First of all, you might like to sit down. And have a stiff drink to hand.
The seventh annual review of football finance, undertaken by the Deloitte and Touche team and
based on club accounts for the 1996/97 season,
has recently been published. Once again, it provides a comprehensive overview of all
monetary matters in the game from a clear, objective perspective. Once again, it does not make for
particularly comfortable reading.
Let's begin at the end. The final sentence of the main section is blunt enough - "England
cannot economically support 92 full-time professional clubs".
The picture for lower division clubs remains extremely bleak. Income for the
Third Division actually fell during the study period, blackening an already grim
picture. In the bottom league, clubs' assets are out-weighed by their liabilities to the
tune of £1.8 million. Although this does not include the value of playing
staff, the increasing impact of the Bosman ruling (remember that the 1996/97 accounts
reflect a time before the adoption of free movement for players over twenty-four in
the UK) will make that ever more meaningless.
Trading losses are increasing, the transfer fees to fill the gap are decreasing. The recommendations are hard to swallow. You've heard them before, no doubt - mergers,
feeder clubs, part-time status - and you probably feel the same way I do. But this, remember,
is not a report written by romantics.
Watford fans would do well not to gloat. The gap between the Premiership and
Division One, which we are currently trying to bridge, grows and grows. When financial
consultants start using words like "chasm" and "abyss", it's probably worth taking
notice.
The average Premiership club makes an operating profit of £4.3 million. The average Division One club makes an operating
loss of £500,000. Although First Division clubs have managed to reduce their day-to-day
losses, those in the top flight have had another year of massive income growth. As a
consequence, the gap in average operating profits between the top two divisions has grown from £3.8 million in 1995/96 to £4.8 million in
1996/97.
You want some juicy figures? Okay. The combined turnover of the top five financial performers in 1996/97 - Manchester United, Newcastle United,
Arsenal, Liverpool, Aston Villa - was greater than all seventy-two Football League clubs put together. Manchester
United receive more income on an average match-day (excluding television revenue) than twenty-two of the Nationwide clubs
manage in an entire year.
Unlike days of old, transfer fees are doing nothing to change that picture. For the first time,
the proportion of trading losses not funded by transfer revenue exceeded 100% for Division One clubs. The Premiership's
obsession with overseas imports saw £100 million in transfer fees leave these
shores in 1996/97, compared to just £5 million in 1992/93. The impact of the World Cup is
likely to accelerate the trend. This reduction in
transfer income, soon to be exacerbated by the Bosman ruling, means that the average First Division club now
spends £600,000 more on transfers than they receive.
The Premiership gamble, spending in the hope of gaining promotion to the top
flight and staying up, is the subject of much concern. As the report says, "Admittance and then
consolidation in the Premier League continues to be the exception, rather than the rule.". One of Deloitte
and Touche's key indicators of poor financial management - two thirds or more of revenue being spent
on wages - is still being ignored by a number of clubs, including Watford (85%). That we're not
the worst offenders (Wigan's wage bill costs the club an astonishing 178% of turnover) is hardly cause for
celebration. In the report's words, "Escalating wage costs are the key issue for most Football League
clubs as it becomes apparent that current and likely income streams cannot match the
wages growth" (their italics).
Nor can losses be piled up indefinitely. Sustaining losses of over £1 million per
season is unviable - "No business can continue to generate operating losses of this magnitude and survive
unless there is substantial outside financial support". Again, this applies to Watford.
Ironically, considering the undignified and risky scramble for promotion, arrival in the
top flight brings no guarantees of financial success. Although, as previously mentioned,
the average Premiership club makes a very healthy operating profit, all of this
is spent on transfer fees and a £219,000 loss is incurred. Those nearest the bottom of
the Premiership tend to spend most on transfers - indeed, two of the top five spenders in
1996/97, Middlesbrough and Nottingham Forest, were actually relegated. Despite occasional
success stories, the likelihood of sustained promotion "has diminished in the last few years".
So there it is. Bearing all of this in mind, particularly the low probability of Premiership
success and the potential damage done by sustained losses, the report concludes that "The only way to make sustainable profits outside the Premier League
remains organising yourself well and operating sound financial discipline".
Don't have nightmares!
(The report is available from the Deloitte and Touche website - http://www.deloitte.co.uk/)