Roar power Annual Review of Football Finance 2018 Sports Business Group June 2018 A Annual Review of Football Finance 2017 | Section title goes here

The financial results for the 2016/17 season may well be viewed in the future as the defining moment in the delivery of sustained profitability by football clubs competing in the Premier League.

B Annual Review of Football Finance 2018 | Contents

Contents

Foreword 02 Edited by Dan Jones Delivering results worldwide 04 Sub-editors The leading team in the business of sport 06 Timothy Bridge, Matthew Green

Europe’s premier leagues 08 Authors Michael Barnard, Matt Dwyer, Jake Wilson Deloitte Football Intelligence Tool 14 and Christopher Winn

Premier League clubs 16 Sports Business Group Telephone: +44 (0)161 455 8787 Under my umbrella 22 PO Box 500, 2 Hardman Street, Manchester, M60 2AT, UK E-mail: [email protected] Finding the leading edge 23 www.deloitte.co.uk/sportsbusinessgroup

Football League clubs 24 June 2018 Player transfers 28 Fields of dreams 29 Stadia 30 Please visit our website at Moore’s Law 32 www.deloitte.co.uk/arff to download a copy of the full report and to purchase the Databook.

Our 32 page Databook includes over 8,000 data items on the various topics covered in this report, prepared on the basis of our specialist and long-established methodologies. It is available to purchase for £1,000 from www.deloitte.co.uk/arff

01 Annual Review of Football Finance 2018 | Foreword

Roar power

Welcome to the Annual Review of Football Finance 2018, the Top level football and the live, unscripted drama league clubs entering insolvency proceedings publication that remains the most comprehensive analysis of it delivers, remains the premium content that for over five years and our consistent reporting broadcasters wish to acquire and amid changing of improved financial stability and profitability the financial trends in, and prospects for, the football industry. consumer habits and fragmentation that are for that period, we hope that the developing impacting the entire entertainment industry, financial maturity of the football industry will the Premier League has once again shown its soon be more widely recognised. This 27th edition follows a similar structure decade ago when 60% of the Premier League’s resilience and strength by retaining the vast to previous years in outlining the key clubs were making operating losses and the vast majority of its audience and value. Indeed, once This new era of profitability alongside the high developments across European football, but majority of any revenue increases were being the sales process for the remaining domestic quality of football strengthens the opportunity the storyline that flows through has changed paid out in wages, prompting concerns over and international rights is completed, we expect for the Premier League and its clubs to have a somewhat. The phenomenal growth of the long-term financial sustainability. the league will have delivered overall increases huge influence upon their local communities English Premier League, capped by its financial in television revenue. and more widely around the world. The Premier record breaking 2016/17 season, seems to Whilst the impact of the record broadcasting League currently supports not only the 20 have at last delivered a consistently profitable arrangements for the Premier League cannot be Whilst the ‘big six’ tighten their grip on the top clubs but also the 72 Football League and 68 picture for top tier clubs and more signs of underestimated and the increase in rights value of the table, on any given weekend the matches National League clubs to deliver community long-term financial sustainability for those in the across the past two cycles is the primary factor remain as competitive and exciting as ever. This programmes, which have been praised for the Football League. behind the growth in revenue, the benefit to was demonstrated by the fact that the leading impact they make. clubs’ finances of operating in an appropriately revenue generating club in world football, regulated environment, via UEFA Financial Manchester United, were defeated by all three Continued growth will further boost the King of the jungle Fair Play regulations and the Premier League’s promoted clubs during the 2017/18 season. It is financial contribution to deliver high-class The financial results for the 2016/17 season fully cost control measures is equally evident. The this unpredictability that appeals so strongly to football facilities in communities and schools, affirmed the English Premier League’s position financial position of the clubs competing in the broadcasters and other commercial partners. whilst promoting the connection between the as the market leader, with record revenue Premier League on a consistent basis currently Premier League and future fans for the long- generated of £4.5 billion, as every one of the 20 suggests that profitable performance and The combination of financial success and stability, term benefits of the clubs themselves and the clubs set their own personal annual revenue strengthening balance sheets, that looked so and the global popularity of the competition reputation of the competition. record. impossible a decade ago, are now the norm. makes the Premier League an increasingly attractive asset to investors, offering a financial With revenue growth outpacing the growth in The recent announcement that the Premier return alongside the thrill and excitement of You got to put your behind in your past the wage bill, no clubs reported an operating League’s domestic rights selling process for owning a major football club. Nonetheless, we Below the Premier League, the desire of clubs loss and only one reported a wages/revenue 2019/20 – 2021/22 did not deliver the uplift that still sense in the market a hesitance amongst competing in the Championship to benefit from ratio above the UEFA guideline for a club’s followers have become accustomed to over traditional financial institutions to accept that the potential financial windfall of promotion financial health of 70%. It is a far cry from a recent years should not be a cause for concern. the landscape has changed. With no football remains unwavering. Whilst the Championship

02 Annual Review of Football Finance 2018 | Foreword

those in receipt, and those not, of parachute Germany’s Bundesliga will see growth The circle of life payments. The key concern remains that from 2017/18 as a result of new broadcast I’d like to thank all of those that have financial disparity will in the future translate to arrangements but their opportunity to close contributed to this year’s edition of the Annual more predictable on-pitch performances. If this the gap on the Premier League may well rely Review of Football Finance from across the were to become the case, then it may well be on their, and their clubs’, ability to innovate football world and to say thanks to all former less attractive for many Championship clubs to and have the first mover advantage as new colleagues who have made it such a huge push for promotion in the future. Championship revenue generating opportunities arise. This success in the past and now work in a variety of club owners will doubtless be heartened by the will be particularly crucial given the recent exciting roles across the sports industry. I am success of clubs such as Burnley, Bournemouth announcement that German clubs voted against very grateful to my colleagues who have written and Huddersfield in securing and retaining any changes to the 50+1 ownership model that this year’s edition and Henry Wong for his “This new era of profitability Premier League status. Notably, the 2017/18 effectively retains fan control and rules out design expertise. alongside the high quality season saw no ‘yo-yo’ effect among either the the significant owner investment seen in other promoted or relegated clubs from 2016/17. countries. Deloitte is proud to support the Green Ribbon of football strengthens the Campaign, helping to #endthestigma of mental opportunity for the Premier Further down the English football pyramid, health, an issue that impacts the football League 1 and League 2 are together financially Being brave doesn’t mean you go looking community in the same way as any other. League and its clubs to have bigger than ever before and comfortably the for trouble a huge influence upon their biggest leagues at that level anywhere in the Changes to both the financial distribution We hope you enjoy this edition. world. The cost control measures that have mechanism and the format of the qualification local communities and more been implemented by the Football League are process for the UEFA Champions League from Dan Jones, Partner widely around the world.“ a further clear example of the positive impact 2018/19 will alter the footballing landscape in www.deloitte.co.uk/sportsbusinessgroup that financial regulations can have. Europe slightly but the rumoured FIFA led wider changes in global club football could have a much more significant impact. is the biggest second tier competition in world You can either run from it, or learn from it football, generating more revenue than it ever More widely, whilst growth was achieved across Such change to the structure of club football has before, club owners and management all of Europe’s ‘big five’ leagues, none of the requires careful consideration and detailed have on the whole taken the decision to stretch Premier League’s competitors could match the assessment by football’s governing bodies, themselves financially to gain promotion and pace, and the challenge now rests with them as whilst the initial financial boost of a new this is the driver of the traditionally significant to try and close the gap, in revenue terms, in tournament or format could be substantial, the operating losses and high wages to revenue ratio. the coming years. Spain’s La Liga is already long term popularity and sustainability of the benefitting from its move to collective rights current calendar should not be undervalued. The operating losses of the Championship are selling and has publicly stated its ambition and The development of football in the future once again at record levels, in part driven by intent to significantly increase broadcasting remains something that we are excited to track. the financial results of Newcastle United, who revenue. We expect that Spain will see the We hope to continue to make the Deloitte maintained a wage bill comparable with Premier fastest rate of revenue growth in the next Annual Review of Football Finance a guide on League clubs. At a revenue level, the Premier few years and with the tight financial controls that journey. League broadcast arrangements have also that Spanish clubs now operate under, we’d impacted the Championship with there now expect that this will also translate to continued being a more significant differentiation between profitability.

03 Annual Review of Football Finance 2018 | Sports Business Group

Delivering results worldwide

Deloitte has a unique focus on the sports sector, led from Various strategic projects Economic impact study the UK and operating across the world. Our experience, Continuing assistance to the Assessment of the Economic British Olympic Association Impact of the Irish Breeding long-standing relationships and understanding of the through to the Tokyo Olympic and Racing Industry. industry mean we bring valuable expertise to any project Games 2020. from day one.

For more than a quarter of a century, across Deloitte are also audit and tax advisers to many Consulting services Strategic business plan over 40 countries, we have worked with more sports businesses. Assistance to the Association Support in the development of organisations in sport than any other advisers. of Tennis Professionals across the strategic plan for the club’s Our specialist Sports Business Group at Deloitte For further details on how Deloitte can add a range of strategic topics. inaugural Indian Super League provides: value to your project and your business, season and long term future. visit our website www.deloitte.co.uk/ • Business planning sportsbusinessgroup • Revenue enhancement and cost control • Market analysis and benchmarking Telephone: +44 (0)161 455 8787 Business plan development Strategic plan • Strategic review Email: [email protected] Development of a strategic Assistance in the creation of a • Economic impact studies business plan for the six year strategic plan. • Venue feasibility and development services developing sport of Power • Sports regulation advice Hockey. • Due diligence • Corporate finance advisory • Business improvement and restructuring • Forensic and dispute services

04 Annual Review of Football Finance 2018 | Sports Business Group

05 Annual Review of Football Finance 2018 | Sports Business Group

The leading team in the business of sport

Improve your strategy and governance

Working together with our clients, Deloitte’s unique experience, Optimise your revenues insights, robust evidence-based Business advice, and credibility in sport planning Deloitte bring experience, helps build a strong case and Strategy review information, insights and consensus for change amongst and development leading practices to help our key stakeholders and enables clients to analyse and grow our clients to positively influence their revenues and profitability. and react to their wider political, Economic impact Commercial economic and social environment. studies development Market analysis We give our clients a Governance and and development competitive advantage by We help deliver effective organisational delivering solutions to help governance, strategies, design engage their fans, grow competitions and impact analysis attendances, promote their for sports organisations to build Restructuring of Benchmarking and best brand, build value their integrity, credibility, quality, competitions and Ticketing and calendar practice from new markets and youth player development, hospitality strategies accelerate growth. popularity and value.

Media rights analysis

06 Annual Review of Football Finance 2018 | Sports Business Group

Make informed investment decisions

Deloitte has an extensive track- Advice on the record of delivering tailored added- development of Ensure financial integrity value services to a wide range of stadia and other Business and investors, owners and financiers facilities venue market Deloitte brings to clients an in respect of various sports assets feasibility studies unrivalled deep understanding around the world such as clubs of sports’ regulatory and sports marketing companies. Financial and requirements, how the business commercial due of sport works in practice, and We utilise our experience, industry diligence Audit and the wider economic, accounting knowledge and global networks Targeting and compliance acquiring a and legal environment in which to provide independent and Risk management sports business a sport operates. trusted advice to help our clients understand the commercial Disposing of a Our clients benefit from our realities of their proposed sports business Club licensing expert review, advice and investments, and plan successfully and cost control reports to manage their for the future. regulations Investigatory risks, comply with statutory and dispute requirements, resolve disputes, services and implement effective sport regulations. Sports tax advisory

07 Annual Review of Football Finance 2018 | Europe’s premier leagues

Europe’s premier leagues

Strong growth in broadcasting rights Chart 1: European football market size – 2015/16 and 2016/17 (€ billion) values across European football’s biggest UEFA distributions domestic and continental competitions Distributions to clubs for participation in UEFA club drove total European football market 2.4 9% 3.1 revenue to €25.5 billion in 2016/17, a 4% 13% competitions grew by 3% to over €1.8 billion in 2016/17, increase on 2015/16. 0.7 0.7 with the ‘big five’ leagues receiving 67% of total 2.8 3% 3% 11% distributions. 2.6 11% European football market €25.5 billion €24.6 billion The 2018/19 season will see the commencement of the 2016/17 2015/16 13.4 The ‘big five’ European leagues grew their 54% next UEFA broadcast rights cycle, with UEFA having 4.9 14.7 collective revenue by €1.3 billion (9%) in 2016/17, 58% targeted a revenue increase of around 30%. Changes to 19% 4.8 primarily due to increased broadcasting rights 19% the format with staggered kick-off times and guaranteed revenue as the English Premier League, Spanish representation for clubs in the traditionally strongest La Liga and French Ligue 1 recorded uplifts as markets (with Italy set to benefit most notably) are they each entered new rights cycles. intended to attract broadcast interest.

