Tottenham Hotspur - Moving On Up

Although slightly obscured by Leicester City’s extraordinary story, Tottenham have also made significant progress this season, quietly establishing themselves as highly credible contenders for the league title, while moving forward in the development of their new stadium.

They have built on the progress made in head coach Mauricio Pochettino’s first season in 2014/15, when Spurs finished fifth in the Premier League and reached the final of the Capital One Cup. After many years of managerial upheaval involving the varied, but ultimately underwhelming talents of Harry Redknapp, André Villas-Boas and Tim Sherwood, it looks like Spurs have finally found a good one in the young Argentinian.

As chairman Daniel Levy observed, “Mauricio and his coaching staff have created a great team spirit in a stable squad that encompasses both experience and youth. The results speak for themselves.” Not only does it look like Spurs will secure one of the elusive Champions League places, but their success has been built on an exciting brand of aggressive, pacy football, featuring many young talents, such as Harry Kane, Dele Alli and Eric Dier.

"Back on the Kane gang"

Tottenham’s improvement this season has not been at the expense of their finances, as they have just published another very solid set of financial results for the 2014/15 season with record revenue of £196 million and £12 million pre-tax profit (£9 million after tax).

Even though the profit before tax was £68 million lower than the previous season’s £80 million, that was a totally unprecedented figure, greatly enhanced by the blockbuster sale of Gareth Bale to Real Madrid. Indeed, profit on player sales decreased by £83 million from £104 million to £21 million.

On the other hand, revenue rose by £16 million (9%) from £180 million to £196 million, almost entirely driven by a £17 million (38%) increase in commercial income from £43 million to £60 million, including the first year of the new shirt sponsorship deal with AIA. Broadcasting was unchanged at £95 million, while match receipts were slightly lower at £41 million.

The wage bill was basically flat at £101 million, but other expenses increased by £6 million (15%) from £41 million to £47 million. Player amortisation was £3 million (7%) lower at £37 million, while the impairment charge was reduced by £7 million to £3 million.

In line with growing expenditure on the stadium construction, depreciation rose by £1 million to £6 million. Net interest payable was also £1 million higher at £5 million, largely due to a provision for early repayment of a loan.

Once again, Spurs booked exceptional charges for redundancy costs and onerous employment contracts. Last year’s £4.7 million was mainly for the pay-offs to Villas-Boas and his coaching staff, while the reasons for this year’s charge of £6.5 million are less clear, though it is likely that some will be a provision for paying-off Emmanuel Adebayor’s contract.

Tottenham’s pre-tax profit of £12 million is more than respectable, but is actually only the seventh highest in the Premier League in the 2014/15 season, behind Liverpool £60 million, Burnley £35 million, Newcastle United £32 million, Leicester City £26 million, Arsenal £25 million and Southampton £15 million.

Long gone are the days when Spurs were one of the few profitable clubs in the top flight. No, the Premier League is now a largely profitable environment with only five clubs losing money so far in 2014/15, thanks to the increasing TV deals allied with Financial Fair Play (FFP).

That said, there are still some appallingly run clubs that managed to lose a lot of money against all odds: step forward, Queens Park Rangers and Aston Villa, who somehow contrived to make losses of £46 million and £28 million respectively.

No football club is more aware than Tottenham of the impact that player sales can have on the bottom line, especially as they posted the highest Premier League profit in 2013/14 thanks to the highly lucrative Bale transfer. In 2014/15 it was Liverpool’s turn to benefit from a mega transfer, with the sale of Luis Suarez to Barcelona the main reason for the £56 million they earned from this activity.

Although Tottenham’s profits from player sales declined, they still generated £21 million of profits in 2014/15, including the transfers of Jake Livermore and Michael Dawson to Hull City, Sandro to QPR, Gylfi Sigurdsson and Kyle Naughton to Swansea City, and Zeki Fryers to Crystal Palace.

Of course, Spurs have always kept a close eye on their finances, so much so that they have only reported (small) losses twice in the last 11 years. Levy himself has commented, “Tottenham Hotspur have always been run on a rational basis. It’s one of the few clubs that has been consistently profitable.” In fact, Spurs have made aggregate profits of £146 million since 2007, including £96 million in the last three years alone.

Nevertheless, it should be acknowledged that much of that solid financial performance is down to player sales with Tottenham making an incredible £288 million from this activity in the last decade. On the one hand, Levy’s infamously tough negotiation skills have clearly reaped large financial rewards, but on the other hand, some supporters have expressed unhappiness that this turnover has weakened the team.

Levy explained the strategy thus, “Our pragmatic player trading has been important in the way we have run the business of the club and in getting us to the position where we have now been able to start work on a new stadium.” Indeed, without those player sales, Tottenham would have reported losses of £141 million.

Tottenham’s last significant profit before the Bale sale was the £33 million posted in 2009, which was also largely due to profits on player sales of £56 million with Dimitar Berbatov moving to Manchester United and Robbie Keane to Liverpool.

There should again be a fairly handsome profit on player sales in the next set of accounts following a high number of departures: Andros Townsend to Newcastle, Robert Soldado to Villarreal, Paulinho to Guangzhou Evergrande, Etienne Capoue to Watford, Benjamin Stambouli to Paris Saint Germain, Lewis Holtby to Hamburg, Vlad Chiriches to Napoli, Aaron Lennon to Everton and Younes Kaboul to Sunderland.

Tottenham’s reported profits will be increasingly impacted by property transactions, as a result of sales linked to the stadium development. The 2013 accounts already included £5.6 million profit on property disposals following a sale to another group company, while the 2015/16 accounts will include £8.6 million profit after selling the site of Brook House primary school (sales proceeds £11 million less net book value £2.6 million).

Given how important player trading is to Tottenham’s business model, it is worth exploring how football clubs account for transfers. The fundamental point is that when a club purchases a player the costs are spread over a few years, but any profit made from selling players is immediately booked to the accounts.

