28th November 2016


12th December 2019

We were delighted to collaborate and support the BBC in its football-related output concerning the current financial state of the game.  Regular readers will know that we have covered the financial and economic aspects of football for just over 3 years.  Indeed, we released our first report on the vulnerability and reliance of the Premier League’s top clubs on TV money in late 2016. Since then we have consistently challenged the prevailing narrative that all is well within the game – a narrative fostered by a belief that revenue generation in itself is a proxy for economic nirvana.

Sadly, the reality is that all is far from well. Indeed, we believe that the game is in a bit of a state.

What many commentators won’t tell you is that in order to understand the financial dynamics of the Championship and lower leagues, the economic dynamic of the Premier League must be understood first –  more particularly the concentration of revenue generation which sits with the ‘Big 6’ clubs of Arsenal, Chelsea, Liverpool, Manchester City, Manchester United and Tottenham Hotspur. In 2017-18, this group accounted for 57.5% of the division’s total club revenue.

Commentators will tell you is that the Premier League continues to break revenue records (we expect a combined club revenue total of approx. £5bn for 2018-19, up from £4.83bn in 2017-18) and that ‘profitable performance and strengthening balance sheets, that looked so impossible a decade ago, are now the norm.’[1]

Unfortunately, this does not apply if your club is sitting outside of the ‘Big 6’ group. For instance

  • Just five of the remaining 14 clubs recorded successive pre-tax profits between 2016-18.
  • In 2017-18, 89% of the Premier League clubs’ pre-tax profits were generated by the Big 6 clubs.
  • Eight of the 14 remaining clubs had staff cost totals in excess of UEFA’s safe guideline of 70% of revenue.

Arguably, the Big 6, as we indicated in our last edition of ‘We’re So Rich It’s Unbelievable!’, are turning the financial screw on the remaining 14 clubs with additional monies from European competition and an increased share of international broadcast rights.  It is no surprise to us that this group has occupied the top 6 final positions in the Premier League in 4 of the last 5 seasons.

Indeed, Deloitte’s apparent confidence in the football’s financial model is such that it actively encourages investment into the game with statements such as ..”with no football league clubs entering insolvency proceedings for over five years and our consistent reporting of improved financial stability and profitability for that period, we hope that the developing financial maturity of the football industry will soon be more widely recognised”’[2]

Really? Try telling that to fans of insolvent Bury FC, or indeed to fans of Bolton Wanderers, Macclesfield Town, Oldham Athletic and other clubs where acute financial difficulties have made the headlines in recent months.

The above statements were published in 2018. In the following year, we noticed that Deloitte’s tone had changed:

‘Beyond the riches of the Premier League, it was a year of records in the Championship, most unenviable, as despite record revenue, record wage levels (in excess of revenue) resulted in record operating losses.’[3]

A man on a Clapham Omnibus might wonder what happened to that developing financial maturity? Indeed, Deloitte lets the cat out of the bag with the following line from the same report;

‘The majority of clubs in League 1 and League 2 continue to be supported by owner contributions.’[4]

So ‘improved financial stability and profitability’ only works if owners keep dipping into their pockets? To us that is a very interesting perspective and we leave you to draw your own conclusions…

We argue that it is extremely rare for the economic and financial dynamics to shift from being positive to dire in such a short period of time – unless something catastrophic has occurred. Usually, and we have seen this in our work on Carillion, Tesco and many other enterprises, the underlying disruptive and value-destroying factors and behaviours will have been in place for some time.

The increased levels of transparency achieved by the economic profit measure, especially in applying a cost to equity capital (which is one of the more common methods used by owners when investing in/shoring up their football clubs whereby money is exchanged for a further issue of shares), has enabled us to see and report on much of the turmoil that has only recently manifested itself in the traditional format of the balance sheet/accounts statements and well ahead of time.

Our widely-reported interactions with the EFL in 2017 resulted from our analysis of those clubs being promoted from and relegated into the Championship stretching back to the 2008-9 season. Just to be clear, there has only been one instance of a club promoted into the Premier League with an economic profit since 2009 (Crystal Palace in 2012-13) during this period. Relegated clubs carry a bigger risk of financial stress not least as a result of the reduced media income which is partly tempered by the Parachute Payment scheme.

Sometimes the dual and conflicting ambition of promotion and balance sheet repair following a bruising and failed Premier League survival effort can result in further relegation into League One (Sunderland, Wigan Athletic, Wolves) and additional financial stress. Our economic profit data was explicitly clear in highlighting unsustainable situations and impending club failures.

Unfortunately, and sadly, the EFL failed to recognise this. Its complacency in referencing the lack of club insolvencies as a glowing measure of the success of its financial regulations was to us, having seen the economic data, astonishing.  

As the chart below illustrates, the Championship has been in poor financial shape for some time.

The lure of Premier League riches would appear to be an obvious dynamic but the narrative of the largest revenue-generating league in the world [1] hides a mix of economic losses and short-lived tenures. Indeed, the Premier League has only achieved two economic profits in the last ten years.

