Wednesday, December 14, 2011

Tottenham - Grounds For Optimism Or Concern?

In spite of their somewhat controversial defeat at Stoke City last weekend, Tottenham Hotspur have enjoyed a splendid season to date. Even though it did not get off to the most auspicious of starts with successive maulings at the hands of the two Manchester clubs, Spurs then embarked on a 12-match unbeaten run in the Premier League, comprising 11 victories and just one draw. The team has been in fine form, adding an unexpected consistency to their usual attacking flair.

This is all the more impressive, as it follows a difficult summer in the transfer market, traditionally a time when seasoned observers would expect manager Harry Redknapp to be heavily involved. Instead, it was dominated by the Luka Modric saga, a transfer that did not actually take place, even though the talented midfielder’s desire to move to Chelsea was made clear to all.

Chairman Daniel Levy’s staunch refusal to countenance the Croat’s departures could have had negative repercussions in the dressing room, but to his credit Modric has performed to his customary high levels so far. He has been greatly helped by the tenacious Scott Parker, who was signed from West Ham for a bargain fee of £5.5 million. In fact, very little money was spent, as the experienced goalkeeper Brad Friedel arrived on a free transfer and powerful striker Emmanuel Adebayor is on loan from Manchester City.

"Itching to leave?"

In contrast, many fringe players have been offloaded with Peter Crouch, Wilson Palacios and Jonathan Woodgate all heading to Stoke City, Alan Hutton moving to Aston Villa, Jamie O’Hara to Wolves and Robbie Keane taking his extravagant goal celebrations to LA Galaxy. In addition, Villa and West Ham have somehow been persuaded to take Jermaine Jenas and David Bentley on loan for the season.

Following the numerous departures and the lack of high-profile signings, it would have been legitimate for Spurs’ fans to lower their expectations this season, but Redknapp believes that this might be his best Spurs squad yet, capable of going further than the one that qualified for the Champions League two years ago. He said, “I think we’ve got the potential to be up there all year”, which might have sounded foolhardy a few weeks ago, but now does not seem so unrealistic, as Spurs currently sit in fourth place in the Premier League with a game in hand on the three teams above them.

Results have been equally encouraging off the pitch, as there was a solid improvement from last year’s £6.5 million loss before tax to a £0.4 million profit for the 2010/11 season. That was mainly due to the impressive run in the Champions League, which not only took Spurs to the quarter-finals before elimination by the mighty Real Madrid, but helped grow revenue by 36% (£44 million) from £120 million to £164 million, though this was largely offset by a 35% (£34 million) increase in operating expenses, primarily a booming wage bill. In addition, profit on player sales fell £7 million, though net interest payable also reduced by £4 million.

It should be noted that Spurs have a small property business segment, which made a small loss of £1 million, so the actual football profit was slightly higher at £1.4 million.

Tottenham are very profitable at the cash level with EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation) of £40 million being one of the best in the Premier League, only behind Manchester United and Arsenal, though non-cash expenses like player amortisation and depreciation lead to operating losses before player sales usually save the day.

In fact, profit on player sales has been a strong factor in Tottenham’s financial prowess over the last few years. If money from this activity were to be excluded, then Spurs would have consistently reported losses. This is most obvious in 2009, when the hugely profitable sales of Dimitar Berbatov to Manchester United and Robbie Keane to Liverpool produced an incredible £57 million gain, leading to a £33 million pre-tax profit. Without these sales, the club would have reported a thumping great £23 million loss.

Last year’s loss would have been even higher without the sales of Darren Bent to Sunderland, Didier Zokora to Sevilla and Kevin-Prince Boateng to Portsmouth. On the other hand, the 2011 profit would have been even healthier if Spurs had repeated their usual £15+ million profit here. Instead, the profit was relatively low at £9 million with the club receiving only a small fee from QPR for Adel Taarabt plus contingent receipts from prior year sales.

You might be thinking, “So what? This is a fairly standard part of any football club’s business” and you would be right. However, it is worth making the point that without the boost of Champions League money, it is very likely that Spurs will have to sell players if they wish to make a profit.

Of course, very few football clubs actually do make money, as can be seen by looking at the financial results for Premier League clubs for 2009/10 (the last season for which we have published accounts for all clubs). Only four of those 20 clubs were profitable: Arsenal, Wolves, West Brom and Birmingham City. All the other 16 clubs lost money with ten of them reporting losses higher than £15 million.

Of the big clubs to report 2010/11 results, Manchester United have swung back to a £30 million profit, but Arsenal’s profit has significantly reduced from £56 million to £15 million, while Manchester City’s loss has further widened to an astonishing £197 million.

Tottenham are cut from a very different cloth, as they have reported pre-tax profits in six of the last seven years, which is a powerful testament to how well Daniel Levy runs the club. Even Harry Redknapp, who undoubtedly would wish that the chairman loosened the purse strings, was forced to admit, “He’s a businessman, a clever businessman, with a fantastic business brain.”

On the face of it, it should be no great surprise that Spurs are doing well financially. After all, their 2009/10 revenue of £120 million was enough to place them 12th in the Deloitte Money League for European clubs (up three places from the previous year). Furthermore, the increase in revenue to £164 million should take them into the top ten when the 2010/11 review is published, over-taking Manchester City (£153 million) and Juventus (no Champions League).

However, that first glance is a little misleading, as Spurs are still a long way behind the leading English clubs, e.g. Manchester United’s revenue has now increased to £331 million, which is more than twice as much as Spurs, while Arsenal still generate over £60 million more than their North London rivals. Furthermore, the Spanish giants are on an other planet, also reporting substantial gains in 2011: Real Madrid from £359 million to £420 million and Barcelona from £326 million to £392 million.

That said, Tottenham’s revenue is still the envy of many clubs, as it is considerably higher than the next tier of challengers, e.g. Aston Villa are around the £90 million level, while Everton have only just broken the £80 million barrier.