So, when a club buys a player, it does not show the full transfer fee in the accounts in that year, but writes-down the cost (evenly) over the length of the player’s contract. To illustrate how this works, if Spurs paid £25 million for a new player with a five-year contract, the annual expense would only be £5 million (£25 million divided by 5 years) in player amortisation (on top of wages).

However, when that player is sold, the club reports the profit as sales proceeds less any remaining value in the accounts. In our example, if the player were to be sold three years later for £32 million, the cash profit would be £7 million (£32 million less £25 million), but the accounting profit would be much higher at £22 million, as the club would have already booked £15 million of amortisation (3 years at £5 million).

This is horribly technical, but at its simplest, the more that a club spends on buying players, the higher its player amortisation. In this way, this increased at Tottenham from £25 million to £40 million in 2013/14 “due to the continued investment in the playing squad”, before falling back to £37 million in 2014/15, partly due to “the impairments of certain player registrations in the prior year”. This happens when the directors assess a player’s achievable sales price as less than the value in the accounts.

Tottenham’s player amortisation is a fair bit below the really big spenders like Manchester United, whose massive outlay under Moyes and van Gaal has driven their annual expense up to £100 million, Manchester City £70 million and Chelsea £69 million, but it is essentially in line with their revenue. It should rise next year following the purchases of Son, Clinton N’Jie, Toby Alderweireld, Kevin Wimmer and Kieran Trippier.

The other side of the player trading coin is that player values have also shot up, nearly doubling from £58 million in 2012 to £109 million in 2015, though this actually fell from £122 million in 2014.

Even though player trading (and particularly profits from player sales) have such an important impact on Tottenham’s bottom line, the club is still highly profitable from its core business, as shown by EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation), which can be considered a proxy for the club’s profits excluding player trading. This has risen steadily in the last two seasons from £19 million in 2013 to £48 million in 2015.

That is not bad at all, but is still outpaced by the two Manchester clubs, United £120 million and City £83 million, Liverpool £73 million and Arsenal £63 million. Even though those clubs have much larger wage bills, they enjoy far higher revenue, so the net result is still better than Tottenham, which goes a long way to explain Spurs’ greater reliance on a player sales strategy.

Tottenham have grown their revenue by £83 million (74%) since 2009. Like most other Premier League clubs, much of this has simply been driven by the new TV deals with broadcasting income contributing £50 million of this growth. This can be seen by the increases in 2011 and 2014 in line with the new three-year cycles of the Premier League TV deals. The rise to £164 million in 2011 was also boosted by £37 million from the Champions League (prize money and gate receipts).

Commercial income has also begun to show some reasonable growth, rising £31 million in that six-year period, with more than half of the increase coming in 2015 alone. However, match receipts have essentially been flat, rising just 4%, once again emphasising the need for a new stadium.

Even after the 2015 revenue growth, Tottenham remain in sixth place in the English revenue league with £196 million. To place this into context, they are still around £200 million behind Manchester United (£395 million), £130 million lower than North London rivals Arsenal (£329 million) and £100 million below Liverpool (£298 million).

On the other hand, at the same time they are a long way ahead of their other Premier League rivals, being £70-75 million higher than Newcastle United (£129 million), Everton (£126 million) and West Ham (£121 million). As the late, great Ian Dury might have said, Spurs are basically the “Inbetweenies” of the Premier League, struggling to reach the highest echelon, but comfortably beyond the chasing pack.

Not only that, but their closest rivals (at least from a revenue perspective) are growing their revenue at a faster rate. While Tottenham increased revenue by £15 million (9%) in 2014/15, Arsenal’s rose by £31 million (10%) and Liverpool’s by £42 million (17%). Clearly, Champions League participation was a major factor for Liverpool (and also explains Manchester United’s significant decrease), but even so.

For the second year in a row, Tottenham moved up a place in the Deloitte Money League to 12th, just behind Juventus and Borussia Dortmund, but over-taking Milan, partly helped by the strengthening of Sterling against the Euro.

That’s obviously a fine accomplishment, but the Money League highlights a new challenge for clubs like Spurs, as no fewer than 17 Premier League clubs feature in the top 30 clubs worldwide by revenue, thanks to the TV deal. This means that the mid-tier clubs have more purchasing power than ever before, so are more competitive as a consequence, as amply demonstrated by Leicester City.

If we compare Tottenham’s revenue with the other clubs in the Deloitte Money League top twelve, this highlights their shortfall on match day income, but there is a far larger issue with commercial income. Tottenham’s recent growth to £60 million is praiseworthy, but this is still substantially lower than almost all of the elite clubs.

Granted, the £166 million shortfall against PSG (£60 million vs. £226 million) is largely due to the French club’s “friendly” agreement with the Qatar Tourist Authority, but there are still major gaps to the other clubs in commercial terms: Bayern Munich £152 million, Manchester United £141 million, Real Madrid £129 million, Barcelona £126 million and Manchester City £114 million.

Given the well-known TV riches in the Premier League, Tottenham fans might also be puzzled by their lower broadcasting revenue, but this is essentially due to the lack of Champions League money. In terms of domestic TV revenue, Spurs are very competitive with their £91 million only surpassed by other leading English clubs and the Spanish giants, Real Madrid and Barcelona, who benefit from individual deals.

Following the rise in 2015, commercial income’s share of total revenue has increased from 24% to 30%, though broadcasting remains the most important revenue stream with 49% (down from 52%). Match day income also fell from 24% to 21%.

Despite finishing a place higher in fifth, Tottenham’s share of the Premier League TV money slightly decreased by £1 million from £90 million to £89 million in 2014/15, as the additional merit payment was offset by a lower facility fee, as they were only shown live 18 times (compared to the previous season’s 24).

