The Premier League is generating more money than ever but double-digit wage inflation explains why several clubs have falling operating profits and pre-tax losses. This is the central theme of the 17th Deloitte annual review of football finance, published yesterday, which offers an intriguing insight into the game's finances during the 2006-07 season.
Although strong growth in commercial and matchday income saw collective Premier League revenues exceed £1.5bn for the first time, much of this increase has ended up in the pockets of players and agents. Sir Alan Sugar, the former Tottenham Hotspur chairman, memorably described this syndrome as "the prune juice effect" and Dan Jones, a partner in the sports business group at Deloitte, said: "The improvement in cost control which would demonstrate a normal business culture of maximising profitability does not appear to be happening at Premier League clubs. A shared will and action by all the clubs to limit wages growth would deliver increased profitability for all, but the pursuit of on-pitch success and the intense competitive desire to gain an edge means clubs continue to invest heavily in their playing squads and bid the market up, to the detriment of all clubs' finances and the benefit of players and their agents."
In 2006-07 Premier League clubs' salaries rose 13% - marginally ahead of a median 11% rise in revenue - to £969m and they will have broken the £1bn barrier in the season just finished. Clubs paid an average of £48.5m in wages, with Chelsea having the biggest bill at £133m and Watford the smallest at £17.7m. The picture was gloomier in the Championship, where aggregate operating losses worsened as average wage increases of 14% outstripped median revenue growth of 3%.
The 2006-07 figures almost certainly reflect clubs spending future broadcasting revenues but there are startling disparities between the important wages-to-turnover ratios at clubs in England's top two divisions. The average Premier League figure stood at 63% but Tottenham could be proud of their housekeeping because their wages/turnover ratio was the lowest at 42%. Manchester United's was a disciplined 44% and Liverpool's 58%.
Worrying figures of 80% and 85% were recorded at Middlesbrough and Blackburn respectively. Even more alarmingly, Sunderland's ratio was 90% and Derby's 125%. But the latter two probably reflect the payment of performance-related bonuses to players for winning promotion.
Significantly, only eight Premier League clubs showed operating profits, namely Manchester United, Arsenal, Liverpool, Tottenham, Newcastle, Reading, Sheffield United and Watford. England's top division was deposed as Europe's richest in terms of operating profits by Germany's Bundesliga, where the average wages/turnover ratio was 45% and collective profits of €250m (£197m) outstripped the Premier League's €141m.
Click here for graphics of all the key findings in the report