Hats off to Luton but their frugality hits them on the pitch

Although things have taken a turn for the worse on the pitch, Luton Town’s finances look in pretty good shape.

This was referenced by chief executive Gary Sweet after the double relegation, “The backdrop of our custodianship of the football club is financial stability. It’s an absolute cornerstone. The club was unstable, it’s more stable now than it probably ever has been financially and structurally.”

The club’s sustainable approach resulted in limited expenditure on the squad after promotion to the top flight. Instead, the club invested much of their windfall gains in building a new stadium.

While such investment will be beneficial to Luton’s long-term prospects, it is clear that this strategy had an adverse impact on their ability to compete in the Premier League.  Indeed, the directors admitted that they had probably under-spent in the transfer market, especially in the January window, as they attempted to stay up: “In hindsight the club might have reinforced more.”

It was therefore not a major surprise that they struggled, as the club was effectively fighting with one hand behind it’s back.  They had over-performed their budget in the Championship, but the odds were against them repeating this feat in the Premier League.

A look at the latest available accounts from 2023/24, comparing Luton to the other clubs in the Premier League, very clearly highlights the magnitude of their challenge.

As a result of promotion to the Premier League, Luton set new records for both revenue and profits in 2023724.  They swung from a £16.3m pre-tax loss in the Championship to £49.5m profit, a huge improvement of £65.8m in the bottom line. Revenue shot up from £18.4m to £132.3m, though this was partially offset by a significant increase in operating expenses, which more than doubled from £39.4m to £84.9m.

The main driver of Luton’s revenue growth was broadcasting, which rose a staggering £106.5m from £10.1m to £116.6m, due to the far more lucrative Premier League TV deal (more than ten times as much as the Championship).   There was also good growth in the other revenue streams, especially commercial, which virtually tripled from £3.2m to £9.5m. Match day increased by 22%, rising £1.1m from £5.1m to £6.2m.   They earned more in 2023/24 than the previous 17 seasons combined, according to the Swiss Ramble.

Luton’s £49m pre-tax profit was the fifth best result in the Premier League last season, as a few other clubs managed to generate even more impressive profits, namely Brighton £75m, Manchester City £74m and West Ham £57m.  In fact, Luton’s £49m profit was the best recorded by any club in its first season after promotion to the Premier League, ahead of Bournemouth (2022/23) £44m and Hull City (2016/17) £36m.

Up until last season, Luton had only posted a profit twice in the last decade, £0.6m in 2017/18 and £3.4m in 2019/20. However, they did manage to restrict their losses over this period, which Gary Sweet said was the result of the club’s “longstanding commitment to sustainability and financial discipline.”

Luton have traditionally made very little money from player trading. In fact, if we exclude the Nathan Jones compensation in 2022/23, the only season when they generated a profit above £3m in the last decade was 2019/20, when the £9.2m was mainly from selling James Justin to Leicester City and Jack Stacey to Bournemouth.

The figures should be better in 2024/25, as a few player left for decent money, including Chiedozie Ogbene to Ipswich Town, Ross Barkley to Aston Villa, Ryan Giles to Hull City and Joe Taylor to Huddersfield Town.

On the other hand, Luton failed to absorb these departures, culminating in the relegation to League One.  In particular, Sweet identified the loss of one player as a key reason for the club’s problems, “Ross Barkley was just impossible to replace. He is a Premier League player and what you can’t do is to even think about replacing Ross Barkley in the Championship. Ross Barkleys don’t exist in the Championship.”

Luton’s £132m revenue was rock bottom in the Premier League, which highlights the magnitude of their challenge. They would have had to punch well above their weight to survive.   Of course, after Luton’s relegation(s), they will see a significant reduction in their revenue, though the decline will be cushioned by parachute payments

It’s worth noting that they will still receive the second year’s payment even though they were relegated to League One. However, they will not get the third year parachute payment of £18m, as clubs relegated after one season in the Premier League only receive two years of payments, as opposed to the usual three years.

The largest budget in League One

Clubs with parachute payments enjoy a big competitive advantage, so it’s fair to say that Luton did not make the best use of this benefit.  That said, they will have the largest budget by some distance next season in League One. The highest revenues in League One in 2023/24 were Bolton Wanderers £21m, Derby County £19m and Portsmouth £14m, so Luton will be streets ahead of their rivals, boosted by their £40m parachute payment.