All other elements of the central TV deal are equally distributed among the 20 Premier League clubs: the remaining 50% of the domestic deal, 100% of the overseas deals and central commercial revenue.

Tottenham will see increases here in the future. First, the 2015/16 distribution will benefit from this season’s success, as they should finish at least third, while they will be broadcast live around 27 times (based on current scheduling). That should deliver an additional £9 million.

Then, there will be a substantial increase from the mega Premier League TV deal starting in 2016/17. My estimates suggest that Tottenham’s 5th place would be worth an additional £49 million under the new contract, taking the annual payment up to an incredible £138 million. This is based on the contracted 70% increase in the domestic deal and an assumed 30% increase in the overseas deals (though this might be a bit conservative, given some of the deals announced to date).

The other main element of broadcasting revenue is European competition with Tottenham receiving €6.1 million (£7.1 million including gate receipts) for reaching the last 32 in the Europa League where they were eliminated by Fiorentina. This was much lower than the Champions League, where the four English clubs earned an average of €39 million, ranging from Manchester City’s €46 million to Liverpool’s €34 million. This underlines the size of the prize assuming that Tottenham do cement their Champions league qualification.

Here it is worth noting the importance of the final league placing to the TV (market) pool calculation. Half of the payment depends on how far a club progresses in the Champions League, but the other half is based on where the club finished in the previous season’s Premier League, with the winners receiving a 40% share, second place 30% share, third 20% and fourth 10%.

Nobody needs to explain the impact that the Champions League can have on revenue to Tottenham, as their run to the Champions League quarter-finals before being eliminated by Real Madrid in 2010/11 generated €31 million of prize money (£37.1 million including gate receipts), but the club’s failure to qualify for Europe’s premier tournament more than once in the last five years has really hurt their bank balance.

In that period, Tottenham have earned €51 million from Europe, which is around €90 to €180 million less than the top four received – and that does not include revenue from additional fixtures and sponsorship clauses. That’s a huge competitive disadvantage and has made it all the more difficult for Spurs to break into the Champions League qualifying places.

It must have therefore been particularly galling when they finished fourth in the Premier League in 2012, which would normally have guaranteed a place in the Champions League qualifying round, only to be deprived of this opportunity following Chelsea’s unlikely victory against Bayern Munich.

The financial significance of a top four placing is even more pronounced from this season with the new Champions League TV deal worth an additional 40-50% for participation bonuses and prize money and further significant growth in the market pool thanks to BT Sports paying more than Sky/ITV for live games.

Tottenham’s match day revenue fell slightly by £1.2 million (3%) from £42.4 million to £41.2million. Premier League gate receipts were flat, while income from domestic cup competitions rose as a result of reaching the Capital One cup final, but there was a reduction in the Europa League receipts.

Tottenham generate less than half of the revenue of their rivals Manchester United and Arsenal, who earn £90-100 million a season in their far larger stadiums, despite charging the second highest season ticket prices in England (only behind Arsenal).

However, they have frozen ticket prices for three seasons in a row, noting that “the club fully recognises the need to keep football affordable and facilitate a fantastic atmosphere in the ground”, though pressure from supporters was required before they dropped the idea of a proposed 2% increase for 2016/17.

In fact, Tottenham have only the 9th highest attendance in the Premier League with around 36,000, behind the likes of Sunderland, Chelsea and Everton, but this is effectively full capacity with the club selling out all Premier League home games. This underlines the need for the new, larger stadium, which would satisfy a waiting list that has risen to over 50,000.

As Levy put it, “In respect of driving higher revenues in order to enable greater investment in players, it is clearly evident that we need a ‘game changer’ to lift this club to the next level  - namely an increased capacity stadium. Currently we are competing for Champions League qualification whilst driving revenue in the smallest stadium of the top six clubs in the Premier League. The new stadium is, therefore, critical.”

The proposal for a 61,000 capacity stadium adjacent to White Hart Lane was finally approved in December 2015 by Haringey Council. This will be the largest club ground in London, exceeding the capacity at Arsenal by around 1,000, and will be built as a multi-use facility in order to maximise potential revenue.

"Hit the ground running"

It will therefore have a fully retractable grass pitch, allowing a synthetic surface to be used for other events. Indeed, the club has already signed a 10-year partnership with the NFL to host a minimum of two regular games a season.

The aim is to have the new stadium ready for the 2018/19 season, though Spurs will have to move to temporary premises for the 2017/18 season. Their preferred option would be Wembley (at an annual rent of some £15 million), but Chelsea are also keen on the national stadium while Stamford Bridge is being redeveloped, so they might have to look elsewhere with the MK Dons Stadium also being considered.

This is a massive project with the latest cost projections up to £500 million for the stadium, but between £675 million and £750 million for the entire development, including land purchase, residential property, hotel and other facilities, which is double the original estimate.

Tottenham have already spent £100 million, while financial adviser Rothschild have arranged £350 million of loans from three banks, leaving a gap of £300 million to be funded (assuming the higher cost).

"Shine on"

Tottenham will hope to emulate Arsenal’s model when constructing the Emirates Stadium by signing front-loaded commercial deals, including naming rights. There has been talk of £30 million a season, though that sounds ambitious, even if the club says it has “received expressions of interest from credible counterparties.”

Other options include a further round of debt financing or even an equity investment, but the latter seems unlikely, as that might complicate a future sale and the current owners would probably prefer to sell after the stadium is completed and the value has increased.

According to press reports, the club has estimated that the new stadium would generate an additional £28 million match day income a year, largely from corporate hospitality, though this seems a little on the low side, given the significant capacity increase and the high ticket prices.

They have also emphasised the difficulties in completing this project. Levy commented, “We know that our North London neighbours experienced delays and setbacks during the delivery of their stadium and their challenges were far less than ours with no site constraints and with significant enabling development.”

