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Deloitte Annual

Deloitte Annual Review of Football Finance 2013

Published in Sports Management 2013 issue 2
Read on turning pages | Download PDF of this issue
With Premier League operating profits at their highest level for four years, English football continues to flourish economically / PIC: © .shutterstock.com
With Premier League operating profits at their highest level for four years, English football continues to flourish economically/ PIC: © .shutterstock.com

For more than 20 years, through its research report, the Annual Review of Football Finance, the Sports Business Group at Deloitte has documented clubs’ business and commercial performance, striving to provide the most comprehensive picture possible of English professional football’s finances, with analysis provided within the context of the prevailing regulatory environment and the wider European game.

The report provides an in-depth appraisal of football’s finances, including an assessment of the scale of the overall European football market, hot topics facing the football industry, analysis of revenue and profitability, investigation of the trends in wages and transfers, assessment of stadium development and venue operations, identification of key developments in club financing, as well as a comprehensive databook.

Revenue & profitability
This article assesses some of the key developments in revenue and profitability within the context of an overall domestic market where the 92 top professional clubs in English football collectively edged total revenue over £3bn for the first time in 2011-12, after relatively modest revenue growth of 5 per cent.

The combined revenue of the 20 Premier League clubs increased by 4 per cent to almost £2.4bn (2010-11: £2.3bn), with another year of impressive commercial revenue growth, largely focussed among the highest ranked Premier League clubs, and relatively stable matchday and broadcast revenues.

Premier League operating profits went back up towards £100m and were at their highest level for four years. Two contrasting movements resulted in the £25m increase, being a £109m reduction in the combined operating losses of Manchester City and Chelsea but decreased operating profits at many other clubs, including some caused by clubs’ early exit from European competitions.

Only two other clubs which had participated in the Premier League in 2010-11 improved their operating profitability.

Nonetheless in the 14 years since 1997-98, while revenue grew by £1,778m, operating profits have grown by just £2m. Only half of the Premier League clubs make an operating profit.

While the Premier League clubs overall generated an operating profit in 2011/12, once player trading is accounted for they made a loss of £183m. Taking account of interest and other income/taxes and exceptional items, the Premier League recorded a pre-tax loss of £245m (2010-11: £375m).

For a second successive year, the pre-tax losses for Premier League clubs have decreased and are now at their lowest level since 2005-06 and while the Premier League at least converted some of its increase in revenue into operating profit, the Football League was unable to follow suit. Despite strong revenue growth of 8 per cent, its operating losses grew by 11 per cent to £216m – a record level.

Broadcasting
Premier League broadcast revenue increased by £11m (1 per cent) to £1,189m in 2011-12. This was the second year of its three year broadcast cycle and little underlying growth was expected following the £138m (13 per cent) increase in broadcast revenue in 2010-11.

The top-to-bottom earnings ratio of Premier League clubs in respect of central domestic league distributions was 1.55:1. The ratio is lower than in other top European leagues, where the estimated equivalent ratios are 12:1 in La Liga, 4:1 in Serie A, 4:1 in Ligue 1 and 2:1 in the Bundesliga. Broadcast revenue accounted for 50 per cent of total Premier League revenue in 2011-12. It will remain broadly at this proportion for a sixth successive season in 2012-13 before rising to record levels of around 55 per cent in 2013-14, when revenue from the new broadcast deals flows to clubs. The average Premier League club will receive around £25m more in central TV distributions from 2013-14 than they have in 2012/13 with the lowest placed Premier League club at the end of the 2013-14 season receiving around £60m, and the champions around £95m.

Commercial
Of the three revenue sources, commercial revenue was the main area of growth in 2011-12, increasing by £80m (15 per cent) to £624m. The two Manchester clubs delivered the majority of this increase with Manchester City up £54m and Manchester United up £14m. The other four ‘big six’ clubs – Arsenal, Chelsea, Liverpool and Tottenham Hotspur – all increased their commercial revenue in 2011-12. The combined £21m increase demonstrates continued global demand for association with the top Premier League clubs.