This growth was not restricted to the ‘big five’ The 2018 FIFA World Cup Finals in Russia ‘Big five’ European leagues As both Champions League and UEFA Europa League leagues, with total revenue across non-’big five’ will have an influence on the European revenue significantly increase, UEFA’s revenue European leagues also increasing. football market in the next two years, initially Non ‘big five’ top leagues distribution model is also planned to change, giving through revenue directly associated with the greater recognition of both current and historic sporting Nonetheless, the 2016/17 season saw a tournament itself, and to a lesser extent the ‘Big five’ countries’ other performance and reducing the market pool share. continuation of the trend of polarisation within indirect legacy uplifts for Russian football. leagues the European football market, with the ‘big The higher distributions will particularly boost the five’ leagues and the UEFA Champions League Despite these potential increases, it is unlikely FIFA, UEFA and National revenue of the top clubs consistently competing in the growing at a rate unmatched by other leagues. that the Russian Premier League will close the Associations Champions League. Given that UEFA has clearly identified gap, in revenue terms, to the ‘big five’ in the near competitive balance as a key issue to address across Encouragingly, the financial position of European future, meaning that any possible transition to a Non ‘big five’ other leagues European football, then various alternative regulatory football appears healthier than it has been for ‘big six’ is not imminent. measures will need to be considered in the coming a long time, reflecting the global popularity Source: Leagues; UEFA; FIFA; seasons. of the game, but also the professionalism of Deloitte analysis. leading clubs and the strength of the regulatory environment in which they operate.

08 Annual Review of Football Finance 2018 | Europe’s premier leagues

Revenue growth continued apace across The 2016/17 to 2019/20 domestic cycle Chart 2: ‘Big five’ European league clubs’ revenue – 2016/17 (€m) the ‘big five’ European leagues in 2016/17 increased revenues by over 20% to a with an increasing gap between the English reported €738m per season, yet this still 6,000 Matchday 5,297 Premier League, which is in something of only represented c.40% of the value of the 1,358 a financial league of its own, and French domestic rights for the Premier League. Given 5,000 26% Broadcasting Ligue 1 which has in recent years fallen the contribution of broadcasting revenue to further behind the other ‘big five’ leagues. European football clubs’ total revenue, this Sponsorship/Commercial 4,000 3,221 relatively low value will see Ligue 1 fall further 61% behind the other ‘big five’ European leagues in 2,854 2,793 Other commercial 3,000 ‘Big five’ European leagues’ revenue revenue terms. 826 475 29% 17% The success of La Liga’s collective sales 2,075 960 Note: Commercial revenue is not approach has been such that broadcast Distributions by UEFA to clubs from the 34% 614 297 1,643 2,000 1,484 18% disaggregated into ‘sponsorship’ 52% 30% 345 revenue growth of 20%, following on from ‘big five’ participating in the Champions League 21% and ‘other commercial’ for clubs in 1,244 854 England, Spain and Italy. 26% growth in the 2015/16 season, has seen and Europa League increased by 4% to 31% 60% 1,000 collective La Liga revenue increase to a record €1.2 billion and continue to play a significant role 217 819 718 50% 182 13% 544 504 10% 11% Source: Leagues; Deloitte analysis. €2.9 billion in 2016/17. As a result, the Spanish in the financial performance of those leagues, as 19% 18% league has overtaken the Bundesliga to be the well as on the Deloitte Football Money League. 0 England Spain Germany Italy France second highest revenue-generating league in Southampton’s debut appearance in the Money Average revenue per club (€m) the world. League top 20, and AS Roma’s absence, were 265 143 155 104 82 both heavily influenced by their participation (or Average match attendance Bundesliga clubs collectively maintained lack of) in UEFA competitions. 35,838 27,630 40,693 21,262 21,078 their strong overall revenue growth, primarily through an increase in commercial revenues, up Premier League clubs took the largest portion Stadium utilisation 15% from 2015/16 to €1.4 billion representing of revenue distributed by UEFA to clubs in 96% 71% 91% 52% 67% almost 75% more than generated by La Liga, 2016/17, in total receiving more than €300m, as their traditional strength in this area shone over 50% more than Ligue 1 clubs, who through. collectively earned the least of the ‘big five’ leagues. However, the ratio of the difference in The success of La Liga’s collective sales 2016/17 saw Serie A revenue grow by 8% to over distributions between the most and the least approach has seen La Liga revenue €2 billion for the first time. The majority of this among the ‘big five’ did reduce, from almost 2:1 growth came from commercial sources, with to 1.6:1. increase to a record €2.9 billion in revenue increasing by €91m (17%) on 2015/16, a 2016/17. As a result, the Spanish league remarkable €75m (over 80%) of which was solely attributable to Internazionale, following the has overtaken the Bundesliga to be the club’s acquisition by Chinese electronics retailer second highest revenue-generating Suning in June 2016. league in the world. France’s Ligue 1 remained the lowest revenue- generating of Europe’s ‘big five’ leagues, at €1.6 billion in 2016/17, despite entering a new four- year domestic broadcasting rights cycle. 09 Annual Review of Football Finance 2018 | Europe’s premier leagues

European football’s ‘big five’ leagues are Reported figures suggest that the top two Chart 3: ‘Big five’ European league clubs’ revenue – 2014/15 to 2018/19 (€m) already looking to other, more innovative, German divisions combined will generate an 5,650 ways of increasing revenue, as the intrinsic average of €1.4 billion per season over the four 6,000 England Italy 5,297 5,400 link between on field success and revenue year cycle to the end of 2020/21, and see the 4,865 generation strengthens. Bundesliga return to its position as the second- 5,000 France Spain 4,403 highest revenue generating league in the world. Germany 4,000 3,690 England Spain 3,350 3,470 The impact of the three-year broadcasting As 2016/17 saw the first results of the new 2,854 Source: Leagues; Deloitte analysis. 3,000 2,712 3,050 cycle which commenced in 2016/17 looks set full three-year collective rights sales deliver 2,392 2,793 to ensure the Premier League remains well increased broadcast revenues, La Liga publicly 2,437 2,280 2,053 2,130 ahead of the other ‘big five’ European leagues (in stated its desire to close the current revenue 2,000 2,075 1,790 1,917 1,880 revenue terms) over the coming years. gap to the Premier League. As such, it has looked 1,643 1,720 1,418 1,485 to develop and innovate on a worldwide scale. 1,000 However, the tender process for domestic and Projected international broadcasting rights for the three- La Liga’s international expansion, through the year cycle beginning in 2019/20, whilst not yet ‘La Liga Global Network’ launched in 2017, 0 2014/15 2015/16 2016/17 2017/18 2018/19 completed, looks very unlikely to deliver the ‘step has the objectives of boosting the value of change’ growth seen across the previous two international media rights, engaging new cycles. followers of Spanish football, and generating France commercial opportunities for both the league Whilst remaining the lowest revenue generating Replacement growth A more mature phase of competition amongst and its clubs. of the ‘big five’ leagues, Ligue 1 clubs’ collective bidders for UK domestic rights in this next revenues have grown at a faster rate from The leagues and clubs of the ‘big five’ cycle may see the Bundesliga and La Liga Italy 2015/16 to 2016/17 than in previous years, are applying innovative international narrowing the revenue gap to the Premier Aggregate Serie A revenues are expected to primarily due to the start a new four-year strategies to widen their global reach, as League somewhat, yet once the sale process grow, with the commencement of new UEFA domestic broadcast rights cycle. The international they attempt to grow commercial for international rights is completed, we expect broadcast deals and changes to Champions rights cycle commencing in 2018/19 is expected revenues. Several have opened offices the total value of Premier League broadcasting League regulations, guaranteeing four Serie to deliver a less significant revenue increase. in key overseas markets to manage local rights to remain in excess of €1 billion more than A clubs will compete in the Group stages partnerships alongside market specific any other league. of the competition, hence increasing UEFA Recent external investment in a number social media accounts and events. distributions from the 2018/19 season. of French clubs is hoped to stimulate an Germany increased level of competitiveness and in turn, An example of further innovation is Whilst 2016/17 saw the Bundesliga temporarily In addition, 2018/19 will also mark the start of commercial attractiveness, to Ligue 1, as it Digital Billboard Replacement (‘DBR’) slip below La Liga in revenue terms, the a new international broadcasting rights cycle looks to keep pace with the revenue growth of technology, allowing different brands to perennially impressive commercial performance for Serie A, delivering growth of around 80% other ‘big five’ leagues. advertise to different audiences or in of German clubs (9% ten-year CAGR) provides a on the existing deal, to a reported €340m different geographies simultaneously. strong platform on which the new domestic and per annum. Despite such growth, the value of The recent announcement of a new DBR has already been used across the international broadcasting rights cycle looks set Serie A international broadcast rights remain broadcasting rights arrangement with Mediapro ‘big five’ leagues to varying degrees, and to deliver a further revenue boost in 2017/18. comfortably less than those of the Premier covering the period 2020/21 to 2023/24 may deliver enhanced commercial League and La Liga. provides confidence about the medium term revenue generating opportunities. financial growth of Ligue 1. 10 Annual Review of Football Finance 2018 | Europe’s premier leagues

Boosted by the increased revenue of Germany Chart 4: ‘Big five’ European league clubs’ revenue and wage costs – 2015/16 and 2016/17 (€m) Premier League and La Liga clubs, total Bundesliga clubs increased their wage bill by 6,000 wage costs across Europe’s ‘big five’ 10% to €1.5 billion. 5,297 leagues grew by 4% to €8.5 billion. The 4,865 overall wages to revenue ratio across the The Bundesliga still has the lowest wages 5,000 ‘big five’ leagues reduced to 58%, with to revenue ratio (53%) of any of the ‘big five’ the weakening of the pound against the leagues, but this increased during the year amid 4,000 euro masking the underlying extent of limited revenue growth. wage growth. 2,854 2,793 2,712 3,000 3,045 Bayern Munich continued to dominate on 2,894 2,437 2,075 the pitch, becoming the first team to win five 1,917 1,643 England consecutive Bundesliga titles, as their wage 2,000 1,485 Premier League clubs’ wage costs increased costs of €265m reached almost €100m more 1,680 1,476 1,478 1,380 by 9% to almost £2.5 billion (€2.9 billion), as than those of second-highest wage spenders 1,341 1,343 1,000 1,019 1,078 clubs benefitted from increased centralised Borussia Dortmund. distributions, helping to maintain their position as by far the biggest wage spenders – paying Italy 0 15/16 16/17 15/16 16/17 15/16 16/17 15/16 16/17 15/16 16/17 out over 70% more than the top Spanish clubs. Serie A’s wages to revenue ratio reduced from EnglandGSpain ermany ItalyFrance

