Analysis: Spurs show the well-balanced way to record-breaking profit – but mind the debt

By David Owen

The newly-published Spurs accounts make fascinating reading. Given the world record profit for a football club of almost £139 million at the pre-tax level, this scarcely needs to be said. But there is more to it than that. In one word, you could call it balance.

During the course of the recent era of spiralling TV rights fees – an era that finally appears to be running out of steam – some football clubs, particularly in the Premier League, have become dependent on this solitary income stream to an almost obscene degree.

Others regularly take advantage of the very helpful way in which reporting rules permit transfer fees paid and received to be incorporated to boost the profit line that way, often while running a deficit at the operating level.

Occasionally, as most notably in recent years with Leicester City, unexpectedly strong on-field performances can boost top-line growth, and therefore profits, beyond expectation for a year or two, before performance levels revert to the norm and/or the cost base catches up.

One English club, Manchester United, has built a commercial operation so powerful that it can dependably even out the ebbs and flows inherent in other revenue streams in a business as competitive as top-level football.

But it is hard to remember any set of football accounts that has manifested such good balance in recent years as these Spurs figures for the 12 months to 30 June 2018.

For one thing, the 23% advance in revenue, to £380.7 million, was in no way attributable to Premier League broadcasting deals. In fact, the club’s TV and media money fell by £2 million to £147.6 million.

Instead, this top-line growth was attributable to a mix comprising a decent European campaign (this will probably help again in an eventful 2018-19 season that is unlikely to see this level of profitability replicated), a hefty 54% increase in sponsorship and corporate hospitality revenue and a big jump in Premier League gate receipts as a consequence of attracting an average of 68,500 people a game to Wembley.

While revenue was bumping up, cost discipline was rigid, with operating expenses creeping up a mere £400,000 to £228.7 million. This element of the club’s financial performance is perhaps not quite as good as it looks. The fine print reveals that the 2016-17 figure included £6.7 million of unrepeated “enabling” costs, incurred in the interim period while building had started on the new stadium site while the team was still playing at nearby White Hart Lane. There is also a £7.9 million gain in the latest period from sales of property, plant and equipment, and a possibly related £22 million reduction in depreciation costs.

The main item – staff costs – actually rose by £20 million or so to £147.6 million. That is equivalent to 16.3%, so not too far below the 23% revenue advance – and this in a year in which a) remuneration of the highest-paid director was halved from £6 million to £3 million and b) the average number of temporary staff employed on match days plummeted from 457 to 95, a spin-off, presumably, of the temporary move to Wembley.

But – and it’s a big “but” – Tottenham’s wage costs are so far below those of the rest of the so-called Big Six that the phrase “rigid cost discipline” still seems appropriate.

The final piece of the jigsaw is transfer policy. Yes, Spurs have been able to benefit from the accounting rules and the high inflation in fees for top talent just like anyone else. These latest figures include £73.1 million of profit arising on the sales of Kyle Walker to Manchester City, Nabil Bentaleb to Schalke 04, Kevin Wimmer to Stoke City and a couple of others.

But whereas the amortisation rules for “intangible fixed assets” (accountant-speak for players) make it rather difficult for clubs not to declare a profit on player sales year after year, what Tottenham have achieved in the last two financial periods is to spend less on players in cash terms than they receive. This is both very different and much more difficult.

In 2017-18, the club received £79.9 million in transfer proceeds – and not necessarily from the transfers mentioned above, since payments can be staged over a number of years – while paying out £73.8 million. Arrivals in 2017-18 included Davinson Sánchez, Lucas Moura and Serge Aurier. In 2016-17, the club paid out £61.7 million and received £67.5 million.

Completion of the new stadium, however, marks a new era for Spurs finances, just as it does for the club as a whole. This is because sound management of the consequent debt-load will be extremely important.

The new accounts indicate that a bank loan of up to £637 million has been taken out for constructing the new stadium. There was also £21 million outstanding at the balance-sheet date on a facility used to fund construction of a new training ground. Plus the club agreed a £50 million letter of credit facility in May 2017 with majority shareholder ENIC. As far as I can see, the vast majority of this – certainly a mighty big chunk of it – is repayable or expires in 2022.

With £445.3 million of the stadium loan already drawn by the balance-sheet date several months ago, and the club serving notice last October that trading in the current year would be “impacted” by the delayed opening, it does not seem feasible for it really to repay all this debt in three to three-and-a-half years’ time. So a programme of refinancing is probably in the offing. Indeed, the club suggested as much in its October statement, which spoke of conversion into “notes with a mixture of debt maturities”.

With Brexit as clear as mud and tensions appearing over trade in relations between economic heavyweights the United States and China, future trends in the capital markets are by no means easy to foresee at the moment. This makes me wonder whether there might be circumstances in which executive chairman Daniel Levy may even consider the merits of a public share issue.

For now, while fans crave a trophy, Levy and his colleagues deserve credit for their stewardship, which many rivals would do well to study and, where possible, emulate.

David Owen worked for 20 years for the Financial Times in the United States, Canada, France and the UK. He ended his FT career as sports editor after the 2006 World Cup and is now freelancing, including covering the 2008 Beijing Olympics, the 2010 World Cup and London 2012. Owen’s Twitter feed can be accessed at www.twitter.com/dodo938. Contact him at moc.l1568926029labto1568926029ofdlr1568926029owedi1568926029sni@n1568926029ewo.d1568926029ivad1568926029