In terms of revenue growth, Spurs also look impressive. They have managed to increase revenue from £71 million to £164 million in the last six years with a cumulative growth rate of 132%, which is only bettered by Manchester City’s 152%. However, it has to be remembered that this is from a smaller base, so is a little misleading. As a famous investor once said, “Elephants don’t gallop.”

In fact, despite the notable growth in their revenue, Tottenham have hardly made any impression on the absolute gap against other clubs. The difference is virtually unchanged relative to Chelsea and Manchester City, while it has actually expanded against Arsenal and especially Manchester United (from £95 million in 2005 to £165 million in 2011). They have only managed to get closer to Liverpool, thanks to the Reds’ absence from the Champions League.

Over the last four years, the driving force behind Tottenham’s revenue growth is clearly television. In that period £41 million (84%) of the £49 million total revenue increase from £115 million to £164 million has come from TV, with only £6 million from the much vaunted commercial operations and £2 million from match day income.

Please note that Tottenham include corporate hospitality in their commercial income, so I have added an estimated £10 million to gate receipts to produce a revised match day figure of £42 million. This is based on a review of similar re-allocations performed by Deloitte in their Money League split for the last three years.

Of course, the main reason for the dazzling revenue growth in 2010/11 is the glorious run in the Champions League, which featured a number of exciting performances, notably when Spurs defeated the trophy holders Inter Milan at a packed White Hart Lane. The fans may remember Gareth Bale’s arrival on the world stage via a hat-trick in San Siro, but the club’s board will look equally fondly on the additional £37 million from prize money and gate receipts.

Around £27 million (€31.1 million) of that is included in TV revenue, comprising €7.2 million participation (awarded to every team that plays in the group stages), €9.5 million performance bonus for reaching the quarter-final and €14.4 million from the TV (market) pool. Not much to complain about there, though the allocation for the TV pool is lower than the other English clubs (Chelsea €27 million, Manchester United €25.9 million and Arsenal €16.6 million).

This is because of the methodology used to allocate this element, which is as follows: (a) Half depends on the position that the club finished in the previous season’s Premier League with the team coming first receiving 40%, second 30%, third 20% and fourth 10%. As Spurs came fourth in the 2009/10 Premier League, they receive much less than the others. (b) Half depends on the progress in the current season’s Champions League, which is based on the number of games played. So Spurs received more than Arsenal, as they got a round further, but less than Manchester United who reached the final.

The other problem for Spurs is that they missed out on qualification for the Champions League last season (by one place), so they will have a hole to fill in the 2011/12 accounts. Although they are competing in the Europe League, this is a lot less lucrative financially. Last season, Liverpool and Manchester City only received €6.1 million for their laborious efforts in Europe’s junior competition, while the highest prize money was the €9 million awarded to Villarreal.

Although Levy insisted, “We shall fully embrace the Europa League this season”, his manager did not seem so convinced. Towards the end of last season, Redknapp lamented, “Teams who get into the Europa League want to get out of it. Half of them put reserve teams out in the early stages and it’s difficult to play every Thursday and Sunday.” From a financial perspective, it does provide some compensation via additional gate receipts, but it really is the poor relation of the Champions League.

That can be seen by looking at the TV money received by the leading English clubs last season, where the advantage enjoyed by those teams participating in the Champions League is clearly evident. In contrast, there is not a huge difference between the payments from the Premier League, due to the equitable nature of the distribution methodology.

Each club gets an equal share of 50% of the domestic rights (£13.8 million) and 100% of the overseas rights (£17.9 million). However, facility fees (25% of domestic rights) depend on how many times each club is broadcast live with £9.2 million for Spurs. Finally, merit payments (25% of domestic rights) are worth £757,000 per place in the league table, giving £12.1 million to Spurs. In total, this added up to £53 million.

That represented a £3.6 million increase over the previous season, even though the merit payment was lower, based on league position of fifth compared to fourth, and the facility fees were lower, due to only being shown live 17 times compared to 20. However, this was the first year of the Premier League’s latest three-year TV rights deal, which was worth more thanks to much higher payments for overseas rights.

The massive growth in TV revenue can be appreciated when looking at the near doubling of the money Spurs received last season compared to 2007, when they also finished fifth.

Gate receipts are heavily influenced by the number of cup matches, as the underlying income from the Premier League is flat, hovering around £20 million for the last three seasons, which is to be expected as the stadium is filled to capacity for every home game. There’s not much scope to raise ticket prices, as these are already among the most expensive. According to a recent BBC survey, the most expensive tickets are the third highest in the Premier League (only behind Arsenal and Chelsea), while the cheapest tickets are the fifth highest.

"van der Vaart generator"

Given that the annual report states that total revenue from the Champions League was £37 million and we know that the prize money was £27 million, we can conclude that this tournament contributed £10 million in additional gate receipts for six home games. The reason that the revenue growth was not higher is that Spurs only played two domestic home cup games in 2010/11 compared to five the previous season.

Last season Tottenham introduced an innovative split of their shirt sponsorship between software company Autonomy (now Aurasma, one of their products) for the Premier League and asset management group Investec for all cup competitions. These are both two-year deals running until 2012, the former worth £10 million a year, the latter £2.5 million. The total of £12.5 million is much better than the previous £8.5 million deal with Mansion and is the fifth highest deal in England, only behind Manchester United (Aon), Liverpool (Standard Chartered), Manchester City (Etihad) and Chelsea (Samsung).

Similarly, Spurs have announced a “record breaking” five-year deal with kit supplier Under Armour from the 2012/13 season. This is reportedly worth £10 million a year, which is double the £5 million paid by current partner Puma. That’s good progress, but still a fair way below the £25 million paid to Manchester United and Liverpool by Nike and Warrior respectively.

Merchandising income rose an impressive 23% to £9.6 million, aided by (yes, you guessed it) the Champions League.