70% to 67% in 2016/17, it’s lowest level since the 63% 55% 61% 59% 49% 53% 70% 67% 69% 66% Spain 2005/06 season, but remained the highest ratio As clubs reinvested the additional revenue across the ‘big five’ leagues. Wage costs grew 152 145 74 84 75 82 67 69 4851 54 generated from the collective sale of 3% to €1.4 billion, dominated by Internazionale’s broadcasting rights, clubs in La Liga 22% increase in wage spending as Suning Revenue Wage costs Wages/revenue ratio Average club wages consolidated their position as the second- supported investment in the squad. highest wage spenders of Europe’s ‘big five’ Source: Leagues; Deloitte analysis. leagues in the 2016/17 season. Juventus’ wage spend increased 19% to €262m, over 25 times larger than Crotone, who at Wages increased by 14% to almost €1.7 billion, €10.3m had the lowest wage spend of any club France All five leagues wages/ the fastest growth of any of the ‘big five’ leagues in the ‘big five’ leagues. Wage spending in Ligue 1 grew by 6% to almost revenue ratios are below for the second year running. Real Madrid and FC €1.1 billion in 2016/17, as increased broadcasting Barcelona again accounted for almost half (47%) revenues were reinvested into playing squads. 70%, the industry marker of a of all wage spend, each spending nearly 30 However, the French league’s wages to revenue club’s financial health. times more than the lowest-spenders, Leganes. ratio fell by three percentage points to 66%, as only 37% of revenue growth was spent on wages. Despite this recent period of rapidly increased wage spending, La Liga’s wages to revenue ratio Despite a reduction in wages costs of 7% in fell by two percentage points to 59% in 2016/17, 2016/17, PSG remain the largest spenders in highlighting the scale of growth in clubs’ France. The impact of the acquisition of Neymar revenue and the success of financial regulations Jr., and the Parisian club’s other transfer activity implemented by the Spanish governing bodies. in the summer of 2017 is likely to see wage costs increase substantially in 2017/18. 11 Annual Review of Football Finance 2018 | Europe’s premier leagues

The effectiveness of financial regulations Chart 5: ‘Big five’ European league clubs’ profitability – 2012/13 to 2016/17 (€m) 1,203 across the ‘big five’ leagues, and beyond, Encouraging financial 1,200 UEFA FFP Start of FFP Start of Enhanced continues to be reflected in the improving regulations break-even break-even version of FFP operating results across the continent. first requirement compliance regulations sustainability monitoring 1,000 approved UEFA’s Financial Fair Play Regulations – complemented by the introduction

England 800 739 721 and evolution of financial regulations For the first time, no Premier League clubs in respect of various European leagues 681 recorded operating losses, delivering a record – have helped encourage clubs across 600 aggregate operating result of £1,034m, more Europe to improve their governance, 437 than double that reported in 2015/16 (£509m). 397 transparency and financial behaviour. 347 400 316 Spain 234 264 343 UEFA’s compliance monitoring and 190 284 172 171 250 260 After a recent concerted effort by both La Liga 200 138 enforcement activities have promoted 104 96 and its clubs to operate in a more financially 136 81 the effectiveness of their regulations. 93 103 sustainable manner, the combined profitability (3) (26) In the first four seasons to 2016/17, (66) (64) (67) (40) 0 (102) (97) of clubs was maintained in 2016/17 at a (140) (35) (51) around 30 clubs in breach of the (84) (160) (53) (116) (110) (98) combined operating profit of €437m (up from (149) (143) (133) break-even requirement have been €397m). -200 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 subject to sanctions and settlement arrangements. The introduction and monitoring of robust England France Germany Note: The operating result is the net of revenues less financial controls by La Liga over recent wage costs and other operating costs. The operating Enhanced requirements for clubs from result excludes player trading and certain exceptional seasons, coupled with the potential for Italy Spain 2018/19 should further promote the items. Aggregate operating results for Spanish clubs continued revenue growth has given Spanish were not available prior to 2013/14. effectiveness of UEFA’s regulations. clubs the platform from which sustained Approved changes to the regulations operating profits may be consistently achieved. Source: Leagues; Deloitte analysis. will include a forward-looking assessment of clubs’ financial results, Germany However, due to the limit on significant However, with Serie A revenue set to harmonisation of certain financial Bundesliga clubs generated a record aggregate investments, Bundesliga clubs may need to benefit from upcoming changes to the UEFA reporting requirements, and new risk operating profit of €343m in 2016/17, a 21% find alternative methods of generating revenue, competition structure and the start of a new indicators in respect of debt-levels and increase on 2015/16 (€284m) maintaining the enhancing the need for clubs to innovate as domestic broadcasting rights cycle, Italian clubs player transfer spending. financial prudence which has delivered combined they look to develop their international brand will hope to deliver an aggregate operating operating profit in each of the last 20 years. and seek commercial partnerships. profit in the near future. Whilst a decade ago it appeared improbable that football could address In March 2018 Bundesliga clubs voted to retain Italy France the prevalent losses and spiralling debts the ’50+1 rule’ which stipulates that members 2016/17 saw Italian clubs record a combined Ligue 1 also reported an operating loss (€51m) of the clubs, cost control regulations are of a club maintain the majority stake, and operating loss (€26m) as Serie A’s financial in 2016/17, despite the additional revenue helping to deliver a more sustainable voting rights, in the club and has contributed performance and sustainability continues to delivered by the new four-year domestic balance between costs and revenues significantly to this stability. gradually improve. broadcast rights cycle and increased UEFA for the long-term benefit of the game. distributions arising from AS Monaco’s strong UEFA Champions League campaign. 12 Annual Review of Football Finance 2018 | Europe’s premier leagues

At a time when UEFA have reported Portugal Chart 6: Selected other European league clubs’ revenue – 2016/17 (€m) improved operating results across the Portugal’s Primeira Liga is now the only major 734 800 701 region, and positive rates of revenue European league where clubs’ broadcast rights 52 growth, Europe’s non ’big five’ leagues’ are sold on an individual basis, resulting in 242 154 revenue continues to develop strongly. significant revenue inequality. This disparity 600 The influence of UEFA club competition is further enhanced by UEFA distributions 428 451 participation is becoming increasingly consistently being received by the same three 352 79 366 400 180 37 defining, and changes to UEFA clubs; Benfica, Porto and Sporting Lisbon, 88 who generate the majority of the combined 211 competitions from the 2018/19 season 190 184 176 162 200 81 88 50 46 129 could have a potentially significant impact revenues, which have increased 6% to €366m. 110 84 111 44 59 78 64 for these non ‘big five’ leagues. 88 35 19 25 15 22 51 79 56 27 37 43 Scotland 0 Turkey Russia Netherlands Portugal Scotland Denmark Austria Sweden Poland Scottish Premiership revenues increased by Average revenue per club (€m) Turkey 63% to £181m in 2016/17, driven by the on-field 41 44 25 20 18 13 18 10 8 The Turkish Süper Lig is the largest revenue success of Celtic, and the return of Rangers to generating European league outside of the ‘big Scotland’s top-flight. Celtic’s participation in the Wages/revenue ratio five’, with total revenues of €734m. Broadcast 2016/17 UEFA Champions League contributed 71% 72% 59% 71% 58% 60% 70% 53% 64% revenues represent almost half of total revenue. €32m, more than the amount distributed across Number of clubs A successful bid to host EURO 2024 could help all 12 clubs from the Scottish leagues’ own 18 16 18 18 12 14 10 16 16 boost the financial future of Turkish football. broadcast revenues in 2016/17.

Russia Aggregate matchday and commercial revenues Denmark, Sweden and Poland Matchday Ahead of hosting the 2018 FIFA World Cup both increased by over 40%, as Rangers Each of these leagues were heavily influenced Finals, the Russia Premier League remains the participation in the top division for the first time by the performance of their member clubs in Broadcasting seventh largest revenue generating league in since the 2011/12 season, helped to drive the UEFA competitions, after strong showings in the Europe. The financial profile of Russian football top division of the SPFL back into the top ten previous season. The failure of Danish, Swedish Sponsorship/Commercial is dominated by income from commercial revenue generating leagues in Europe. and Polish clubs to replicate the respective sources, which accounted for 83% of total success seen by FC Copenhagen, Malmö and Other commercial revenues. Austria Legia Warsaw in previous season resulted in Austrian Bundesliga revenue grew by 10% to reduced distributions, and overall revenue for Note: This chart includes a sample Netherlands €176m, primarily driven by increased UEFA each of their domestic leagues. of countries ranking below fifth in terms of average club revenue for Ajax’s run to the Final of the Europa League saw distributions up €5m to €16m as a result of the the most recent available financial UEFA distributions to Dutch clubs increase by performance of Red Bull Salzburg in reaching None of these leagues were represented in the results. Figures in respect of clubs in €7m to €55m. Yet despite this, total revenues the Champions League Play-off round before 2017/18 Champions League, and as such no Sweden relate to year to December fell by 6% to €451m in 2016/17, as no Dutch club competing in the UEFA Europa League Group significant improvement is expected to be seen 2016. Figures in respect of Turkey, Portugal and Russia are for FY2016. reached the Group Stages of the Champions stage. in the next edition. Figures in respect of clubs in League. Feyenoord’s participation in 2017/18 Denmark and Poland relate to the should aid a recovery in the next edition of this 2017/18 has seen Red Bull Salzburg reach the year to December 2017. report. Semi-final of the Europa League, which should Source: Leagues; Club accounts; boost Austrian Bundesliga revenues further in UEFA; Deloitte analysis. next year’s edition. 13 Annual Review of Football Finance 2018 | Sports Business Group

Deloitte Football Intelligence Tool

The Deloitte Football Intelligence Tool (FIT) is used by clubs, investors, industry experts and the media to quickly and reliably 01 Big five European interrogate the finances of the European football market. leagues plotted on FIT gives you access to over 20 years of data contained within map, with users able to select one the Annual Review of Football Finance. and analysis or more by clicking 02 on them. Users can plot the charts based on This digital solution allows the user to This subscription service is ideal for: a range of league

manipulate data in a quick and easy to use trends wide League level metrics, such format, using the leading technology to display •• Football club executives looking to as revenue, wage many of the data points contained in the understand their organisation’s performance costs and average Annual Review of Football Finance Databook and position within the market and to attendance. and a host of other industry information. We benchmark against other clubs; hope FIT will be a valuable asset for anyone looking to deepen their understanding of the •• Aspiring club investors looking to identify and football business. assess a club;

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•• Sports media and broadcasters looking for further insight and analysis. 03 If you would like to find out more about the Revenue splits for tool and to book your free, personalised each league set demonstration, please contact out and shown [email protected] over time. Club trends and analysis 14 Annual Review of Football Finance 2018 | Sports Business Group

05 10 Matrix analysis Explore the local on a club-by-club area of a given club, basis with the axes with population data defined by user displaying the socio- 11 selected metrics. economic profile of Historical details Peer group averages 06 Club profiling the catchment area. of key financial and correlation lines Overall revenue measures and also plotted. trend for given supporting matrix selection of clubs, 08 analysis for two with ability to click NEW for this year, users can see parameters through to further the performance of their selected simultaneously. explore historic club over time, compared with a revenue trends. selected peer group.

09 04 Users can create their An interactive map of own peer groups by Europe allows the user to 07 filtering by a variety of quickly select the clubs Users can configure possible metrics such as most appropriate to their the screen by selecting stadium size, whether specific geography and any metric they wish a club has played in circumstances, with FIT to explore, setting up European competitions, currently containing data the overall dashboard their average attendance for the ‘big five’ European to reflect their areas or their league position. leagues and the EFL of interest, providing Championship. visual analysis of

Individual club benchmarking specific clubs.

