Football FinancesAs a businessman and avid football fan I’m always intrigued to read stories in the press about the poor financial structure of professional football clubs. It is a topical subject at the moment with the last few years seeing some of the biggest names in football enter administration; including Portsmouth, Leeds United and most notably Glasgow Rangers.
In the first of a series of blogs on the ‘numbers behind the clubs’ I intend to try and open the books on some of football’s biggest names. This first blog will look briefly into the wage structure of Premier League clubs and compare the size of a clubs wage bill to their relative success (or lack of) in the Premier League.
BackgroundPremier League clubs spend on average £80m on Wages alone every season and this equates to an average 70% of their annual turnover. The business model is different to a standard organization as wages form a major part of the success of the club and therefore is always going to be a major cost. The problem we are beginning to see however is that they are becoming unsustainable for certain clubs seeking success quickly. If they do not reach the heights they are expecting then these high wage costs can be an issue. A prime example of this is Leeds United. When they were relegated in 2004 the club had a wage budget equivalent to teams playing champions league football. This eventually took its toll and the club were forced to sell its best players and subsequently dropped out of the division thus being a prime example of when chasing the Champions League dream failed. Leeds have since been playing League One football and have been into administration.
2009/10 SeasonThe blog will be based on two seasons firstly looking at the 09/10 campaign.
This campaign was won by Chelsea. After vasts amounts of money was spent on the playing squad at Stamford Bridge they have broken the mould at the top of the pile and are now a real force in the Premier league. This is not to say that this hasn’t come at a cost however, as you can see from the graph below they are over 80% wages/turnover. Manchester United continues to perform well on a smaller wage budget but this is helped by the huge revenue made by the club. In the other side of the scale we can see where a high wage cost does not guarantee success. Hull City have a wages/turnover percentage of 81% and due to poor performances they will be taking these into the Championship.
The above graph compares the clubs final league position relative to their ranking of wages/turnover, we can see any club whose wages/turnover ranking (blue line) are over the league place (red line) shows they have ‘outperformed’ based on their relative wages. Fulham and Burnley are the two clubs that have finished in positions relative to the money spent on wages. From a Burnley perspective they may feel if they had spent more on wages they may have had a chance to stay up however, as seen before this is a risky strategy as highlighted by Hull City who spent more but still succumbed to relegation. Wigan Athletic look to be in a negative position as their wages to turnover ranking is 2nd highest in the league however, they are not too far off relegation which at the current level of wages could be disastrous. Manchester United, Tottenham and Arsenal can class their campaign a success with their league positions relative to wages. Manchester City have spent heavily on the playing squad in an attempt to win the league which finally happened in the 2012 season. Another example of big wage spend can equate to success!
2010/11 SeasonNext we will look at the 10/11 season which was eventually won by Manchester United. They have shown the league how success and wages can be controlled by having a wages to turnover percentage of just 46%. They are helped however, by their huge commercial success signing big sponsorship deals with Nike, Aon and DHL which pushed turnover up 16%. On the other end of the scale, West Ham United have shown the league exactly how NOT to handle wages by allowing their wages to turnover percentage to be 70% and finished bottom of the league. The wages to turnover ratio was the 12th highest in the league and all the sides above them with higher wages finished in the top 10. The graph below shows total wages to turnover percentage across the league.
Below is taking a different angle in showing wages/turnover percentage against league position:
Again as with the previous season, the above graph compares the clubs final league position relative to their ranking of wages/turnover, we can see any club whose wages/turnover ranking (blue line) are over the league place (red line) shows they have ‘outperformed’ based on their relative wages. As you can see Manchester United were 19th in the table on wages ranking but 1st on league position thereby over performing, West Ham however in contrast are at the opposite end of the scale as explained above. If we look at teams like Blackpool and Fulham however, they seem to be performing relative to their respective wages/turnover ranking, Blackpool (finishing) 19th and 19th, Fulham 7th and 8th respectively. Other teams showing performance relative to wage structures are Aston Villa and Bolton. They are 2nd and 3rd respectively in their ranking however both finished well below this in the league. In fact when comparing to this year both clubs battled against relegation with Bolton eventually succumbing on the final day and will be playing Championship football.
ConclusionI think that there are signs here that you can link spending on wages to the league position of a club and it is quite clear that big spending on wages can push you up the league. However, this is not true across the board (ask Aston Villa and especially Bolton fans) but I can see why clubs feel that success can be bought in the league. Although player wages will always be a high cost to professional football clubs, it is important to remember they are still a business and need to make profit to survive.
The views above are my personal analysis of the figures and I welcome any comments and/or suggestions on any of the above analysis.
We also offer free consultation’s to discuss any business portfolios/ organisation’s in order to help reduce costs and improve revenue. If you are interested then please visit our website
www.dsaccountancy.co.ukNotes: 2009/10 figures do not include Portsmouth due to administration making accessing accounts difficult. 2010/11 figures do not include Birmingham City as they have yet to file their accounts. All figures are taken from company accounts obtained via
www.duedil.com
