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.'

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The Political Economy of Football V2

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