15 Annual Review of Football Finance 2018 | Sports Business Group

Matchday revenue slipped marginally by 1% Premier League clubs (£5m) to £617m, and represents its lowest proportion of the total (13%) in Premier League history. The increases in broadcasting revenue have allowed many Premier League clubs to freeze season and matchday ticket prices for a number of years now, while other clubs, such as Everton, took the step to reduce the price they Premier League clubs’ revenue grew by further commercial value to their inventory. charge their fans. Furthermore, 2016/17 was 25% to £4.5 billion in 2016/17. This was Impact of individual With Chelsea recently agreeing a reported the first year of a Premier League cap of £30 on primarily due to the Premier League’s £50m five-year shirt sleeve deal with Hyundai, away fan tickets, in efforts to make away games new three year broadcasting rights clubs reported to be double the previous record more financially accessible to fans. arrangements coming into effect, helping Of the 17 clubs that competed in the in this category held by Manchester City, it is drive revenue to record levels. Premier League in both 2015/16 and clear there is appeal and value for commercial 2016/17, Manchester United generated partners. the most revenue (£581m), as the Future revenue growth Premier League clubs’ revenue highest revenue generating football Chart 7: Premier League clubs’ revenues The average revenue of a Premier League club club in the world. Leicester City had the 2014/15-2018/19 (£m) Although the Premier League’s recent was £228m in 2016/17, an increase of £46m, largest revenue growth in 2016/17, with domestic rights selling process for and double the amount as recently as 2010/11 their total increasing £105m (81%) to 6,000 Projected 2019/20 – 2021/22 has not secured the (£114m per club). The impact on revenue of the £234m, the biggest ever single year 5,000 large increases seen in previous cycles, 4,780 strong domestic and international demand for revenue increase of an English club. 5,000 4,552 1,380 once the sales process has been 1,280 28% Premier League football from broadcasters and This was principally due to their 1,167 27% completed for the remaining domestic sponsors alike is clear to see. remarkable run to the UEFA Champions 26% and international rights, we still expect 4,000 3,639 League quarter-finals which saw them 3,350 it to deliver overall growth in Premier 1,090 2,950 30% 2,850 59% Over 90% of the £913m increase in Premier receive UEFA distributions of £70m. 987 2,768 60% League broadcasting values. 29% 61% League clubs’ revenue in 2016/17 was due to 3,000 broadcasting revenue, with the financial reward Other factors influencing large 1,927 In the shorter term, 2017/18 was the 1,780 53% of participation in the Premier League now increases in clubs’ revenue included 2,000 53% first season in which five English teams greater than ever. Total central distributions to Tottenham’s return to Champions competed in the Champions League, clubs increased by 46% (£760m) to £2.4 billion, League football and Liverpool’s opening while 2018/19 marks the start of a new 1,000 an average increase of £38m per Premier of their new Main Stand. Every one of UEFA broadcasting rights cycle, both of 583 622 617 650 670 League club. Clubs competing in the Premier the twenty clubs set a new personal 18% 17% 13% 13% 13% which will lead to significant increases League can now expect to receive between record for total revenue in 2016/17. 0 14/15 15/16 16/17 17/18 18/19 in UEFA distributions received by c.£95m and £150m in central distributions per Average revenue per club Premier League clubs. Coupled with season, with the ratio between the highest and 168 182 228 239 250 the increases in commercial revenue, lowest earning recipients of 1.6:1 in 2016/17 Commercial revenue grew by 7% (£77m) to £1.2 we expect total Premier League clubs’ helping the Premier League to retain its status billion and now makes up just over a quarter of Commercial Matchday revenue to rise to £4.8 billion in as the most equal of the ‘big five’ leagues. the total. We expect to see further growth, as all 2017/18 and £5 billion in 2018/19. Premier League clubs have been able to feature Broadcasting Source: Deloitte analysis. shirt sleeve sponsors from 2017/18, adding 16 Annual Review of Football Finance 2018 | Premier League clubs

Whilst the Premier League’s central Chart 8: Premier League and Championship clubs’ average revenues – 2016/17 (£m) distribution mechanism remains the most Media rights 2019-2022 equal amongst the ‘big five’ leagues, there 500 remains a significant revenue variance In February 2018, the Premier League between groups of clubs within the league. announced that it had sold the main five 400 353 The ‘big six’ clubs generated an average of packages of domestic broadcasting rights 103 316 £415m each in 2016/17, compared to just to Premier League football for the 111 300 £147m across the rest of the clubs. 2019/20-2021/22 cycle, with Sky Sports 12 52 gaining four packages (128 matches per 13 183 200 17 season) for £3.6 billion (£9.3m per game), 132 39 122 122 Premier League clubs’ revenue levels and BT Sport taking one package (32 10 113 12 5 92 51 The vast majority of Premier League clubs matches per season) for £885m (£9.2m 100 6 20 ranked in the top 40 revenue generating clubs per game). As a result, the Premier 8 7 3 54 53 27 10 4 6 in the world in 2016/17, with five of the Premier League has so far secured 87% of the 21 13 0 UCL clubs UEL clubs Premier Premier Championship Championship League’s ‘big six’ clubs taking positions in the value generated for the 2016/17-2018/19 League League with without top ten. Amongst the rest of the ‘big five’, only cycle for domestic live rights with two (other) (relegated) parachute parachute Spain, through Real Madrid and Barcelona, has packages of a total of 40 games per more than one club in this elite top ten. season still remaining to be sold. Commercial The average revenue of Premier League clubs Whilst on the face of it, this may appear Record-breaking participating in the Champions League fell to disappointing, especially given the Broadcasting other £353m in 2016/17. This was principally due to decrease in value per match broadcast, transfer spending Manchester United taking part in the UEFA the considerable growth over the last two Broadcasting UEFA We have already seen some clubs Europa League, and Chelsea and Liverpool cycles means that the Premier League will utilising their significant revenue also failing to qualify for Europe’s elite club still comfortably remain the market leader. Broadcasting PL central increases, with a record £1.9 billion competition. However, the importance of the spent on transfers in the 2017/18 Europa League was once again highlighted by The sales process for the international Matchday season, as clubs seek to gain a Manchester United’s successful campaign, rights is ongoing and we anticipate competitive advantage over their peers earning a Champions League spot in 2017/18 further growth in the overall value of Note: UCL clubs comprised Arsenal, in pursuit of both success and survival. despite a sixth place finish in the Premier the international broadcasting rights, Leicester City, Manchester City and Tottenham Hotspur. UEL clubs League. which already generate over £1 billion a We may again see similar levels of comprised Manchester United, season. When the majority of rights for Southampton and West Ham spending in the coming year, with the The three relegated clubs in 2016/17 had £122m the new cycle are tendered later in 2018, United. FIFA World Cup providing the perfect average revenue, with all three clubs receiving with significant uplifts already agreed in shop window for talent; indeed, the Source: Premier League; UEFA; a parachute payment of c.£42m in 2017/18. the USA, China, Brazil and Africa 2018/19 season may be the first time Deloitte analysis. In 2007/08, ten years previously, parachute through to 2022, it is likely that the new Premier League clubs’ surpass the payments to clubs were just £12m. broadcasting arrangement’s values will £2 billion mark in gross transfer spend. once again represent a record, despite the domestic reduction.

17 Annual Review of Football Finance 2018 | Premier League clubs

Premier League clubs’ wage costs grew by Chart 9: Premier League clubs’ revenues 9% in 2016/17, reaching a record Impact of individual and wage costs – 2015/16-2016/17 (£m) Market leading £2.5 billion. This relative restraint, compared to revenue increases, meant clubs 5,000 4,552 revenues, cost control revenue growth outpaced wage growth for The only clubs to pay more than the only the third time in the last ten seasons, league’s average wage costs were the 4,000 3,639 regulations and resulting in the lowest wages/revenue ‘big six’, once more demonstrating the ratio in almost 20 years. gap in financial resources between stronger financial 3,000 them and the rest of the league. Absent 2,487 of European competition and the 2,277 discipline exercised Premier League clubs’ wage costs associated costs, Chelsea and Liverpool 2,000 In 2016/17, the Premier League’s wages/revenue were the only clubs to reduce their by club owners and ratio fell to just 55%, its lowest level since wage costs year-on-year, yet both teams 1,000 1997/98 (52%). For the first time ever, Premier saw improvements in their fortunes management, mean League clubs’ revenue has grown at a faster rate with the former being crowned Premier 0 2015/16 2016/17 than wages over a ten year period, while all bar League champions and the latter that they no longer one of the clubs participating in the 2016/17 qualifying for the Champions League. 63% 55% Premier League grew their revenue at a faster need to, or do, spend 114 124 rate than their wage spend since 2012/13. Manchester United (£263m) continued to be the division’s highest wage payers all their revenue Such relative restraint from Premier League on a 12 month reporting basis, but their clubs in wage spending is assisted by the wages/revenue ratio of just 45% was Revenue Wages/revenue ratio growth in increased continued implementation of both the Premier the second lowest in the league behind League Short Term Cost Control Rules, as well Tottenham Hotspur (42%). Leicester Wage costs Average wage costs wages. as UEFA’s Financial Fair Play Regulations. It City, as in 2015/16, had the largest per club also reflects the financial lead that the Premier increase in relative terms (40%), aside League has its over its rivals, as well as the from the promoted clubs. This increase stronger financial discipline exercised by club is attributable in part to investment in Source: Deloitte analysis. owners and management, that they no longer the playing squad in the clubs maiden need to, or do, spend all their revenue growth in Champions League campaign. increased wages. £1.9 billion Contributed by English professional football to Government in taxes in 2016/17

18 Annual Review of Football Finance 2018 | Premier League clubs

Only one Premier League club reported Chart 10: Premier League clubs’ revenues and wage costs – 2016/17 (£m) a wages/revenue ratio in excess of 70%, 581 the indicative warning threshold level 600 used by UEFA as part of their Financial Fair Play Regulations. This is a decrease from 476 500 seven clubs in 2015/16, as clubs once again 419 showed spending restraint in the first year 400 368 365

of a more lucrative broadcasting rights Tottenham Hotspu r cycle. 306 h Averag e y 300 Leicester Cit y

234 y 228 West Ham United Southampto n

263 264 Everto n

185 182 AFC Bournemout h Correlation between wage costs and Stoke Cit

221 West Bromwich Albion Sunderland 171 Swansea Cit y Middlesbroug Watfor d Burnle y 200 199 208 Hull Cit league position 138 136 136 128 126 122 122 122 117

The Spearman’s rank correlation coefficient, y 127 113 124 112 which measures the relationship between 100 95 105 99 79 85 84 76 72 61 65 61 Man Cit league position and total wage cost rank, Man Utd Arsenal Chelse a Liverpool increased to 0.81 in 2016/17. Nine clubs finished 0 45% 55% 47% 60% 57% 42% 48% 55% 51% 62% 61% 57% 53% 62% 77% 67% 62% 50% 53% 52% within one place either side of the ranking of their wage costs. This level of correlation contrasts to the 2015/16 season, where the Revenue Wage costs Wages/revenue ratio Note: The 2016/17 financial statements for Crystal relative performances of Aston Villa, Leicester Palace were unavailable at the time of publication. Manchester City figures are for a 13 month reporting City and Chelsea helped drive the lowest level of period. AFC Bournemouth figures are for an 11 month correlation ever recorded in our analysis (0.54). reporting period. Future wages trends The 2016/17 league finishing positions were Source: Deloitte analysis. much more aligned to wage spend, as the top In an environment of cost control, the Of particular interest may be the future six wage spenders filled the top six league clubs’ wages/revenue ratio is expected to structuring of wage spend, with positions. At the other end of the table, the remain relatively low, and with the top six performance related pay, particularly Only one club reported a three promoted clubs had the three lowest wage spenders in 2016/17 occupying the amongst those clubs recently promoted, wages/revenue ratio in excess wage costs in the Premier League, with only top six positions in the Premier League in being more and more common. Clubs are Burnley maintaining their Premier League status. 2017/18, a strong correlation between increasingly incentivising and rewarding of 70%, which demonstrates However, with four different winners in the wage costs and league position seems to players for avoiding relegation, with the new financial discipline last six seasons, and all three promoted clubs be being maintained. bonuses for additional points earned and surviving in 2017/18 for only the third time in number of appearances contingent on that amongst the Premier League Premier League history, the Premier League Although it is anticipated that wage costs survival, alongside the more traditional clubs. continues to prove itself as one of the most will continue to rise in the coming seasons, success-based bonuses. competitive, and attractive, leagues in Europe. we do not foresee increases to be at a level which can jeopardise the profitability of the Premier League as a whole.

