Kieran's Column: Big Six - Is the myth now a reality?
10 April 2019
Football Finance expert Kieran Maguire looks in this column at Tottenham after their world record pre-tax profit.
Are Spurs now a real member of the 'Big Six' club or are they still just a candidate due to lack of trophies?
In recent years there has been much talk about a ‘Big Six’ in the Premier League, consisting of the two Manchester clubs, Liverpool, Chelsea, Arsenal and Spurs. Closer examination has suggested this a lazy description as Spurs until 2016 had only appeared in the Champions League once (less often than Newcastle or Leeds United) and their trophy cabinet this century consists of one League Cup victory.
However, in the same twenty four hours in which Spurs recently played their first match at the new 62,000 seater stadium the club quietly published its financial statements for the year ended 30 June 2018 and announced world pre-tax profits of £139 million.
This seems at odds with some of the tales of woe relating to the stadium completions delays due to steel cost overruns, labour shortages pushing up wage bills and emergency loans that the club have recently taken out.
The dark arts of the accountants
So, have Spurs managed to be smarter than any other club in managing its finances or are the financial results down to the dark arts of the accountants in preparing the numbers?
The answer is a bit of both.
Profit, simply put, is income less costs. Spurs’ income grew by almost a quarter to £380 million in 2017/18. This was due to all three income streams, matchday, broadcasting and commercial rising to record amounts. Matchday income is based on the number of (matches played x the average attendance x the average ticket price).
Historically Spurs have been constrained by White Hart Lane’s 36,000 capacity which sold out every match. Fans have been resistant to increased ticket prices and so the only way to boost income was via a cup run or qualification for the Champions or Europa league, as this increased the number of fixtures.
With the move to Wembley for the 2017/18 season whilst work was undertaken on the Spurs stadium developments, attendances increased to an average of over 68,000 and matchday income increased by over 56 per cent as a consequence.
Domestic broadcast income fell slightly, as a third-place finish was one below 2016/17 and the club earned less prize money as a result, but progress in the Champions League by qualifying for the knock-out phase was an improvement on the previous season and more than made up for the domestic income decrease.
The move to Wembley meant that the club was able to sell additional lucrative corporate hospitality packages as well as sponsor income and this boosted the revenue stream by half to £109 million.
Consequently, the revenue gap between Spurs and some of its perceived rivals narrowed. Arsenal’s figures show the importance of qualifying for the Champions League as they were the only club to show a decrease in income as a result of finishing 5th in 2016/17.
Spurs still have a lot of hard work ahead of them though as Liverpool too benefitted from impressive growth in 2017/18 on the back of an enlarged Anfield and the prize money from progressing to the Champions League final. Chelsea’s results also show the significance of Champions League matches as well as that of a new kit manufacturing deal with Nike.
In terms of costs, the major ones for clubs are in relation to players in the form of wages and player trading.
Spurs have been able to keep a tight lid on wages as can be seen by the cost barely increasing between 2009 and 2016. This was due to the benefits of academy products such as Harry Kane and Harry Winks as well as recruiting well from less glamourous clubs with the likes of Deli Alli from MK Dons, Danny Rose from Leeds and Kieron Trippier from Burnley.
These players, whilst handsomely paid by the standards of most jobs, have been willing to accept salaries that are relatively modest by the standards of the rest of the Big Six and buy into the Spurs ‘project’ under the present coach.
Whilst Spurs a decade ago had a lower wage bill than the other clubs, they were also seen as not being contenders in the Premier League and only qualified for the Champions League once prior to 2016.
Spurs wage bill last season was exactly half of that of Manchester United, who only finished one place above them in the table, and at least £100 million below that of the other members of what the club sees as its peer group. How long this tight control on wages can continue is open to question, as the departure of Kyle Walker to Manchester City at the start of 2017/18 suggests that other clubs are admiring Spurs’ best talent, and if the club fails to deliver trophies, heads may be turned to competitors with bigger wallets and more bulging trophy cabinets.