This was confirmed by Pochettino: “I have read a lot about Arsène Wenger saying the toughest period for Arsenal was in the period that they built their stadium and I think the people need to know that this is a very tough period for us.” In investment terms, this is the classic risk and reward situation.

As we have seen, the other area that Tottenham need to address is commercial income. Even after an impressive increase of £17 million (38%) from £43 million to £60 million, this is still a long way below the top five clubs: Manchester United £197 million, Manchester City £173 million, Liverpool £116 million, Chelsea £108 million and Arsenal £103 million.

Tottenham have always behind the “big boys” commercially, but the magnitude of this disparity is a relatively recent phenomenon. Since 2012 Tottenham have the lowest growth of the top six English clubs, both in absolute and percentage terms, with an increase of only £18 million (44%). As a painful comparative, in the same period Arsenal have grown by £51 million to £103 million. Mind the gap, indeed.

The 2014/15 season was the first in a five-year shirt sponsorship deal with AIA, an insurance services provider, worth around £16 million a season. That’s not too bad, but is a lot lower than Manchester United £47 million (Chevrolet), Chelsea (Yokohama) £40 million and Arsenal (Emirates) £30 million.

It’s a similar story with Tottenham’s kit supplier, Under Armour, who have a five-year deal worth a reported £10 million a year, running until the end of the 2016/17 season. Again, that’s pretty good, but it pales into significance next to Manchester United’s “largest kit manufacture sponsorship deal in sport” with Adidas, which is worth an average of £75 million a year, or Arsenal’s Puma deal (£30 million).

That said, there have been reports in the media about Spurs trying to negotiate a £30 million agreement with Nike, which would make a big difference to the comparatives. Of course, if Spurs start to deliver success on the pitch, this would boost them commercially, e.g. sponsorship contracts are likely to include more money for Champions league participation.

Tottenham’s wage bill rose vey slightly by £0.4 million from £100.4 million to £100.8 million, reducing the wages to turnover ratio from 56% to 51%, the lowest since the 46% achieved in 2008. Wages have only risen by a cumulative £10 million (11%) in the last five years, which is a striking demonstration of Spurs’ ability to control costs.

The last time that there was a substantial increase came in 2011, when the wage bill shot up from £67 million to £91 million. This was partly due to the club “augmenting its squad of players to be able to compete both at home and in Europe”, but also an attempt to retain core players on long-term deals with higher, competitive salaries.

Mirroring revenue, Tottenham’s wage bill is much lower than the top five clubs: Chelsea £216 million, Manchester United £203 million, Manchester City £194 million, Arsenal £192 million and Liverpool £166 million. In other words, Tottenham have largely performed in line with expectation, though are punching above their weight this season.

In this way, Tottenham’s wages to turnover ratio of 51% is one of the lowest (i.e. best) in the Premier League, only matched by Manchester United and Newcastle United (also 51%) and beaten by Burnley (37%). Despite their much higher revenue, Arsenal’s wages to turnover ratio was worse at 56%.

Since 2011, Spurs have managed to keep their wage bill in a tight range of £90-100 million, but other clubs have continued to spend ever-increasing sums on players. In particular, in that period Arsenal’s wage bill has grown by £68 million (55%) to £192 million, increasing the gap to Spurs from £33 million to £91 million. However, given the Gunners’ performances this season, you could hardly call that money well spent.

Next year’s accounts will be interesting, as the wage bill will benefit from the departure of some high earners (e.g. Adebayor, Soldado and Paulinho), replaced by younger, cheaper players, but there should also be higher bonus payments following this season’s improved results.

It’s worth noting that the directors’ remuneration continues to increase with Daniel Levy receiving £2.6 million, up from £2.2 million. This means that his remuneration has grown by nearly £1 million (or 57%) in just two years, which is not too shabby.

There has been a fairly dramatic turnaround in Tottenham’s transfer activity in the last five seasons with average annual net sales of £11 million, compared to average net spend of £19 million in the preceding five seasons (which you could loosely call the “Redknapp effect”).

In fairness, there has been over £250 million of gross spend in this period, but on the whole Spurs have been a selling club in recent times, only splashing the cash after a player has been sold. That’s not always their call obviously, as sometimes it’s the player that wants to leave, but, as Levy explained, “Tottenham is not a club that can consistently pay £50 million for a player. We have to make our players.”

In fact, every other club in the Premier League has spent more than Tottenham in the last five seasons, which is an unsurprising statistic, given that they are the only club with net sales (of £54 million). It is particularly telling how much more Spurs’ rivals for a Champions League place have spent in this period: Manchester City £303 million, Manchester United £288 million, Chelsea £199 million, Liverpool £149 million and even the traditionally frugal Arsenal £102 million.

Obviously, money is not the only ingredient in the recipe to build a good squad and Spurs have made some really astute, value signings, e.g. Dele Alli and Eric Dier, while Levy has pointed out that the lack of big money signings has also given the young players “space to flourish”.

Pochettino is fully on message: “You need to realise that to improve our squad today is a very difficult job. I have been very clear that we would only add players that we felt would improve us and if any one player was not possible then I prefer we do not add for the sake of it.”

That said, it’s difficult for Tottenham to keep up with the sort of financial firepower employed by the elite clubs and the concern must be that there will be even less cash available to spend in the transfer market while the new stadium is being built. Although Levy has promised to ring-fence a percentage of cash for buying new players, Tottenham fans need only look at their North London neighbours to see the impact while a new stadium is being financed.

The club has moved from net funds of £3.2 million the previous year to net debt of £20.8 million, though gross debt actually fell from £35.4 to £31.5 million, as cash decreased from £38.5 million to £10.7 million. The debt comprises a £13 million Investec bank facility repayable over five years tracking LIBOR and £18.5 million of 7.29% secured loan notes repayable in equal installments over 16 years from September 2007.