19 Annual Review of Football Finance 2018 | Premier League clubs

Premier League clubs recorded record- Chart1,250 11: Premier League clubs’ profitability – 2012/13-2016/17 (£m) breaking levels of operating and pre-tax Premier League clubs’ 1,034 profitability in 2016/17 and, for the first pre-tax profits 1,000 19 19 time, no Premier League clubs reported 17 17 31 52 an operating loss. This continuing trend At pre-tax level, which includes the 750 27 25 of profitability across the Premier League impact of player trading and finance 618 549 509 534 feels increasingly as if we have now costs, Premier league clubs returned to entered a new financial era for the Premier collective profitability, with a record 500 13 17 League clubs and their owners collective pre-tax result of £534m, 4 187 27 and investors. almost three times the previous record 250 82 112 12 set in 2013/14 (£187m). Such was the 14 level of profitability on a club by club 14 (6) 0 7 9 Premier League clubs’ operating profits basis, a record 15 clubs reported a 6 Premier League clubs generated record corporation tax charge in the year. (16) (115) combined operating profits (which excludes -250 (316) player trading, amortisation of player transfer A record 17 of 20 Premier League clubs fees and finance costs) exceeding £1 billion for reported a pre-tax profit, with -500 2012/13 2013/14 2014/15 2015/16 2016/17 the first time in 2016/17. This is over double Leicester City recording the largest the amount reported in the 2015/16 season pre-tax profit in Premier League (£509m). Such was the extent of the clubs’ cost history (£92m) off the back of their run Operating profit/(loss) control amid greatly increased broadcasting to the Champions League Future investor interest revenue, Premier League clubs achieved a quarter-finals, almost six times that Profit/(loss) before tax collective operating margin of 23%, the first achieved in their title winning 2015/16 The substantial increase in revenue time this has exceeded 20% in Premier League Premier League campaign. Only delivered by the 2016/17-2018/19 Number of clubs history. Chelsea (£14m) and Sunderland (£10m) broadcast rights cycle, alongside values reporting operating reported pre-tax losses, however both derived from the latest announcements profit/pre-tax profit No club recorded an operating loss in clubs significantly improved their regarding the 2019/20-2021/22 cycle, 2016/17, and all reported increased operating pre-tax results from 2015/16 by £71m provides current owners and any Average club operating profitability compared to their 2015/16 result, and £23m respectively. potential investors with the security of result/pre-tax result demonstrating the overall structural changes in guaranteed levels of revenue for the the finances of all of the Premier League clubs. next four years, subject to maintaining Note: The operating result is the net of revenue less Premier League status. wage costs and other operating costs. The operating result excludes player trading and certain exceptional Manchester United (£190m) and Arsenal items, which are included in the pre-tax result, along (£123m) were the two clubs to exceed £100m The global popularity of the competition, with other costs such as financing costs. in operating profits, the first time a club other the excitement of owning a football club than Manchester United has achieved this. The and the exposure provided by an The 2015/16 pre-tax result includes one-off costs of £67m at Chelsea (in respect of termination of three promoted clubs generated combined ownership position are all reasons why sponsorship deal) and £45m at Aston Villa (impairment operating profits of £125m, in stark contrast investment in Premier League clubs has of tangible fixed assets). Operating result/pre-tax result to their collective £27m loss in the 2015/16 never seemed more attractive. not available for Crystal Palace. Championship. Source: Deloitte analysis.

20 Annual Review of Football Finance 2018 | Premier League clubs

Net debt for Premier League clubs stood Chart 12: Premier League clubs’ net debt – 2017 (£m) at less than £2 billion at the end of the Individual club analysis 400 2016/17 season, a fall of £250m on the 286

2015/16 position and now stands at its Eight of the 20 clubs in the Premier 180 178 lowest level since 2005. The majority of League reported an improved net debt/ 200 clubs recorded an increase in cash reserves funds position in 2016/17. The largest 33 (35) 12 619 (45) 13 following a year of record profitability, improvement was at Everton, by £64m 0 (67) (76) (57) (66) with the ratio of net debt to revenue falling to a net funds position of £10m, (91) (1) (53) (135) to just 43%, down from 61% at the end of following the repayment of £55m of (110) (201) (66) (93) -200 the previous season. loans in the year by the club’s major Watfor d shareholder. Stoke Cit y Arsenal Sunderland

-400 (499) Manchester Cit y Liverpool

Premier League clubs’ net debt The top ten most indebted clubs Other clubs West Ham United AFC Bournemout h Soft loans – clubs’ borrowings on interest-free accounted for 97% of Premier League -600 terms typically from their owners – decreased club’s total net debt. Furthermore, in 2016/17 by £247m (14%). This movement was Chelsea, Liverpool, and Manchester -800 heavily driven by the relegation of Newcastle United’s combined net debt of £1.5 Total Total 2017 2016

United (with a soft loans balance of £378m in billion accounted for over three quarters Manchester United

2015/16) but partially offset by the promotion of the overall total. -1,000 Chelse a 625 568 of Middlesbrough (£94m), with other increases (1,086) at Chelsea (£34m), Sunderland (£22m) and Six clubs ended 2016/17 in a net funds (1,113) (1,058) -1,200 Stoke City (£16m). Soft loans remain the largest position, these being Burnley, Everton, (1,466) (1,713) component of clubs’ net debt, accounting for Leicester City, Southampton, Tottenham (1,053) (243) (213) (126) (64) (51) (47) (46) (40) (21) (50) (1,954) (2,203) 75% of the total, a level at which it has remained Hotspur and West Bromwich Albion. for the last three seasons. Net debt, excluding Four of these clubs improved on net 0 (5) (24) (4) 0 (3) (4) (5) (2) (15) (31) (93) (70) soft loans, continued to fall, standing at £488m funds positions from the prior year, with in 2016/17, down by £2m from 2015/16. only Everton (aforementioned) and Southampton crossing into a net funds Net cash/bank Net debt Note: Net debt for Newcastle Other loans – being borrowings from financial position from a net debt position borrowings United is based on figures disclosed in financial statements institutions, other parties and interest-bearing year-on-year, the latter driven by a £16m Net finance costs of Newcastle United Ltd and owner loans – marginally increased in 2016/17 increase in cash reserves as well as Other loans St. James Holdings Ltd. by £55m (5%). repayment of £26m of other loans in 2016/17. Soft loans Source: Deloitte analysis. The net finance costs for Premier League clubs have increased year-on-year from £70m to £93m. However, net finance costs were covered over eleven times by aggregate operating profits in 2016/17, such was the extent of the increase in clubs’ profitability levels.

21 Annual Review of Football Finance 2018 | Sports Business Group

having to necessarily venture into the transfer hostile environment surrounding any acquisition Under my umbrella market to the same extent. The ability to control and may be detrimental when trying to integrate player movement across clubs may also help the acquired club into the wider structure. talented youth players who require first team opportunities to enhance their development, Additionally, the multi-club model can whilst their parent club still maintain control present regulatory challenges regarding the over their progression. If player management is independence of clubs, in particular for UEFA effective, on-pitch performance may improve, club competitions. Protection of the integrity of The multi-club ownership model (whereby across other sports); opportunities to achieve player opportunities would increase and football competitions is essential and has resulted an individual, club or corporation owns economies of scale and synergies through this may bring investors sizeable returns on in an increased scrutiny of the governance shares in two or more football clubs) has the centralisation of resources; creating more their investments into clubs, both in terms of structures of multi-club arrangements. The become increasingly prevalent in world structured player scouting; transfer and silverware and financial gain. regulations prohibit two or more clubs football. According to a recent UEFA report, development pathways; and ultimately under common ownership or influence from more than 20 clubs in the top 15 European increasing return on investment. What are the risks and challenges of multi- participating in a UEFA club competition in the leagues are part of multi-club structures, club arrangements? same season. The participation of both FC Red including Manchester City, Atlético Madrid The potential commercial benefit Whilst there are a number of benefits to be Bull Salzburg and RB Leipzig in the 2017/18 UEFA and Inter Milan, all of whom feature in the of such a structure should not be gained from a multi-club model, a number Champions League was only permitted after Deloitte Football Money League. underestimated. The acquisition of clubs of risks and challenges are likely to require Red Bull made significant changes in 2017, such in other territories offers the possibility consideration and action. Prior to the that it no longer has a decisive influence over After the English National Investment Company to enhance the level of exposure of a club acquisition of a new club, it is essential that relevant decision making of FC Salzburg. Further (ENIC) pioneered and then abandoned the or organisation’s brand. For example, the any investor develops a clear strategy and cases may arise in future in respect of other concept in the late 1990s and early 2000s, the City Football Group has expanded into key undertakes careful planning and due multi-club arrangements. multi-club model remained largely dormant, but international markets through investment diligence. Factors to consider may has experienced a resurgence in recent years. in clubs spanning six different countries in include geographical location, quality of Conclusion This has, in part, been driven by its adoption five continents around the world. the existing staff (on and off pitch) and The identification, acquisition (or alternative in some of Europe’s top leagues, including infrastructure, strategic fit of a target arrangements) and integration of clubs into a Manchester City (part of City Football Group) Effective player management is regularly if combined with the existing portfolio new or existing structure presents a significant in the Premier League and RB Leipzig (part of cited as a benefit of multiple clubs operating of clubs and its financial sustainability. If challenge. However, when done successfully Red Bull’s portfolio including New York Red under common ownership or alternative the acquisition of a target club is deemed it can provide the foundations to benefit from Bulls, Red Bull Brasil and previously FC Red Bull arrangements, including the exchange of appropriate, a clear set of objectives and synergies and deliver return on investment Salzburg), who rose rapidly through the tiers of players (e.g. loans or permanent transfers) integration plan will be considered a necessity. across the organisation from both a sporting German professional football to finish runner- and development of playing talent. and business perspective. up in their first Bundesliga 1 season in 2016/17. By controlling multiple clubs, Failure to communicate with, owners are able to call upon and understand the The Sports Business Group at Deloitte What makes multi-club arrangements a larger pool of players needs of, both the advises clients, including investors, attractive? when balancing first existing and target corporations and sports clubs, around the Clubs and investors have been attracted to the team squads, which club’s stakeholders world in respect of targeting, acquiring and multi-club model as a platform for international can help ensure represents a key successfully integrating clubs into a new or expansion and increased brand exposure, sufficient quality risk which could existing operating model. diversification (including geographically and and depth without contribute to a

22 Annual Review of Football Finance 2018 | Sports Business Group

Finding the leading edge

Commercial revenue growth Whilst for broadcasting rights, The challenge for clubs segmentation to be undertaken that in turn across the ‘big five’ leagues clubs act collectively, they therefore, is in their ability opens the football market to a whole new group are in a fiercely competitive to differentiate themselves of sponsors and allows deeper insights to be has been considerable and market for commercial from the competition, gained and relationships to be built. consistent over the last ten deals. As a result, this £300m+ to drive further A sponsor who may never have market has become The value of Premier League value from the considered the “average” football years, increasing at a CAGR increasingly crowded, with club secondary commercial fan to be a customer may find of 9% from €2.1 billion in clubs at all levels offering sponsorships arrangements a specific segment of that fan commercial partners multiple they currently 300+ base to be exactly in their target 2006/07 to €4.8 billion in entry opportunities at a wide hold, but also The number of entry area. These insights also allow 2016/17. As a key source variety of price points. The result is a lack to attract high calibre points for the secondary existing sponsors to target of clarity and an advantageous position for the commercial partners. As clubs market sponsors their campaigns more effectively of revenue under a club’s commercial partner, who can play any potential work ever harder to create a more and demonstrate a much clearer control, commercial revenue suitors off against each other in order to drive tailored approach, the use of data return on their investment. the price down. is a key means by which this could be is the area where clubs have achieved. The potential impact of data analysis the greatest opportunity This cluttered and fragmented is not restricted to revenue from picture may be one reason why The enormous sponsors. As clubs learn more to differentiate themselves many of the biggest multi- quantities of about their fans the matchday from their competitors. The national consumer brands data that clubs c.5-100 experience can also be individually have instead tended to are collecting Number of sponsors tailored for the identified development and exploitation choose to associate more c.£10k-£10m+ on their fan per Premier segments of fans. This is a win-win of commercial opportunities with global, team events, base provides League club for both the club and the fan. The such as the FIFA World The range of price points of the opportunity for fan gets a more enjoyable matchday over the next ten years is Cup or the Olympic Games, secondary sponsorships for clubs to “know their fans” experience while the club can utilise their therefore the key growth despite the relatively short Premier League clubs to a greater extent than ever data to maximise the spend per fan. exposure window provided previously possible. The depth of opportunity for clubs. by such events compared to the engagement and hence willingness The Sports Business Group at Deloitte potential for a continuous multi-year to share information is greater between are assisting a number of stakeholders to relationship with a top football club. a fan and their club than between a normal understand further the commercial market consumer and an ordinary business. This data and to develop their commercial strategy, Source: Deloitte analysis. enables an unprecedented level of customer incorporating the use of data.

