The Premier League - huge club losses despite massive revenue growth

Mr Philip McCosker

Professor Simon Chadwick

Posted: August 8, 2014

Tagged: costs / finance / football / revenues

This post is part of The Scorecard’s on going pre-season coverage of Premier League club finances.

Research conducted by Coventry University in 2013 revealed why English Premier League clubs are making huge club losses despite massive revenue growth.

-Player wages increasing at far higher rate than revenue, with 91% of revenue spent on wages and amortisation in 2011;

-EPL clubs were unable to cover interest due on borrowed money in any year between 2007 and 2011;

-In 2008 and 2009 some clubs were funded entirely by debt;

-Manchester City have generated cumulative pre-tax losses of over £400m since 2008 due to huge spending on wages and transfer fees;

Figures generated by Coventry University’s Centre for the International Business of Sport (CIBS) revealed that while the total revenue generated by the English Premier League (EPL) increased by 52%  between 2007 and 2011, wages increased by a staggering 68%.

The data also showed that by 2011, 91% of the total revenue generated by the EPL was spent on wages and amortisation (spreading out transfer fees across the duration of a contract); a significant increase on 2007, when wages and amortisation amounted to 80%.

Comparative figures across a 20 year period presented an alarming picture. In 1991 the 22 football clubs playing in England’s top league reported aggregate revenue of just over £143 million and a total pre-tax profit of £52k. In 2011 the 20 clubs in the EPL generated aggregate revenue of just under £2.3 billion, however reported an aggregate pre-tax loss of £355 million.

Accounting ratios (see table 1 below) go some way to explaining why the EPL has generated such huge losses over the past few years and why so many clubs have been unable to convert growth in revenue into profit.

Interest cover and gearing ratios indicated that between 2007 and 2011 several clubs were reliant on borrowed funds. In 2008 and 2009 aggregate gearing actually crept above 100% meaning that due to cumulative losses (which reduced shareholders’ equity) some clubs were funded entirely by debt, explaining the huge amount of interest payable by the EPL.

The interest cover ratio indicated how many times interest on borrowed funds can be paid from profits made during the current year.  Huge losses before interest and tax meant that the EPL was unable to cover interest due on borrowed money in any year between 2007 and 2011.  Although net interest payable fell from £128 million in 2007 to £79 million in 2011, the scale of losses meant that the interest cover ratio actually worsened during this period.

Table 2 below shows that although the average revenue per club increased from £76 million in 2007 to almost £115 million in 2011, this hides huge disparities in the revenue earned by clubs in the EPL.  In 2011 just six clubs (Arsenal, Man Utd, Man City, Chelsea, Spurs and Liverpool) were responsible for 57% of the total revenue, and the average revenue generated by these six clubs was almost £219 million. The remaining 14 clubs shared less than £1 billion resulting in average revenue of £70 million per club.

The study also cast light on the financial performance of individual clubs playing in the EPL (table 3 below). In 2011 Manchester City’s wages of £174 million exceeded the club’s revenue of £153 million.  Since being acquired by Sheik Mansoor in 2008 the club has invested huge amounts in new players and wages, resulting in amortisation and impairment of £113 million in 2011 and a staggering pre tax loss of over £197 million.

Manchester City was not alone with total wages and amortisation in 2011 exceeding the revenue earned by Aston Villa, Birmingham City, Blackburn Rovers, Bolton Wanderers, Chelsea, Sunderland and Wigan.

In recent years failure to qualify for the UEFA Champions League has seen Liverpool’s revenue stagnate at around £184 million.  However wages increased from £100 million in 2009 to almost £135 million by 2011.   As a consequence by 2011 amortisation and wages amounted to 93% of total revenue.

Although in 2011 Manchester United spent almost £153 million on wages, revenue in excess of £331 million meant that this represented just 46% of total revenue. Even with debt of over £440 million (and the accompanying interest) Manchester United was able to report a pre-tax profit of almost £30 million.  West Bromwich Albion also demonstrated good control of costs in reporting a pre-tax profit of £19 million.

Philip McCosker from Coventry University’s Centre for the International Business of Sport (CIBS), who carried out the research, said: “Although broadcasting contracts have resulted in a huge increase in revenue, our research shows that players’ wages and transfer fees have risen at an even faster rate meaning that clubs in the English Premier League have been unable to generate an aggregate profit.  Several years of large losses have eroded shareholders’ equity leaving a number of clubs reliant on debt.”