Progress has also been made with secondary sponsors, such as a four-year extension with travel partner Thomas Cook and a new agreement with, who become Tottenham’s official online betting partner, though there is a long way to go before they come close to emulating the success of clubs like Manchester United, described by commercial director Charlie Wijeratna as being “three to four years ahead of us in this.” He suggested that much more could be done to leverage global interest in the club’s “distinctive brand around the issues of flair, style and adventure”, especially in Asia.

On the cost side, wages have shot up by 36% from £67 million to £91 million, which the club attribute to “a large squad playing in both domestic and European competitions”, backed-up by the growth in headcount for players and football administration staff from 142 to 159. Although not separately analysed, some of the rise is surely also due to performance bonuses following Champions League success.

Although the size of the increase might well raise eyebrows, Spurs are “only” sixth in the English wages league, still a long way behind Manchester City £174 million, Chelsea £173 million (2009/10), Manchester United £153 million, Arsenal £124 million and Liverpool £114 million (2009/10). Funnily enough, the gap between Arsenal’s wage bill and Tottenham’s of £33 million is exactly the same as the difference in 2005. Go figure.

The problem for Spurs is that even after this substantial rise, their wage bill still pales into insignificance compared to Manchester City. As Redknapp complained, “I think the wages have gone crazy. It’s gone beyond all belief in the last little spell.”

"Clap Your Hands Say Yeah"

This has inevitably put pressure on Tottenham’s famously rigid wage structure, where the top salary is reportedly only £70,000 a week, though it can be increased with performance bonuses. You and I might just about get by on that, but it is peanuts for a world-class footballer. It means that the club struggles to attract the top talent, e.g. on-loan striker Adebayor has said that he would not accept a pay cut to make his move permanent. He can only ply his trade at White Hart Lane now, because Manchester City subsidise his £170,000 weekly wage to the tune of £100,000.

Modric is looking to increase his weekly wage up to £100,000, aided and abetted by that old spendthrift Redknapp, “You can’t say he is worth £40 million and want to pay him the wages of someone who is worth £5 million. You have to look after the boy.” The trouble is that if the club accedes to his claims, then others will not be far behind in seeking a pay rise.

Daniel Levy is at pains to emphasise the club’s tight financial control, “We continue to work on driving revenues to ensure that the wages to revenue percentages remain within our key performance targets.” In fairness, Tottenham have managed to do that to date, maintaining the important wages to turnover ratio in a narrow range of 54-56%, which is very respectable. Furthermore the wages growth of 124% since 2006 is almost exactly in line with the revenue growth of 121% over the same period.

The quandary facing Spurs in the next set of accounts is that they will no longer have the benefit of £37 million of Champions League revenue and the Europa League is not likely to provide more than £10 million compensation. Ceteris paribus that would increase the wages to turnover ratio to 67%, which is by no means disastrous (Manchester City’s is 114%), but is probably higher than Levy would feel comfortable with.

That is one reason why so many players left in the summer, either permanently or on loan, as the club attempted to follow Levy’s edict to “streamline the squad where appropriate.” On the other hand, the annual report states that “core players” have been given new, longer-term deals on “higher, competitive salaries”, so the wage bill might not come down by as much as some people might expect.

"Fast company"

My guess is that the club is still keen to trim the fat, especially as Levy has noted the other challenge facing Spurs in terms of players, “We currently have one of the largest squads in the Premier League and given the 25-man squad rule, it is no longer practical to retain players who are unlikely to qualify within that limit.” It would therefore be no great surprise if the exodus continued with many players poised to leave, including Heurelho Gomes, Niko Kranjcar, Roman Pavlyuchenko, Sebastien Bassong, Giovani dos Santos and William Gallas, though that may be easier said than done, given their decent wages.

So Levy has done a fine job in keeping wages down, but he has proved equally adept at negotiating his own remuneration, which has increased from £250,000 in 2004 to £1.8 million in 2011 (up from £1.35 million the previous year), though, in fairness, this is not an outrageous sum when compared to the money earned by some of his peers (Garry Cook, David Gill and Ivan Gazidis).

The other aspect of player costs, namely amortisation, rose steeply in 2008 from £19 million to £37 million, but has barely increased in the last three years. To explain this, when a new player is bought, football clubs do not expense the cost immediately, but instead book it onto the balance sheet as an intangible asset and write it off over the length of the contract. As an example, Rafael van der Vaart was bought for £8 million on a four-year contract, so the annual amortisation charge is £2 million.

The sudden increase in amortisation, followed by little movement, suggests that Tottenham’s spending in the transfer market first rose, then slowed down, and this is indeed the case. If we split the last nine years into three equal periods of three years, we can see that the net spend was £37 million up to 2006, it then increased to £77 million up to 2009, but has fallen dramatically to net sales of £1 million in the last three years. Redknapp is a renowned big spender, but it looks as if he has more than met his match in Levy.

Of course, it would have been difficult to keep spending at the rate of a few years ago without getting rid of some of the dead wood. If we look at the last six years, Tottenham have actually still outspent Manchester United (£57 million) and Arsenal (net sales of £46 million), while they have spent about the same as Liverpool (£84 million). They are way behind Manchester City (£437 million) and Chelsea (£145 million), but that is only to be expected.

Another intriguing point to emerge recently was that Tottenham were the second highest spenders on agents’ fees in 2010 with £7.6 million, only surpassed by Manchester City £9.7 million.

The reduced activity in the transfer market has helped the club reduce its net debt (for the first time in many years) from £64 million to £57 million, despite continued investment in capital projects. There is no longer any classification issue with the Convertible Redeemable Preference Shares, as these have were all converted to ordinary shares or redeemed last year.

The debt comprises £52 million of bank loans, including a £15 million short-term revolving loan from HSBC, a £30 million facility with the Bank of Scotland at a floating rate linked to LIBOR and a new £7 million facility from Investec specifically for funding the new training ground; plus £25 million of loan notes at an interest rate of 7.29% repayable in equal installments by September 2023; less £21 million of cash.

In addition, trade creditors include £21 million for outstanding transfer fees, though this is partially offset by £3 million transfer fees owed to the club in trade debtors, while there are contingent liabilities (depending on success of the team and individual players) of £24 million with contingent assets of £11 million.

