In the Lion’s Den #2

Post 21

22nd June 2017

 

“Daniel is the first person who is creating a massive club for us and the fans because he is thinking, in the next few years, to take the club to the final level. With our signings and our work, we are creating a team that can, when we get the new stadium, be one of the best teams in the world.”

Mauricio Pochettino, 2017

So now we come to the crux of the matter.

In Posts 16-18, I demonstrated that Spurs are well on track to reach £400 million of annual revenues by 2019-2020.

Year                                                               2019           2017       2016             2015

                                                                       (proj)          (est)      (actual)      (actual)

Match Receipts                                             £100m      £45m        £41m         £41m

Commercial                                                  £100m      £63m        £59m         £60m

TV & Prize – PL                                             £150m     £149m       £95m         £91m

TV & Prize – UEFA                                        £50m       £40m        £15m           £5m

TOTAL                                                           £400m     £297m     £210m       £197m

I haven’t projected 2018 because the move to Wembley for one season creates ‘noise’ and a set of one-off assumptions. It’s Spurs’ long-term trajectory I care about, not a single Season. However, based on paying ‘rent’ of £15 million for Wembley, with the increased capacity and ticket price mix, and our qualification for the Champions League, I’d guess a total income figure in the region of £310+ million in 2018 (having deducted Wembley rent to create ‘net match receipts’).

Looking ahead to 2019 (and beyond) in our new stadium, the main ‘risk’ is projecting £50 million p.a. of UEFA Prize money. The difference between qualifying for the CL v the Europa League, and how far we get in either tournament, is substantial. Whereas the PL money is pretty much fixed until 2019 (@£150m +/-). Match Receipts (£100m) and Commercial Income (£100m) will become increasingly predictable figures over the next couple of years.

So, it is now time to address Spurs’ expenditure.

There are basically four categories of expenditure / outgoings at a typical football club:

  • ‘Staff Costs’
  • ‘Other Overheads’
  • ‘Exceptional, Depreciation, Amortisation, Impairment and Football Trading’
  • ‘Interest and Tax’

This Post will focus on ‘Staff Costs’ which are easiest to understand (and of most interest to fans!).

Transfers obviously involve outgoings of cash when we buy a player (and incoming cash when we sell somebody) but transfers are not accounted for as a cost in the way that other expenditure is. We usually buy and sell players with staged payments over several years. The whole ‘Football / Trading’ side is accounted for in the third category above and I’ll cover it in due course.

How much do Spurs spend paying their staff?

Year                                                              2016               2015

Total Revenues                                           £210m           £197m

Staff Costs (audited)                                   £100m           £100m

Staff Percentage (of Income)                      48%                51%

Spurs have long operated on the basis of a 45-55% ‘Staff Percentage’; that is paying our players and staff a total amount equivalent to around half our annual income. Put simply, for every £1 the Club earns, it budgets to spend 50 pence on salaries.

So as our income rises, our ability to pay more goes up in parallel. But just as our income each year isn’t 100% predictable, nor is our salary bill. Things like performance bonuses and loyalty payments, and their timing, affect the exact amount paid in each accounting year.

It’s often forgotten that (like any club) Spurs employ more than just a First Team Squad and a Manager. In 2016, Spurs employed around 900 people, split as follows:

Players, Coaches and Football Admin     196

Non-Football Admin                                   134

Retail (Shop) & Distribution                       79

Sub Total                                                       409

Temporary Match Day Staff                      512

Total                                                               921

The figure of £100m in Spurs’ Accounts is the TOTAL amount paid to all 921 staff, not only our senior players. The £100m comprised £88.5m of salaries and bonuses, £11.3m of social security costs (basically employer’s NI) and £0.2m of pension costs.

I’ve made a few assumptions based on daily market rates for Temp Match Day staff, Retail and Distribution wages, and other annual salaries. We also know, for example, that Poch earns £5+m per year and Levy earned £2.84m in 2016. My best guess is that around £37 million is paid to around 900 staff, including academy coaches and young players, the managerial, administrative and sales personnel, shop staff and match day temps.

That would leave say £63 million to be shared by the First Team Squad at an average of c. £2 ½ million p.a. each. So around 60-65% of our Total ‘Staff Costs’ are allocated to the most important 22-25 players.

What about our First Team Wages?

The assumption above translates into an average First Team Squad salary of £45k per week (plus £6k social security tax p.w. the Club must pay on top). When we look at what we know about Spurs squad, that sounds about right. For Lloris and Kane on £120k per week each, there are Onomah and Nkoudou both on £20k.