Daniel Levy has previously observed, “there is hardly a transfer concluded across Europe which doesn’t include staged payments”, and that is certainly demonstrated in Tottenham’s accounts. They owe other clubs £26 million, while they are themselves owed £53 million (largely due to the Bale sale) – though they have received £23 million of this since the balance sheet date.

Similarly, Tottenham have contingent liabilities of £13 million, which are potentially payable based on the success of the team and individual players, but also a contingent asset of £17 million.

Tottenham’s gross debt of £32 million is currently among the lowest in the Premier League, considerably below Manchester United, who still have £444 million of borrowings even after all the Glazers’ various re-financings, and Arsenal, whose £232 million debt effectively comprises the “mortgage” on the Emirates stadium.

As the new stadium progresses, this situation will obviously change, meaning Spurs will have one of the largest debts in the top flight. To give an example of the financial impact, Arsenal are even now still paying around £19 million a year in interest and loan repayments.

Tottenham have generated a lot of cash in recent years, though this would have been even higher if clubs had paid for transfers upfront, as we can see from the cash flow difference in net player purchases compared to the actual fees.

In 2015 they made £41 million from operating activities, having added back non-cash items like player amortisation, depreciation and impairment, but then invested £42 million in infrastructure and £11 million in player registrations. They also bought-back £10 million of preference shares, repaid £4 million of loans, made £2 million of interest payments and £1 million of tax. This produced the £28 million reduction in the cash balance.

Since 2007 Tottenham have had £415 million of available cash, largely generated from their own operating activities (£328 million), but also equity contributions from owners ENIC (£44 million) and long-term debt financing (£19 million) with the remainder coming from reducing the cash balance (£24 million).

The majority of that surplus cash £212 million (51%) has been invested in fixed assets, essentially the new stadium and the new training centre in Enfield. A further £157 million has gone on player purchases, £28 million on interest payments, £10 million to the taxman and £7 million dividends.

Tottenham’s need for external financing for the new stadium is shown by their relatively low cash balance of £11 million, compared to Arsenal £228 million and Manchester United £156 million. Arsenal’s high balance is down to their lack of appetite for spending, while United are a cash machine.

There has been some noise about the possibility of the club being sold, including an approach from US private investment company Cain Hoy to buy the club on behalf of a group of American businessmen, but there have been no concrete proposals. There might be more interest in the future, as overseas investors will be attracted by the booming TV rights, but they might be scared off by the price asked by Levy, which is rumoured to be an “aspirational” £800 million, and the investment required to finance the new stadium.

"From a whisper to a scream"

Evidently, a club as profitable as Tottenham has no issues with the Financial Fair Play (FFP) regulations, though Levy has stressed the implications in terms of revenue generation: “We are all eager to be challenging at a higher level. Whilst the popular view may be to spend money in excess of earnings or find a philanthropic investor to fund transfers, those scenarios are simply not possible under the new world of Financial Fair Play rules, whereby clubs can only spend revenues generated through operations.”

Going forward, Tottenham’s revenue will indeed rise, thanks to Champions League qualification and the new Premier League TV deal, but they will still struggle financially against the European elite.

Nevertheless, Levy spoke with optimism: “We are continuing with an ambitious growth strategy. Our player development, on pitch performances, enhancements to our highly rated Training Centre and commencement of the new stadium scheme which will also host NFL, signify an exciting future for the club.”

"Clap Your Hands Say Yeah"

There will have to be a tricky balancing act between the financial demands imposed by the stadium construction and the need to improve the squad, but it does feel as if something has changed at White Hart Lane. The team is no longer so, well, “Spursy”, and they have an excellent manager in Pochettino.

The Argentinian himself sounds bullish about the future, “When you compare Tottenham with big sides, people can see our approach is for the long term. We have the youngest squad in the Premier League, yet here we are fighting for the title. The project is fantastic, because we are ahead of the programme – we are only going to get better.”

They will need to hang on to their stars to match their ambitions, avoiding the temptation to cash in on the likes of Kane and Alli, so they are no longer considered a stepping-stone to more powerful clubs. If they can do that, then maybe they can genuinely dare to dream.

Money League - Oh! You Pretty Things

A couple of weeks ago Deloitte published the 19th edition of their annual Football Money League, which ranks leading clubs by revenue, this time for the 2014/15 season. On the face of it, little has changed compared to the previous year, as Real Madrid once again top the table for the 11th year in a row with annual revenue of €577 million (£439 million), and there are no new entrants in the top 10.

However, there has been some movement with Barcelona (€561 million) overtaking both Manchester United (€520 million) and Bayern Munich (€474 million) to reclaim second place, as they became only the third club to break the €500 million revenue barrier.

In turn, United fell to third place, while Bayern dropped to fifth place, the first time in 12 years that it has slipped down the table. Paris-Saint Germain (€481 million) climbed to fourth place, the highest position ever achieved by a French club, on the back of their commercial growth.

The seemingly inexorable rise of the English clubs continued apace, as the top 20 now includes nine clubs from the Premier League. Although the Spanish giants still lead the way, there are no fewer than five English clubs in the top nine: Manchester United £395 million, Manchester City £353 million, Arsenal £331 million, Chelsea £320 million and Liverpool £298 million.

Then, a fair way back, come Tottenham Hotspur £196 million, Newcastle United £129 million, Everton £126 million and West Ham £122 million.

Total revenue for the top 20 clubs rose €470 million (8%) from €6.161 billion to €6.631 billion, split between commercial €2.7 billion (41%), broadcasting €2.6 billion (39%) and match day €1.3 billion (19%).

However, individual clubs sometimes have a very different revenue mix. Within the top 20, the highest reliance on a specific revenue stream was as follows: match day – Arsenal 30%; broadcasting – Everton 69%; commercial – Paris-Saint Germain 62%.

On the other side of the coin, the clubs with the smallest share of their total revenue from each category were: match day – Milan 11%; broadcasting – Paris-Saint Germain 22%; commercial – Everton 16%.

