Football Finance: England the European champions in a €10 billion game

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The twelfth edition of the Deloitte & Touche Annual Review of Football Finance shows that the turnover of English football’s top division clubs has increased seven-fold in ten years to GBP 1,132 million in 2001/02. Deloitte estimates Premiership revenues will have exceeded GBP 1.25 billion in 2002/03. The Football League clubs have meanwhile grown their income to GBP 467 million.

The majority of the increase in English clubs’ turnover in 2001/02 was in the Premiership (up GBP 195m or 21%) to GBP 1,132 million. The Football League recorded an increase of GBP 135 million (41%) to GBP 467 million in the same season.

English football’s top 92 clubs posted an overall operating profit of GBP 39 million (a GBP 97 million improvement on 2000/01). Premier League clubs’ aggregate operating profits (at GBP 84 million) were the highest since 1997/98. Operating profits were reported by 83% of the clubs in the Premier League, and the number of clubs reporting operating profits in the Football League almost trebled compared to 2000/01.

Deloitte estimates the aggregated income of all clubs in the top divisions in Europe to be €7.1 billion for 2001/02, rising from €6.6 billion in 2000/01. The ‘big five’ leagues (England, Italy, Spain, Germany and France) dominate with an 80% share. The English Premiership has the largest individual share at 25%. Adding in lower divisions, federations and national teams and UEFA competitions, Deloitte estimates the total European football finance market at around €10 billion.

Dan Jones, Director of Deloitte & Touche Sport, the Sports Business Consultancy, said, "The past year has been a difficult one for football finances. Our report clearly shows grounds for optimism, but not complacency. The game has never had more money and England’s clubs lead the world in all areas of income generation and also in stadium investment. English football should be proud of that. What is needed now is strong management and leadership to control costs and improve the bottom line. Again, England’s clubs are the best placed in Europe to achieve that."

Jones also believes the European clubs have one key area where they should be learning from their English counterparts. "England’s matchday incomes are now almost three times those of other big leagues. The transformation of English stadia through spending of almost GBP 1.5 billion in 11 seasons is fantastic. German, Italian and Spanish clubs need to address revenue generation and commercial issues at their stadia urgently or they will fall further behind."

In terms of cost control, the Premier League clubs reported a wages / turnover ratio of 62% (2000/01 : 60%). The Football League brought its ratio down to 73% - the lowest level since 1996/97. These ratios relate to all wages and salaries, not just players.

Paul Rawnsley, a Senior Sports Business Consultant at Deloitte & Touche Sport believes the balance of power in wage negotiations is swinging decisively back towards the clubs. He comments "the broadcasting revenue uncertainty across Europe, a spate of club Administrations in England and potential rule changes by the Football League all change the environment. The future for the majority of players is one of short-term contracts linked to the division in which they are playing; an in-built adjustment of salary on promotion or relegation; more sophisticated (financial and football) performance-related pay; and signings for clubs as an unattached free agent or on one-season loan deals. These are sensible measures to ensure the continued resilience and survival of all the 92 clubs who pay the players."

On the topic of transfer spending Deloitte recognise that financial difficulties hit UK clubs and overseas leagues after the majority of the GBP 407m of spending in the 2001/02 season (covered by the review) had taken place. Transfer spending is estimated to have fallen to around £150 million for the 2002/03 season. The January 2003 transfer window spending by English clubs was estimated at only GBP 20-25 million.

"The evidence suggests that the 2001/02 season will prove a watershed for the transfer market—and we will never see again the level of transfer spending seen over the last five years," said Jones. "The player transfer market has peaked in terms of overall value, but not in terms of values for the true stars. The rising graphs of annual transfer spending that we have steadily plotted over the years will fall in 2002/03 and never climb back past the 2000/01 level." He adds one small caveat "Of course, the emergence of a few more billionaire owners could change that!" But even then he states "the ‘old’ survival strategy of day to day operating losses, with occasional player sales or benefactor investments to resolve a crisis, is no longer tenable or responsible; what transfer spending there is increasingly does not trickle down to lower league clubs."

