Premier League clubs warned over debt levels if they continue to spend
Barclays Premier League clubs have been warned they face an endless struggle with debt if they continue to spend more than they earn.
Simon Chadwick, Professor of Sport Business Strategy and Marketing at Coventry University, is concerned that many clubs are failing to learn their lessons as they prepare to invest the their share of the bumper new broadcasting deal in the summer transfer market.
Prof Chadwick's comments came after the publication of figures produced by the university's Centre for the International Business of Sport which show that in 2011, the 20 Premier League members spent a staggering 91 per cent of their aggregate revenue on salaries and amortisation, the spreading on transfer fees over the length of a contract.
In addition, several found themselves being funded entirely by borrowing and struggling to meet debt payments.
Prof Chadwick said: "Even now, there are still clubs which are effectively spending more than they making.
"With most clubs, the fact that their costs and particularly their borrowing costs are so significant compared to their revenues is a concern.
"In spite of Financial Fair Play, a lot of clubs are still sailing fairly close to the wind in terms of their finances.
"The transfer market seems to be reasonable at the moment, but I can imagine over the next month or so, it will become more buoyant because a lot of clubs are ready to spend because of the fact that they have got big money coming in from the new TV contract.
"We seem to be locked into this perpetual cycle: if the clubs have this money to spend, they will spend it.
"Even though financially they should be in a much more stable and safer position, in reality they are not because they seem to be locked into this perpetual cycle where what they have got, they spend on players and salaries.
"The financial concerns people have about football just seem to be ongoing."
The CIBS figures cover the years from 2007 to 2011 and show that while total revenue for top-flight clubs increased by 52 per cent from £1.511billion to £2.298billion, wages rose by 68 per cent.
Indeed during 2011, Premier League clubs spent £2.088billion on salaries and amortisation, or 91 per cent of revenue.
The debt burden on clubs too has increased alarmingly over a 20-year period.
In 1991, the 22 clubs which comprised England's top division reported aggregate revenue of just over £143million and a total pre-tax profit of £52,000; in 2011, a total of just under £2.3billion went into the coffers of the 20 clubs, but they recorded an aggregate pre-tax loss of £355million.
The huge losses meant that Premier League clubs as a whole failed to cover aggregate interest payments on debts in any of the years in question.
Although average revenue per club increased from £76million in 2007 to almost £115million in 2011, but in the final year of the period, just six - Arsenal, Manchester United, Manchester City, Chelsea, Tottenham and Liverpool - were responsible for 57 per cent of the total with the average amongst them almost £219million.
The figures for the Manchester clubs represented their drastically differing approaches with United spending almost £153million in wages in 2011 from revenue of more than £331million, while City's £174million wage bill exceeded its £153million revenue as they recorded a pre-tax loss of more than £197million.
United, of course, have significant debts because of the manner in which they were taken over by the Glazer family, but they are one of the few clubs to be actively addressing the situation.
Prof Chadwick said: "One of the things about United is that throughout, they have actively sought to manage their debt and reduce the debt burden in order to reduce their interest payments.
"But other clubs are not necessarily learning from United. They are looking at short-term expenditure and not necessarily thinking about the longer-term burden.
"They are ultimately starting to because many clubs - and in some cases, it really is marginal - are just about covering managing to cover their interest payments.
"The active management of debt is something that football needs to learn. At the moment, many clubs don't seem to be learning that lesson."