It is worth emphasising the role that exchange rates play in these rankings, as Sterling has strengthened by 10% against the Euro (moving from 1.1958 last year to 1.3145 this year). This has greatly benefited the English clubs relative to their continental counterparts. In fact, around half (€262 million) of the €532 million year-on-year growth for this year’s top 20 clubs is purely down to this FX movement, leaving the real growth as €270 million (4%).

This effect is perhaps best highlighted with Manchester United, whose revenue increased in Euro terms by €2 million from €518 million to €520 million. However, the exchange rate movement produce a Euro increase of €51 million, so their underlying revenue actually fell by €50 million. This is backed up by looking at their figures in Sterling, where the revenue decreased by £38 million from £433 million to £395 million.

Partly as a result of this favourable movement in exchange rates, the revenue of all English clubs grew compared to 2013/14  with Liverpool €86 million and Arsenal €76 million leading the way.

It’s a slightly different story if the FX impact is stripped out, with the most impressive real growth being reported by Barcelona €76 million, Liverpool €56 million, Roma €53 million, Juventus €45 million and Arsenal €41 million. The big losers were Milan €51 million, Manchester United €50 million and Bayern Munich €14 million.

The main drivers for the revenue growth in 2014/15 were broadcasting €207 million (up 9%) and commercial €202 million (up 8%). The match day increase lagged at €60 million, but this still represented 5% growth.

The revenue growth at the leading football clubs in the last few years is remarkable, rising from below €4 billion in 2009 to the current €6.6 billion, an increase of €2.7 billion (just under 70%). Deloitte expect the €7 billion threshold to be reached next season with new TV deals driving the total towards €8 billion in 2016/17.

Perhaps surprising to some, commercial income has been the main contributor with growth of €1.5 billion (115%) from €1.3 billion to €2.7 billion, followed by broadcasting, up €1.0 billion from €1.6 billion to €2.6 billion. In the same period, match day has risen by less than €0.3 billion (25%) from €1.0 billion to €1.3 billion.

These growth rates have obviously been reflected in the revenue share. Since 2009, commercial has significantly increased from 32% to 41%, while broadcasting has eased from 42% to 39%. Match day has slumped from 26% to just 19%, its lowest ever share.

In fact, with further increases anticipated in commercial and broadcasting revenue in the coming years, the revenue that clubs generate from match day should fall in importance even more than its current record low. This trend of corporates paying more for a club’s upkeep than the match going supporters could be considered a good thing – so long as the growth elsewhere were reflected in lower ticket prices.

Real Madrid and Barcelona have the highest broadcasting revenue with £152 million apiece, as they continue to benefit from the freedom to negotiate their own lucrative TV rights deals for La Liga. Even though this is due to change next season, the new collective deal is significantly higher than the aggregate of the previous individual arrangements – and the big two will be protected from any revenue reduction.

Juventus are in third place, partly due to receiving the highest Champions League distribution of £68 million (€89 million). This is heavily influenced by their share of the Italian market pool, due to a combination of a very good TV deal and the fact that they only had to divide this with one other Italian club, Roma, as these were the only two to qualify for the group stages.

"Play to win"

The importance of revenue from European competition is highlighted by Paris Saint-Germain, whose £43 million payout was actually higher than their domestic money £38 million. Similarly, Atletico Madrid generated half of their broadcasting money from Europe. This will be further emphasised by the higher Champions League deal starting from the 2015/16 season.

The English clubs fill all the places between fourth and tenth for broadcasting income, thanks to the size of the Premier League contract. This is even before next year’s blockbuster deal, which should increase the TV revenue of the top clubs by around £50 million a season.

The relative weakness of the Bundesliga TV deal is evidenced here with the German clubs towards the lower end of the table. Their domestic money is nowhere near the English clubs: Bayern Munich £43 million, Borussia Dortmund £37 million and Schalke £33 million.

Commercially, six clubs are well above the rest: Paris-Saint German £226 million, Bayern Munich £212 million, Manchester United £201 million, Real Madrid £188 million, Barcelona £186 million and Manchester City £174 million. There then follows a big gap to Liverpool at £116 million.

Indeed, there is much work to do for many English clubs on the commercial side with three of them filling the bottom spots: in the top 20: Everton £20 million, West Ham £24 million and Newcastle £25 million.

"The Leader"

PSG benefited from renewed deals with Emirates and Nike, but the lion’s share of their revenue comes from their innovative €200 million arrangement with the Qatar Tourism Authority. Barcelona also saw a hefty commercial increase, partly due to additional sponsorship bonuses paid in their treble winning season.

There seems little sign of a saturation point being reached commercially, at least for the elite, as Manchester United’s revenue will further increase in 2015/16 following the start of their record £750 million ten-year Adidas kit deal. Moreover, in the last few days the media has reported that even this mega deal will be eclipsed by Real Madrid signing a new 10-year contract, also with Adidas, for a staggering £106 million a season.

Arsenal have the highest match day revenue in the world with £100 million, despite the Emirates Stadium having a substantially lower capacity than the Bernabéu, home of Real Madrid, and Nou Camp, Barcelona’s famous ground. This is a reflection of Arsenal’s ticket prices and a high proportion of corporate seating.

Match day revenue has more than doubled from the £44 million Arsenal generated in their last season at Highbury, which helps explain why Tottenham and Chelsea are so keen to redevelop their grounds. Even though the construction is a significant investment, football clubs still need to assess this option or risk falling further behind their rivals.

What is particularly striking is the low match day income for Italian clubs. Juventus’ move to a club-owned stadium has helped increase their revenue to £39 million, but the others’ revenue is miles behind: Roma £23 million, Milan and Inter both £17 million. It was recently reported that the average attendance in Serie A had dropped below 22,000 in the 2015/16 season.

