Financial blues at Chelsea and Everton show UEFA complacency is unjustified


By David Owen

You would never guess from the complacent tone of the new UEFA club licensing benchmarking report, but January 2020 may be set to go down as a turning-point in English, and therefore European, club finances – and not in a good way.

Two big Premier League clubs – Chelsea and Everton – both in the Top 20 in the world in revenue terms, have posted annual pre-tax losses for 2018-19 of above £100 million in quick succession*. This signifies that the good times, which brought eye-popping Premier League profitability in both 2016-17 and 2017-18, as well as what UEFA president Aleksander Čeferin refers to as “a second successive year of overall profitability for European top-division clubs”, are over.

And they look to be over for some time to come. In the past, the cost bases of even the best-run clubs would start to overhaul revenues in the final year(s) of the TV rights cycle. But this could be dismissed as an essentially short-term concern because a bumper new rights deal was about to reset the dials and send income spiralling skywards once again.

This time, there will be only a relatively feeble uptick for English top-tier clubs from their new Premier League deal, which kicks in from this season. Everton summarised the position with admirable clarity.

“The international component of the Premier League TV deal,” the Merseysiders said, “will continue to be a key opportunity for long-term growth with the next three-year TV deal, beginning in 2019-20, growing 30% from the previous TV cycle, compared to the domestic deal which decreased by 8%.

“The distribution mechanism for international TV rights is changing from 2019-20 onwards, with any increases in the value of the international rights above previous levels being allocated on a merit-based system, according to where the club finishes in the league table.”

In 2018-19, Everton earned £80.5 million from Premier League domestic rights and £43.2 million from the international component for a total of £123.7 million. If all other details remained the same in 2019-20 apart from those overall changes in contract value, the equivalent figures for this season would be something like £74 million from domestic rights and £56.2 million from international. This would give the Blues only about another £6.5 million of Premier League-related TV revenue to work with. And that, broadly, will be that for – at least – a further two seasons.

The Premier League has long been the most successful national club competition in the world in commercial terms. But it does not exist in a vacuum. A handy table in the UEFA report shows that, while La Liga has this season closed the gap with the Premier League a little, the only really hefty jump secured for domestic league broadcasting rights among the European ‘Big Five’ for this season or next is that negotiated by France’s Ligue 1 from 2020-21.

So the across-the-board TV rights bonanza looks finally to have run out of steam. In its absence, there are at least two alternative income streams some clubs will be able to tap into to ensure an acceptable level of profitability some of the time. But neither are guaranteed in the way that the old domestic TV rights deal used to ensure new wealth for everyone.

Those clubs which qualify for Europe, in particular the Champions League, should enjoy an even more substantial boost to top-line growth than in recent seasons. According to the UEFA document, “the largest increase in next year’s FY19 report will come from the uplifted UEFA rights which jumped by over €750 million per year”.

I would consequently expect European and now world club champions Liverpool, who made well over £100 million in pre-tax profits in 2017-18, to have combined their on-field success with another strong financial year in 2018-19. I would say the same about Tottenham, their beaten European Cup final opponents, but for the possible impact of their new stadium. Spurs, remember, made an even bigger profit than Liverpool in 2017-18.

Leicester City, whose cost-base does not require Champions League football to make profits possible, should enjoy an outstanding 2020-21 in commercial terms if, as is looking increasingly likely, they qualify once again for Europe’s top club competition. The year would be even more profitable if they agree to sell one or two of their new stars this summer.

As this suggests, the transfer market is the other tool clubs can use to stave off losses in the short term, if broadcasting rights are not growing as they would like and they are unable or unwilling to cut costs.

Unlike qualifying for the Champions League, it has been relatively easy in recent  seasons for clubs to generate transfer profits year in, year out. But this is partly because of a distinct smoke-and-mirrors aspect that exists in transfer accounting.

As I have written in the past, clubs are able regularly to post profits on their transfer-dealings, even in seasons when they spend far more on new players than they recoup. This is because of the lop-sidedness of accounting rules that enable them to include fees for player sales in the year the sale takes place (once the residual book value of the transferred player is taken into account), but to spread the cost of purchased players over the length of their contracts.

Given the high inflation rate prevailing at the top end of the transfer market in recent years, relatively few players have tended to be sold by top-tier clubs for below book value; therefore nearly all clubs have been able to post regular transfer profits.

There is a catch though: the “amortisation” charges via which the cost of incoming players is fed through to the profit and loss account over time are rising. For example, in Chelsea’s latest accounts, while wages climbed 17% to £285.6 million, amortisation of intangible assets (players) was up more than 35% at £170 million.

As the UEFA report stated: “With transfer prices doubling between summer 2014 and 2017 and increasing again in 2019, six of the ten highest transfer spends in history took place in 2018. The cost of those 2018 acquisitions will be felt in future years as they are spread out over the players’ contract length.”

With amortisation costs almost inevitably heading up and turnover tending to plateau, wage control looks vital – and indeed in 2016-17 some of the signs were promising. Yet UEFA now reports, “wages grew by 9.4% in FY2018, the highest rate of growth in 11 years”.

The wage:revenue ratio among European top-tier clubs has accordingly risen back up to 63.9% from a 10-year-low of 61.3% in 2017. As UEFA says, “Football clubs’ wages…absorb a very large percentage of their revenues – more than in nearly every other industry”.

Very worryingly, UEFA also reports that among top divisions of the 35 smaller European countries, only five recorded aggregate operating profits in 2017-18 and eight aggregate bottom-line profits. Seven countries – the Czech Republic, Georgia, Gibraltar, Israel, Kosovo, Latvia and North Macedonia – were said to have reported a net loss margin of more than 30%.

It seems to me one logical upshot of all of this is that, rather than cut costs to sustainable levels, a proportion of clubs will be tempted by the riskier proposition of maintaining or even increasing costs and targeting a lucrative Champions League place in order to cover them. Not all will succeed, spelling trouble for those who miss out. This is the sort of pattern already observed in the annual cavalry charge to get out of England’s second-tier Championship and claim a stake in the loads-a-money Premier League.

I worry that this will, in turn, further ratchet up pressure on national club competitions, making a Super League breakaway more likely. The revamped Club World Cup will soon provide another revenue boost for several of Europe’s Big Boys. The financial chasm between the true giants and the rest, some of whom could be tempted to take inordinate risks in a bid to join them, may be in the process of becoming unbridgeable.

*To be really picky, the Everton figure covers 13 months.

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