By David Owen
June 5 – Not for the first time, wage growth is casting a shadow over English club football’s financial performance. The latest issue of Deloitte’s Annual Review of Football Finance, covering the 2012-13 season, has found that the widely-watched wage:turnover ratio of the 20 Premier League clubs reached a record high of 71%. This was after wages rose by an enviable 8% to £1.8 billion.
What is more, Adam Bull, senior consultant in the professional services firm’s sports business group, suggests that total wage costs might have shot up last season to as much as £2.2 billion – a further well over 20%. Happily, the league’s new broadcast deals, which Deloitte estimates will have pushed up revenues by close to 30% for the season just ended, leave clubs so well placed to afford such rises that the wage:turnover ratio may well come down.
According to Bull, “the pattern in spending on wages following previous increases in broadcast deals, suggests it’s likely around 60% or more of the revenue increase in 2013-14 will flow through to wages.
“On that basis, we would expect Premier League total wage costs to reach a new record level of around £2.2 billion. However, given the forecast increase in revenue, this would also return the wages to revenue ratio below 70% for the first time since 2009-10.”
The size of Premier League pay packets clearly makes it a struggle for clubs to generate what would be seen as an acceptable rate of return for many industries. Deloitte’s calculations put the operating margin attained by Premier League clubs in 2012-13 at a less than impressive 3%. By way of comparison, clubs in Europe’s most profitable league, Germany’s Bundesliga, produced operating profits of £226 million on revenue of £1.7 billion – a margin of more than 13%.
More encouragingly, 13 of the 20 Premier League clubs managed to make an operating profit in 2012-13, up from 10 the previous year.
Aggregate operating profit among Premier League clubs reached £82 million on record revenue of £2.53 billion. This is expected to climb to £3.2 billion in 2013-14.
Bull’s Deloitte colleague Dan Jones noted that match day revenue for the league was up 6% in 2012-13, with, he said, “fewer unsold seats at Premier League games than ever before”.
With UEFA’s Financial Fair Play (FFP) regulations looming, net debt nonetheless climbed 6% from a year earlier to £2.5 billion. Deloitte said though that £1.6 billion of this took the form of non-interest bearing “soft loans”.
Deloitte said 2012-13 was “a particularly bleak year for the finances of Championship clubs”, the English second tier.
A revenue reduction of £39 million was compounded by a £40 million increase in wage costs, leading to record operating losses of £241 million. Pre-tax losses also increased by £170 million to £323 million.
Most worryingly of all, Championship clubs actually paid out more in wages alone than they received in revenue. Said Bull: “The 2012-13 wages to revenue ratio for Championship clubs of 106% is the highest ever recorded by an English division.” It was, he said, “clearly unsustainable without ongoing owner support”.
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