Of course, Luton are unlikely to use all of the money from their parachute payments on improving the squad, as they noted that this “has allowed the club to invest heavily in its long term strategic plan”, which implies that a good chunk of this will be spent on the stadium development.

TV money is incredibly important to Luton, contributing 88% of their total revenue in 2023/24, which was the highest reliance on broadcasting income in the Premier League, ahead of Bournemouth 84%, Sheffield United 83% and Burnley 83%.

Luton’s 11,276 attendance was the second lowest in the Premier League, only above Bournemouth 11,108. Their crowds were incredibly small for the top flight, where no fewer than seven clubs enjoyed attendances over 50,000, led by Manchester United with nearly 74,000.  More relevantly, they were also a fair way below the clubs just above them, namely Brentford 17,082, Burnley 21,153 and Fulham 24,311.

New stadium

The club is looking to move to a new stadium in nearby Power Court, which will significantly enhance revenue. Capacity will increase to 25,000, up from the original plan of 18,000, with the latest plans aiming to complete the build in as single phase.  The facilities will include retail and commercial spaces, as well as a music venue and a new hotel (150-200 rooms).

The chief executive said that a significant portion of the required funding has already been secured from the sale of land at Newlands Park, though this was booked in the accounts of another group company, 2020 Developments (Luton) Limited.

In the short-term, after promotion Kenilworth Road had to be brought up to Premier League standards, which cost an estimated £8-10m, as one stand had to be pretty much rebuilt in less than three months, while they also needed new floodlights and improved broadcasting facilities.

Following promotion, Luton’s wage bill more than doubled from £27.6m to £56.9m, but the underlying increase was even higher, as the previous season included a significant promotion bonus, which was likely to have been at least £10m.

Even after this steep growth, Luton’s £57m wage bill was easily the smallest in the Premier League. Only Sheffield United were anywhere close with £64m, but the third lowest, Burnley, paid considerably more with £93m.  The club described this, somewhat drily, as a “comparatively limited budget”.

The remuneration for Luton’s highest paid director, presumably chief executive Gary Sweet, decreased by around a third from £1.3m to £858k, as the previous season included a promotion bonus. Total directors’ remuneration was down from £1.8m to £1.1m.

Luton’s £66m wages budget was still comfortably the lowest in the Premier League, less than half of the third smallest budget (Burnley £136m), so it’s fair to say that their chances of survival were not that great.  This brings to mind the old Don King quote about Manny Pacquiao’s prospects in a title fight against Floyd Mayweather Jr, “He has two chances: slim and none. And slim just left town.”  For some more context, the top four clubs were all above half a billion Pounds, which is over £400m more than Luton.

Luton’s other expenses almost doubled from £9.2m to £18.2m, as the cost of playing in the Premier League is much higher, including getting the stadium up to scratch. Like all other clubs, Luton would also have been hit by the impact of inflation, especially services and utilities.

Luton spent £26.8m on player purchases in 2023/24, which was around four times as much as the previous season’s £6.8m.  Although the £27m gross spend was a big all-time high for Luton, it was still nowhere near what is required to have a reasonable chance of competing in the Premier League. It was easily the lowest in the top flight in 2023/24, a long way below Wolves £47m and Sheffield United £53m.

The club spent a chunky £19.0m on improvements to the stadium and training facility in 2023/24, which was actually the seventh highest capital expenditure in the Premier League, albeit a lot less than Everton’s £211m investment in their new stadium.

Although Luton’s owners have provided the club with £39m since 2014/15, no money has been required in the last four seasons, thanks to the growth in income as the club climbed the football pyramid, allied with the frugal approach.  As a result, they were ranked bottom in the top flight for revenue, wages, player amortisation, transfer spend and squad cost, so their chances of survival were not great.

After Luton secured their promotion to the Premier League, the board rightly cautioned that “further progression on the pitch may prove challenging”, as they would have needed to punch massively above their weight, given their very low financial resources.

The good news is that Luton should have the biggest budget by far in League One, as they will once again benefit from a sizeable parachute payment. They just need to spend it wisely.