Nevertheless, the balance sheet remains strong. In fact, thanks to the reduction in liabilities, net assets have increased from £71 million to £81 million, including tangible assets of £150 million, comprising White Hart Lane and current training ground £39 million, new stadium project £83 million and the new training ground in Enfield £28 million, and intangible assets (players) of £101 million. Of course, the market value of the players in the books is far higher than the carrying value in the accounts with the respected Transfermarkt website estimating a value of £240 million.

However, as the accounts say, “This huge investment over the last six years has been funded through profits, equity contributions and long-term debt financing.” Although the club generates a lot of cash from its operating activities (£163 million in the last five years), this has not been enough to cover player purchases (£112 million) and property investments (£117 million), which has required £72 million of additional funding, either via new loans or additional share capital. Even then, most years have seen a net cash outflow, though last season again benefited from the Champions League.

This is a mere drop in the ocean compared to the funding that would be required to build the proposed new stadium. Although there are many risks involved in such a project, Levy is adamant that an increased capacity stadium is “critical to our continued success” and “central to delivering our ambitions for this club.”

White Hart Lane’s limited capacity of 36,000 cannot compete financially with Old Trafford’s 76,000 or The Emirates’ 60,000 and is a source of frustration for the 35,000 Spurs fans on the season ticket waiting list. Manchester United and Arsenal earn £3.7 million and £3.3 million every match, which is more than twice the £1.6 million generated by Spurs, leading to a revenue shortfall of £50-60 million a season. Without this additional revenue, it would be virtually impossible for Tottenham to match their wage bills.

The club has been pursuing two options: (a) the Northumberland Development Project (NDP) in the area around White Hart Lane; (b) relocation to the Olympic Stadium in Stratford.

Although Spurs’ interest in the Olympic Stadium initially appeared to be little more than a negotiating tactic, it became clear that this was in fact the club’s preferred alternative, as it would have been significantly cheaper (around £200 million less than redeveloping White Hart Lane) and there are excellent transport links already in place. So Tottenham prepared a comprehensive bid along with their partner AEG, the operator of the O2, which included plans to host major concerts and other events in a stadium purpose built for football plus a healthy return to the taxpayer.

"My wage packet is this big"

Crucially, they did not agree to retain the running track, even though they offered to fund a much improved athletics facility at Crystal Palace that would be available 365 days a year, so West Ham were selected as the preferred bidder. Given that Tottenham were encouraged to bid, they must have felt that, ahem, the goalposts had been moved.

Even though a club survey showed that very little of its support actually comes from the Tottenham catchment area with the vast majority coming from Hertfordshire and North Essex, many Spurs fans were understandably against Stratford. In addition, there was the small matter of Premier League rules, which stated that any move should not adversely affect clubs in the immediate vicinity, which was surely the case with Leyton Orient.

Although Tottenham mounted a legal challenge against the decision, they have now formally said that the Olympic Stadium “has ceased to be an option”, though ironically the deal for West Ham to move there has now collapsed.

"The light pours out of me"

So Spurs are now “totally committed” to the NDP development that Levy described as unviable earlier in the year on account of its prohibitive expense. Development restrictions have increased costs and reduced the amount of residential property that could be built to help fund the construction cost of the proposed 56,250 capacity stadium.

Beyond saying that it would require “hundreds of millions”, the club has not confirmed the total cost, though they have already invested £60 million in buying land and £26 million on the planning process. Incidentally, the latter fees have been capitalised and would have to be written-off if this project were to be abandoned.

Planning permission was granted in September 2011, but the summer riots in Tottenham that caused the opening match of the season to be cancelled have made investment less appealing. Indeed, the club stressed that public money must be spent on improving the infrastructure of the area before the club will be convinced to invest themselves. They have been offered £17 million of public money from the Greater London Authority and Haringey Council in order to help persuade them to stay in the area, though Orient’s ebullient chairman Barry Hearn has described this as a “bung”.

"Hey, Heurelho, you're now No. 2"

The club has announced that they will de-list from AIM to help the prospects of raising funds. Apparently potential investors said that this would be easier if the club were privately held, though this seems dubious to say the least and it is more likely that the club’s owners are just fed up with the exchange’s compliance requirements.

Although interest rates for bank loans are at historic lows, Tottenham have explored other ways to finance the construction, including stadium naming rights, where the cash could be front-loaded like Arsenal did with the Emirates, ten-year premium seating packages along the lines of Club Wembley and a supermarket. The objective is to reduce the amount of debt that the club would have to take on.

However, some fans might ask why the club is enduring such contortions when it is owned (via ENIC) by one of the world’s wealthiest men, Joe Lewis, who is worth an estimated £2.8 billion. Surely he could put his hand in his pocket in the same way as Sheikh Mansour or Roman Abramovich instead of scrambling for public money?

Whatever mix of funding they secure, it will take at least four years before the new stadium is completed.

"Everybody's happy nowadays"

UEFA’s new Financial Fair Play (FFP) rules, which mean that clubs can only spend the income they generate through the activities of the football club, provide an added incentive to build a new stadium. As Levy has pointed out, “If you look at the stadium capacities of the top 20 clubs in Europe, they all exceed ours.” Not only that, but UEFA’s new regulations actively encourage such investment, as any costs incurred for a new ground, such as interest on loans, is excluded from their break-even calculation.

This is important for Spurs, because, although the club has publicly welcomed UEFA’s attempts to “level the playing field”, as this should vindicate their prudent approach, it will not be easy for them to break-even without the infusion of Champions League money – or selling players.

Furthermore, FFP underlines Tottenham’s focus on investing in young talent, as youth development costs are also excluded from the break-even calculation. Last season four academy graduate played for the first team: Jake Livermore, Steven Caulker, Danny Rose and Andros Townsend. In addition, Spurs are scouting for talent overseas, such as Souleymane Coulibaly, the Ivory Coast forward who won the Golden Boot at this summer’s U-17 World Cup.