Rather like Icarus rising towards the sun, chasing the Premier League dream can be a very dangerous (and costly) pursuit. We said so in 2017[6]. The ‘cost of entry’ to the Premier League in economic profit terms has increased significantly since the bumper TV deal of 2016-19.

Our analysis shows that one-third of promoted clubs will be relegated from the Premier League following a single season with two-thirds relegated after three Premier League seasons.

When these losses are compared with the revenue earned, the burden of ambition is clear.

The key driver is staff costs which tends to exceed revenue levels.

Indeed, there are worrying and developing trends that suggest the Championship staff costs/revenue ratio is going to get worse over time.

What is not helping this situation is that Premier League staff costs have experienced annual double-digit inflation since 2015. This in turn has helped to inflate labour costs further down the football pyramid. Also, 2017-18 was the busiest year for Premier League transfers with £2.9bn of talent traded in and out of clubs. All this helped to feed a 13.37% increase in Premier League staff costs, the highest % increase since 2011.

Whilst it would be easy to compare directly with the Championship staff cost increase, the data is unfortunately skewed by Newcastle United’s huge £112m staff cost in 2016-17 as the club spent its way back into the Premier League. The next highest Championship club staff cost is Aston Villa’s £73.11m in 2017-18 which was more than likely a major factor in taking the club to the brink of administration.

Even with the EFL’s new media deal with Sky which started this season (2019-20), the situation is unlikely to improve. The 5-yr deal pays £595m or £119m per year to broadcast 138 league matches per season plus Carabao Cup games. To put this deal into perspective, the Premier League received £670m for a 4-yr agreement back in 1997. The new arrangement is a 35% increase on the previous iteration but broadcast revenues without parachute payments are generally dwarfed in percentage share terms of overall club revenue by the matchday take.

Recently, there has been much controversy surrounding the sale and leaseback of stadia to club owner companies. This is not illegal as the laws of the land currently have it. In the corporate world, the use of sale and leaseback deals to free up funds tied to assets such as offices or land is very common indeed.

Curiously, the EFL rules did indeed prevent such deals from taking place as a means of contributing to a club’s EFL Profit & Sustainability (P&S) obligations. However, the rules were quietly amended in 2016. As a result, Derby County, Reading and Sheffield Wednesday have since executed such transactions with the effect of vastly reducing losses within the club limited company whilst raising staff costs to near-parity with those clubs that currently benefit from parachute payments. All above board apparently but not without rancour from other clubs and lately in Sheffield Wednesday’s case, the EFL itself.

Of course, the liability of rent will be transferred to the balance sheet and we remain curious as to what the relevant ‘market’ rents turn out to be on a case by case basis.

By its very nature, the Championship is a dynamic division with 6 clubs exiting every season as a result of promotion and relegation from the pool of 24. Indeed, just 7 clubs have been continuously plying their trade in the Championship between 2014-18. And they are: Birmingham City, Derby County, Ipswich Town, Leeds United, Nottingham Forest, Reading and Sheffield Wednesday.

Notably, three of the seven clubs have executed sale/leaseback deals on their stadia (see above). Additionally, Birmingham City fell foul of the EFL’s financial regulations and received a points reduction penalty last season as a result. The predominant lack of parachute payments (Reading did receive payments up to 2017) would seem to have prompted some creative thinking.

However, the numbers do not lie. The combined revenue for the seven clubs rose from £146m to £171m (17.21%) yet staff costs rose from £146m to £241m (64%) between 2014-2018. Economic Losses remained static at -£84m for both 2014 and 2018, tempered by the stadia sales with a combined sale price of £166.5m (Derby County £80m, Reading £26.5m and Sheffield Wednesday £60m).

In the 27 instances of relegation back into the Championship since 2009 where accounts are available, there were 24 instances of economic losses in that first Championship season despite parachute payments. That is not to say that the parachute payment scheme does not influence performance on and off the pitch (see above).

Over the most recent five years of accounts, Championship clubs in receipt of parachute payments have performed marginally better than those without but on an average basis the margin between the two is not so great.

In terms of promotion, 8 out of the last 15 instances were achieved by clubs that were in receipt of a parachute payment.

To conclude, with football being what it is, chasing the dream is what clubs and their owners do and are expected to do by the fans. Unfortunately, the result is a growing cohort of clubs with significant and increasing cumulative losses, where the cost of labour is rising faster than revenue. Even the realisation of this ambition can be fraught with danger and difficulty.

Looking ahead, the Premier League Big 6 clubs will continue to work behind the scenes for financial advantage. The prospect of a European Super League in 2024 is palpable and will present English football with its most radical operational challenge. On current evidence, the EFL is ill-equipped to cope.

Unless the relevant government departments, regulators and administrators of the game recognise the true economic and operational picture, we are certain that football will end up in a dark, dark place.

