Reasons to be Cheerful #3

Post 16

15th June 2017

Okay, so here’s the deal. The ‘narrative’ is that Spurs new stadium will affect our ability to sign and keep top players (for many years). It’s the easy assumption. I mean, it happened at Arsenal didn’t it? Most sports journalists and pundits aren’t very good at finance. They love a bandwagon. It’s another stick to beat Spurs ambition with. And, frankly, it’s a storyline that Spurs have encouraged, or at least not denied.

But you know what? It’s bullshit. Yes, Spurs’ finances are going to be transformed by the new stadium (and wider development). But not in a negative way. On the contrary. Within a few years, Spurs will be on a par with the richest clubs.

I will explain everything. As far as possible in simple language, not accountant-speak. But you’re going to have to stick with me over several posts. I’m going to categorise and tag them ‘Spurs Finances’ and put them up here in bite-sized chunks (for the record, I’m an ex-banker, I understand balance sheets and financial accounts. I’ve co-run a large private company for 20 years and am now its chairman).

What do we want?

So, let’s start with the goal. We want Spurs to have an income that, say, doubles by 2020. That would still leave us behind United and City but on a par with Arsenal and Chelsea and ahead of Liverpool. So £200 million revenues up to £400 million p.a. That’s Stage 1.

Then, maybe by 2023, we want an income that matches not just United but the European giants too. Maybe that means trebling our income from where we are today ? So £200 million revenues up to £600 million p.a. That’s Stage 2.

With those kind of annual revenues, the Club may decide to increase its spending and wage bill pro-rata to its higher income. Or it may not. The point is, it would have the money to be able to do so, and hence compete for, and retain, the very top players.

The question is how realistic are the above ambitions? Starting with Stage 1 for now.

The answer is … very realistic.

First, where are we now?

The most recent audited Spurs accounts are for the year to June 2016. In that year, Spurs had total income of £210m.

Man United        £515m

[Real Madrid      £464m]

[Barcelona          £464m]

[Bayern M           £443m]

Man City             £392m

Arsenal                £351m

Chelsea                £335m

Liverpool             £303m

Spurs                   £210m

The above table puts our ‘Top 6’ position in perspective. Our £210 million of total income in 2016 broke down as follows:

Match Receipts            £41m         (20%)

PL TV & Prize                £95m         (45%)

Europe TV & Prize       £15m         (7%)

Commercial                  £59m         (28%)

Although we won’t see Spurs June 2017 audited accounts for a while yet, we can make an informed guess of what they might look like.

Match Receipts            £44m         (15%)

PL TV & Prize                £149m       (51%)

Europe TV & Prize       £34m         (12%)

Commercial                  £63m         (22%)

Total                              £290m

I have modelled our Match Receipts for 2017 at £44m based on 4,000 reduced capacity at WHL but higher domestic cup and European gates (at Wembley prices). I won’t be far out. The PL TV & Prize money of £149m is already a known figure. The Europe TV (£21m) & Prize money (£13m including participation) for our CL debacle won’t be too far out. Finally, the ‘Commercial’ (sponsorship and merchandising) figure of £63m is an informed ‘guestimate’ (that may turn out to be low due to our CL participation, for which sponsors usually pay more).

So, how do we compare?

I don’t want to get hung-up on other clubs’ figures. We know that all PL Clubs received about an extra £50m each from this Season (2016-17) from the new TV deal. League table position isn’t that much of a factor. So Chelsea, Man City, Liverpool, United and Arsenal’s PL revenues would have all grown by similar numbers to ours (and will continue to do so, as long as we’re Top 6-7). Here’s the breakdown of the Top 6 in 2016.

Club                                                Match Day              TV & Prize      Commercial

Manchester United                       £103m                        £140m                £272m

Manchester City                           £53m                           £161m                £179m

Arsenal                                          £100m                         £144m                £107m

Chelsea                                           £70m                         £143m                £122m

Liverpool                                       £57m                         £126m                £120m

Spurs                                              £41m                         £110m                £59m

The TV & Prize figures above are for the PL and Europe combined (so the Top 4 earned more from the CL, where United went out at the group stage, Arsenal and Chelsea in the Round of 16, and City in the SF, while Liverpool reached the Europa Final).

Our challenge is to ‘catch up’ rather than just keep pace with the Big Boys. To do that, we have to transform our income in other areas; ie. our ‘Match Receipts’ and our ‘Commercial Income’ (and ideally become CL regulars too).

If Spurs can ‘double’ our Match Receipts to £100 million and increase our Commercial Income to £100 million (both by 2020), then we should be able to post £400 million of total Revenues, with current levels of PL and potential European TV & Prize Money.

Then, assuming a 55% ‘payroll to revenues’ percentage, this would give Spurs £220 million to spend on wages in 2019-2020. This compares with only £100 million in the year to June 2016 (I’ll get into the details of player salaries in a future post here).

Having achieved 3rd and 2nd placed PL finishes with wages budgets of under £100 million, and most of our players under contract until 2020 or later, it is not unreasonable to assume that a Budget of £220 million could transform Spurs “relative firepower” compared with other major clubs in terms of paying the world’s best players.

Stadium Finance

The Company – Tottenham Hotspur Limited – has put in place a financing facility to fund the building of the stadium (and related infrastructure). The main terms of the £400 million facility have been made public. In round numbers, the interest bill is likely to be £200,000 per week (£10 million per annum). Whilst that’s a large number, it’s not a game-changing amount in Premier League Club terms. It’s the wage of a Rooney or Sanchez.

Spurs have opted to pay back the entire amount in one repayment in 5 years (2022). Or earlier. Of course, it’s more than likely to be refinanced by a new facility within 5 years, or repaid by a lump sum (although a Naming Rights contract will probably be payable annually over a fixed period, the contract can be used to raise the full amount, less interest, from a bank). I’ll return to Stadium Finance in a future post. All I want to establish for now is that it’s nowhere near the big issue the ‘narrative’ depends on.

Player Trading

Finally, apologies, but a quick accounting note on ‘player trading’. Although selling a player brings in ‘income’ it is not considered Revenue in the way that season ticket sales or TV payments are. Similarly, a transfer fee paid for a player is not considered an ‘expense’ in the way that his salary is. The best way to think about it is like your own salary (income) and your weekly food shop (expense). You can predict what’s coming into your account and what you’ll spend it on. But you might out-of-the-blue win £100 on a bet, or have to sell your car, but those are things that are much less predictable or one-offs (I’ll also get into the details of our player trading in a future post).

It is true that Spurs have traded players very successfully for the last decade by selling them profitably (even if we’d have preferred not to sell them). The club has used a strategy of profitable ‘player trading’ as a source of cash to help bridge the gap with those who enjoy higher annual Revenues, like United and Arsenal.

To return to our financial ‘goal’. It’s to have an annual income that reaches £400 million by 2020 enabling us NO LONGER to have to use player trading as a financial necessity.

Although Premier League and European TV & Prize money is huge, and Commercial deals can run to tens of millions, it is good old ‘Match Day Income’ that, actually, makes all the difference in the end (as I’ll explain why). The Biggest Clubs are ultimately those with the busiest turnstiles. Period.

Everything else – TV, merchandise, sponsors – is an extension of that undeniable fact.

So, tomorrow’s Post (17) will consider our Match Day Income and why it’s set to grow by substantially more than the easy ‘pundit narrative’ expects.

 

 

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