Budget limits have cost Saints

Southampton’s pre-tax loss in 2021/22 narrowed from £23m to £15m, despite revenue dropping £6m (4%) from £157m to £151m, mainly because profit from player sales nearly doubled from £16m to £31m.

Although losing money is rarely good news, Southampton’s £15m loss was actually one of the better financial performances in the 2021/22 Premier League. Many clubs reported much higher losses last season, including Manchester United £150m, Chelsea £121m, Leicester City £92m, Newcastle United £73m and Tottenham £61m.

Southampton have now reported losses four years in a row, adding up to £155m, which has completely wiped out the preceding five years of profits. This profitable period was worth £126m in total, including £42m in 2017 and £35m in 2018.  More encouragingly, losses have reduced from the £76m COVID-impacted peak two years ago.

The decline in Southampton’s profitability is partly due to making less money from player trading, as profit in the past four years has averaged only £21m, which is less than half the £42m generated between 2014 and 2018.   This season shows no sign of improvement, as most players leaving the club were on free transfers with only Oriol Romeu producing a (small) gain after his move to Girona.

Southampton’s £151m revenue is £31m (17%) lower than their £182m peak in 2017, when they finished 8th in the Premier League and competed in the Europa League. As a result, broadcasting has fallen £28m, while match day is down £5m.  Nevertheless, broadcasting remains the most important revenue stream by far, contributing 76% of total revenue, while commercial and match day each account for only 12%.

Following the decrease, Southampton’s £151m revenue is firmly in the bottom half of the Premier League, only above four clubs in 2021/22, namely Brentford, Norwich City, Watford and Burnley – and three of those were relegated.

If Southampton do end up being relegated this season, it would have a massive impact on their revenue. Looking at the clubs that went down in the previous three seasons, they could anticipate a revenue reduction of at least £60m. Southampton’s Premier League TV distribution, worth £111m last season, would be replaced by a parachute payment of around £44m (55% of the equal shares). This reduces to £36m in the second year (45%), then £16m in year 3.   It is likely that Southampton’s gate receipts and commercial income would also be lower in the Championship. This would almost certainly lead to the sale of quite a few players.

Southampton’s £18m commercial income was one of the lowest in the Premier League, only above Brentford £16m and Burnley £11m. The gap to the Big Six clubs is absolutely huge, e.g. Manchester City lead the way with £309m, while sixth placed Arsenal £142m are nearly eight times as much.

Southampton’s wage bill was unchanged at £113m, which means that wages have been essentially flat for the last six years.  Due to the lack of growth, Southampton’s £113m wage bill has become one of the lowest in the Premier League, only ahead of three clubs in 2021/22: Burnley, Watford and Brentford.    To further place this into perspective, wages are less than a third of Manchester United £384m, Liverpool £366m, Manchester City £354m and Chelsea £340m.

This helps explain Southampton’s worsening performance on the pitch. While their wage bill has not grown, other have caught up and overtaken them.   In 2017 their wages were only (slightly) below Leicester City when comparing the saints to other mid-sized clubs, but they are now behind all the clubs in that group, with some of them miles ahead. The lack of budget has clearly hurt the Saints.

Southampton still spent well over a quarter of a billion pounds in the transfer market in the last five years, but the fact is this is simply not enough in the Premier League.   For example, it is miles behind big spenders like Chelsea and Manchester City, who have both shelled out around £1 bn. More meaningfully, it’s also less than clubs like Wolves, Brighton and Leeds United.  Their £180 squad cost was only higher than four clubs in the Premier League – and three of those were relegated.

Between 2016 and 2022 Southampton did not receive any owner funding, which is a big change from the club’s previous approach. In fact, they actually repaid £13m of owner loans in this time, as Katharina Liebherr sold up and Gao Jisheng was unwilling (or unable) to provide funding.   Other Premier League owners have put in a lot of funding, which has made Southampton’s position even more difficult. For example, in the last five years, owners at five different clubs have provided more than £200m, namely Everton £574m, Chelsea £416m, Aston Villa £351m, Brighton £216m and Arsenal £211m.  However, Southampton have changed tack this season, as Solak has put £63m into the club: £48m in September and £15m in April.

There is little doubt that Southampton have been adversely impacted by the lack of investment from the previous ownership, which has meant that they have been overtaken financially by many of their rivals.  Solak has spent more than his predecessors, but it could be a case of “too little, too late”. Sport Republic’s decision to invest in youth is a brave one, but it might well result in relegation.