The Football League clubs performed well financially in 2001/02, but face a difficult adjustment to reduced broadcasting incomes in 2002/03 and beyond. Paul Rawnsley recognises the need for change, saying "Clearly, many Football League clubs need to reassess their goals and purpose. For all clubs, an annual balanced cash budget of income and outgoings is essential. For most, that means setting realistic ambitions to ensure clubs are preserved for the community and future generations. In many cases, Supporters Trusts may have a key role to play, particularly in rescuing clubs from trouble and ensuring financial problems do not recur."

Dan Jones is cautiously optimistic about English football’s financial future. He said "As the market settles, the Premier League clubs should be the biggest financial winners as they have the best television product, compete directly with financially weakened overseas leagues for playing talent and have a stronger, more balanced income base than those overseas competitors."

He adds that "We hope we have seen both a peak in player wages and the bottom of the trough in club losses. In reality, we expect wages to nudge up at the top level, but hope that wages/turnover ratios – a concern Deloitte has voiced since 1993 - will fall at all levels of English football. It has taken nine years and a spate of Administrations and financial pressures to force this issue to a resolution. We expect losses in the Football League to increase temporarily in 2002/03 but never again to exceed 2000/01 levels."

"Salary caps at a team, not player, level can greatly help a club’s viability, as long as the rules are straight-forward and sanctions strong. The discipline caps could impose on potentially irresponsible clubs who follow the ‘borrow now, pay later’ policy would have prevented many of the past financial crises. We applaud the early moves by the Football League and G-14 in this area and hope to see renewed momentum on this issue from the top clubs," said Jones.

Ends

Note to editors

The press release and highlights within it are extracted from the relevant sections of the Deloitte & Touche Annual Review of Football Finance, July 2003 (a review of clubs’ 2001/02 accounts - the latest published accounts available). The bases of the opinions and calculations are explained in the relevant sections/appendices of that publication.

The exchange rate at 30 June 2002 has been used to convert figures in Euros. (GBP 1 = €1.5434)

Over the last decade Deloitte & Touche Sport has developed a unique focus on the business of sport. The specialist Sports Business Consulting team offers a multi-disciplined expert service with dedicated full-time people and skills capable of adding significant value to the business of sport. Whether it is benchmarking or strategic business reviews, operational turnarounds, revenue enhancement

strategies or stadium development plans, business planning, market and demand analysis, acquisitions, due diligence, expert witness, audits or tax planning; we have worked with more clubs, leagues, governing bodies, stadia developers, event organisers, commercial partners and investors than any other adviser.

For further information on Deloitte & Touche Sport, you can access our website at www.sportsconsulting.co.uk

Deloitte & Touche is the UK’s fastest growing major professional services firm based in 23 UK locations, with over 10,000 staff nationwide and fee income of GBP 1,228 million in 2002/2003. It is a member firm of Deloitte Touche Tohmatsu, a leading professional services organisation, delivering world class assurance and advisory, tax and consulting services, with around 120,000 people in over 140 countries. Deloitte Touche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity.

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The information contained in this release is correct at the time of going to press.

Highlights of the Deloitte & Touche annual review of Footbal

JULY 2003
Note: These highlights are extracted from the relevant chapters of the Deloitte & Touche Annual Review of Football Finance July 2003. The bases of the opinions and calculations are explained in the relevant sections/appendices of that publication.

Europe’s Premier Leagues

• Deloitte & Touche Sport estimate the aggregated income of all clubs in the top divisions throughout Europe at €7.1 billion for 2001/02 (up from €6.6 billion in 2000/01). The ‘big five’ (England, Italy, Spain, Germany and France) dominate - currently holding a 80% share, with the English Premiership having the largest individual share at 25%.

• Adding in lower divisions, federations and national teams, UEFA competitions etc. would bring the total ‘market’ to around €10 billion.

