2010-07-12 / Football Finances: German Bundesliga outperforms English Premier League

With the kick-off on 11 June of the 2010 World Cup in South Africa comes the latest news of the finances of the ‘beautiful game’ proving that football is not only the world’s favourite sport but also its most lucrative one.

In 2009, the turnover of FIFA, the world governing body of football, amounted to more than US$1 billion and the profit for the year was US$196 million. In addition, FIFA has assets (equity) of US$1.061 billion. Impressive figures indeed!

At the same time, the Sport Business Group of the international accountancy firm Deloitte’s has just published its latest Annual Football Finances Review. Again, some very impressive figures!

Here are some of the highlights of this Review:

Perhaps the most important fact to emerge from this Review is that the operating profits of the English Premier League fell by more than 50% to £79m - their lowest level since the 1999/2000 season; whilst the German Bundesliga overtook the English Premier League to become the world's most profitable football league – at least, for the moment!

Nevertheless, the English Premier League continues to be the world’s most popular league, drawing world-wide audiences of several billions in total. Naturally, the Deloitte’s Review concentrates on the financial fortunes of the English Premier League, where the wages bill continues to be very high and is causing concern in football and government circles.

According to Dan Jones, the Editor of the Review: For every £100 that comes into Premier League clubs £67 goes on wages, and that's too high.

In fact, soaring wages are threatening the stability of the English Premier League clubs, according to a recent report into football finances in the UK.

English Premier League clubs spent 67% of their revenues, or £1.3 billion, on player wages during the 2008/09 season; with Chelsea again topping the wages bill, at £167 million, whilst Manchester City's wages bill rose from £54 to £83 million!

The wages bills of the top English Premier League clubs in the 2008/09 season were as follows:

The UK Sports Minister, Hugh Robertson, has described the rise in wages as very worrying but has also stated that the Government should not intervene, but rather be looking to put pressure on football governing bodies to improve financial practice:
The concern is that the operating profits have halved and the wages bill has increased and we will be pushing football's regulatory authorities very hard to take some action. This report points to a very worrying problem and we are very keen to see action in four areas: financial transparency, the relation of debt to turnover, the fit and proper person test and more independent governance on the board. It is absolutely right that we should give football the first opportunity to sort this out.
Dan Jones added that the wages ratio was above the 58% to 63% range of the past decade:
“The result is that profit margins are very thin or non-existent, and with the tightening of credit as well, that is really making that problem come into sharp focus now, and those debt levels start to pinch. 

Herewith in graphic form are the comparative wages/turnover ratios for the leading European football countries over the last 10 seasons:
 

The wages bills of the English Premier League clubs have recorded double-digit percentage growth for the last three years running. In the 2008/09 season, they were up by £132 million, or 11%, to £1.3 billion.

Total wages bills have grown by 55%, or £474 million, in that three-year period.

The growth in wages is difficult to slow down, given existing three or four-year [player] contracts, but must nonetheless be reined back to address clubs' declining profitability, Jones remarked.

Adding that the wages bills ratio in the English Football League was 86% as a whole and 90% in the Championship, which Jones considers is too high and needs to be brought back under control.

Of course, the challenging economic environment has taken its toll in restricting revenue growth at the English Premier League clubs of 3%, leaving it just short of the £2 billion level, at £1.981 million.

Also, only 10 of the 20 top league clubs made an operating profit in the 2008/09 season, one less than a year before.

Furthermore, the English Premier League club's net debt at the end of the 2008/09 season has increased to £3.3 billion from £3.2 billion the year before. However, just under half of that represented ‘soft loans’ from club owners.

Almost two-thirds, or more than £1.9 billion, of the total net debt related to Arsenal, Chelsea, Liverpool and Manchester United.

The Deloitte’s Review could not be more timely, coming, as it does, hard on the heels of the recent publication of the UEFA ‘Financial Fair Play Rules’. Against this background, it will be interesting to see how these rules are applied across Europe in the future and also how strictly they will be enforced by UEFA where European football clubs fail to ‘break even’ – in other words live - as many of them are already doing - beyond their means!

Ian Blackshaw is an International Sports Lawyer and Honorary Fellow of the TMC Asser International Sports Law Centre and may be contacted by e-mail at ‘ian.blackshaw@orange.fr’