In terms of player trading costs, Spurs’ reluctance to compete in the upper echelons of the transfer market is well known, as demonstrated by a making no signings to date in 2018/19.
Since the start of the present decade, Spurs have had a net transfer spend on players of just £10 million a season.
In 2017/18 Spurs were able to record a profit of £73 million as Kyle Walker, Kevin Wimmer, Nabil Bentaleb and others departed the club.
In terms of recruitment, Spurs have been far more cautious than their rivals who have splashed the cash aggressively, but with mixed results at times with big money acquisitions such as Angel di Maria at Manchester United, Andy Carroll at Liverpool, Albert Morata at Chelsea and Eliaquim Mangala at Manchester City failed to justify their fees at the clubs. Spurs have tended to spend smart rather than big.
Spurs’ net spend is less than a tenth of that of Manchester City and no more than a quarter of the sum spent by clubs that are supposedly its rivals, and this gap is going to widen even further when the figures for 2018/19 are taken into account.
Considering all of the above, it is no surprise that Spurs have had a strategy under Daniel Levy that is geared towards making profits, but this is all before taking into consideration the stadium, and here the accounting rules have benefitted Spurs.
In 2017/18 Spurs spent nearly half a billion pounds on construction projects, the majority of which has been in relation to the new stadium and training complex. However, none of this has impacted upon profits. Long-term assets such as properties are expensive but are treated as assets in the balance sheet, and not as expenses in the profit and loss account. Their only cost is depreciation, which is charged over their expected period of use, but this only starts when the asset is first put into use.
Because the new stadium was still a work in progress for Spurs during 2017/18, there are no depreciation costs included in the accounts.
Even the costs of architects, designers, lawyers and finance professionals employed by the club on the stadium project can be added to the materials and labour costs directly incurred in construction. These costs will therefore have no impact upon profits until matches commence, and then these are spread over the 50-year depreciation period, according to Spurs’ accounts footnotes. If the stadium costs the quoted figure of £1.2 billion, then this works out as an annual expense of just £24 million.
Spurs have had to borrow from banks to fund the stadium, and originally the main loan facility (which operates similar to how a bank overdraft works in that Spurs did not use it all at once) was £400 million from HSBC, Goldman Sachs and Bank of America. Because of cost overruns, Spurs extended the loan facility to £537 million in December 2017 and a further extension of £100 million in October 2018. The interest costs in relation to the loan are however added to the cost of the stadium whilst it is being constructed and again have no impact on profits until it was completed, so will only reduce profits from when Spurs’ initial fixture, a two nil victory against Crystal Palace, occurred in April 2019.
So where does this leave Mauricio Pochettino in terms of building a squad fit to compete for major trophies? Spurs are likely to be paying no more than 4 per cent interest on the loans, which works out at an annual interest cost of about £25 million.
The new stadium is designed for multiple purposes and will host other sporting events such as NFL and major rugby union matches, as well as concerts, should increase matchday revenues from the £40-45 million that Spurs generated at the old White Hart Lane to at least the £110 million that Manchester United earn from Old Trafford.
Within touching distance of this heading financially
Whilst the new Spurs stadium has a lower capacity than Old Trafford a combination of more modern facilities, greater emphasis on high-value prawn sandwich-eating corporate customers, higher ticket prices and a greater number of events taking place each season should more than make up the shortfall in capacity.
The loans are scheduled for repayment in 2022, but the standard approach from banks is that they are usually willing to reschedule payment dates, provided the borrower meets the regular interest payments. On the basis of these figures Spurs should not only be able to keep the bank manager happy, but their football manager should have a smile on his face too when he sees the playing budget.
Whether this is enough to push Spurs into a real ‘Big Six’ in the Premier League in terms of winning trophies is yet to be seen, but the earnings potential from the new stadium has certainly put them within touching distance of this heading financially.
Kieran Maguire is a lecturer in football finance at the University of Liverpool. He is widely used in several media as an expert in sport finance, sports broadcasting rights and the budget. Find him at Twitter: PriceOfFootball or @KieranMaguire