gmb45
4th June, 2009, 04:43 PM
Debt-laden Premier League clubs have been warned to ensure they can cope if they hit problems on the field as a new report showed record levels owed by English football's top flight.
Deloitte's annual review of football finance reveals the total debt among the 20 Premier League clubs hit ?3.1billion in 2007/8 while wage costs also showed a record rise of ?227m - 23 per cent - to reach ?1.2bn.
The overall debt figure includes 'soft debt' such as the ?701m made available as an interest-free loan to Chelsea by owner Roman Abramovich - he has since reduced that to ?339.8m with the rest becoming his equity in the club.
According to Deloitte, Manchester United's debt stands at ?649m and Liverpool's at ?299m, both sums stemming from loans taken out by the owners to finance takeovers.
Arsenal's ?318million includes ?250m in long-term bonds taken out to finance their new stadium.
Other clubs however are potentially more vulnerable to servicing their debts if they fail to achieve their targets on the pitch.
Alan Switzer, director in the Sports Business Group at Deloitte said: 'Debt can be sustainable but football should not be complacent.
'They should make sure the business model works for them to make sure the level of debt is sustainable.
'The more debt you have, the more vulnerable you can be if you suffer a revenue knock-off such as failing to qualify for the Champions League or in the worst scenario relegation.
'Having a higher debt is not helpful in those situations and you have to make sure you have some flexibility, and that places an onus on having flexibility around player wages.'
The increase in wage levels may also cause raised eyebrows but they do not appear a major problem as they are slightly less than the rise in income from Premier League TV rights.
As a result the wages to revenue ratio improved slightly to 62 per cent from 63 per cent the year before.
Manchester United and Arsenal both paid out less than 50 per cent of income in wages, and Liverpool 55 per cent, but Chelsea's ratio was 81 per cent.
The wages-to-revenue ratio is more of a concern in the Championship where the average was 87 per cent with Hull City - who won promotion to the top flight - on 124 per cent and Coventry on 121 per cent.
Switzer added: 'Lower revenue growth in forthcoming seasons means clubs will have to focus on improving cost control - both wages and other operating costs - if profits are to be maintained.'
Deloitte's report also points out the Championship can be a money-spinner - it enjoyed the third highest average attendances of any league in Europe - only the Premier League and Bundesliga were higher.
Switzer said: 'That can be overlooked sometimes and the Championship is a very competitive league.'
The Premier League said the reported showed top-flight clubs were thriving despite the recession.
The league's spokesman Dan Johnson said: 'Deloitte's report paints a very healthy picture, not just for the Premier League, but English football as a whole.
'Across the board interest levels and revenues are up, which is all the more impressive given what is going on elsewhere in the economy.
'Premier League Clubs' revenues are growing and outstripping wage inflation, which has brought the wage to turnover ratio down to 62 per cent - lower than that of La Liga or Serie A - helping more clubs make operating profits and reclaim our position as the most profitable league in Europe.'
Johnson said the debt issue varied greatly between clubs.
He added: 'Clearly debt has risen, but it is a more complex issue that many commentators assume. Clubs use different models of debt - investment, benefactor and acquisition - but ultimately it is for individual clubs to decide what levels they carry and whether it is sustainable.'
Deloitte's annual review of football finance reveals the total debt among the 20 Premier League clubs hit ?3.1billion in 2007/8 while wage costs also showed a record rise of ?227m - 23 per cent - to reach ?1.2bn.
The overall debt figure includes 'soft debt' such as the ?701m made available as an interest-free loan to Chelsea by owner Roman Abramovich - he has since reduced that to ?339.8m with the rest becoming his equity in the club.
According to Deloitte, Manchester United's debt stands at ?649m and Liverpool's at ?299m, both sums stemming from loans taken out by the owners to finance takeovers.
Arsenal's ?318million includes ?250m in long-term bonds taken out to finance their new stadium.
Other clubs however are potentially more vulnerable to servicing their debts if they fail to achieve their targets on the pitch.
Alan Switzer, director in the Sports Business Group at Deloitte said: 'Debt can be sustainable but football should not be complacent.
'They should make sure the business model works for them to make sure the level of debt is sustainable.
'The more debt you have, the more vulnerable you can be if you suffer a revenue knock-off such as failing to qualify for the Champions League or in the worst scenario relegation.
'Having a higher debt is not helpful in those situations and you have to make sure you have some flexibility, and that places an onus on having flexibility around player wages.'
The increase in wage levels may also cause raised eyebrows but they do not appear a major problem as they are slightly less than the rise in income from Premier League TV rights.
As a result the wages to revenue ratio improved slightly to 62 per cent from 63 per cent the year before.
Manchester United and Arsenal both paid out less than 50 per cent of income in wages, and Liverpool 55 per cent, but Chelsea's ratio was 81 per cent.
The wages-to-revenue ratio is more of a concern in the Championship where the average was 87 per cent with Hull City - who won promotion to the top flight - on 124 per cent and Coventry on 121 per cent.
Switzer added: 'Lower revenue growth in forthcoming seasons means clubs will have to focus on improving cost control - both wages and other operating costs - if profits are to be maintained.'
Deloitte's report also points out the Championship can be a money-spinner - it enjoyed the third highest average attendances of any league in Europe - only the Premier League and Bundesliga were higher.
Switzer said: 'That can be overlooked sometimes and the Championship is a very competitive league.'
The Premier League said the reported showed top-flight clubs were thriving despite the recession.
The league's spokesman Dan Johnson said: 'Deloitte's report paints a very healthy picture, not just for the Premier League, but English football as a whole.
'Across the board interest levels and revenues are up, which is all the more impressive given what is going on elsewhere in the economy.
'Premier League Clubs' revenues are growing and outstripping wage inflation, which has brought the wage to turnover ratio down to 62 per cent - lower than that of La Liga or Serie A - helping more clubs make operating profits and reclaim our position as the most profitable league in Europe.'
Johnson said the debt issue varied greatly between clubs.
He added: 'Clearly debt has risen, but it is a more complex issue that many commentators assume. Clubs use different models of debt - investment, benefactor and acquisition - but ultimately it is for individual clubs to decide what levels they carry and whether it is sustainable.'