• The ‘big five’ leagues experienced mixed fortunes in terms of revenue growth. England (up to €1.7 billion) and Germany (who broke €1 billion for the first time) recorded very healthy increases of 21% and 19% respectively. Italy decreased (down 2%) and France experienced static revenues. Reliable Spanish information was not available to us.

• The 2001/02 growth rates meant the English Premiership built on an already substantial revenue gap to the next biggest league (Italy). The absolute gap now stands at over €600 million.

• The improved English Premiership TV deal in 2001/02 lifted England to the largest absolute broadcast income (from second behind Italy in 2000/01). This means the Premier League now heads the list in every income category (matchday, commercial and broadcasting revenues) -providing a significant competitive advantage to its member clubs.

• Outside the ‘big five’ leagues, income is still growing but absolute values are dwarfed by the ‘big five’.

• Wages again rose substantially. In the big leagues increases ranged from 6% in France to 26% in England. Only Germany recorded a percentage wages increase (17%) less than income growth (19%.) Wages /turnover ratios increased everywhere except Germany.

• The English Premiership was again European champion in terms of operating profits - generating €130 million in 2001/02 (up from €125 million). Germany again recorded very creditable operating profits of €100 million (€87 million in 2000/01), especially considering their much lower turnover. France, and particularly Italy, recorded sizeable operating losses.

• Italy returned a loss of €404 million - an increase from €216 million in 2000/01 - largely driven by static income and rising wages.

• The UEFA Champions League is the de facto sixth ‘big’ European league. Its estimated broadcasting income (distributed to participating clubs) of €420 million would rank it third among the ‘big five’ leagues, in terms of domestic broadcasting income. The competition’s average attendance in 2001/02 (of 34,361) was higher than any of the ‘big five’ domestic leagues.

Profitability of English Clubs

• The tenth anniversary of the Premiership highlights the fantastic income growth achieved during its existence. Turnover increased seven-fold from 1991/92 (the last year of the ‘old Division One) to GBP 1,132 million in 2001/02. We estimate that Premiership clubs’ income exceeded £1.25 billion in 2002/03.
• 2001/02 saw the 92 English clubs again generate fantastic turnover growth, increasing income by 26%, to a fraction short of GBP 1.6 billion.
• The majority of the absolute income increase came from the Premiership (up 21% - GBP 195 million); but the Football League (helped by a full-year of ITV Digital money) recorded a faster rate of increase to GBP 467 million (up 41%).
• In the Premier League, clubs reported operating profits of £84 million (2000/01 - GBP 81 million) - the highest since 1997/98 - with 83% of clubs making an operating profit. By contrast pre-tax losses grew dramatically from GBP 22 million to GBP 137 million and only 28% of clubs made a pre-tax profit.
• The Football League clubs’ ITV Digital monies helped them reduce their losses. Operating losses and pre-tax losses decreased by over GBP 90 million to GBP 45 million and GBP 66 million respectively.
• The improvement, when combined with the Premiership, was sufficient to result in an overall operating profit of GBP 39 million for England’s top 92 clubs, reversing a GBP 58 million operating loss in 2000/01.
• In total the 92 clubs reported a record pre-tax loss of GBP 204 million (GBP 179 million loss in 2000/01).
• The extra GBP 80 million distributed to the Premiership clubs (GBP 347 million paid out excluding parachute payments) under the first year of the new domestic broadcasting deal in 2001/02 (N.B. deal set to run to end of 2003/04) cemented broadcasting revenue’s status as being the single largest revenue stream - representing 42% of total income.
• The continued strong growth in commercial revenues saw it replace matchday income as the second largest revenue source - up 18% to GBP 335 million. Clubs continue to demonstrate a strong ability to develop new revenue streams (and enhance existing ones) beyond the traditional merchandising (estimated at GBP 90 million) and shirt front and kit sponsorship deals.
• Premiership matchday income still increased by 10% to GBP 322 million - driven by the seventh successive annual increase in average Premiership attendances (up 3%) and increased ticket yields.
• European football is a fourth major revenue stream. In a single season, a club getting to the Semi-Finals in the Champions League can earn as much as GBP 25 million from TV and gate receipts alone.
• Seven Premiership clubs had income of greater than GBP 50 million (2000/01 - six clubs), with the average Premiership club’s revenue up by GBP 9.7 million to GBP 56.6 million.
• The average Premiership club had income over four times greater than its Division One counterpart. Although this ‘gap’ has declined from five and a half times in 2000/01 - this is due to the ‘one-off’ effect of ITV Digital. We estimate the gap will increase again to about six times in 2002/03.
• The ‘May 2003 prize’ for winning promotion to the Premier League (even if the club ‘yo-yo’s’ straight back down) is around GBP 34 million - making the Division One play-off final ‘probably the richest club game in the world’.
• The top ten operating profits all came from Premiership clubs. Manchester United (GBP 34 million) again topped the table with profits double those of Newcastle United (GBP 15 million) in second place. Indeed over the ten years of the Premiership, Manchester United’s cumulative operating profits of GBP 229 million are over three times greater than their nearest rival - Tottenham Hotspur (GBP 74 million).
• In the 2001/02 season there were 32 clubs who reported operating profits - 15 Premiership and 17 Football League (2000/01: 18 clubs - 12 Premiership; 6 Football League)
  

