The ratio of wages to revenue at Premier League clubs has risen to a record 70 per cent, according to Deloitte's annual review of football finance, published this morning.
Although clubs are hoping to restrict their spending on wages, not least to meet Uefa's financial fair play rules, increased wage bills are keeping pace with rising revenues.
In the 2010-11 Premier League season, total wages rose by £201m (14 per cent), to almost £1.6bn. Chelsea remained the club with the highest wage bill, at £191m, followed by Manchester City at £174m, then Manchester United at £153m.
This leaves the crucial ratio of wages to revenue at 70 per cent, an increase from 68 per cent – which was itself a record – from the previous season. For the Premier League's first season, 1991-92, it was just 44 per cent. As recently as 2004-05 it was only 59 per cent.
The Premier League has the highest wage bill among Europe's football leagues. At €1.78bn it is more than €600m higher than the nearest competitor, although the ratio of wages to revenue is in fact higher, at 75 per cent, in Italy's Serie A and the French Ligue 1. The figure, though, is as high as 90 per cent in the Championship.
Such an increase in wages has taken much from the increased Premier League revenues. There was a £241m increase in income in the 2010-11 season, 80 per cent of which was taken up by the wage rises. That increase in revenue, a 12 per cent rise up to £2.3bn, came from a 13 per cent increase in broadcasting revenue and an even better 18 per cent rise in commercial income.
But the fact that revenues and wages are increasing in step means that Premier League clubs are not becoming any more profitable. In fact, their operating profits reduced to £68m in 2010-11, the lowest level since 1999-2000. Revenue has trebled since then. It is hard for Premier League clubs now, as operating margins are now down to three per cent, having been 16 per cent in 1991-92.
There is an even more intense form of the same pressures in the Championship. With the ratio of wages to revenue there at 90 per cent, nearly one third of the clubs have wage bills larger than their revenues. Wages grew by £24m in 2010-11, while revenue grew by only £17m, amid many reductions in matchday and commercial revenue. Just four Championship clubs made an operating profit, and the 24 clubs recorded an aggregate operating loss of £130m.
Financial fair play will obviously mould how clubs try to reduce losses, as they attempt to bring themselves towards eventually breaking even. "The challenge for clubs remains converting impressive revenue growth into sustainable profits," said Adam Bull, consultant in the Sports Business Group at Deloitte.
- More about:
- Europa League
- Management Accounting
- Manchester City
- Premier League