Outside the ‘big six’ clubs, only the three promoted clubs and Wigan Athletic grew commercial revenue in 2011-12, highlighting the challenge for those Premier League clubs without significant global profile when it comes to upwardly negotiating deals or extending the range of their commercial partners.

Matchday
Matchday revenue decreased marginally to £547m in 2011-12. This is only the second time Premier League matchday revenue has gone down since we started analysing revenues across the three streams in 1996-97.

Attendances across the Premier League in 2011-12 were marginally down on 2010-11 and the economic climate continues to challenge clubs to be prudent in setting ticket prices and exerting pressure on the corporate hospitality market.

At 23 per cent of total Premier League revenue, matchday revenue is now the smallest of the three revenue categories and looks set to remain so for the foreseeable future. From 2013/14 and the first year of the new round of broadcast deals, this revenue is forecast to contribute less than 2 per cent to the total – compared with 48 per cent in 91/92, the season before the Premier League started. Nonetheless, the Premier League clubs’ matchday revenue will still be the highest in Europe in absolute terms.

Revenue profiles
Average revenue per Premier League club in 2011-12 was £118m (2010-11: £114m), split between matchday (£27m), broadcast (£60m) and commercial (£31m) revenue streams.

This simple average masks the significant polarisation that exists between different groups of clubs in the division.

The four clubs competing in the Champions League (Arsenal, Chelsea, Manchester City and Manchester United) and two others – Liverpool and Tottenham Hotspur – had average revenue of £230m between them in 2011-12 – over three times the average revenue (£70m) of the other 14 clubs in the Premier League. Qualification for the Champions League remains a key revenue diferentiator among the top Premier League clubs, effectively guaranteeing them at least £30m in additional revenue from UEFA distributions and associated matchday and commercial uplifts.

The average revenue of clubs in the Championship was £20m in 2011-12. This was made up of an average of nearly £30m for the seven clubs which were in receipt of parachute payments and £16m for those who were not.

Looking forward
2012/13 is expected to see another year of modest revenue growth in the Premier League. Three things are driving this: sizeable increases in the commercial revenues at some clubs; increased attendances and improved matchday revenue from the change in club mix within the Premier League; and modest growth from broadcast deals. These changes are expected to take revenues up to nearly £2.5bn.

The bigger story is the substantially increased revenue accruing to clubs as a result of the new broadcast deals from the start of the 2013/14 season. The total value of the new broadcast rights packages, including domestic and overseas rights is around £5.5 billion – over 50 per cent higher than the value of the previous set of deals (£3.6 billion). This uplift in revenue is expected to be accompanied by further substantial increases in some clubs’ commercial revenues and modest matchday revenue growth.

The wider economic situation seems likely to put pressure on some of football’s revenue sources for a number of years to come, but for Premier League clubs the immediate future is bright, as they stand to benefit from the substantial uplift in broadcast revenue.

This revenue injection provides the opportunity for Premier League clubs to address their current low operating profits and substantial pre-tax losses and move onto a more sustainable footing. Historically, increases in broadcast revenues have been largely spent on player costs, however, this time the break-even requirement in respect of UEFA’s Financial Fair Play Regulations, as well as the Premier League’s own enhanced regulations aimed at controlling salary inflation and rationalising losses, raises the prospect of a different result.

The increase in the Championship’s operating loss in 2011/12 suggests the introduction of The Football Leagues’ Financial Fair Play Rules is a necessary step to change clubs’ behaviour in respect of spending on players.

The application of sanctions in respect of the clubs’ results from 2013/14 should focus the minds of a number of clubs who are making heavy losses. There is clearly still much to be done.

This article is a précis of a more comprehensive analysis of revenue and profitability which is contained within the Deloitte Annual Review of Football Finance 2013. Visit the website at www.deloitte.co.uk/sportsbusinessgroup to access and download your free copy of the report’s highlights or to purchase a copy of the full report.

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