"Miss me blind"

The new training centre in Enfield, due for completion in summer 2012, is designed to “help us attract, develop and retain the highest quality talent.” Even before that is ready, Tottenham’s youngsters are progressing well, as seen by them winning their group in the NextGen Series, thrashing Inter Milan and PSV Eindhoven en route.

In the short-term, it is likely that Tottenham will make a loss in 2011/12, as they are now in the unfortunate position of having a squad on Champions League wages without actually gracing the tournament with their presence. Although they have removed quite a few players from the payroll, this is almost certainly insufficient to cover the revenue loss. There will also be profit on these player sales, but my calculations suggest that this will not be a great deal more than last season unless more leave in January.

In other words, it is very important that Spurs qualify for next season’s Champions League, but as Redknapp himself said, “It’s very hard to get into that top four… very, very difficult.” The likely elimination from the Europa League should help, as it removes that distraction, and the team certainly looks a good bet at the minute. However, it’s a funny old game and Spurs suffered a terrible drop-off last season, following an injury to the dominant Bale and van der Vaart’s loss of form.

"King without a crown"

If they don’t make it, then the smart money has to be on a series of player departures, including the aforementioned Bale and Modric for starters. Although Levy has argued against this, “We have a great squad with exceptional talent and none of the main players will be leaving in January”, that does not rule out next summer and there have been many precedents in the past for such big money sales when there was a need to balance the books.

Furthermore, there are weaknesses in the Spurs side that need to be addressed sooner rather than later, most notably in defence where Ledley King and Michael Dawson are increasingly injury-prone, William Gallas is too old and Sebastien Bassong is not trusted by the manager.

If only Spurs had a wheeler dealer in charge who knew how to work the transfer market…

Speaking of which, there are a couple of whispers about ‘Arry that might just slow down the positive momentum that Tottenham have enjoyed for a while. He is an obvious candidate to succeed Fabio Capello as England manager after next summer’s Euros, while he might also be prompted to leave by health problems (he underwent minor heart surgery recently) or by legal issues, as he faces trial in January on charges of tax evasion. Although Redknapp has his critics (including this writer), his achievements in establishing Tottenham in the elite should not be under-estimated, so his departure would be damaging.

"Reasons to be cheerful, part 3"

The other threat to Spurs’ stability is the possibility that the current owners might look to sell the club, especially if they put together a credible plan to build a new stadium. Levy denied this, “We haven’t put this amount of effort into building up Tottenham with the intention of moving it onto someone else. We want to see this project through.” That’s fairly unequivocal, though nagging doubts remain.

In the wonderful film “In Bruges”, the character played by Colin Farrell muses, “Purgatory's kind of like the in-betweeny one. You weren't really shit, but you weren't all that great either. Like Tottenham.” Spurs appear determined to challenge that stereotype and this season it looks like they just might succeed in doing so.

In any case, they have done very well to compete at the highest levels without compromising the financial future of the club. Going forward, whether they can manage to address the twin challenges of regularly qualifying for the Champions League and building a new stadium is a whole new ball game.


  1. what a situation where one club can afford to subsidise players out on loan to the tune of 100k/week - players that can have a significant effect on results vs their top four rivals.

  2. Good article as always Swiss

    Just wondering. I wrote a question on the recent City blog, but just as pertinent here really.

    Any chance of some clarification regards player amortisation? Is the maximum figure and thus including unrealised performance related clauses included from the off in the amortisation calculation or is it adjusted after that contingent requisite has been satisfied?

    So for example, in relation to City (where I initially posed the question) could their amortisation amount increase if every player they purchased had £2-3m going to the selling club if they won the league?


  3. The current loan rules need revising not only are City lending spurs a player who can play vs City's rivals but he cant play V city,moreover as Wenger would call it there is financial doping here with City paying its believed to be 60% of Adebayor's wages say 100k a week so in effect gifting spurs 5.2 million a year. That money in effect is a free investment in Spurs by another team, not something the FA envisaged with the loan system.

    Loans between premiership clubs should be restricted to non intl players or players under 25 who aren't intls. City's loans are to get around FFP, and if they wished with 65 players on the books , they could loan 3 or 4 players to teams they see as non threatening to take points off rivals who they do see as threatening, not to mention these loans could influence who is relegated or not .

    Time for this loophole to be closed

  4. So Harry hasn't led Spurs to financial ruin like you predicted a few years ago, Swiss? Surprise surprise.

    Hopefully next time you write an article about Tottenham Hotspur, you will remember to leave your Arsenal biased and your disliking for Harry out of it.

    Harry has done a great job at spurs. On top of keeping his net spend low, he's contributed to revenue through success on the pitch with European qualification.

    That on field success has improved Levy's ability to get better sponsorship deals and, if needed, command more money from rivals looking to sign our players who by performing to a higher level, have increased their transfer value.

    That is how a manager should contribute to finances. Unlike Wenger who I believe takes a far to active role in this element at Arsenal.

    It's also interesting to note that Arsenal's wage bill is 30m more than spurs but not many will feel that their squad is any better in terms of strength or quality.

  5. I don't get Wenger's comments about the loan system. He was happy enough for Jack Wilshere to star for Bolton against the other top clubs last season, and also to take Benayoun this year from Chelsea. You cannot have it both ways.

  6. @lordhillwood
    City paying 100k of Adebayor's wages is by no means a way of getting around FFP, simply because they're still paying 100k a week!
    They have Total Wages > Turnover, and part of those wages are being paid to Adebayor. That's why they're desperate to get rid of him, and all their other marginalized players like Tevez.

    And I don't see it as unfair competition either, because as long as they're still paying the players' wages (that they send out on loan), under FFP they can't afford it anyway. No need to change the loan rules, FFP will force them to stop loaning out players for free (or 50% free, etc...) simply because they won't be able to afford it.

  7. A brilliant write up once more.

    Some out htere would have you believe Spurs are a poor club or they havent spent a lod of money to get to where they are.

