28th July 2017

27th July 2017 – Sky’s Latest Financials Point To Increasing Uncertainty


London 27th July 2017.

Sky plc – undoubtedly the company that has led the development of sport via satellite transmission over the last 25 years – announced its results earlier this morning for the 12 months ended 30th June 2017. We have previously reported on Sky’s financial performance given the group’s interest and reliance on Premier League broadcasting.

Unfortunately, the cost of the latest TV / Premier League arrangement is weighing heavily on the group’s economic performance which we have set out below together with comparatives for last year (2016) and five years ago (2012).





2017 vs. 2016

2017 vs. 2012







Net operating profit after tax. (NOPAT)






Charge for capital






Economic Profit (EP)






EP per unit of revenue






EP per unit of assets






From the above financials, the economic performance of the business is declining and is a shadow of where it was 5 years ago.   The economic loss for the 12 months ended 30th June 2017 totalled £208m, a £44m increase on the previous year’s economic loss of £164m and £945m less than the economic profit of £737m posted in 2012.  This is despite a £6.1bn increase in revenue (2017 vs. 2012) – clearly the cost of each revenue increment is increasingly punitive suggesting huge pressure on margins.

Roger Bell, commenting on Sky’s latest numbers;

“Sky is clearly creaking under the strain of the latest domestic football TV deal and for us, this is further evidence that the “boom” in TV revenues for clubs has reached or is very close to reaching its peak.  The idea that Sky can afford a further increase in 2019 needs to be seriously questioned.”

Many informed commentators have over the past few weeks questioned how sustainable the current TV arrangement is and the latest numbers from Sky will provoke further debate. The results are another ingredient to be included in Football’s ‘Summer of Money’ which has been typified by vastly increased player transfer values and salary levels. All this activity is, of course, mainly underpinned by the TV broadcasting revenues.

Several days ago, Andy Dunn in the Daily Mirror praised Tottenham Hotspur for not entering the current off-season transfer “madness.” This theme was also echoed by Peter Coates, Chair of Stoke City, in a recent interview with TalkSPORT radio. Indeed, the 26th July 2017 edition of the Daily Telegraph led with the headline “’Dangerous’ fees pose major threat to game”, a quote taken from an interview with Jose Mourinho, the manager of Manchester United.

Furthermore, Daniel Levy, Chair of Tottenham Hotspur, was quoted as follows at a Nasdaq Q&A in New York:

“We have a duty to manage the club appropriately.  Some of the activity that is going on at the moment is just impossible for it to be sustainable.  Somebody spending £200m more than they’re earning, eventually it catches up with you. And you can’t keep doing it.”

Against this, the Daily Mail published an interview on 24th July 2017 with Richard Scudamore, the Executive Chairman of the Premier League, whereby he took the line that all was well and that there remained significant interest from potential overseas investors.

A need for context

The first satellite transmission agreement back in 1992 totalled some £38m per season and due to the hugely impressive negotiating skills of the Premier League, this has currently risen to £1.7bn. Under any lens, this is a staggering growth in revenue – equating to a 16% annual compound increase over the period 1992-2017 in what has been a generally low-inflation economy.

In other words, a pint of lager back in 1992 which then cost £1.44 would now cost £65 if it followed the same growth uplift. According to the Nationwide House Price Index, the average cost of a house in the UK back in 1992 was £51,815 and again following the same rate of growth as the Premier League TV revenue transaction would result in the average house price being £2.3m in 2017.  Similarly, an average family car costing £9,410 in 1992 would, if it followed the same rate of growth, now cost £424,000.

Our approach 

We at vysyble believe that value is created by investing capital and generating a return greater than the cost of that capital. If one accepts this premise, then the only metric that fulfils or satisfies that statement is economic profit; a measure that includes all the costs of doing business and is defined as:

Economic Profit = Net operating profit after tax less a charge for ALL the capital used by the organisation.

Peter Drucker, the highly influential and best-selling author on all things management-wise, stated;

Based on something we have known for a long time: what we call profit, is usually not profit at all. Until a business returns a profit greater than its cost of capital, it operates at a loss.  Never mind that it pays taxes as if it had made a genuine profit.  The enterprise still returns less to the economy than it devours in resources…Until then it does not create wealth; it destroys it.

Peter Drucker: The Information that Executives Truly Need Harvard Business Review, January 1995

The economic profit metric includes taxation. HMRC does not hold back in seeking redress from football clubs in severe financial difficulty as it is frequently the largest creditor and the most prolific in serving company winding-up petitions. Despite this, the post-tax position is frequently ignored or not even calculated by many analysts and commentators.

When presented with our approach, some commentators have made the point that football clubs have a wider ethic beyond an economic objective, that somehow football clubs are not designed or meant to be profitable.  However, such an argument is in danger of confusing the generation of wealth with its allocation.  We would be the first to acknowledge that football clubs have wider community and fan responsibilities – however they cannot meet those obligations over the longer-term without either generating an economic return or in lacking the input from a generous benefactor’, said Bell.

The Executive Chairman of the Premier League gave assurances in his Daily Mail interview of 24th July 2017 that all was well because the ratio of  wages-to-revenue is currently at a ‘comfortable’ level – around 60% – and is lower than it was five years ago. Such an approach ignores the very significant costs of maintaining the club’s invested capital balances. Additionally, the clubs were already sustaining economic losses five years ago, so arguably the point of being ‘comfortable’ is anything but if capital is being destroyed.  Annual wage inflation in the group of clubs outside of the ‘top 7’ is running at its highest level since 2010-11 at 15.9% and commands 64% of revenue.

When all the costs of operation are incorporated into the economic mix, the picture is a very depressing one – not of value creation but of increasing value destruction.  As we highlighted in our detailed financial analysis of the Premier League clubs, in the 2015/16 season when we subtract the charge for all the capital on the balance sheets of the clubs from the total NOPAT for all 20 clubs, we see an economic loss of £320.1m. In other words, and in total, the clubs have in effect given £320.1m to other stakeholders: probably players and agents.

£876,700 is evaporating from clubs every day. We remain firmly of the view that you cannot manage what you cannot see and until the Premier League administrators and the Premier League clubs see the true economic dynamic of the game, then and only then will they be able to find a value-maximising way forward for all stakeholders.  Until then, as fans, we continue to fear for the future of the game’ said Bell.