By David Owen
May 27 – It would be difficult to make the case ahead of Saturday’s Champions League final that Tottenham Hotspur and Liverpool, the two teams set to lock horns in the Wanda Metropolitano, are indisputably the two best sides in Europe.
It is a matter of verifiable fact, however, that they are the two most profitable clubs in the game’s history; the only two anywhere, ever, to have reported in excess of £100 million of pre-tax profit for a single period of 12 months, in both cases roughly covering the 2017-18 season.
Liverpool in February posted a towering profit of £125.1 million for the year to 31 May 2018, a period in which they enjoyed a run to the Champions League final, as well as transferring playmaker Philippe Coutinho to the team they beat in this year’s semi-final, Barcelona.
Their record was smashed just two months later by Spurs with a profit of £138.9 million for the year to end-June.
This bears thinking about, given the ever greater sums sloshing around the game’s summit, mainly in Europe, and the ever greater pressure on competitive balance and competition structures that financial interests are bringing to bear.
Some will see it as a source of frustration and regret that two organisations that seemingly care as much about off-field as on-field results are set to contest club football’s greatest annual occasion. They may add it to the stack of evidence labelled “How money is ruining the game”. Fans of the eventual loser may feel that those profits should instead have been invested in another player or two who might have made the decisive difference.
One can sympathise with such views up to a point. Increasing financial disparities mean that the same old names top the main national leagues year after year. Moreover, the utter dominance in Europe’s biggest club competition of the top teams from the Continent’s five richest TV markets simply cannot be healthy. It is not right that famous, and once supremely successful, clubs such as Red Star Belgrade, Glasgow Celtic and even this season’s beaten semi-finalists Ajax Amsterdam should have to compete year after year with one arm tied behind their back just because of an accident of geography.
Having said that, the tournament continues to serve up stupendous entertainment – never more so than in this year’s “it ain’t over ‘til it’s over” semi-finals.
And, I would argue, it would actually be more concerning if the clubs with the fattest top-line, as opposed to bottom-line, performance, ie the most revenue, were waltzing off with the sport’s biggest prizes.
Why? Well, for one thing, clubs that are financially self-sustaining are in a much healthier position in the long term than counterparts on lower or non-existent margins, which require to be subsidised by their owners year after year. While fans might appreciate a proprietor prepared to spend whatever it takes to tilt at trophies, and to hell with the red ink, there is always the risk of an unholy mess if said proprietor gets bored or runs short of cash. And the risk of something like this happening is probably higher in today’s globalised market than a few years ago when big-club benefactors tended to be local captains of industry with lifelong loyalties to a particular city or region. This – self-sustainability – is in essence the premise underpinning financial fair play regulations.
It is worth pointing out at this point that the Premier League clubs with the third- and fourth-biggest pre-tax profits in 2017-18 were…Arsenal and Chelsea, this season’s Europa League finalists.
Profit figures may also be rather, well, flattering at football clubs. This primarily is because of the asymmetrical way in which player transfers are accounted for.
When they buy players – or, in accountant-speak, “intangible assets” – clubs are allowed to spread – “amortise” – the cost over the length of those players’ contracts. A £50 million striker signed on a five-year deal, for example, would equate in his new employer’s profit and loss account to £10 million of cost over each of the next five years.
By contrast, when they sell players, clubs can take immediate account of any profit, defined as the proceeds less any residual value that has not yet been amortised. Home-grown players, moreover, normally have a book-value of zero. So if Spurs ever sold Harry Kane, one could expect the profit generated to more or less equal his price-tag.
This lack of symmetry in accounting treatment of players bought and sold means that transfer “profits” in any given financial year rarely bear any resemblance to the amount of transfer-related cash clubs have coming in and going out of the door.
Liverpool raked in £104.9 million in proceeds from player sales in 2017-18; but they spent £154.1 million on new signings. Reported profit on player disposals, though, reached a towering £123.9 million.
Tottenham did actually receive slightly more (£79.9 million) than they spent (£73.8 million) on player trading in 2017-18. Reported profit on player sales was again far bigger though at £73.1 million.
Spurs did at least make an operating profit of £84 million, equivalent to an operating margin of a respectable 22%. Then again, the club has just loaded up with debt to finance its impressive new stadium, at a time of considerable political and economic uncertainty. So the leeway afforded by its stand-out business performance will probably be much appreciated by management.
Liverpool’s operating margin was just 1.6%, barely better than breakeven.
Viewed from this perspective, it is hard not to conclude that even profits of £100 million-plus at the pre-tax level are less “excessive” than some fans probably suppose, since they largely reflect inflation in the value of the most sought-after players.
Indeed, given the sort of revenue boom big football has enjoyed over the past two decades or so, you might have expected such profit levels to be commonplace by now, were it not for the poor cost controls clubs have traditionally exhibited.
With the TV funding model on which elite football’s years of plenty have been built coming increasingly under pressure, it is by no means a given that Spurs-type profit performance will become the norm if transfer fees continue to rise, or anything like it.
In the meantime, we should sit back and enjoy the scintillating football that the Champions League is showcasing, while acknowledging that the correlation between business and on-field performance at elite level appears to be strengthening.
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