  8. @Anyonymous (12:07),

    Admittedly, I'm not a big fan of Redknapp and I'm sure that many of those that follow Portsmouth, Southampton and Bournemouth feel the same way, but credit where it's due for his results to date at Spurs.

    In fairness, I think that most objective observers would say that I've been very complimentary about Tottenham's finances in all three of the detailed analyses that I've now written about the club, as well as pointing out some risks in their model.

    If you don't agree, fair enough, but I can't help but feel that this is an example of your own "biased" (sic).

  9. @Ralph250,

    Player amortisation is based on the actual cost paid and does not include any potential payments for things like number of appearances, international caps or winning the league.

    These are highlighted in contingent liabilities (in the notes to the accounts), but not actually provided for in the balance sheet.

  10. Nice post. One note: I strongly suspect that Tottenhams 2011 wage bill includes a significant amount of bonus payments for the CL appearances, which won't have to be spent this season, so I doubt it's as bleak on the wage front as you make it.

    Apart from that... how about a piece about just how unlikely Basels CL success is from a financial point of view? You being the SWISS rambler, and all ;) I'd really like to see how the finances of a small club from a tiny league look, and the impact CL football has on them. As huge as CL is for the Tottenhams and ManCitys, it should be much bigger for a club with a much smaller base income, shouldn't it?

  11. Good write up Swiss.

    Spurs have done well over the last few years both on the pitch and financially.

    I still maintain that they desperately need 4th to keep the ship afloat as their wage bill has now boomed but without the £35m of CL money to fund it.

    Secondly, if they move to a new stadium, there is no way on earth Redknapp will make profits in the transfer window as well as maintain CL football

  12. Fantastic article, thanks very much for this insight.

    I don't know the extent to which this is the case, but the club indicated that part of its increased wagebill last year was not simply the large squad size (though that was a big part of it, hence selling Crouch, Keane, O'Hara, Palacios, Hutton and so on).

    There was also a suggestion that part of the increased wage bill was becauce spurs' wages are very heavy on performance related pay - and so obviously this raised significantly as the club performed in the champions league.

    I guess there is no way we can find out the extent to which this will reduce the wage bill in the present season - or how a-typical this is of top clubs. But I figured it was worth a mention. (I remember Arsenal saying something similar a few years ago when Spurs looked like making the champions league at their expense - and the club reasured investors and fans that their business model did not rely on year-in-year out champions league qualification.

    Fantastic article, thanks very much for this insight.

    I don't know the extent to which this is the case, but the club indicated that part of its increased wagebill last year was not simply the large squad size (though that was a big part of it, hence selling Crouch, Keane, O'Hara, Palacios, Hutton and so on).

    There was also a suggestion that part of the increased wage bill was becauce spurs' wages are very heavy on performance related pay - and so obviously this raised significantly as the club performed in the champions league.

    I guess there is no way we can find out the extent to which this will reduce the wage bill in the present season - or how a-typical this is of top clubs. But I figured it was worth a mention. (I remember Arsenal saying something similar a few years ago when Spurs looked like making the champions league at their expense - and the club reasured investors and fans that their business model did not rely on year-in-year out champions league qualification.

    As for people talking about loan deals - that one is probably tough. Spurs are benefiting from an extra player this year, just as Villa benefited from having their Kyle Walker last year. Meanwhile all of the top teams loan out players to "non-rival" clubs all the time (except liverpool to my immediate recollection)

    It's no different to ManU not selling to Chelea that they would not loan a player to them.

  13. Excellent and as insightful as always.

  14. Brilliant article. Even as a gooner you are very fair and seemingly unbiased. This deserves to be printed in one of the broadsheets.

  15. Swiss.
    In that case, is there anything stopping clubs that would struggle for FFP, structuring their transfers with huge amount of performance related clauses to reduce their overall amortisation amount (FFP relevant expense). Sweeten any delay in the seller receiving payment but making the overall cost slightly more.

    eg. Player X is valued at £30m. I'm moneybags albion and I offer you £1m up front for player X (5 year contract). After his first game, I will pay you an additional £20m, after his first goal £10m. First international cap £1m. If we win the league £2m.

    Bought a player for a total potential expense of £34m, but the impact on amortisation (and thus relevant expense for FFP) if as above is only £200k per year.

    Seems open to abuse for me.

  16. I think Wenger's problem with the loan system as it stands is that the player cannot play against their parent club anymore, I agree - if you have the player for a season you should decide who he plays against. So Adebayor should play vs Man City I think he said that he allowed Jeffers to play against Arsenal before the rule was changed? I think it was Lua-Lua who played for Portsmouth and scored against Newcstle (hi parent club)? Also United said Howard couldn't play vs them when the loan deal was made permanent to Everton and that's what started it all?

    Also on the wage increase due to getting in the CL, I think the wages go back down if they don't qualify the next year, that was the main problem with Modric, last season he had got a pay rise and then this year his wages went down and Chelsea offer big money.

  17. I agree with your point about being a trading club. The biggest danger they face therefore is the lack of a football man in charge of medium to long term player recruitment strategy, and a head coach who buys into that reality and so creates room in the first team squad for younger players to come through (see the Sandro/Parker situation this year, Galls/Kaboul last year).

    Harry will leave in the next nine months, but I don't think it will be as damaging as you imagine. It may be damaging, but it may not, especially if they hire an Ancelotti type to take over.

  18. Ralph250, the situation you describe would indeed bring down the amortisation as you say but the wages bill would rise enormously with the bonus payments added to the player's wages that first year.

    The club would make an enormous loss that year and would fall foul of FFP.

  19. Cirdan- more than Basel, I'd love to read about APOEL Nikosia! If anything, the Cypriot team seem to be an even smaller club. With their qualification for the knockout rounds, surely the money from the Champions League alone would pay their bills for an entire year or more. Could one good CL run provide enough of a war chest for a team in a small league to bootstrap itself into multi-year domestic dominance?

