In the same twenty four hours in which Spurs recently played their first match at the new
62,000 seater stadium the club quietly published its financial statements for the year ended
30 June 2018 and announced world-record pre-tax profits of £139 million.
This seems at odds with the tales of woe relating to the stadium completion, which involved
delays due to steel cost overruns, labour shortages pushing up wage bills and emergency
loans that the club have recently taken out. So, have Spurs managed to be smarter than
every other club in managing its finances or
have these financial results been subjected to the dark arts of accountancy.
The answer is a bit of both. Profit, simply put, is income less costs.
Spurs’ income grew by almost a quarter to £380
million in 2017/18. This was due to all three income streams - matchday, broadcasting and
commercial - rising to record amounts. Matchday income is based on the number of
(matches played (times) the average attendance (times) the average ticket price).
Historically, Spurs have been constrained by White Hart Lane’s 36,000 capacity. Fans
have been resistant to increased ticket prices
and so the only way to boost income was via a cup
run or qualification for the Champions or Europa league, as this increased the number
of fixtures.
With the move to Wembley for the 2017/18 season whilst construction was completed,
attendances increased to an average of over 68,000 and matchday income increased by
over 56% as a consequence. Domestic broadcast income fell slightly as
a third place finish was one below 2016/17 and
the club earned less prize money as a result, but progress in the Champions
League by qualifying for the knock-out phase was an improvement on the previous season
and more than made up for the domestic income decrease.
The move to Wembley meant that the club was able to sell additional lucrative corporate
hospitality packages as well as sponsor income and this boosted this revenue stream by an
additional half, to £109 million.
Consequently, the revenue gap between Spurs and some of its perceived rivals narrowed.
Arsenal’s figures show the importance of qualifying for the Champions League, as they
were the only club to show a decrease in income
as a result of finishing 5th in 2016/17. Spurs still have a lot of hard work ahead
of them though as Liverpool, too, benefitted from
impressive growth in 2017/18 on the back of an expanded Anfield and the prize money from
progressing to the Champions League final. Chelsea’s results also show the significance
of Champions League matches as well as that of
a new kit manufacturing deal with Nike. In terms of costs, the major ones relate to
players in the form of wages and trading, or
transfers.
Spurs have been able to keep a tight lid on wages, as can be seen by the cost barely
increasing between 2009 and 2016. This was due to the benefits of academy products such
as Harry Kane and Harry Winks, as well as recruiting well from less glamourous clubs
with the likes of Deli Alli from MK Dons, Danny
Rose from Leeds and Kieron Trippier from Burnley. These players, whilst handsomely
paid by the standards of most jobs, have been willing to accept salaries that are relatively
modest by the standards of the rest of the Big Six
and have been willing to buy into the Spurs ‘project’ under the present coach.
Whilst Spurs a decade ago had a lower wage bill than the other clubs, they were also
seen as not being contenders in the Premier League
and only qualified for the Champions League once prior to 2016.
Spurs wage bill last season was exactly half that of Manchester United, who only finished
one place above them in the table, and at least £100 million below that of the other
members of what the club sees as its peer group. How
long this tight control on wages can continue is
open to question, as the departure of Kyle Walker to Manchester City at the start of
2017/18 suggests that other clubs are admiring Spurs’
best talent and if the club fails to deliver trophies heads may be turned to competitors
with bigger wallets and trophy cabinets. In terms of player trading costs, Spurs’
reluctance to compete in the upper echelons of the
transfer market is well known, as demonstrated by making no signings to date in 2018/19.
Since the start of the present decade Spurs has have had a net transfer spend on players
of just £10 million a season.
In 2017/18 Spurs were able to record a profit of £73 million as Kyle Walker, Kevin Wimmer,
Nabil Bentaleb all departed the club, as well as a cluster of fringe players.
Spurs have been far more cautious than their rivals who have splashed the cash
aggressively, but with mixed results. Big money acquisitions such as Angel di Maria
at Manchester United, Andy Carroll at Liverpool,
Albert Morata at Chelsea and Eliaquim Mangala at Manchester City failed to justify
their fees at the clubs. Spurs have tended to
spend smart rather than big.
Spurs’ net spend is less than a tenth of Manchester City's and no more than a quarter
of the sum spent by clubs that are supposedly its
rivals, and this gap is going to grow even further
when the figures for 2018/19 are taken into consideration.
Those figures convey Spurs’ strategy under Daniel Levy they don’t take into account
the cost of the stadium and, here, the accounting rules
have benefitted Spurs.
In 2017/18, they spent nearly half a billion pounds on construction projects, the majority
of which has been in relation to the new stadium
and training complex. However, none of this has impacted upon profits. Long term assets
such as properties are expensive but are treated as assets in the balance sheet, not
expenses in the profit and loss account. Their only cost is depreciation, which is charged
over their expected period of use, but this only
starts when the asset is first put into use.
Because the new stadium was still a work in progress for Spurs during 2017/18 there are
no depreciation costs included in the accounts.
Even the costs of architects, designers, lawyers and finance professionals employed by the
club on the stadium project can be added to the
materials and labour costs directly incurred in construction. These costs will therefore
have no impact upon profits until matches commence
and then these are spread over the 50 year depreciation period according to Spurs’
accounts footnotes. If the stadium costs the quoted
figure of £1.2 billion, then this works out as an annual expense of just £24 million.
Spurs have had to borrow from banks to fund the stadium, and originally the main loan
facility (which operates similar to how a bank overdraft works in that Spurs did not
use it all at once) was £400 million from HSBC, Goldman
Sachs and Bank of America. Because of cost overruns, Spurs extended the loan facility
to £537 million in December 2017 and a further extension of £100 million in October
2018. The interest costs in relation to the loan
are however added to the cost of the stadium whilst it is being constructed and, again,
have no impact upon profits until it completion.
So where does this leave Mauricio Pochettino in terms of building a squad fit to compete
for major trophies? Spurs are likely to be paying
no more than 4% interest on the loans, which works out at an annual interest cost of about
£25 million. The new stadium is designed for multiple purposes
and will host other sport events such as NFL and major rugby union matches, as well
as concerts. That should increase matchday revenues from the £40-45 million that Spurs
generated at the old White Hart Lane to at least
the £110 million that Manchester United earn from Old Trafford.
Whilst the new Spurs stadium has a lower capacity than Old Trafford, a combination of more
modern facilities, greater emphasis on corporate customers, higher ticket prices and a
greater number of events taking place each season should more than make up the shortfall
in capacity. The loans are scheduled for repayment in 2022,
but the standard approach from banks is that they are usually willing to reschedule
payment dates provided the borrower meets the
regular interest payments and on the basis of these figures, Spurs should not only be
able to keep the bank manager happy, but their football
manager should have a smile on his face too when he sees the playing budget.