Player Costs—Wages and Transfers

• Premiership clubs’ total wages and salaries (not just players) grew by 26% to GBP 706 million and now represent 62% of club income (up from 60% in 2000/01).
• The wages growth rate increased again from 2000/01 rates (when signs of deceleration appeared). In absolute terms the Premiership paid GBP 144 million more in wages and salaries than in 2000/01. But this is still GBP 51 million less than the increase in Premiership clubs’ income.
• The surplus of Premier League clubs’ income over total wages was at a record high of GBP 426 million (2000/01 - GBP 375 million).
• Total Football League clubs’ wages and salaries increased by 7% to GBP 342 million - a much lower growth rate than in recent years. The smallest increase was in Division One (3%), counterbalanced somewhat by Division Three (8%) and notably Division Two (18%). The very sizeable (41%) growth in revenue saw average wages/turnover ratios fall substantially in all three divisions. Division One’s fell from 101% to a more manageable, but still challenging, 72%.
• The Football League as a whole had an overall wages/turnover ratio of 73% - the lowest since 1996/97.
• Ten Premiership clubs reduced their wages/turnover ratio but eight suffered increases (two unavailable). 38 Football League clubs recorded decreases with only 10 increasing their ratios and one remaining constant (23 unavailable).
• Based on available information only two English clubs paid over 100% of turnover as wages (2000/01 - 16 clubs).
• The correlation between sporting performance and total wages and salary levels remains relatively strong in the Premiership. Five of the top six in the Premiership league table were ranked as the five highest wage-payers (as they were in 2000/01). However Bolton Wanderers, who paid the least (of those available) in the Premiership (and less than Manchester City in Division One), survived the drop despite relatively low levels of wages.
• 2001/02 saw the gap between the fifth highest wages payer (Leeds United at GBP 53.6 million) and the sixth (Tottenham Hotspur at GBP 36.6 million) increase to GBP 17 million compared to the equivalent gap (between fifth and sixth) of only GBP 9 million in 2000/01.
• Gross transfer spending in 2001/02 remained high at GBP 407 million - only 4% down from 2000/01’s record GBP 423 million.
• Of the GBP 407 million spent, GBP 323 million came from Premiership clubs and the balance of GBP 84 million from the Football League clubs (of which the majority again came from Division One.)
• The evidence suggests that the 2001/02 season will prove a watershed for the transfer market - and we will never see again the level of transfer spending seen over the last five years.
• Financial difficulties hit UK clubs and overseas leagues after the majority of spending in the 2001/02 season had taken place. Transfer spending is estimated to have fallen to around GBP 150 million for the 2002/03 season. The January 2003 transfer window spending by English clubs was estimated at only GBP 20-25 million.
• Transfers of players from non-English clubs (i.e. ‘imports’) for fees of GBP 238 million again outweighed transfers within English Leagues (GBP 169 million). The 7-year split (since Bosman) now shows GBP 1,107 million of non-English transfers compared to GBP 1,123 million of transfers within England.
• Of the GBP 169 million transfers between English clubs, a net GBP 18 million was re-distributed (or ‘trickled down’) to Football League clubs, a large majority of which (GBP 15.5 million) was retained by Division One clubs. Division Two benefited by net receipts of GBP 1.1 million and Division Three by GBP 1.4 million.
• Total payments in respect of players, in the seven years from 1995/96 to 2001/02 inclusive, were approaching GBP 4 billion and represent 56% of clubs’ total income over the period. Of that player expenditure 24% was on net transfer fees and 76% was on players’ wages.
• In terms of income, listed football agent companies are generally much smaller than the clubs they deal with - with football derived turnover broadly equivalent to a large Division Two club. However, unlike the majority of clubs, the agents manage to return healthy profits.

