Business

Premier League wages keep on rising, Deloitte says

  • 9 June 2011
  • From the section Business
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The proportion of income that Premier League clubs spend on wages hit a record 68% in 2009-10, a report into football finances by Deloitte says.

While Manchester United spent 46% of its revenue on pay, rivals Manchester City splashed out a massive 107%.

Chelsea again topped the wages bill, as they have done every season since 2002-03, at £174m.

"This new high is worrying, something Uefa's financial fair play rules should address," said Deloitte's Dan Jones.

It comes as the Deloitte report shows Premier League revenues increased by 2% to exceed £2bn for the first time in the 2009-10 season.

'Middle tier'

Mr Jones said there were signs of wage discipline in clubs near the bottom of the Premier League, while those near the top earned such large revenues that it helped them keep the wage ratios down.

"The problem is with the middle tier of clubs, those who are neither chasing a Uefa place or facing relegation," said Mr Jones.

"And of course Manchester City and Chelsea are going to need to get wages under control for the financial fair play rules."

Meanwhile, Championship clubs are set to introduce their own financial fair play system.

Football League chairman Greg Clarke says Championship clubs have voted in principle to match Uefa's break-even rules.

There is also a proposal that League One clubs move towards the introduction of the salary cap currently in force in League Two, where teams can spend a maximum of 60% of their turnover on wages.

The Uefa system - which will affect clubs in European competition from 2014 - encourages football teams to balance revenues and costs.

It starts taking account of clubs' finances from next season.

To obtain a Uefa licence to play in the Champions League or Europa League, a club has to meet those break-even financial requirements.

'Business challenge'

"While football's revenue performance has been spectacular, sustainably managing its costs remains football's primary business challenge," Mr Jones said.

The "relentless growth in wages" has resulted in operating margins in the top division falling from 16% to 4% over the lifetime of the Premier League.

And other challenges remain - including debt, warnings from the government about football governance, and continued interest from tax and revenue authorities.

Meanwhile, the overall operating losses for the top four divisions in England now outstrip the Premier League's profits.

The 92 league clubs as a whole lose money on their day-to-day operations - and at the pre-tax level, losses have continued to grow, hitting £600m in 2009-10.

Collective club debts now stand at around £3.5bn.

On the wider European picture, each of the "big five" leagues - England, Germany, Italy, Spain and France - increased total revenues to record levels in 2009-10, reporting collective revenue of 8.4bn euros (£7.5bn).

'Credit challenge'

There are many challenges in the divisions below the Premier League, where Deloitte says the Championship is "a league of real contrasts".

Relegated clubs from the top tier receive the financial cushion of parachute payments, but many others in their league are feeling the pain of the tough financial environment.

Matchday and commercial revenues are already reducing, and from 2012-13 the value of the new domestic TV deal will be about a quarter less than the present one.

"Given the ongoing debt situation, and with credit continuing to be a major challenge, clubs will need to quickly adapt to their prospective trading environment," says Mr Jones.

Down the decades, the report observes, there have been many football funding models - investment from the City, then media companies, and now many clubs are owned by wealthy individuals.

"A 'trophy asset' model - requiring ongoing investment in losses and delivering returns only in the form of capital growth on changes of ownership - remains prevalent as competitive pressure to win outweighs any desire to limit wage costs," it adds.

However, the report says that professional football has proved itself to be robust - having in the past decade overcome the collapse of ITV Digital and Setanta, as well as coming through the recent economic downturn.

In fact, no Football League club has gone out of business since Maidstone in 1992.

"Despite the challenges, English football has never been so popular," says Mr Jones.

"Football clubs elsewhere in the world would no doubt be glad to trade their position for those of similar-sized English clubs, while other domestic sports look at football enviously."

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