Clubs warned as profits plunge to an 11-year low
ENGLISH football has been told to take “corrective action” after operating profits in the Premier League plunged to the lowest levels for more than a decade despite ever-increasing revenue.
Operating profit in the top flight fell to £68m for the 2010-11 season, down £117m from its 2007-08 peak and the smallest figure since 1999-2000, according to research published today by advisory firm Deloitte.
Concerns have also been raised that operating margins, which stood at 16 per cent when the Premier League began in 1992-93, have been slashed to three per cent, the annual review of football finance found.
Wages to turnover ratio, seen as a reliable measure of football’s financial health, has “risen sharply”, the report notes, and reached an all-time high of 70 per cent, while the overall financial picture is even bleaker in lower divisions.
“Certainly it’s clear quite a number of clubs need to take corrective action,” Deloitte’s Alan Switzer told City A.M. “The Premier League continued to do well in terms of generating revenue, but on the cost side there is an amount of work to do, definitely.”
The struggle of Premier League clubs to break even – only 11 of 20 recorded a profit – comes despite revenues increasing 12 per cent to €2.5bn (£2.3bn), a bigger local currency growth than any of the other big five European divisions of Germany, Spain, Italy and France.
Income from broadcasting rights grew 13 per cent, thanks to a lucrative new overseas TV deal, while commercial earnings swelled by 18 per cent, although largely due to the efforts of Manchester United, Liverpool and Manchester City.
But clubs failed to take advantage of the extra earnings, 80 per cent of that £241m growth being swallowed up by a major increase in wage costs, with a 14 per cent rise in the top flight total from £1.4bn to £1.6bn.
That failure to control costs dragged operating profit down from £84m to £68m, the first time it has fallen in the first year of a new broadcast deal, which typically acts as a boon to clubs’ financial health. Only once, in 1999-2000, has the figure been so low since 1995-96.
The aggregate figure does not illustrate the vast gulf between the biggest operating profits of United (£100m) and the most extreme losses of City (£82m), who have spent extravagantly to sign stars such as midfielder Yaya Toure.
“We were disappointed that just as much of the additional revenue generated by Premier League clubs has been paid out in wages,” added Switzer, who said there was surprise at the poor figures given looming European and domestic financial fair play rules designed to force clubs to break even.
The operating margin of three per cent is described as “wafer thin” by Deloitte’s Dan Jones, who warns that some clubs’ revenues could decline and the majority of top-flight sides may post losses next season.
“It is not unrealistic to foresee a levelling out of Premier League clubs’ revenue in the short term, and potentially even a decline for some clubs in our next couple of [annual] editions,” writes Jones.
Noting that operating profit typically decreases over the length of a broadcast rights contract, Jones adds: “If this trend is repeated we could see Premier League operating profits fall to levels comparable with those seen in the league’s infancy and a majority of Premier League clubs reporting losses.”
Deloitte note that Championship and Football League clubs face “more immediate challenges”, with operational expenditure in the second tier 30 per cent greater than revenues. “Clearly an unsustainable position,” says Jones, who edited the report.