  20. @Emil: Yes, APOEL would be another interesting team to look at. Especially considering that it's not actually the first time a Cypriot team did well... Anorthosis a couple of years ago wasn't half bad, either, in the UEFA ranking they are in the process of overtaking Scotland... Celtic and Rangers are constantly moaning about how they can't earn enough money to compete with the big nations, but falling behind Cyprus? It would be hard to put THAT down to lower revenues...

    Unfortunately, I fear that Cypriotic clubs might publish their accounts in Greek (if they publish at all), and I don't suppose the Swiss rambler can read that ;)

  21. Frank 10:12.

    I'm referring to the additional money that the selling club receive that constitutes the whole transfer (eg. Rooney was reportedly £20m up front with additional £7m), as opposed to the player salary bonuses based on performance; which would presumably be equally negotiated by and applicable to a player who had his transfer fee all paid in whole from the off, compared to the player in the scenario of my previous post.

    Players in both situations would negotiate salary bonuses so should be no difference in terms of effect on the wagebill, but as said, going from Swissrambles explanation the amortisation system would seem open to abuse.

  22. Peter250, I replied to you earlier but I posted in the InterMilan discussion by mistake!

    Anyway, not that I haved discovered my mistake, allow me to say that I may have misunderstood you when you said the following:

    …eg. Player X is valued at £30m. I'm moneybags albion and I offer you £1m up front for player X (5 year contract). After his first game, I will pay you an additional £20m, after his first goal £10m. First international cap £1m. If we win the league £2m.

    ...Bought a player for a total potential expense of £34m, but the impact on amortisation (and thus relevant expense for FFP) if as above is only £200k per year.

    Seems open to abuse for me....

    Yes, the amortisation would be only £200k for each of the five years of the contract. However, assuming the player plays just one game and also scores one goal, the selling club receive a further £30m as part of the performance-related terms of the contract.

    In that case, either this £30m would be charged in full as an expense for the first year of the contract or, more likely, would also be spread over the length of the contract.

    In the first case, the buying club would have a huge expense to add to the wages of a £30m player and in the second case would have a normal level of amortisation spread over five years, exactly as happens normally at present.

  23. ralph250, just to clarify matters, in the original example which you yourself quoted, you specifically said that a huge chunk of the transfer fee could be dressed up as performance-related, for whatever reason.

    The only way the buying club would have an annual amortisation as low as £200k would be if the player never played and never scored, in the example which you quoted.

    It is also worth pointing out that the selling club is unlikely to agree to a deal which results in them getting a very low upfront fee, with a huge chunk of the overall fee dependent on how the player performs for his new club.

    In the specific case of Wayne Rooney, Everton got £20m upfront and, it's fair to assume, have long since pocketed the other £7m or so, especially bearing in mind that Rooney's debut for United was against Galatasaray in the Champions League where he scored a hat-trick!

  24. Fantastic article and analysis as always Rambler!
    Even as a Gooner, the banker in me must commend Tottenham and Daniel Levy for the way they have taken the club forward. Despite lower match day and commercial income and hence a lower wage bill, they have managed to compete with the very best in the league.

    In terms of qualifying for CL, I think the two north london teams need that the most. Should Spurs fail to qualify, they will be unable to retain their best players any longer. For Arsenal, qualifying for CL has become the minimum expectation and indeed the pride of the club. Failure to do that may lead to rash decisions at the club including AW leaving for good. At the very least it will dry up the reserves the club has been building over the last few years and force Wenger to once again sell before he buys.
    Chelsea and Liverpool on the other hand work on the benefactor model and a year out will not affect them as much although it may lead to another flurry of transfers at both clubs (and the possible firing of AVB but that's another story entirely).

    On another note: I am not sure I entirely agree with the way you use profit from player sales in your analysis Rambler. Admittedly, a high figure for profits from player sales will indicate that the club has made some high profile sales but it does not necessarily mean that the club relies on player sales to stay profitable. Taken by itself the figure is meaningless since it may have been caused / negated by some high-profile arrivals at the club or it may be simply a result of transfer values increasing sharply in the recent years. Similarly, a low profit on player sales does not meant that a club hasn't sold any of its star players, it only indicates that if it has done so then they the club has not made a significant profit on those transfers.

    I believe that the profit from player sales can be revealing when taken in conjunction with player amortization. For example, an increasing amortization value coupled with increasing profit on player sales only indicates that there is a lot of churn at the club and / or the player transfer amounts are increasing (an observable trend in the last decade for many clubs).

    I would love to hear thoughts on this. I am sure you have a pretty good reason for doing the analysis the way you do and it would be nice to hear your rationale behind it.

  25. Hi Swiss,

    Thanks for the interesting read.

    I have a request, can you please update your left side-bar "Football Clubs?" I don't think all of your case-studies are listed there e.g. Valencia.

    I actually have another requst: can you please make your graphs and charts a little bigger? It's kind of hard to study them in detail.

    Thanks and keep up the good work

  26. @Anonymous (2:46),


    Yes, I've now updated the list of football clubs. I have to do that manually, so it looks like I forgot a couple.

    Re the graphs, they used to expand when you clicked them, but something changed in the Blogger software and that no longer happens. I've tried to find a solution, but unfortunately have so far failed to find a solution.

  27. @Twoleftfeet,

    Yes, I take your point. Indeed, many clubs separate "Football Trading" as an activity, comprising player amortisation and profit on player sales.

    However, I think that can be a little confusing to people, especially as the net result is frequently negative, due to many years of accumulated amortisation being more than the profit on player sales. That's why I look at these separately and actually also look at the net spend on transfers.

    I normally only highlight profit on player sales if it is: (a) an important part of the club's business model, .e.g. Udinese, Porto; or (b) it has had a material impact on a club's finances in some years.

  28. Hello
    Could we have a post on the demise of the serie a, and if present efforts (collective tv deals, club owned stadiums) will restore former glories

  29. Hi,
    Could I possibly ask you to make an article about PSG. Considering current and future changes for the club it would be interesting to see how it compares to the past.

