Premier League Football Clubs Make a Pretax Profit for the First Time Since 1994/95 Season NEW YORK, May 24 /PRNewswire/ -- The 20 football clubs comprising the English Premier League in 1997/98 generated a combined turnover of U.S.$918 million -- growth of 23 percent -- a stunning performance by any normal industry standard, according to Gerry Boon, chairman of the Football Industry Team at Deloitte Touche Tohmatsu (DTT). Profitability improved at many clubs -- operating profits (before transfers and interest costs) reached U.S.$160 million, compared to U.S.$140 million the previous season. However, Premiership clubs' wages continued to rocket: total wages soared by 36 percent and DTT estimates players' wages rose by a staggering 40 percent or more -- a trend that is clearly unsustainable in the long term. England's Premier clubs recorded a pretax profit, U.S.$29 million, for the first time since the 1994/95 season, while net transfer spending continued its gradual reduction. England's Premier Clubs is a special review of the finances of the 1997/98 Premier League football clubs. The 1999 Deloitte Touche Tohmatsu Annual Review of Football Finance, featuring 92 English professional football clubs, will be published later this year. The main drivers behind the increased turnover were match-day income, which rose by U.S.$42 million to U.S.$327 million (up 15 percent due to improved attendance, increased ticket prices, and stadium developments); television income, up from U.S.$158 million to U.S.$245 million (a 55 percent increase); and commercial activities, which rose to U.S.$345 million (up 13 percent), compared to U.S.$305 million last year. "The 1997/98 season has seen the second half of the quantum leap in income from the new BSkyB/BBC Premier League deal," commented Gerry Boon. "This new deal is worth, on average, U.S.$300 million per annum (over the four-year contract period), compared to U.S.$69 million per annum from the old deal," he continued. "We estimate around 40 percent of the growth in total income of Premier League clubs in the 1997/98 season can be directly attributed to this rise in domestic television income. "Unfortunately, the wage bill is still dangerously high and now devours over 50 percent of Premier clubs' total income," warned Boon. "The total wage bill for the Premier League has increased by 36 percent to U.S.$478 million. This compares to U.S.$352 million in 1996/97 -- itself a 31 percent rise on the previous year." Up more than 40 percent in 1997/98, players' wages are now three-and-a-half times the level in 1992/93 -- the first year of the Premier League. As clubs no longer have to pay transfer fees for players out of contract, the money can instead be used to entice players to sign for a club. Consequently, existing players within clubs demand similar terms. "Can we have some more hard-headed, realism, please?" asked Boon. "Wages have always been football's greatest challenge. They remain so. The wage increases paid to 'stars' will continue -- that is a dynamic clubs will have to manage. "The 20 clubs that made up the Premier League in 1997/98 effectively spent a net U.S.$124 million on new players, down from U.S.$137 million the previous year. Fifty-six percent of Premier clubs' transfer spending went to English clubs, but most of this was 'within the Premiership.' Only U.S.$38 million went to the Football League, who in return paid U.S.$36 million for players from Premier clubs. Only U.S.$2.4 million was retained within the Football League -- a mere fraction of the funds the 72 clubs need to cover their deficit." Once again, Manchester United leads the field in terms of financial success, but the gap is closing. Although turnover was static for Manchester United in 1997/98 -- gate receipts were up while merchandising was down -- they are still far ahead of their nearest rival, Newcastle United, which had a turnover of U.S.$79 million. Chelsea's football turnover doubled in 1997/98 to U.S.$77 million. "Commercially, the Premier League is a remarkable success story. It has seen phenomenal growth since the 1991/92 season," observed Boon. "In six years, it has generated a total income of U.S.$3.5 billion. It has grown to three-and-a-half times the size of the old Division One of the Football League. The net result of all this activity at the pretax profit level is a small U.S.$18 million deficit. So, over the six-year period, the Premiership as a whole has more or less balanced the books -- a staggering indication of how economics have impacted football in the 1990s." About Deloitte Touche Tohmatsu Deloitte Touche Tohmatsu is one of the world's leading professional services firms, delivering world-class assurance and advisory, tax, and consulting services. More than 82,000 people in over 130 countries serve nearly one-fifth of the world's largest companies as well as large national enterprises, public institutions, and successful fast-growing companies. Our internationally experienced professionals deliver seamless, consistent services wherever our clients operate. Our mission is to help our clients and our people excel. About the Football Industry Team Over the last decade the DTT Football Industry Team has developed a unique focus on the business of sport. The team offers a multi-disciplined expert service with people and skills capable of adding significant value to the business of sport. Whether it is benchmarking or strategic business reviews; operational studies or stadium development plans; flotations, acquisitions, due diligence, or tax planning, DTT has worked with more clubs, governing bodies, stadiums, players, and owners than any other adviser, including Ernst & Young, KPMG, Arthur Andersen, and PricewaterhouseCoopers. KEY FINDINGS Operating Profitability -- The 1997/98 season sees exactly the same proportion of clubs (85 percent) recording an operating profit as in the 1996/97 season. Seventeen clubs made operating profits in 1997/98. Clubs' 1997/98 income has grown at a marginally slower rate (23 percent) than in 1996/97 (32 percent). -- The largest increases in operating profitability were reported by Barnsley (up U.S.