23 Annual Review of Football Finance 2018 | Sports Business Group

Football League clubs

Championship clubs generated combined Chart 13: Football League clubs’ revenues – revenue of £720m in 2016/17, a 30% increase 2015/16 and 2016/17 (£m) The widening gap The value of promotion on the previous season and another new record for the division. A combination of the 800 In financial terms, the level of Fulham’s win in the Football League significant increases in parachute payments polarisation in the Championship is Championship Play-off final at the end of 720 and solidarity distributions from the 700 largely influenced by parachute the 2017/18 season will result in an uplift Premier League, with the return of three payments and the gap between the in revenue of at least £170m, rising to large clubs to the Championship, has fuelled “haves” and “have nots” continues to more than £280m if they avoid 600 this extraordinary growth. grow. The average revenue generated relegation in their first season back in 555 in 2016/17 by the three clubs relegated the Premier League. To put this in 500 from the Premier League in the 2015/16 perspective Liverpool’s Champions Football League clubs’ revenue season (£78m) was over three times the League Final defeat only altered the prize Eight clubs were in receipt of parachute 400 average revenue generated by the money they received from UEFA by £4m payments in the 2016/17 season, totalling other 21 clubs in the league (£23m). In – reinforcing the position of the £219m, or 30% of the total Championship fact the revenue earned by the fourth Championship Play-off final as the 300 revenue. For the three clubs relegated from highest generator (Queens Park richest one-off game in sport. the Premier League in the 2015/16 season Rangers, who were also in receipt of (Newcastle United, Aston Villa and Norwich 200 parachute payments) was only 62% of City), parachute payments totalled £123m (£41m the average of the top three. In the The combined revenue of the 18 consistent 136 146 per club, up from £26m for 2015/16), or 53% of 100 2015/16 season the three relegated Championship clubs year-on-year grew by 86 91 their total revenue. clubs generated only twice the average £40m, an average of just over £2m per club, revenue of the other 21 clubs. The almost wholly due to the £2m increase in 0 2015/16 2016/17 While the impact of the parachute payments significant increase in parachute solidarity payments which rose with the received by the three relegated clubs is Average revenue per club payments from £26m to £41m in the commencement of the Premier League’s new substantial for the Championship as a whole, Championship23.1 5.7 3.6 League30 1 6.1 3.8 first year following relegation was the broadcast cycle. their relative financial strength was also primary driver of this widening gap. evident in their position in the top quartile for League 2 League 1 clubs increased revenue by 7% to commercial and matchday revenue. All three £146m. Revenue for the 17 clubs present in clubs have significant fan bases, while Aston Source: Deloitte analysis. This helped them maintain levels of matchday both the 2015/16 and 2016/17 season rose Villa had been in the Premier League for every and commercial revenue well above the by 9%, an average of £0.5m per club, with previous season, Newcastle all bar two, and Championship average and was a factor in the growth in solidarity payments accounting for Norwich four of the previous five. scale of the Championship revenue record. the majority of this increase. League 2 clubs revenue increased by 6% to £91m. 24 Annual Review of Football Finance 2018 | Football League clubs

Championship clubs wage costs rose by Chart 14: Football League clubs’ revenues and wage costs – 2015/16 and 2016/17 (£m) 29% to £712m in 2016/17. The associated The Newcastle effect Championship League 1 League 2 significant growth in revenue however, Revenue means that there was a very slight Despite being relegated from the 800 720 reduction in the wages/revenue ratio Premier League to the Championship for 712 Wage costs 555 to 99%. the 2016/17 season, Newcastle’s core 600 wage bill actually increased (by c. 8%), 553 Wages/revenue ratio even when excluding promotion 400 Football League clubs’ wage costs bonuses and amounts written off as Average wage costs Newcastle United’s wage costs alone onerous contracts. The decline in per club 146 200 136 constituted 16% of the Championship total, with revenue recorded by the club meant 86 91 123 the club spending 4.5 times the median and that the wages/revenue ratio reached 113 Source: Deloitte analysis. 60 65 82% more than the second highest spender, 131%, while the club recorded the largest 0 15/16 16/17 15/16 16/17 15/16 16/17 Aston Villa. operating loss in the league (£55m). 100% 99% 83% 84% 70% 71%

Excluding Newcastle, the other 23 clubs Newcastle was effectively run as a 23.1 29.7 4.7 5.1 2.5 2.7 recorded a combined wages/revenue ratio of Premier League club taking what the 95% with the 18 consistent clubs recording a club described as a “financial gamble” to more modest wage growth of 9%. Wage costs, secure an immediate return. The result However, it is worth highlighting that the two however, still exceeded revenue at 13 clubs was positive as the club achieved teams who secured automatic promotion Wages and performance as owners invested in their playing squad in promotion and subsequently to the Premier League, Newcastle United pursuit of the glory and financial reward of consolidated their position in the and Brighton, were in the top four for wage Many have asked ‘for how long can promotion to the Premier League. Premier League by finishing 10th in the expenditure. clubs in the Championship continue to 2017/18 season. It remains to be seen outperform their wage expenditure?’ The Championship’s Spearman’s rank whether Newcastle’s success Given the revenue disparity noted earlier, Theoretically a wage differential must correlation coefficient in the 2016/17 season emboldens other clubs relegated from the fact that the correlation of wages and exist where a “poorer” team cannot was 0.5, up from 0.42 in 2015/16, indicating the Premier League to follow this performance is imperfect however, is compete with a “richer” team over a 46 a moderate correlation. Regression analysis strategy in the future. encouraging for the vitality of the competition. match season. suggests that wage expenditure explains 31% of variation in points earned, meaning that more League 1 and League 2 both recorded growth in Whether driven by increasing parachute than two thirds of the variation in performance wages equal to the growth in revenue, resulting payments, strong commercial/matchday is explained by factors other than wages. in increases in the wages/revenue ratio to 84% revenue, or owners willing to spend to and 71% respectively. Nevertheless, more achieve success, a widening financial gap The Championship continues to see clubs conservative wage expenditure remains a has been expected to overwhelm the significantly over and underperform compared feature of these leagues as a direct result of the impact of other internal factors (e.g. a to their wage ranking. Huddersfield, Leeds, Salary Cost Management Protocol regulations. losing mentality, the struggle to adjust Brentford and Preston all finished ten post relegation etc.) on performance. places above their wage ranking, while QPR, Thankfully, some individual clubs Nottingham Forest and Aston Villa all finished performance continues to defy this logic. eleven places below their wage ranking.

25 Annual Review of Football Finance 2018 | Football League clubs

For the second consecutive season, Chart 15: Championship clubs’ losses – 2012/13 to 2016/17 (£m) Championship clubs suffered record The cost of promotion 0 2012/13 2013/14 2014/15 2015/16 2016/17 operating losses, rising 14% to £288m. Pre-tax losses increased to £208m. It is worth noting that all three teams (60) -50 that gained promotion in the 2016/17 season (Newcastle, Brighton and 2 Football League clubs’ losses Huddersfield) recorded significant -100 The combined operating losses of the 18 6 (3) operating losses of c.£20m or more, consistent Championship clubs year-on-year (8) while none of the teams who recorded 4 increased by £13m. Most of the increase in total -150 1 operating profits made the play-off 3 (196) (9) operating losses was attributable to the change (10) positions. These three clubs had (10) in club mix, with the six new joiners recording -200 combined wage costs of £174m, albeit (239) (208) a £22m greater loss than the clubs they (234) over £30m of that amount was due to (225) replaced. Notably Newcastle and Aston Villa 4 bonuses contingent on promotion that -250 (248) 1 recorded operating losses of £55m and £19m 3 (253) (12) would have mitigated the losses. respectively. 1 (9) (13) 1 (288) -300 (10) Four clubs reported operating profits. This (323) (11) is a significant result given that only two Towards stability? clubs recorded an operating profit in the Operating profit/(loss) Number of clubs Notes: The operating result is the net previous season and that clubs may have been generating operating of revenues less wage costs and other The Championship has long been operating costs. The operating result tempted to overspend given the increase in Profit/(loss) before tax profit/pre-tax profit characterised by operating losses and excludes player trading and certain allowable losses under the new Profitability exceptional items, which are included in the club wages/revenue ratios approaching, and Sustainability rules effective from 2016/17 Average club operating pre-tax result, along with other costs such and then surpassing, 100% as owners season. loss/pre-tax loss as financing costs. pursue the glory and financial reward of the Premier League. The 2013/14 pre-tax loss included a one-off The substantial increase in pre-tax losses credit of £60m at Queens Park Rangers. for 2016/17 is a result of the inclusion of a Clubs’ pre-tax profitability remained relatively However, if the gap between the richer £170m waiver of the loan balance from Bolton stable in League 1 in 2016/17, with losses of The 2014/15 pre-tax loss included one-off and poorer teams continues to widen, it credits of £26m at Cardiff City and £11m at Wanderers in their 2015/16 financial statements. £36m equating to £1.5m per club (2015/16: Reading. is possible that the aspirations of some If this write off is excluded, pre-tax losses £1.6m). League 2 losses totalled £18m club owners may shift from purely actually reduced by 10% in the 2016/17 season. equivalent to £0.8m per club, up from £0.5m, The 2015/16 pre-tax loss included one-off promotion towards becoming an The underlying improvement in pre-tax losses is with the increase predominantly a result of the credits of £170m at Bolton Wanderers, established Championship team. £18m at Nottingham Forest, £12m at Derby almost entirely explained by the change in club change in club mix. In most cases these deficits County, and £10m at Cardiff City. mix as the 18 consistent Championship clubs are required to be covered by the clubs’ owners. As a result the motivation for middle tier recorded a small (3%) increase in losses. The 2016/17 pre-tax loss included and below clubs to spend beyond their provisions for onerous contracts of £22m means may be reduced, particularly as at Newcastle United, and a one-off credit of £40m at Nottingham Forest. cost control regulations become more embedded with time, leading to greater Source: Deloitte analysis. longer term financial stability.

