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Wage spending hits Premier League club profits

English Premier League football clubs’ revenues rose to a new high in 2017-18, but increased spending on player wages contributed to reductions in operating and pre-tax profits, according to professional and financial services company Deloitte.

Analysis from Deloitte’s Sports Business Group detailed revenues of £4.8bn (€5.55bn/$6.18bn) in 2017-18, up from £4.6bn in 2016-17. The increase in revenue is in part attributable to the Premier League having a record five teams competing in the Uefa Champions League last year, all reaching the Round of 16 or beyond, resulting in a substantial increase of around £71m in financial distributions from European football’s governing body to Premier League clubs.

Alongside the increase in Uefa distributions, matchday and commercial revenue both grew by eight per cent and 12 per cent, respectively. However, wage costs increased by 15 per cent year-on-year to £2.9bn, resulting in combined operating profits of £900m versus the 2016-17 mark of £1bn. Pre-tax profit fell from £500m to £400m.

Dan Jones, partner and head of the Sports Business Group at Deloitte, said: “Tottenham Hotspur’s relocation to Wembley Stadium and increased commercial activity, including the commencement of their new kit deal with Nike, contributed more than half of the Premier League’s matchday revenue growth and almost a quarter of the Premier League’s commercial revenue growth respectively, driving the club’s record levels of pre-tax profitability.”

The Premier League’s wages/revenue ratio increased to 59 per cent in 2017-18, rising from the previous season’s ratio of 55 per cent, which was a 19-year low owing to the increased broadcast revenues at the start of the current broadcast rights cycle. Deloitte said that almost half of Premier League clubs recorded a wages/revenue ratio of 70 per cent or greater.

Jones added: “We have seen clubs’ wage expenditure increase at a faster rate than revenue growth in 2017-18. This is the same pattern as observed in the second year of the previous Premier League broadcast rights cycles, as clubs continue to invest in playing talent. Fifty-nine per cent is the lowest wages/revenue ratio outside the first year of a broadcast rights cycle since the 1998-99 season.”

The analysis reveals that Premier League clubs made a collective pre-tax profit for the fourth time in the last five years, again the second highest profit in history, with three clubs – Arsenal, Liverpool and Tottenham – contributing over 75 per cent of this total. However, there was also an increase in the number of clubs reporting a pre-tax loss.

Tim Bridge, director in the Sports Business Group at Deloitte, said: “The increased wage expenditure was expected given the busy transfer market in the 2017-18 season, with two record transfer windows driving estimated Premier League gross spend of £1.9bn.

“However, with the total value of Premier League broadcast rights expected to only marginally increase in the 2019-20-2021-22 broadcast rights cycle, increases in wage and transfer expenditure may be expected to slow in the medium term, as already signalled by the reduced estimated £1.4bn gross transfer spend in the current season.

“With the emphasis now on clubs to generate revenue growth from sources other than central broadcast distributions, it may be that we see the levels of pre-tax profit diminish over the next few years.”