|Soccer Rides Out Recession, But Doesn’t Control Costs|
|Written by Wyn Grant|
|Tuesday, 05 June 2012 20:00|
The publication of the annual review of football finance by Deloitte Sports Business is always a major event for those interested in the business side of football. The latest review shows that, against a very difficult economic background, Premiership clubs have boosted revenues, showing the continuing appeal of the competition.
The downside is that clubs do not appear to be keeping their costs under control as they compete for Champions League places or even to avoid relegation. Operating profits are down and reducing outgoings will become a greater imperative as Uefa's financial fair play regulations start to come into operation (although I retain doubts about how far they will want or be able to push them given the possibility of a legal challenge).
Premier League clubs' revenues increased by 12 per cent in 2101/11, driven by broadcast revenue increasing by 13 per cent to £1.178m in the first year of a new three year broadcast cycle. However, more than 80 per cent of the Premier League clubs' revenue increase was spent on wages which increased by £201m (14 per cent) to almost £1.6 billion. This resulted in a record and worrying Premier League wages/revenue ratio of 70 per cent.
Operating profits reduced by £16m (98 per cent) to £68m in 2010/11 and combined pre-tax losses were £380m. Gross transfer spending by Premier League clubs increased by £210m (38 per cent to a record level of £769m. The challenge for clubs remains transferring impressive revenue growth into sustainable profits.
The review also points out the achievements of the Football League are sometimes overlooked, although there also grounds for concern at this level.
Revenue in the Football League Championship increased by £17m (4%) to £423m, prompted by an increase in the solidarity payments from the Premier League and the promotion of some larger clubs into the division.
Alan Switzer, Director in the Sports Business Group at Deloitte, commented: “The Football League’s achievement in attracting fans and growing revenues is often overlooked. The Championship is the fourth best attended League in Europe, ahead of the top divisions in Italy and France.
“Whilst Championship revenues have held up well, a wages/revenue ratio of 90%, combined operating losses of £130m and record pre-tax losses of £189m, are a cause for concern. It is therefore encouraging that in April 2012 Championship clubs agreed to the implementation of new financial fair play regulations that aim to help clubs reduce the level of annual losses.”
In Europe as a whole, the Premier League remains the biggest income earner but the Bundesliga remains the most profitable competition. Here are some other highlights from the Deloitte report:
Of the £2.4 billion net debt in the Premier League, 62% (£1.5 billion) is in the form of non-interest bearing ‘soft loans’, of which almost 90% relates to three clubs - Chelsea (£819m), Newcastle United (£277m) and Fulham (£200m). On the positive side of the balance sheet, Premier League clubs recorded a carrying value of tangible fixed assets of almost £1.9 billion, reflecting the huge investment in facilities seen over the past two decades and a carrying value of player registrations.
In Scotland the saga of Rangers continues on a one step forward two steps backwards basis, although it is hoped that the club will be out of administration by July. The club got the damaging transfer ban quashed by the courts on the grounds that it was not in the permitted list of sanctions. However, Fifa does not like its national associations being to talk, arguing that such matters should be settled within ‘the world of football’ as if it is not part of a wider society and subject to its laws. Fifa is now pressing for other harsh sanctions such as a big points deduction or expulsion from the Scottish Cup.
Finally, the story that has, for some reason, attracted more hits on www.footballeconomy.com than any since the site started. A mystery American consortium may make a bid for Leeds United. They are understood to have toured Elland Road and the Thorpe Acre training facility last week.
Leeds finished 14th in the Championship last season and supporters voted with their feet as the average home attendance fell by more than 4,000. Fans consider that the club has been languishing in the Championship for too long and would welcome solid new investment that would underwrite a sustained bid for promotion.
Leeds have been financially stable since their insolvency in 2007 but the need for an injection of cash at Elland Road appeared to be underlined by the club's recent failure to sign Joel Ward from Portsmouth. The club's administrators wanted £400,000 for him and he ended up going to Crystal Palace.
No one is sure who the potential bidders are. There have been rumors of a consortium from the Middle East, but it seems that the interest comes from Chicago. Club 9 Sports, who made an unsuccessful bid for Sheffield Wednesday in 2010, have ruled themselves out.
One possibility is Thomas S Ricketts who owns the Cubs, a top baseball outfit. He is already a major shareholder at Derby County and may feel that the time has come to own his own club as a more visible trophy. He is an investment banker and his family is worth $1bn so he would not be short of funds.
Leeds United are an attractive proposition as a stand alone club in a major city, but they do not own their ground or their training facility. Ken Bates currently has a 72.85 per cent stake in Leeds and one question is whether he would be prepared to sell at a realistic price to a serious bidder. We shall have to wait and see.
Wyn Grant is a regular contributor to Albion Road and also the publisher of footballeconomy.com, a website covering the business and economy of the game of football.