$10 million following promotion to the Premiership), Chelsea (up U.S.$9.2 million following European competition success and the further development of Chelsea Village), and Arsenal (up U.S.$8.5 million following a combined win of the English Football Association's (FA) Premier League Championship and FA Cup Final). Revenue Streams -- The average Premier League club grew its income by 23 percent in the 1997/98 season. For many of the clubs who grew at an above average rate, the increase in BSkyB money was a significant factor. -- Revenues continue to grow and there appears to be significant potential for growth -- grounds are still not large enough to satisfy demand for tickets, television rights are still considered understated compared to the levels in some other countries, while other commercial activities are expanding as fast as clubs are able to resource and implement them. Commercial Activities -- The 1997/98 season saw a relative leap in television income from 21 percent to 26 percent of Premiership revenue and a relative drop in retail/merchandising income from 21 percent to 17 percent. Gate receipts dropped slightly from 37 percent to 36 percent, while other commercial activities stayed level at 21 percent. -- Other rapidly growing sources of commercial income and profitability -- a number of which have come from new stadium development or refurbishment -- include corporate seating and executive boxes, the introduction of restaurants, museums, travel services, publishing, financial services, car parking on nonmatch days, and even hotels. Match-day Income -- Both of the two main drivers of match-day income -- attendance and ticket prices -- increased over the previous season. Attendance grew by 2.3 percent to an average of 29,190. Two-thirds of clubs are operating at over 90 percent of capacity. Match-day income as a whole rose by U.S.$42 million to U.S.$327 million and after deducting the 2.3 percent accounted for by attendance growth, this would indicate a rough average increase in ticket prices of around 12.7 percent. Television Income -- The new BSkyB/BBC Premier League deal is worth on average U.S.$300 million per annum as opposed to U.S.$69 million per annum from the old deal. -- Television has proved a phenomenal driver of growth for English clubs in the 1990s. This rate of growth has reached a climax over the last two seasons and is unlikely to be replicated in the future. However, a significant degree of future potential may arise from recent developments in technology such as digital television, which may bring about the much-hyped pay-per-view television, electronic season tickets, and the like. Wage Costs -- The total wage bill for the Premier League has increased by 36 percent to almost U.S.$478 million. This compares to U.S.$352 million in 1996/97, itself a 31 percent rise on the previous year. -- Chelsea is the leader in terms of wages -- it has increased its wages bill by a massive 81 percent since the previous season -- but its turnover doubled. With the exception of Newcastle United, top payers occupied the top positions in the League. However, there are notable exceptions to the rule that "money brings success" --Newcastle, Everton, and Tottenham Hotspur all underperformed despite finishing in the top half of wage increases, while West Ham and Southampton achieved good finishes in the Premier League with below-average salaries. -- While Manchester United only spends 31 percent of its turnover on wages, Blackburn spends around 98 percent. Barnsley, Aston Villa, Newcastle United, and West Ham all managed to spend less than 50 percent of their turnover on wages. Transfer Fees -- The influx of foreign players shows no signs of abating, effectively absorbing the flow of transfer funds, some of which had historically gone to Football League clubs. -- The gross amount spent on transfer fees in 1997/98 was over U.S.$274 million, but there are signs it may have reached its peak. It has been reducing gradually for the last three years. -- The net outflow from the Premier League to Football League clubs has decreased. U.S.$115 million of Premier club spending on English players was within the Premiership. U.S.$38 million went to the Football League, however the Football League spent U.S.$36 million on Premier League players, so the net flow was only U.S.$2.4 million to the Football League as a whole. -- Traditionally, the transfer market has provided a wealth redistribution mechanism for the game and has gone a long way to support the full-time professional structure of 92 clubs. The further deterioration of the flow of net transfer fees down to Football League clubs exacerbates the 1997/98 figures -- the wealth redistribution mechanism has virtually ceased.  