26 Annual Review of Football Finance 2018 | Football League clubs

The 2016/17 season saw a substantial Chart 16: Championship clubs’ net debt – 2017 (£m) increase in Championship clubs’ aggregate Individual club analysis net debt, up 33% on the previous season 100 26 to £1.8 billion, albeit this was significantly The top ten most indebted clubs in the (8) (16) 4 4 9 (12) (19) 1 impacted by the changed population of Championship accounted for 81% of the 0 (45) (57) (53) (60) (78) clubs in the division. The proportion of overall net debt in the division, around (75) (82) (95) total net debt represented by interest-free the same proportion as the year before. (18) -100 (99) (81) soft loans from shareholders increased to All of the top ten increased their net (153) y 78% in 2017 (60% in 2016). debt, with the increases largely due to (191) Brentfor d

additional funding from owners. -200 Aston Villa Bristol Cit y Fulham Ipswich Town Cardiff Cit y Other clubs Derby Count Football League clubs’ net debt It is worth noting that four of the five -300 Blackburn Rover s Total Total The combined net debt of the 18 consistent most indebted clubs at the end of the (289)

Newcastle United 2017 2016 Championship clubs year-on-year grew by 19% 2016/17 season have since been -400 (426) (45) (56) to £1.3 billion. The increase in debt levels was promoted to the Premier League. This

widespread, with only two clubs recording debt result lends further support to the Brighton & Hove Albion (352) (496) reductions. The vast majority of the increase argument that the most successful -500 (1,416) (816) (£184m) was due to increased soft loans. Championship clubs in recent seasons have required significant financial (434) (207) (149) (140) (129) (107) (94) (82) (71) (59) (343) (1,813) (1,368) The additional increase in net debt is a result in support from their owners. 2 0 (1) (1) (8) (1) (1) (0) (1) (0) (3) (14) (20) the change of club mix, specifically the return of Newcastle United to the Championship. With an estimated net debt of £434m, predominantly Net cash/bank borrowings in the form of soft loans owed to companies The combination of soft loans from Future trends controlled by ultimate owner Mike Ashley, shareholders and other loans rose slightly to Other loans Newcastle was the most indebted club in the 98% of total net debt, again reinforcing the fact While we have suggested earlier that the changing Championship. that Championship clubs are almost entirely Soft loans dynamics of the Championship may promote greater funded by non-interest bearing financing. financial stability in the future, the reality is that it may Bank loans accounted for £64m of the Net debt take some time until this translates to many clubs being division’s total net debt (4%), down from £83m able to operate independently of the financial backing of (6%) in 2016. Bank loans are almost entirely Net finance costs their owners. The current results demonstrate that the attributable to the £50m loan held by Bristol vast majority of owners have funded, and are continuing City, with traditional financial institution funding Note: Net debt for Newcastle to fund, clubs through soft loans and equity injections appearing to be challenging for Championship United is based on figures and therefore remain committed to pursuing promotion disclosed in financial statements of clubs to attain. Cash reserves decreased by to the Premier League. Pleasingly, 2017/18 represents the Newcastle United Ltd and St. James £8m in 2017 to £19m at year end. Holdings Ltd. fifth consecutive season where there have been no insolvency events in the Football League, demonstrating Source: Deloitte analysis. some reason for optimism about the long term shift towards financial stability.

27 Annual Review of Football Finance 2018 | Sports Business Group

Player transfers

The 2016/17 season saw another year of Net transfer expenditure actually fell slightly to Football League clubs transfer activity Aston Villa, relegated to the Championship for record expenditure by Premier League below £750m with amounts paid to overseas The trend of Championship clubs spending the 2016/17 season, was the Football League’s clubs of £1.6 billion on player additions, a clubs remaining consistent. The increased heavily in an attempt to reach the promised biggest spender, with the club incurring £88m 20% increase on last season’s then record spending within the Premier League may land of the Premier League has again driven on player additions. This was almost three times of £1.3 billion. Football League clubs also indicate a shift in the strategies of clubs as they substantial growth in transfer spending in the the amount invested by the second biggest experienced a particularly marked increase look to acquire more proven Premier League Football League, with gross transfer expenditure spenders, Wolverhampton Wanderers (£32m). in transfer spending, with £328m spent in talent. increasing by around three quarters to £328m. the 2016/17 season, an increase of 76%.

Chart 17: Premier League and Football League clubs’ player transfer payments Premier League clubs transfer activity – 2016/17 (£m) The squeezed middle? Transfer expenditure by Premier League clubs increased 20% to a new record of £1.6 billion Note: Arrows represent the flow A UEFA study noted that the average of transfer payments, with players in the 2016/17 season. Agents also benefitted £894m agent commission rate for European moving in the opposite direction. from this increased expenditure, with monies to transfers was 13% of the fee. With Premier League clubs The estimated fees in respect of the agents increasing by 9% to £174m. Intra-Premier Within PL clubs transfer of player registrations refer amounts in the transfer market League transfers increased markedly, with £392m £369m to amounts committed in 2016/17, continuing to inflate annually the sums Non-English rather than actual cashflows. The £392m of expenditure, an increase of 84%. Premier League total flowing to agents seem to be increasing clubs sources for the amounts in the £1,599m inexorably. chart relate to periods that are not Both Manchester-based Premier League necessarily coterminous. £139m clubs led the way in player registrations, £36m As a consequence the Premier League, with Manchester United (£205m – a new Source: Premier League; Football in addition to FIFA and UEFA, is League; Deloitte analysis. Premier League record by around £30m) and £174m considering potential regulations to Manchester City (£204m) accounting for over a £80m govern intermediaries due to growing £98m quarter of total transfer expenditure by Premier Football League concern around the sums being paid to League clubs. Four other clubs (Arsenal, Chelsea, clubs agents. FIFA has established a working Within FL clubs Crystal Palace and Leicester City) recorded party to investigate how transfer Agents £104m additions to player registrations of over £100m, systems can be reformed, and UEFA with the average player registration additions for Football League total has publicly stated that it is looking at £328m Premier League clubs being almost £80m. £46m how a potential cap on fees paid to intermediaries could work.

28 Annual Review of Football Finance 2018 | Sports Business Group

Fields of dreams

The 2016/17 season on which this edition key task is to connect and align the interests of Player/Academy product Sold by Sold to Reported fee (£m) of the Annual Review focusses was the the academy and first team. Jordan Pickford Sunderland Everton 25 fifth year of the Elite Player Performance Plan (“EPPP”), the Premier League’s Youth Clubs are currently approaching the challenge Kelechi Iheanacho Manchester City Leicester City 25 Development Programme introduced at of providing first team experience in different Nathan Ake Chelsea AFC Bournemouth 20 the start of the 2012/13 season for the ways. These include using the U23 team as a Ross Barkley Everton Chelsea 15 professional game in England. Below we stepping stone to the first team, sending players summarise the system, and assess the out on loan (typically to overseas clubs or to Jacob Murphy Norwich City Newcastle United 12 differing approaches to readying players lower divisions in England), or more commonly Francis Coquelin Arsenal Valencia 12 for first team football taken by clubs at all a combination of both. More recently, the multi- Wojciech Szczesny Arsenal Juventus 10 levels of the football pyramid. club ownership model in place at Manchester City has allowed the club to loan players to Jadon Sancho Manchester City Borussia Dortmund 10 With the ultimate rationale of the EPPP system other clubs within the group to play first team Adnan Januzaj Manchester United Real Sociedad 9.8 being to produce professional footballers, football (e.g. with Girona in La Liga). Bertrand Traore Chelsea Lyon 8.8 attention tends to fall on the Professional Development Phase (PDP), being the last EPPP Ultimately all clubs will want to maximise the Source: Deloitte analysis. phase (covering U17 to U23) within which return on the investment in their academy, players will be offered a senior contract. The either through academy products playing in the Achieving a positive return on investment for including links with the first team, senior link between academy and first team, and first team (thus saving transfer fees) or by selling an academy is therefore particularly variable, club management and ultimately the board. more pertinently the ability to transition from academy products to other clubs. First team driven by a number of factors including transfer Communication and decision making protocols an academy to first team player is vital for an exposure either at the parent club or on loan is fees, wage bill and contract renewals. While need to be fully aligned with academy KPIs in academy to be successful. critical in maximising player development and for Premier League clubs the annual operating order to ensure academy products are provided transfer value. costs of a category 1 academy may seem with sufficient opportunities to progress to The strength and international composition of relatively insignificant and therefore worthwhile first team football either at the parent club or Premier League squads however means that The ten highest value transfer fees received on the off-chance of producing either a regular elsewhere. Only if such measures are in place one of the greatest challenges facing Premier by English clubs for academy products in the first team player or player that can be sold for will a club truly be able to maximise its return on League clubs is how to get playing experience 2017/18 season’s transfer windows are shown multiple £millions, the same figure represents academy investment. for their youth players. Given the high turnover adjacent – it is interesting to note that all came a far greater proportion of a club’s revenue for rate of managers, it is understandable that from category 1 academies. Given that the those in the Football League. The Sports Business Group at Deloitte many are reluctant to provide opportunities average (median) running cost of a category 1 has worked with a number of clubs with to youngsters when their own career is on the academy is c.£4m p.a., the values achieved What is evident is that in order to maximise category 1 academies on projects to help line. This is often part of the rationale for the indicate that it only takes one sizeable transfer the return on investment of an academy its maximise their return on investment, appointment of a Sporting Director, for whom a to cover these costs for several years. operations need to be carefully managed, including financial and operational reviews. 29 Annual Review of Football Finance 2018 | Sports Business Group

Stadia

Total attendances at Premier League and Chart 18: Premier League and Football Football League matches increased to Football League clubs’ League clubs’ average matchday European attendance their highest levels in almost 60 years in attendances – 2013/14 to 2017/18 (000s) levels the 2017/18 season, driven predominantly attendances by a 7% increase in the Premier League – Championship clubs’ total attendances 50 There was impressive growth in the meaning over one million more attendees at grew by 2% in the 2017/18 season, 38.5 Premier League’s average matchday games over the season. The Championship despite the promotion of Newcastle 40 36.7 36.2 36.5 35.8 7% attendance in 2017/18 but the same was also saw an attendance increase of 2%. United who had the highest average also true in the German Bundesliga so attendance in the previous season. The the latter still holds the title of the 30 Premier League clubs’ attendances loss of Newcastle United was offset by best-attended football league in the Premier League total attendances increased relegated Premier League clubs, as well 20.2 20.5 2% world. Bundesliga average matchday 17.9 17.6 to 14.6m, up 7% on the previous season, with as the promotion of Sheffield United, 20 16.6 attendance was over 44,000, more than an average stadium utilisation of 96% resulting who had the sixth highest Championship 5,500 above that of the Premier League. 8.0 7.8 2% in average matchday attendance approaching attendance in the 2017/18 season. 10 7.6 7.2 7.2 There were seven English clubs that 38,500. The main driver of this was Tottenham Average attendance across the averaged crowds of over 50,000 per 4.4 4.7 5.0 4.9 4.5 7% Hotspur’s season at Wembley Stadium. The Championship was more than 20,500, league match, compared with six in 0 13/14 14/15 15/16 16/17 17/18 club saw a matchday attendance increase of meaning it was above 20,000 for the Germany. 123% (compared with their last season at White second consecutive season. Stadium utilisation Hart Lane) to over 70,500 per game resulting in 96% 96% 96% 96% 96% Looking at other ‘big five’ European almost 740,000 additional spectators watching However, League 1 and League 2 both 65% 68% 65% 72% 73% leagues, in Spain, La Liga crowds the team’s Premier League fixtures. 17 clubs saw attendance decreases. League 1 48% 46% 47% 50% 51% dipped slightly to 27,000. However, saw stadium utilisation above 95%, compared saw average attendance drop by 2%, Italy’s Serie A saw a significant jump up 48% 48% 51% 47% 42% with 15 in the previous season. All but one club impacted by the promotion of Sheffield to almost 25,000 and the French Ligue had a utilisation above 90%. United and Bolton Wanderers, who were 1 saw a modest increase to 22,500. 1st and 3rd in average attendance in Premier League League 2 Despite Atlético de Madrid moving to a The continued draw of the Premier League League 1 in the 2016/17 season. League new stadium, and both Barcelona and is evidenced by the attendances of clubs 2 attendance decreased by 7%, driven Championship Change 2017/18 Real Madrid having plans to improve promoted for the 2017/18 season, with all three predominantly by the promotion of versus 2016/17 (%) their stadia, we do not expect this will clubs effectively filling their stadia for every Portsmouth to League 1. League 1 threaten the dominance of the match. This represented an increase of 18% Bundesliga and Premier League in for Huddersfield Town, 9% for Brighton & Hove Source: Premier League; Football League; terms of attendance. Albion and 2% at Newcastle United. Deloitte analysis.