For the fourth time in the last seven seasons the Money League top 20 clubs is wholly populated by representatives from the “Big Five” leagues, namely England, Germany, Spain, Italy and France. The number of English clubs rose from eight to a record nine, while the other leagues were unchanged: Italy four, Germany three, Spain three and France one. The only club from outside the “Big Five” last year, Galatasaray from Turkey, dropped to 21st place.

England only had six clubs in the top 20 in 2013, but funnily enough had eight back in 2006, so the current dominance is not a completely new phenomenon. The big losers are Germany, whose representation has fallen from five clubs in 2009 to three, and France, who had three clubs in 2012, but now just the one.

Turkey had two clubs in the top 20 as recently as 2013, while the last time a Scottish club made the rankings was Celtic in 2007. Portugal’s last representative was Benfica a year earlier in 2006.

The top 30 clubs is where the English strength is really reflected with the number of representatives rising from eight in 2013 to 17 in 2015 (up 3 from 14 in 2014), including three debutants: Crystal Palace, Leicester City and West Bromwich Albion. As Deloitte observed, “This is again testament to the phenomenal broadcast success of the English Premier League and the relative equality of its distributions, giving its non-Champions League clubs particularly a considerable advantage internationally.”

This has produced some notable exclusions from the top 30, including Valencia, Seville, Hamburg, Stuttgart, Lazio, Fiorentina, Marseille, Lyon, Ajax, PSV Eindhoven, Porto, Benfica and Celtic.

If we look at the growth of the highest ranked club in each of the “Big Five” leagues since 2009, the absolute growth of Real Madrid (€176 million), Manchester United (€193 million) and Bayern Munich (£184 million) is broadly similar, though the percentage growth is much smaller at Madrid (44%), compared to United (59%) and Bayern (63%).

The outlier is Paris Saint-Germain, whose revenue has shot up by €380 million from €101 million to €481 million since the Qatari takeover. Juve have recorded impressive growth of 60%, but in absolute terms the increase was “only” €121 million, which means that the gap to the other four clubs has widened.

Despite a sizeable reduction in revenue following their failure to qualify for Europe in 2014/15, Manchester United still managed to remain in the top three of the Money League, thus demonstrating the underlying strength of the club’s business model.

In England, the two Manchester clubs (United and City) continued to lead the way, but Arsenal overtook Chelsea, due to the commencement of the new kit supplier deal with Puma. Liverpool’s healthy growth was due to the Reds’ return to the Champions League, which boosted both broadcasting and match day revenue.

Since 2009 Manchester City have registered the stand-out growth of £362 million, which is around twice as much as their peers, mainly due to their commercial success, including the celebrated Etihad deal.

Despite their revenue fall in 2015 (in Sterling terms), United are still well ahead of City, while there is a bunching of the pursuers (Arsenal, Chelsea and Liverpool), whose relative positions basically depend on the timing of their principal sponsorship agreements, e.g. Chelsea’s Yokohama Rubber deal will only be included in the next set of figures.

In a similar way, the revenue at the mid-tier clubs (Newcastle United, Everton and West Ham) is also converging, albeit at a much lower level. The interesting one is Tottenham, who are stuck in the middle between the top five clubs and the rest. “Neither Fish Nor Flesh”, as Terence Trent D’Arby once put it.

In Spain, it’s essentially a case of the rich get richer, though Barcelona’s growth last year (€76 million) was much better than Real Madrid (€28 million). Nevertheless, Madrid kept their noses in front and their figures will soon be enhanced by the barely credible new kit supplier deal with Adidas.

The other Spanish clubs are so far behind that they are almost out of sight with the nearest challenger being Atletico Madrid at €187 million – exactly one third of Barca’s revenue. Valencia did not even reach the top 30 clubs, which is unsurprising given that their 2014 revenue was less than €100 million.

There will be a boost in broadcast revenue for Spanish clubs with the new collective selling regime in La Liga, but the gap will remain massive.

In Germany, the situation is even worse, as Bayern Munich are in a league of their own. Despite a dip in revenue in 2015, due to a decrease in commercial income, Bayern’s €474 million is nearly €200 million more than Borussia Dortmund’s €281 million with Schalke 04 another €61 million behind. Incredibly, there is then a further €100 million difference to the closest German clubs, namely Hamburg and Stuttgart.

Since 2009 only Dortmund have managed to keep pace with Bayern, at least in terms of growth: €175 million vs. €184 million. In the same period, Schalke only grew by €95 million, while Stuttgart’s revenue was flat and Hamburg’s actually fell.

How do you say, “mind the gap”, in German?

In Italy, it’s a similar story, as Juventus’ revenue of €324 million is €125 million more than Milan’s €199 million. The bianconeri also led the way in Italy in 2009, but since then they have increased their revenue by €121 million, while it has been a tale of woe for their rivals from Milan: in the same period, Milan’s revenue has barely moved, while Inter’s revenue has actually fallen by €32 million to €165 million.

There has been encouraging growth at Roma, largely thanks to their return to the Champions League in 2014/15 for the first time since 2010/11. Napoli suffered from the opposite effect, as they participated in Europe’s premier competition the previous season, though they have still grown revenue by €38 million since 2009 to €126 million to creep into the top 30 clubs.

These are worrying time for Italian clubs, as they struggle to match the growth of their foreign peers, largely due to the continuing lack of stadium development, which is reflected in feeble match day income.

In 2006, it was a very different story with three Italian clubs in the top seven: Juventus 3rd, Milan 5th and Inter 7th. The nerazzurri are now perilously close to falling out of the top 20. As a man who lived three years in Milan at a time when Arrigo Sacchi’s team bestrode Europe like a colossus, it gives me absolutely no pleasure to say this, but how the mighty have fallen.

Paris Saint-Germain remain the only French club in the Money League this year and have moved up a position to fourth. Marseille and Lyon have been regular representatives in the top 20 (16th and 17th respectively in 2012), but their lack of revenue growth has seen them disappear from the rankings.