Stadium development

• English football clubs’ stadium expenditure in 2001/02 of GBP 191 million was only marginally down from 2000/01 record of GBP 195 million. The Premiership alone has now spent over GBP 1 billion since 1991/92 (i.e. an average of GBP 50 million per club). We expect total capital spending across all four divisions will exceed GBP 1.5 billion by next year - representing a fantastic investment in football’s infrastructure in the post-Taylor years.

• Unsurprisingly the majority of 2001/02 spending (GBP 144 million) was by Premiership clubs. This is the fifth successive year of GBP 100 million + stadium investment by Premiership clubs.

• Since 1994/95 three Premiership clubs - Manchester United, Chelsea, and Newcastle United - have each spent over GBP 100 million on facilities - representing a total investment of over GBP 350 million between them.

• Football League clubs invested GBP 47 million in stadia in 2001/02 - a sizeable increase from 2000/01 (GBP 35 million). It is heartening to see that despite their well-documented financial difficulties, the clubs continue to recognise the importance of their facilities in generating income. Total stadium investment in the past decade by Football League clubs now exceeds GBP 400 million.

• Total Premiership stadia capacity by the end of 2001/02 was just over 750,000.

• Total Premiership attendances increased for the sixth successive season in 2001/02 and the top division’s crowds exceeded 13 million for the first time since the 1977/78 season. The year on year growth was over 570,000. The average league match attendance was 34,324 - up by c.1,500 from 2000/01.

• The Football League’s overall crowd levels more than matched the Premiership’s success. Attendances rose to 14.7 million (8.5% up from the previous season) - and up 35% from 1992/93 (the creation of the Premiership). Clearly reports of the death of non-Premiership football have been exaggerated!

• Overall, league match attendances in all four divisions approached 27.8 million - the highest for 30 years.

• Average stadium utilisation in the Premiership remained above 90% - at 92.7%. This represented a fall of 1.5 percentage points from 2000/01, but is a function of attendance growth of 4.6% against capacity increases of 6.3%, i.e. growth in supply outstripped growth in demand. Every club had utilisation of over 80%, and 14 clubs had figures of over 90%. Despite this, we still estimate that there was GBP 22 million worth of empty Premier League seats in 2001/02.

• In the Football League, average capacity utilisation was 68% in Division One and 47% and 42% for Divisions Two and Three respectively. In Division One, utilisation varied from 97% for Manchester City to only 26% for Wimbledon. Only five Football League clubs utilised over 80% of capacity. Across the season as a whole, 12 million spectator spaces remained unfilled.

• Cup attendances continued their recent upward trend. FA Cup average attendances were up by 8.5% and Football League Cup gates increased by 12.2%.