  30. The elephant in the room is the new ground.
    Either Lewis puts up or he sells up and lets a new owner fund it. Doing nothing is not a sustainable option.

  31. Hi Swiss Rambler!

    Love this blog - really is so in-depth and you're well worthy of all the newspaper acolades and such you've received.

    Really was interesting reading and I thank you.

    Have not long started my own football blog - in aspiration of beefing out my portfolio before (hopefully!!) getting into Uni to study Sports Journalism - I'd be more than appreciative if you or anyone else here took some time out to give some of my work a read!

    Thank you guys so much & Rambler keep up the good work! :)

  32. Rambler,

    Are player amortization amounts adjusted if they were to sign a new contract?

    Similar to when the useful life of an asset is increased/decreased which would affect depreciation amounts.

  33. @Anonymous (4:18),

    Yes, any remaining value in the books is amortised over the length of the extended contract, so annual amortisation would decrease.

    For example, if a player is signed for £10m on a 5-year contract, the annual amortisation would be £2m. Let's assume that the player's contract is extended by 2 years after 3 years of the original contract, meaning there would be a further 4 years left.

    The value in the books at that stage would be £4m (i.e. £10m cost less 3 years amortisation at £2m a year), so the new annual amortisation would fall to £1m (£4m divided by 4 years).

  34. Hello Mr Rambler,

    That's a fair enough 'ramble' around Spurs finances, although, as others have commented, you should have picked up that the player salary increase over 2009/10 was due to CL bonus payments and is likely to disappear in 2011/12 along with the CL revenue. (Hopefully to return again in 2012/13 and thereafter at either Arsenal's or Chelsea's expense - I'm not fussy).

    Some credit is due to Daniel Levy for keeping the club's finances on an even keel when many other Premier League clubs have behaved like money doesn't matter any more. Even more credit must go to the manager for building a team that sits comfortably within the top four within that financial framework - certainly more than your grudging sentences above.

    The biggest disappointment must be that Enic are now 11 years in into their 5 year plan to build a new stadium. £80m+ has been spent and yet not a brick has been laid. Worse still, more than a year has been wasted on the Stratford saga since Haringey granted planning permission for the NPD. I have concerns of funding a £450m project (less naming rights and property sales) from debt finance (especially with some of it at 7.29%!). It's time ENIC put some equity where their mouth is and injected some serious cash to get the stadium done. Given the performance of the team this year, that must be a better investment than Bears Stearns was, eh Joe?

  35. @Screen Nayim,

    Re your comment that I should have picked up that the player salary increase over 2009/10 was due to CL bonus payments, you obviously missed this sentence in the section commenting on the wages growth:

    "Although not separately analysed, some of the rise is surely also due to performance bonuses following Champions League success."

    1. Fair point, but you do go on to say...
      "The quandary facing Spurs in the next set of accounts is that they will no longer have the benefit of £37 million of Champions League revenue and the Europa League is not likely to provide more than £10 million compensation. Ceteris paribus that would increase the wages to turnover ratio to 67%, which is by no means disastrous (Manchester City’s is 114%), but is probably higher than Levy would feel comfortable with".

      Ceteris Paribus you are correct, but the obvious point is that ceteris won't be paribus. I can't see a quandary coming in the 2012 accounts; the only quandary is for the players, having to scrape by on tens of thousands of GBP a week this season without their ECL bonuses. Poor dears. No doubt this was why Modric was spitting his dummy in the summer.

      Anyway, this is hair splitting. Thank you for such a detailed yet lucid explanation in this and all your other articles - although bigger graphs would be helpful for those of us whose eyesight is not all it was. Your writing puts the so-called professional media to shame.

    2. @Screen Nayim,

      Thanks for that.

      I really wish that the graphs could be bigger. When I first started the blog if you clicked on the graph, it would expand, but then something changed in the Blogger software, so that this no longer happened.

      I've looked long and hard in order to remedy this, but none of the proposed solutions have worked. If I find time, I might change the template to a newer version, which hopefully will address this shortcoming.

  36. Nowadays, I use Google Chrome and when I click on the image, it gives me the option to open the image in a new page or tab. Then I use the Chrome controls to increase the size of the image to a level which suits me.

    Swiss Rambler, as you know, I'm sure, Chelsea released their accounts for last year on transfer deadline day, probably judging it to be a good day to bury bad news!

    Their published revenue for last year came to £223m, some £20m less than what you had estimated in one your of your charts in this section of your blog dealing with Spurs.

    Among other things, this means their revenue has only increased by £10m in three years and is still ever so slightly behind Arsenal's.

  37. @Frank,

    Part of that difference is because I based my chart on the figures that Deloitte use in their annual Money League, which takes the higher gross revenue, as opposed to the net revenue (less share of JV).

    Some of the reasons for my assumed growth had already been published, such as PL and CL distribution, so I can only assume that the increases in sponsorship deals were not so high as reported in the press (or commenced later in the year).

  38. Harry has been reigned in by Levy, but his financial legacy will become apparent later on. He has two goalkeepers who are aging & will need replacing sooner rather than later. He has injury ravaged Ledley King. He has signed short term solutions in Saha & Nelsen. He has Adebayor on loan. He has Gallas & Parker already in their 30's & Defoe who turns 30 this year. In effect its a timebomb waiting to happen, with costly future replacements necessary. The strange thing is there is a pre-Harry team at the club. Gomes, Corluka, Dawson, King, Assou-Ekotto - Lennon, Huddelstone, Modric, Bale, Dos Santos & Bentley. Then again Jol had taken the team to the brink of CL qualification in any event.

  39. Hallo Mr. The Swiss Rambler, i really like this article because it contains a lot of information i would like to use for my case in finance at University. my question to you is, where you got these informations from ?

    Thank you in andvance for your help.

  40. Some out htere would have you believe Spurs are a poor club or they havent spent a lod of money to get to where they are.


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