Member Article

English Premier League can't turn revenue into profit

The English Premier League saw revenues increase by 52% between 2007 and 2011, but rocketing wage packets and interest on debt has hampered profit growth.

A piece of research from Coventry University’s Centre for International Business of Sport (CIBS) says Preimer League revenues were predominantly spent on wages and amortised transfer fees.

Despite rapid ascendancy in revenues over the four years, the Premier League has failed to convert revenue growth into profit.

The CIBS suggest that League’s reliance on borrowed funds lead to large amounts of interest.

Huge losses before interest and tax meant the League was unable to cover interest costs, even though net interest payable fell from £128m in 2007 to £79m in 2011.

Looking at individual clubs, Manchester City’s wages of £174m exceeded the club’s revenue of £153m. Since the club was acquired by Sheik Mansoor in 2008, it has invested heavily in new players and wages, leading to amortisation and impairment of £113m in 2011.

It was similar story at Aston Villa, Birmingham City, Blackburn Rovers, Bolton Wanderers, Chelsea, Sunderland and Wigan.

At Manchester United however, £153m was spent on wages and revenue was in excess of £331m. CIBS reported that even with over £440m debt, the club was able to report a pre-tax profit of almost £30m.

Philip McCosker from Coventry University’s Centre for the International Business of Sport (CIBS), who carried out the research, said: “Although broadcasting contracts have resulted in a huge increase in revenue, our research shows that players’ wages and transfer fees have risen at an even faster rate meaning that clubs in the English Premier League have been unable to generate an aggregate profit. Several years of large losses have eroded shareholders’ equity leaving a number of clubs reliant on debt.

“The ratios also highlight some worrying trends that clubs must address in order to comply with the requirements of UEFA’s Financial Fair Play Rules. Clearly a tighter control of key costs together with a huge injection of equity from shareholders is necessary to redress the EPL’s dependence on debt and ensure that clubs are able to meet the requirements of these rules.”

“Although supporters might argue that in the case of Manchester City, the playing success has been worth Sheik Mansoor’s investment, UEFA’s Financial Fair Play Rules should ensure that in the future no European club can report such a huge loss.”

Professor Simon Chadwick, Director of CIBS, emphasises: “CIBS is engaged in the ongoing monitoring and analysis of football clubs’ financial performance.This current research is especially worrying because it highlights the ongoing role that debt plays in football. UEFA’s FFP initiative is an important development, but there remains a clear need for clubs to addresstheir finances in a more effective, dynamic and proactive way. CIBS anticipates being able to make a contribution to this process.”

This was posted in Bdaily's Members' News section by Tom Keighley .