A combination of PSG’s “friendly” commercial deals and healthy Champions League income means that the financial difference between them and other French clubs is not so much a gap as an abyss. Little wonder that Ligue 1 is pretty much a cakewalk for the Parisians.

After a few years when the gap between the 10th place club and 11th place club seemed to be closing, it has widened this year from €18 million to €43 million, being the difference between Juventus €324 million and Borussia Dortmund €281 million.

The gap between top and bottom, defined as 1st place to 20th place, has been constantly growing. In fact, it has more than doubled since €207 million in 2006 to €416 million in 2015, representing the difference between Real Madrid €577 million and West Ham €161 million.

That said, the financial threshold for membership of the Money League club is becoming increasingly challenging with the requirement for a place in the top 20 rising 12% from €144 million to €161 million. This has nearly doubled in the last 10 years from €85 million.

As Deloitte noted, Napoli, down in 30th position this year with revenue of €125 million, would have had a position in the top 20 as recently as two seasons ago with the same revenue.

Although Deloitte have done a fine job in adjusting the clubs’ reported revenue figures in order to enable a meaningful, like-for-like comparison, it is still worth exploring some of these adjustments, as the supporters of individual clubs might be a little puzzled over differences with the figures they might expect to see.

I have taken an example of each of the following adjustments to demonstrate that reported revenue figures are not always black and white and there is often room for interpretation, even with something as theoretically rigorous as a football club’s accounts:

• Profit on player sales
• Different classification of revenue types
• Holding company vs. football club
• Operating income
• Change in accounting year
• Restatement of prior year revenue
• Calendar year 

Continental clubs often include profit on player sales in their revenue figures, as seen by Bayern Munich boasting of €524 million revenue in their 2014/15 press release. The difference between this number and the €474 million in the Money League is the €50 million they earned from selling players.

This is further complicated with Italian clubs who include profit on player sales in revenue, but any losses made on player sales are booked in expenses.

The classification between different revenue categories can be different, as seen with Everton. Commercial revenue in the club accounts rose 37% from £19 million to £26 million, comprising sponsorship, advertising and merchandising £10.4 million plus other commercial activities £15.6 million.

This always seemed a bit high with the suspicion that Everton had included the commercial element of the Premier League TV deal within commercial income, even though most other clubs classify it as broadcasting income, and Deloitte have duly reduced commercial and increased broadcasting (though the total revenue is the same).

Football’s a simple game, but clubs increasingly operate within a more complex corporate structure. In particular, sometimes there is a holding club that owns the football club with different revenue figures (usually higher).

A good example is Chelsea, where the football club (Chelsea FC plc) had revenue of £314.3 million in 2014/15, which is around £5 million lower than the £319.5 million shown in the Money League. This is almost certainly because Deloitte have used the figures from the holding company (Fordstam Limited). Although this company has not yet published its 2015 accounts, the £324.4 million reported in 2014 is exactly the same as the figure in last year’s Money League.

Football clubs usually separate non-trading income from turnover and classify this as Other Operating Income. As an example, West Ham reported revenue (turnover) of £120.7 million, but Deloitte have also included £1.7 million of Other Operating Income to give their revenue figure of £122.4 million.

Clubs sometimes change their accounting date, i.e. when they close their accounts, which means that the length of that accounting period is not the usual 12 months. For example, Swansea City changed their close from May to July in 2014/15 in order to be more aligned to the football season, so their latest accounts cover 14 months.

Their revenue was only slightly higher, as there is no additional match day or broadcasting income in June and July, but commercial agreements are evenly accrued. Thus, Deloitte have reduced the 2014/15 revenue from the £103.9 million reported by the club to £101.0 million.

The Money League occasionally restates the revenue figures used in its own report the previous year. One example of this is Paris Saint-Germain, where Deloitte reported €474.2 million last year, but have included €471.3 million as a 2014 comparative this year. This does not impact this year’s rankings, but does affect the stated year-on-year growth.

Most clubs now use the football season for their accounting period, but some use the calendar year, especially in Italy. As an example, Milan’s most recently published accounts cover the 12 months up to 31 December 2014 and the adjusted revenue is around €215 million, which is higher than the €199 million reported by Deloitte.

The main reason for the difference is that Milan’s 2014 accounts include a part of the Champions League money they earned in the 2013/14 season.

"Paint me down"

Next year’s Money League may well see Manchester United topple Real Madrid, as the English giants are projecting revenue of £500-510 million for the 2015/16 season, following their return to the Champions League and the start of the record Adidas kit deal, which would make them the first English club to break through the half-billion pounds barrier.

Beyond that, Real Madrid might well bounce back if reports of their huge new sponsorship deal with Adidas are not exaggerated.

Obviously a club’s financial performance does not begin and end with its revenue, as explained by no less an authority than the famous German actress, Marlene Dietrich, “There is a gigantic difference between earning a great deal of money and being rich.”

"Points of authority"

In the past, clubs suffered from what Alan Sugar’s described as the “prune juice effect”, whereby any increases in revenue simply fed through to higher player wages, transfer fees and agents’ commission.

This is no longer automatically the case, largely due to the implementation of various Financial Fair Play regulations, which has increased profitability, especially in England, thus making it more likely that overseas investors will explore the purchase of football clubs.

In “All The President’s Men” the whistle blower Deep Throat advised the investigative journalists to “Follow the money. Always follow the money.” The circumstances were clearly somewhat different in the movie, ultimately leading to the resignation of the President of the United States, but that is still sound advice that is more true than ever in the world of football.

In other words, money talks and is almost invariably reflected in success on the pitch. There might be the occasional exception to the rule, as we have seen with Leicester City's rise this season, but after all is said and done those clubs at the top of the Money League will usually be the ones competing for trophies.