• The Premiership remains the best-attended top division in European football. Its average crowd is 11% above its nearest rival - the German Bundesliga. Italy’s Serie A (whose average attendance fell by 11%) slips into third place, whilst average attendances in Spain have fluctuated around the same levels (20,000-25,000) for years. France - after a post World Cup boom - has settled back into fifth place. The Premiership is the only league to exhibit consistent growth in attendances in every season since the mid 1990’s.

Financing the Clubs

• Strong operational performance by the Premiership clubs enabled GBP 139 million of cash flow to be generated from day to day activities. After net transfer expenditure of GBP 177 million, a net trading cashflow deficit of GBP 38 million required funding (GBP 68 million deficit in 2000/01).

• A net increase in borrowing (GBP 193 million) covered the trading deficit and helped fund investment of GBP 134 million in stadia/facilities and payments to investors (GBP 11 million) and finance providers (GBP 30 million interest payments).

• Premiership clubs continue to use ‘alternative’ financing mechanisms - such as specialised player financing and securitisation - to supplement traditional finance sources. This led to debt within the ‘Other Loans’ classification increasing to GBP 458 million at the end of the 2001/02 season (from GBP 284 million in 2000/01).

• There was GBP 1.1 billion of ‘Capital Employed’ in the Premiership at summer 2002. Only 11% was from bank borrowings. Total borrowings were GBP 599 million (55%) - leaving the overall gearing ratio at 120% (up from 60%).

• Football League Division One clubs funded a trading cashflow deficit of GBP 41 million and stadium expenditure of GBP 24 million from new shareholder investment (GBP 13 million), new borrowings (GBP 14 million) and increased working capital (GBP 38 million).

• The Division One clubs, at the end of the 2001/02 season, had GBP 208 million of ‘Capital Employed’. The banks provided 38% of this. Total borrowings were GBP 171 million, giving a gearing ratio of 467% (1098% in 2000/01); but, much of the borrowings figure (40%) represents ‘soft loans’ from shareholders/directors and benefactors.

• The top ten clubs, with the highest net assets, (totalling GBP 570 million) represented 112% of the net balance sheet values of all 69 clubs with results available to us.

• 27 clubs filed balance sheets with overall net liabilities (2000/01 - 28 clubs).

• There were GBP 626 million (2000/01 - GBP 528 million) of Premiership clubs players’ registrations on the balance sheet at summer 2002 - representing 125% of those clubs’ total net asset values.

• The Football League clubs’ players’ registrations balance sheet values at GBP 105 million (almost 60% of that total at just four clubs - Birmingham City, Coventry City, Manchester City and Wolverhampton Wanderers.)

The 2002/03 Season—Interim Results

• The average listed Premiership club’s 2002/03 half-year income increased by 12% - supporting our forecast that 2002/03 total Premiership income will have exceeded GBP 1.25 billion.

• The main growth was from stepped increases built into the current BSkyB domestic broadcasting deal. Matchday and commercial revenues also increased, albeit by smaller percentages.

• Much of the increase in income has leaked out in costs - notably wages, which the figures suggest increased by around 15%. Clubs did manage to retain almost 30% of the incremental revenues boosting average operating profits by over GBP 1 million.

• Pre-tax profits for Premiership clubs slumped from average interim profits of GBP 0.7 million in 2001/2002 into losses of GBP 3.3 million in 2002/03.

• The main reason for decreased profits is higher amortisation charges from players’ registrations coupled with significantly lower profits on disposal of players’ registrations. Clubs are less able to rely on transfer income to convert operating losses to pre-tax profits.

• Decreased broadcasting income contributed to reduced income (down 33%) for listed Division One clubs. This fed through into deteriorating profitability - operating losses increasing by 173% and pre-tax losses by 227% in 2002/03 relative to 2001/02 interims.

Taxation

The football industry continued to generate very substantial tax receipts for the government. Clubs paid an estimated GBP 536 million in tax (PAYE, National Insurance, VAT and corporation tax) in 2001/02. This is up 21% (GBP 93 million) from 2000/01 and 67% up from 1998/99.