30 Annual Review of Football Finance 2018 | Stadia

Capital expenditure by Premier League Chart 19: Premier League and Football and Football League clubs rose by 45% to a Football League clubs’ League clubs’ expenditure on stadia and Future capital record £452m in the 2016/17 season. capital expenditure other facilities – 2015/16 and 2016/17 (£m) expenditure 500 452 It is likely that Tottenham Hotspur will 3 6 Premier League clubs’ capital expenditure Championship clubs spent £48m on 48 again be the largest capital spenders in

£395m was spent by Premier League clubs in capital expenditure in 2016/17 season, a 400 395 the 2017/18 season, with their White 2016/17, a significant increase of £160m (68%). reduction of £20m (29%) on the 2015/16 313 Hart Lane redevelopment scheduled to season. Fulham were the division’s 5 5 open for the 2018/19 season. Chelsea 300 68 The key component was £221m spent by largest spenders in the 2016/17 season, are continuing through the planning Tottenham Hotspur on their new stadium, spending £12m. Looking forward, Fulham 235 process for the redevelopment of and their expenditure accounted for 56% of have had their planning application 200 Stamford Bridge which would take the total capital expenditure in the league. When approved for the redevelopment of the capacity of the stadium to 60,000. opened, the planned 62,062 capacity would be Riverside Stand at Craven Cottage, which 100 However, they are reportedly unlikely to the second highest in the Premier League after would add almost 4,000 extra seats, complete the project before the Old Trafford (75,454). Although the London bringing total capacity to 29,600. Bristol 2023/24 season. Crystal Palace also 0 2015/16 2016/17 Stadium capacity has been reported to be City spent £6m as they completed their obtained planning permission in April 66,000, the stadium is currently only licenced Ashton Gate stadium rebuild and fit out. 2018 to build a new main stand, which for 57,000 attendees for West Ham matches. Significant amounts were also spent by Premier League League 1 would increase capacity by 8,000 seats. Derby County (£5m) and Brentford (£4m). Excluding Tottenham Hotspur, year-on-year Championship League 2 In addition, the capacity-constrained capital expenditure growth was still 13%. League 1 clubs spent a combined £6m, nature of many Premier League clubs The second highest spender in the division up from £5m the season before. Charlton Source: Deloitte analysis. means several potential projects are in was Liverpool (£49m) whose infrastructure Athletic accounted for over £1m of this the offing in the medium term, including programme includes the completed expenditure. Everton’s quest to build a new stadium redevelopment of Anfield’s Main Stand, a new at Bramley-Moore Dock, Liverpool’s retail store, training ground redevelopment In League 2 capital expenditure was redevelopment of the Anfield Road and a new pitch at Anfield. Arsenal (£25m) down slightly at £3m. stand, Leicester City’s expansion of the and Manchester City (£28m) were the only King Power Stadium and AFC other clubs to spend over £10m on capital Bournemouth pursuing a new stadium. expenditure in the season. Increase in average Premier League stadium capacity over the past 20 years Elsewhere in The Football League, Only five clubs spent less than £1m, indicating Exeter City still plan to have their £3.5m Premier League clubs are still committed to ground redevelopment completed by improving their stadia and maximising the summer of 2018 and Brentford broke matchday experience. 32,386 +21% 39,037 +3% 40,096 ground on their planned 17,250 1997/98 capacity new stadium in March 2018 2007/08 2017/18 with completion planned for late 2019.

31 Annual Review of Football Finance 2018 | Sports Business Group

Moore’s Law

Advances in technology (SVOD) services like Netflix, and video piracy. For event attendees, advances in technology and broadcasters launching dedicated online- and increasing competition Deloitte predicts that the decline in traditional improve the fan experience. Examples include only, ‘over-the-top’ (OTT) media platforms. TV viewing will continue at a slower rate for the digital ticketing, biometric security systems, Yet platform developers should beware the for consumers’ time and next couple of years in the US, Canada and the way-finding advice, targeted advertising, fan paralysis of choice – and additive cost – of attention are driving sports UK before levelling out as the peak of these engagement activities and in-the-moment multiple potential individual subscriptions. Many impacts is reached. offers and complementary viewing consumers may turn full circle back to content organisations to innovate and options such as Augmented Reality. aggregators who reduce the confusion of choice improve the fan experience Yet in 2017 young people still watched and provide simple, easy-to-navigate platforms, an average of over 100 minutes of with content curated to suit their tastes. both at the venue or at home. traditional TV per day in the US, and One to watch sport continues to be a dominant Viewing of eSports events grew part of the ‘core’ of traditional TV to an estimated six billion hours in Connecting the dots Whether imperceptibly, through the use of data content that younger viewers continue 2016, a fivefold increase on 2010, yet A unifying thread through content platforms analytics and process automation, or more to prefer watching live. revenue generated from live-viewing of and use of technology in the game-day overtly in the choice of how, when and where eSports is forecast to represent just c.1% of all experience is the ability to learn more about we watch sports, technology continues to have live revenue in 2018. Nonetheless, this growth the fans themselves. Sports organisations can a significant impact on the sports industry. Live thrives in an online world trend is expected to continue as eSports then harness the power of data analytics Despite the mantra of consumers demanding establish more mature competition to provide a more individual offering Deloitte recently published the 2018 edition content ‘anytime, anywhere and any format’, the models and complement traditional to each fan, making the best sports of our annual technology, Media and thrill of watching ‘now’ means that live viewing of sports. organisations the winners in the Telecommunications (‘TMT’) predictions. sports events still thrives. Fear of missing battle for their attention. Here we apply a sporting filter to some out, the desire to be part of a shared of the more pertinent themes. yet exclusive experience, and the The subscription prescription Sports rights holders need to stay aware convenience and inertia associated Deloitte predicts that by the end of 2018, of wider consumption trends and embrace with scheduled events all 50% of adults in developed countries will have digital developments to position their sport for The kids are alright contribute towards the enduring at least two online-only media subscriptions, a digitally-global, fast-paced and healthy future. In the past five years millennials, and appeal of live sports on TV. doubling to four by the end of 2020. trailing millennials (18-24 year olds) The Sports Business Group at Deloitte, in particular, have been lured away from Digital platforms are wrongly In the sports industry, such advances in together with Deloitte experts in data traditional TV by smartphones, computers, categorised as a substitute for live event technology and the desire from consumers analytics and digital strategies, have social media, YouTube and other short-form viewing; traditional and digital platforms are not to pay for ad-free, on-demand and digitally- provided advice on these matters to sports aggregators, subscription video-on-demand necessarily in competition. fragmented content has led to rights holders organisations across the entire value chain.

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Basis of preparation

Sources of information verification work or audited any of the change in basis of accounting Key terms Operating profit/loss is the net Bank borrowings is debt advanced The financial results and financial the financial information contained practice. In some cases these Revenue includes matchday, of revenue less wage costs and by lenders in the form of term loans, position of English football clubs for in the financial statements or other changes may be significant. broadcast, sponsorship and other operating costs, excluding overdrafts or hybrid products, net 2016/17, and comparisons between sources in respect of each club for commercial revenues. Revenue amortisation of player registrations, of any positive cash balance. Other them, has been based on figures the purpose of this publication. The number of clubs in the top excludes player transfer fees, VAT profit/loss on player disposals, loans includes securitization and extracted from the latest available division of each country can vary and other sales related taxes. certain disclosed exceptional items, player finance monies, bonds and company or group statutory financial over time. In respect of the ‘big five’ and finance income/costs. convertible loan stock, intercompany statements in respect of each club – Comparability leagues for 2016/17, each division Matchday revenue is largely derived Pre-tax profit/loss is the operating loans and loans from related parties which were either sent to us by the Clubs are not wholly consistent with had 20 clubs except for Germany from gate receipts (including result plus/minus amortisation of that are not otherwise soft loans. club or obtained from Companies each other in the way they record (18 clubs). general admission and premium player registrations, profit/loss on Soft loans includes amounts from House. In general, if available to us, and classify financial transactions. tickets). Broadcast revenue includes player disposals, certain disclosed related parties with no interest the figures are extracted from the In some cases we have made The figures for some comparative distributions received from exceptional items, and finance charged. annual financial statements of the adjustments to a club’s figures years have been re-stated compared participation in domestic league income/costs. legal entity registered in the United to enable, in our view, a more to previous editions of this report and cups and from European club Kingdom which is at, or closest to, meaningful comparison of the due to changes in estimates competitions. Unless sponsorship Under UK GAAP and IFRS, the Exchange rates the ‘top’ of the ownership structure football business on a club by club arising from additional information revenue is separately disclosed, costs to a club of acquiring a For the purpose of the international in respect of each club. The vast basis and over time. For example, available to us and/or due to the commercial revenue includes player’s registration from another analysis and comparisons we have majority of English clubs have an where information was available to actual restatement by clubs of their sponsorship, merchandising and club should be capitalised on the converted the figures for 2016/17 annual financial reporting period us, significant non-football activities annual financial statements. other commercial operations. Where balance sheet within intangible fixed into euros using the average ending in May, June or July. or capital transactions have been identifiable from a club’s disclosures, assets. Generally, the capitalised exchange rate for the year ending excluded from revenue. distributions received in respect of amount is subsequently amortised 30 June 2017 (£1 = €1.16); for years The financial results and financial Financial projections central commercial revenues are over the period of the respective prior to 2016/17 comparative figures position of clubs in various non- Some differences between clubs, or Our projected results are based on included in commercial revenue, player’s contract with the club. The as extracted from previous editions English leagues, and comparisons over time, may arise due to different a combination of upcoming figures or otherwise included in broadcast potential market value of ‘home- of this report; and the figures for between them, has been based on commercial arrangements and how known to us (for example, central revenue. grown’ players is excluded from years since 2016/17 converted into figures extracted from the company the transactions are recorded in the distributions to clubs) and other, in intangible fixed assets as there is euros using the average exchange or group financial statements financial statements (for example, our view, reasonable assumptions. Wage costs includes wages, no acquisition cost. Amortisation of rate for the 10 months ending 31 in respect of each club, or from in respect of merchandising and salaries, signing-on fees, bonuses, player registrations is as disclosed April 2018 (£1 = €1.13). information provided to us by hospitality arrangements), due In relation to estimates and termination payments, social in a club’s accounts, increased by national associations/leagues. to different financial reporting projections actual results are likely security contributions and other any provisions for impairment of the perimeters in respect of a club, and/ to be different from those projected employee benefit expenses. Unless value of player’s registrations. If financial statements were not or due to different ways in which because events and circumstances otherwise stated, wage costs are the available to us for all clubs in a accounting practice is applied such frequently do not occur as expected, total for all employees (including, Net debt/funds is as disclosed division, then aggregate divisional that the same type of transaction and those differences may be players, technical and administrative financial statements (where shown) totals have been estimated for all might be recorded in different ways. material. Deloitte can give no employees). or is an aggregation of certain clubs for comparison purposes (from assurance as to whether, or how figures from the balance sheet. The year to year or between divisions). Each club’s financial information closely, the actual results ultimately net debt/funds figure in the financial has been prepared on the basis of achieved will correspond to those statements has been adjusted in This publication contains a variety national accounting practices or projected and no reliance should be some cases to aid comparability, of information derived from publicly International Financial Reporting placed on such projections. such as the inclusion of related party available or other direct sources, Standards (“IFRS”). The financial debt. Net debt/funds includes net other than financial statements. results of some clubs have changed, cash/ bank borrowings, other loans, We have not performed any or may in the future change, due to and soft loans.

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