Friday, July 17, 2009
Is the spending sustainable?
Manchester City have thrown in £50mn into the transfer market so far this summer, snapping up big name signings such as Carlos Tevez and Emmanuel Adebayor. Of course, this spending pales in comparison with the money being splashed around by Real Madrid. The question really is, signing up top players might produce results, but is this extravagant spending in transfer market really sustainable?
Sir Alex for one thinks not. In a recent statement he labelled the current transfer market as 'ridiculous'. Many believe that wages and levels of debt in clubs is getting out of hand. I guess, this in part could explain the rather prudent approach taken by the top 4 premier league clubs this time with regards to spending big money. Most of them have been quite happy to offload high profile stars to bring down debt levels and the wage-to-turnover ratio. Even big spending Chelsea have had to trim their team size to bring down the ratio from 81% a couple of years ago, to the present figure of 68%. Interestingly, Chelsea have a turnover of £213mn, the fifth highest among European clubs, yet thanks to their enormous wage costs and debt, they finished the year with a net loss in the range of a staggering £65mn. Many believe that a combination of letting academy and youth squad players break into the main team, and weaning the club away from over-reliance on soft loans (i.e. 0% interest loans) from owner Roman Abramovich, is the way forward for the clubs' long term sustainability.
At the other end, Arsenal has the lowest wage-to-turnover ratio among the top 10 teams (based on last seasons standings) at 45%, which in my opinion is a clear reflection of the abysmal amount that Arsene Wenger is spending on getting big names into the club. Wonder if Wenger has lost the plot in his attempt to keep costs under control.
The table below (courtesy: The Guardian) gives a snapshot of the key figures for the top 10 clubs in EPL. The turnover figures reveal a wide chasm between the big 4 of EPL and the rest of the cohort.
| Club | Turnover (in £mn’s) | Wage (in £mn’s) | Wage/Turnover | Debt (in £mn’s) |
| Manchester United | 256.2 | 121.1 | 47% | 699 |
| Liverpool | 159 | 80 | 50% | 280 |
| Chelsea | 213.6 | 149 | 68% | 701 |
| Arsenal | 223 | 101.3 | 45% | 416 |
| Everton | 76 | 44.5 | 59% | 39 |
| Aston Villa | 75.6 | 50.4 | 66.6% | 73 |
| Fulham | 53.7 | 39.3 | 73% | 197 |
| Tottenham Hotspur | 114.8 | 52.9 | 46% | 65 |
| West Ham United | 57 | 44.2 | 76% | 36 |
| Manchester City | 82.3 | 54.2 | 66% | 147 |
Labels: Debt, EPL, Turnover, wage-to-turnover ratio
# posted by Akshai @ 10:19 AM 
Comments:
<< Home
Wonder whether the European leagues would benefit from a salary cap restriction (similar to what is there in the NBA). I know it's tough to come up with salary cap numbers across different currencies, but it would be worth a try. That will bring down this mindless spending, and also, as you said, give the younger "normal" players a chance.
Not sure, if debt is that big issue.What debt are we talking about. As long as the business is able to service the debt, and have positive cash flow , its fine.
Lets take united ...700M pounds * lets say 15% interest / 12 = 8.75M pounds a month ...
They have to generate a minimum of 90M pounds every year in gross profits , if no returns to directors have to be given ...
Have to see the MIS before commenting ...
Lets take united ...700M pounds * lets say 15% interest / 12 = 8.75M pounds a month ...
They have to generate a minimum of 90M pounds every year in gross profits , if no returns to directors have to be given ...
Have to see the MIS before commenting ...
@Sridhar: Chilli, I quite agree with you on the salary cap thing. But there is no way in the world that the big clubs across Europe are going to agree to it. Probably will result in a threat to form a breakaway league like in F1.
@Kaushik: Interesting point about debt payments. Man Utd.'s profit was £80mn, from which £45.5mn had to be used to service debt payments. However, Red Football, the holding company confirmed a loss of £44.8mn. (Found the info in:http://www.chesterchronicle.co.uk/chester-sport/football-manchester-united-fc/2009/04/10/manchester-united-fc-post-massive-profits-59067-23356422/)
The point with these debt levels really is in the what-if scenario of Man Utd not winning the EPL, not finishing say within the top 4 in Champs Lg or FA cup. The revenue takes a dramatic hit but you still got out shell out £45mn in debt payments!
Post a Comment
@Kaushik: Interesting point about debt payments. Man Utd.'s profit was £80mn, from which £45.5mn had to be used to service debt payments. However, Red Football, the holding company confirmed a loss of £44.8mn. (Found the info in:http://www.chesterchronicle.co.uk/chester-sport/football-manchester-united-fc/2009/04/10/manchester-united-fc-post-massive-profits-59067-23356422/)
The point with these debt levels really is in the what-if scenario of Man Utd not winning the EPL, not finishing say within the top 4 in Champs Lg or FA cup. The revenue takes a dramatic hit but you still got out shell out £45mn in debt payments!
<< Home