“The ratios also highlight some worrying trends that clubs must address in order to comply with the requirements of UEFA’s Financial Fair Play Rules. Clearly a tighter control of key costs together with a huge injection of equity from shareholders is necessary to redress the EPL’s dependence on debt and ensure that clubs are able to meet the requirements of these rules.”

“Although supporters might argue that in the case of Manchester City, the playing success has been worth Sheik Mansoor’s investment, UEFA’s Financial Fair Play Rules should ensure that in the future no European club can report such a huge loss.”

Table 1: English Premier League (EPL) – Summary of key accounting ratios 2007-2011 
2011 2010 2009 2008 2007
Total revenue (£m) 2,298 2,119 1,978 1,921 1,511
Average annual % increase in revenue 3% 7% 8% 27%
Total wages (£m) (1,582) (1,334) (1,248) (1,189) (938)
Average annual % increase in wages 13% 7% 10% 27%
Total amortisation and impairment (£m) (506) (453) (435) (392) (279)
Total loss before interest and tax (£m) (276) (208) (50) (55) (93)
Total EPL net interest payable (£m) (79) (177) (121) (133) (128)
Total loss before tax (£m) (355) (385) (172) (189) (221)
Wages as a % of revenue 69% 63% 63% 62% 62%
Amortisation as a % of revenue 22% 21% 22% 20% 18%
Interest cover (times) -3.5 -1.2 -0.4 -0.4 -0.7
Gearing (%) 82% 79% 106% 102% 95%
Source: Calculations based on company annual reports obtained from FAME database (2008 and 2009 exclude Portsmouth FC as figures not available)


Table 2: How EPL revenue is divided (2007 and 2011)
2011 2007
£ millions £ millions
Arsenal 255.7 200.8
Chelsea 225.2 187.5
Liverpool 183.6 133.9
Manchester City 153.2
Manchester United 331.4 210.1
Newcastle United 87.1
Tottenham Hotspur 163.5 103.1
Total revenue generated by six largest clubs 1,312.6 922.5
Revenue generated by remaining 14 clubs 985.0 588.3
Total Revenue generated by EPL 2,297.6 1,510.8
% of revenue generated by six largest clubs in EPL 57% 61%
Average revenue for EPL (20 clubs) (£m) 114.9 75.5
Average revenue for largest 6 clubs (£m) 218.8 153.8
Average revenue for remaining 14 clubs (£m) 70.4 42.0
Wigan Athletic (lowest revenue in EPL) (£m) 50.5 26.9
Revenue multiple (largest to smallest club in terms of revenue) 6.6 7.8
Source: Figures from company annual reports obtained from FAME database


Table 3: Wages and amortisation ratios by club
Revenue Wages Amortisation (and impairment) Profit / (Loss) before tax Wages and amortisation as a % of revenue
2011 2007
£m £m £m £m % %
Aston Villa 92.0 (83.4) (32.4) (54.0)) 126% 77%
Blackburn Rovers 57.6 (49.9) (7.8) (18.6) 100% 98%
Bolton Wanderers 67.7 (56.1) (14.0) (26.0) 104% 70%
Chelsea 225.2 (191.2) (47.1) (78.3) 106% 106%
Manchester City 153.2 (174.0) (113.3) (197.5) 188% 75%
Wigan 50.5 (39.9) (13.2) (7.2) 105% 130%
Liverpool 183.6 (134.8) (36.3) (49.3) 93% 83%
Arsenal 255.7 (124.4) (21.7) 14.8 57% 54%
Fulham 76.4 (57.7) (10.9) 4.8 90% 113%
Manchester United 331.4 (152.9) (39.2) 29.7 58% 55%
Newcastle 88.5 (53.6) (17.2) 32.6 80% 90%
Tottenham 163.5 (91.1) (42.0) 0.4 82% 61%
West Bromwich Albion 65.1 (43.9) (6.1) 18.9 77% n/a
Source: Figures from company annual reports obtained from FAME database


About Philip McCosker

Philip is a Senior Lecturer in Accounting in the Business School at Coventry University.

About Professor Simon Chadwick

Professor Simon Chadwick set-up and edits The Scorecard. He is Director of CIBS (Centre for the International Business of Sport) at Coventry University, where he works as Professor of Sport Business Strategy and Marketing.  Simon tweets via Prof_Chadwick