Football revenues set to double, says Deloitte & Touche


16-08-2000

English football's income rose by 10% to 951 million in 1998/99, suggesting that - when results are in from the 1999/00 season - the income of the 92 professional clubs will easily top the 1 billion mark.

Money from the recent TV deals will see income soaring even higher, according to sports business consultants .



In terms of operating profit - the financial result of the day to day running of the clubs before transfer fees and financing costs - the magic number is 69. This is the amount in millions that the 20 Premier League clubs recorded in operating profits and the amount reported in operating losses by the 72 clubs in The Football League. Overall the 92 clubs broke even - but the gap between the leagues was 138 million.



Premier League clubs - due to an increase of 55 million in transfer spending - reported a reduced pre-tax profit of 13.6 million. Unfortunately for The Football League, the 1998/99 season saw its losses grow further - by 45% - to 75 million.



'English football has come of age commercially with another impressive year. Income is up 85 million. But, football clubs continue to spend the increases on transfer fees, in particular, and wages,' says Richard Knights, senior partner at Deloitte & Touche in Cambridge. 'With the recently agreed broadcasting rights deals set to bring 2.4 billion of revenue into the game over the next four years, the challenge for clubs will be to manage their money sensibly and ensure that some of it goes on strengthening business infrastructure rather than straight into the players' pockets. This would generate a stronger professional game in England.'



Turnover grew significantly for the Premier League (up 15%), Division Two (25%), and Division Three grew by 16%. Division One dropped (13%) with the loss of big clubs both downwards and upwards. This represents an increase of 10% in overall turnover but against a rise in the total bill for wages and salaries of 18%, and a jump of 89 million in transfer spending.



Seven out of every ten Premier League clubs recorded operating profits in the 1998/99 season, contrasted with nine out of every ten Football League clubs making operating losses. Ever higher wage demands in The Football League place increasing pressure on clubs. And outside the Premiership only five Football League clubs made an operating profit.



'Turning to wages, 80% of all clubs now have a wage bill exceeding two thirds of their income, compared to 60% in 1995/96 (the first time we looked at that aspect). Only four clubs have wages to turnover ratios of 50% or less.'



'These are worrying signs,' says Mr Knights. 'Wage restraint, or more importantly managing the costs against incomes, is now more critical than ever before. Provided a club's Board and management team is approaching the task in a sensible, business-like manner then fans, journalists and everybody else involved in club football should seek to support the chairmen and managers in this increasingly difficult task. It also has to be said that the real 'stars', the consummate entertainers, are worth the 'top dollar' salaries they receive.'



In the 1998/99 season overall, English clubs spent an unprecedented total of 316.9 million (compared with 227.9 million the previous year) on transfers. The flow of transfer money to overseas clubs has increased this year to 142.2 million from 70 million, and money spent by the Premier League on transfers from the lower divisions provided a net cash flow to The Football League of 27.5 million (compared to 1.5 million for the 1997/98 season). Transfers between English clubs are up 9% from 160 million to 174.7 million, mainly due to large increases in spending by Premier League clubs.



'The average Premier League club is now five times as large as its Division One counterpart. Promotion to the Premiership brings clubs ever greater rewards and is still the 'holy grail' for all football clubs. On today's economics, that is estimated to bring an increase in revenues of approximately 12 million over Division One's figures. Most of this increase is attributable to TV revenues. With the recent deals, this promotion effect is likely to increase to about 25 million in 2002/3,' says Mr Knights.



'But too many clubs over-extending themselves in pursuit of one of the three coveted spots in the Premier League on offer each year cannot result in a healthy situation for football. This is the major problem in Division One, and at a number of other clubs'.



At a league level, in 2001/2002, Deloitte & Touche Sport is predicting Premier League turnover of 1.3 billion (up 630 million on 1998/99), and Football League turnover of 500 million (up 219 million on 1998/99). Both Leagues will have almost doubled in size, but the income gap at league level will then be a phenomenal 800 million per year.



'The shot in the arm from the new TV deals paradoxically presents many clubs with a predicament. Can the clubs hold onto the windfall or will it trickle through their fingers into the bank accounts of overseas clubs or the pockets of the players?' asks Mr Knights.



'It remains to be seen whether the new Football League television and internet deals (estimated to be worth approximately 3.5 million per annum per club in Division One, compared to 1 million before) will radically alter Football League economics. In 1998/99 only 23% of Football League clubs were profitable. Will the new deals relieve the pressure on them to sell their best players? Will they result in more Football League clubs being profitable? Or will the extra money be spent on the pursuit of Premier League or other glory?'



'The new TV (and internet) deals offer Football League clubs a once-in-a-lifetime opportunity to stabilise their financial condition - to create a football business model that can demonstrate break-even or, dare we hope for it, profitability on a sustainable basis,' added Mr Knights. 'It will no longer, then, be quite such a desperate struggle to climb out of Division One - and remaining there might realistically (and sensibly for many) represent the pinnacle of ambition for a large number of clubs. We just hope that this opportunity is taken - we fear it will not be!'

 

The Deloitte Cambridge office comprises 8 Partners and over 250 staff who deliver a full range of professional services to the East Anglian region. As well as focussing on the life sciences and technology sectors for which the region has become so renowned, the office has long standing specialisms in other sectors including the professions, consumer business, food and agribusiness.

Deloitte LLP