It’s important to remember that most of the bigger contract renewals that were announced last Season (smiling Poch with his arm round each player in turn) will affect Spurs 2017 financial accounts (which will cover the period from July 2016 to June 2017). So I’d expect our total Staff Costs to be a fair bit higher (than the £100m reported in 2015 and 2016) when those 2017 accounts are made public.

However, based on my projection of much higher revenues in 2017 as well, the total ‘Staff Costs Percentage’ may have actually declined from the 48% of income that it was in 2016.

According to the Daily Telegraph, Kane’s contract signed in December 2016 splits as follows: a guaranteed £90,000 per week base salary plus £30,000 per week of achievable bonuses and incentives. Hence his reported contractual figure of £120,000 per week (until 2022). This is a simplified example of a typical contract which is nowhere near as straightforward as the ‘headline figure’ that’s quoted in the press.

In a future post here, I’ll summarise what I know about the salaries and contract dates of our senior players. But I won’t clog up this post with that data now. Suffice it to say that we have a band at £20-30k, a middle band at £50-80k, and an elite few at £100k+ per week.

Most are under contract until 2020-2022. Only Lamela, Alderweireld and a couple of others expire earlier. However, it’s highly likely that there’ll be another slew of renewals and improvements during next season.

What happens from here?

Spurs have a reputation for sound finances, a wage structure and paying less than other big clubs (especially the ‘Sky 5’). It’s easy to see how a manager like Redknapp might butt heads with that philosophy after a while.

But Pochettino has actually embraced it. From his early days at Espanyol he’s been happy to cut his cloth accordingly. Before going into management, he obtained a university MBA in the business of sport. He negotiated his own salary and contract with Levy. He has no agent himself but is obviously aware he could earn more money elsewhere. However, he’s clearly one of those men who’s about more than ‘just money’. And those are the types of players he wants around him too.

It’s very clear that we will keep the players we want to keep, and maybe we will sell players we want to sell. We are so calm about our key players and they are very happy here.”

Pochettino, May 2017

“One thing I really like about Tottenham is that there is not really a big star. We are all working together for the team, we respect the team and we all realize that the club is higher than any player in the team.”

Hugo Lloris, 2017

I would expect Spurs to continue with sound finances, a wage structure and our team ethic, at least as long as Levy and Poch are around.

But continue paying less than other big clubs?

Now here’s where it gets interesting.

If Spurs budget to spend 50% of income on ‘Staff Costs’ in 2019, that’s around £200 million to spend. Let’s assume that £50 million of that total is required for the Administrative, Retail, Distribution and Match Day staff that a bigger club in a bigger stadium will require (up from say £37 million in 2016).

That would allow up to £150 million to be spent on the First Team Squad (compared with £63 million in 2016). An increase of 138%. Put simply, each player could have his salary doubled from where it is today, with money left over. All still on the basis of continued sound finances and a wage structure (just a more extravagant one).

I really don’t think many people have got their heads round this. There are clues, such as Pochettino’s confidence in saying “we are creating a team that can be one of the best teams in the world.” But the world prefers to cling to its old narrative about Spurs.

In 2019-2020, I’m sure we’ll still have a handful of young players in the First Team Squad on £25-35k per week. But the middle band could stretch to £80-120k and the elite few could reach £200k+ per week. Those aren’t – quite – United, City and Chelsea levels yet, but salary comparisons with other big clubs would cease to be a major talking point for all but the most mercenary (and agents).

But what if we don’t get into the Champions League?

As I said above, the main risk to my projection of £400 million of income is the UEFA TV & Prize money. Winning the Champions League could be worth around 100 million Euros. Leaving the Europa League at the Group Stage is worth a couple of a million quid.

I’ve assumed a ‘mid-point’ of Spurs (a) qualifying for the Champions League and (b) an exit at the Round of 16, probably worth £40-50 million, depending on a couple of variables and exchange rates.

But if we take Kane’s ‘£120k contract’ for example, with his base salary of £90k per week, and up to £30k of ‘extras’, part of the bonuses he earns will depend on Spurs’ Champions League qualification and performances. So, to an extent, our ‘Staff Costs’ are de-risked by this type of contract (standard for First Team Squad members). We’d have a lower income figure (due to lower UEFA money) but a correspondingly lower wage bill too.

But what about the new stadium? Won’t we be restricted like Arsenal were?

Or will Spurs be able to buy more expensive players?

Ah, well, those are questions for another day.

There’s still more to say about the ‘Levy factor’.

 

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