2016/17.

The increase in revenue is in part attributable to the Premier League having a record five teams competing in the UEFA Champions League last year, all reaching the Round of 16 or beyond, resulting in a substantial increase of c.£71m in UEFA Champions League distributions to Premier League clubs. Alongside the increase in UEFA distributions, matchday and commercial revenue both grew by 8% and 12% respectively.

Increases in player spending lower down the table explain the falling profitability of clubs according to Deloitte's Dan Jones, partner and head of their Sports Business Group: 'Where there is more pressure on profits is in the bottom half where clubs are spending heavily to stay in the league.'

Jones commented: 'Premier League clubs’ revenues continued to reach new heights in 2017/18. Tottenham Hotspur’s relocation to Wembley Stadium and increased commercial activity, including the commencement of their new kit deal with Nike, contributed more than half of the Premier League’s matchday revenue growth and almost a quarter of the Premier League’s commercial revenue growth respectively, driving the club’s record levels of pre-tax profitability.'

However, the Premier League’s wages/revenue ratio increased to 59% in 2017/18, rising from the previous season’s ratio of 55%, which was a 19-year low owing to the increased broadcast revenues at the start of the current broadcast rights cycle. Almost half of Premier League clubs recorded a wages/revenue ratio of 70% or greater [above the recommended Uefa level], with overall wage spend increasing 15% to £2.9 billion. This had a direct impact on clubs’ collective operating profitability, falling to £0.9 billion, albeit still the second highest in Premier League history.'

Jones added, 'We have seen clubs’ wage expenditure increase at a faster rate than revenue growth in 2017/18. This is the same pattern as observed in the second year of the previous Premier League broadcast rights cycles, as clubs continue to invest in playing talent. 59% is the lowest wages/revenue ratio outside the first year of a broadcast rights cycle since the 1998/99 season.'

The analysis reveals that Premier League clubs made a collective pre-tax profit for the fourth time in the last five years, again the second highest profit in history, with three clubs (Arsenal, Liverpool and Tottenham Hotspur) contributing over 75% of this total, but also an increase in the number of clubs reporting a pre-tax loss.

Tim Bridge, director in the Sports Business Group at Deloitte, said: 'The increased wage expenditure was expected given the busy transfer market in the 2017/18 season, with two record transfer windows driving estimated Premier League gross spend of £1.9 billion. However, with the total value of Premier League broadcast rights expected to only marginally increase in the 2019/20-2021/22 broadcast rights cycle, increases in wage and transfer expenditure may be expected to slow in the medium term, as already signalled by the reduced estimated £1.4 billion gross transfer spend in the current season.

With the emphasis now on clubs to generate revenue growth from sources other than central broadcast distributions, it may be that we see the levels of pre-tax profit diminish over the next few years.'

Comments

Popular posts from this blog

Threat of financial calamity removed from Baggies

West Bromwich Albion had effectively been in decline ever since the club was sold to a Chinese consortium in August 2016, paying a figure north of £200m to buy former owner Jeremy Peace’s stake. Controlling shareholder Guochuan Lai’s ownership was fairly disastrous for the club, but his unloved tenure finally came to an end after Bilkul Football WBA, a company ultimately owned by Florida-based entrepreneur Shilen Patel and his father Dr Kiran Patel, acquired an 87.8% shareholding in West Bromwich Albion Group Limited, the parent company of West Bromwich Albion Football Club. This change in ownership was urgently required, due to the numerous financial problems facing West Brom, including growing high-interest debt and serious cash flow concerns, following years of no investment from the former owner. Indeed, West Brom’s auditors had already rung the alarm bell in the 2021/22 accounts when they cast doubt on the club’s ability to continue as a going concern without making player s...

Spurs to sell minority stake

Tottenham Hotspur is in talks to sell a minority stake in a deal that could value it at up to £3.75 billion and pave the way for Joe Lewis and his family to sever ties with the Premier League football club. Tottenham chairman Daniel Levy is seeking an investment that values the club at between £3.5 billion and £3.75 billion, including debt. While the terms of any deal have not been finalised, City sources expect Spurs to sell about 10 per cent. The club is being advised by bankers from Rothschild on the sale. Tottenham wants to raise fresh capital for new player signings and to help fund the development of an academy for its women’s team, as well as a 30-storey hotel next to its north London stadium. The financier Amanda Staveley, who brokered the deal for Saudi Arabia’s Public Investment Fund to take over Newcastle United, is understood to be among the parties to have expressed an interest in Tottenham. Staveley’s fund, PCP Capital Partners, has raised about £500 million to ...

Millwall punch above their weight

Millwall’s season was overshadowed by the tragic death of owner John Berylson following a car accident. The American had been an exemplary owner, beloved by the fans for his leadership, passion and generosity. Millwall’s finances had been pretty good during his tenure, which we shall explore by looking at the most recent accounts from the 2022/23 season, when the club narrowly missed out on a place in the play-offs after finishing 8th. Millwall’s pre-tax loss slightly reduced from £12.6m to £12.2m, as revenue rose £0.8m (4%) from £18.6m to a club record £19.4m and player sales improved from a £0.1m loss to £2.5m profit. However, other operating income dropped from by £1.1m from £1.3m to £0.2m, while operating expenses increased £1.7m (5%) from £31.6m to £33.3m. The main driver of the revenue increase was broadcasting, which rose £1.1m (12%) from £9.1m to £10.2m, though match day was also up £0.4m (7%) from £5.8m to £6.2m. In contrast, commercial fell £0.7m (19%) from £3.7m to £3....