[1] Deloitte Annual Review of Football Finance 2018

[2] Deloitte Annual Review of Football Finance 2018

[3] Deloitte Annual Review of Football Finance 2019

[4] Deloitte Annual Review of Football Finance 2019

[5] Deloitte Annual Review of Football Finance 2019

[6] Over The Line 2017. Published by Vysyble.


7th November 2019

In the November 2019 presentation of the company’s interim numbers (accompanied by the catchy strapline ‘Far reaching change – delivered at pace’), M&S announced a pre-tax profit of £176.5m for the six months ended 28th Sept 2019 which is down 17.1% from the £213.0m comparable announced this time last year.

We have previously written about the performance of M&S and the company’s erstwhile dominance of the UK High Street, most recently just a few weeks ago. Indeed, we hold Archie Norman, the current Chair, in high regard.   

However, given the almost daily torrent of bad news from companies trading in and exposed to the UK High St, the conclusion might be arrived at that as far as M&S is concerned it is something of an achievement that the company is, to paraphrase a line from Elton John, “still standing.”  With the possible exception of JD Sports, the view from the UK High St is one of increasing gloom and despondency.

The CEO’s perspective (taken from the Interim Statement)

“Our transformation plan is now running at a pace and scale not seen before at Marks & Spencer. For the first time we are beginning to see the potential from the far reaching changes we are making. The Food business is outperforming the market. Our deal to create a joint venture with Ocado is complete and plans to transition to the M&S range are on track.

In Clothing & Home we are making up for lost time. We are still in the early stages, but we are clear on the issues we need to fix and, after a challenging first half, we are seeing a positive response to this season’s contemporary styling and better value product. We have taken decisive action to trade the ranges with improved availability and shorter clearance periods. In some instances, dramatic sales uplifts in categories where we have restored value, style and availability illustrate the latent potential and enduring broad appeal of our brand. Our cost reduction and store technology programmes are on track.”

The above statement, if nothing else, is potentially encouraging and at least tries to give the impression of a management team with a certain degree of purpose.  

That said, we believe that there will be pressure and potentially some merit in detaching the food business perhaps via a separate flotation. It is strategically interesting but fraught with operational challenges.

The company’s performance through the Market Value Added (MVA) lens.

Recent developments do leave us concerned. At the time of writing, M&S shares are trading around the £1.90 level which according to our calculations produces an Enterprise Value (EV) of £8.57bn.  If we deduct our calculation of Invested Capital ie £8.33bn (from the recently published “interim” balance sheet) to establish the “Market Value Added (MVA)” position as of 28th September 2019, we find that MVA is marginally positive to the tune of £240m.  

In other words, the collective wisdom of the capital markets has reached the conclusion that the company will just about cover all of the costs of doing business going forwards, hence the discounted future stream of value creation (or fundamental value) is marginally positive. 

By way of context, back in 2010 the company produced an economic surplus of £217m in a single year!  Furthermore, a share price of £1.78, based on the most recent balance sheet, would bring MVA down to zero. In other words, the market perspective predicates a zero discounted future stream of value creation.  Against this background, the capital markets would appear to have significant doubts regarding the current strategy of the business and the likelihood that the “five-year plan” is really going to turn the business around.

Set out below is a diagram showing the movement from the end of March 2019, which is the date of the last set of annual results, through to the date of the interims for 2019/20.

Market Value Added (MVA) = Enterprise Value less Invested Capital.

Of course, much of the downward movement comes from the decrease in the share price from £2.78 at the end of March 2019 down to £1.90 in September which realises a fall of 88.9p or 31.8%.  In market capitalisation terms and following the recent rights issue, the drop in price equates to around £0.8bn or 18% of the market capitalisation at the end of March 2019.

Management teams frequently argue that the capital markets and share prices are subject to movements and forces outside of their control and don’t fully comprehend their strategies. Over the short-term we believe that there might be something in this but given the sustained fall evidenced over the last six months we caution against too much reliance on the notion that the “markets don’t understand us” sentiment.

Set out below is the Market Capitalisation position at the date of each Balance Sheet since 2014 and the 2019/20 Interim Statement.  The decline is both large and well established.

The Interim 2019/20 value is 39% of that of 2015.

What does the picture look like from a Fundamental Value lens?

Set out below is our initial calculation of fundamental value – NOPAT (Net Operating Profit After Tax) less a charge for all the capital used by the business.

Calculations follow IFRS 16 which brings the leased asset and consequent liability onto the balance sheet. We have added back the lease payments made over the period in order to establish NOPAT (Net Operating Profit After Tax). This ‘lease charge’ is in effect covered by the charge for capital which is £257m for the six-month term assuming a WACC (Weighted Average Cost of Capital) of 7.0%

When viewed through the fundamental value lens, one might conclude that the most recent economic result is hardly aligned with the notion or the rhetoric that the recovery of the business is well advanced. Furthermore, it lends weight to the argument that the capital markets are more right than wrong in their assessment of the share price.

The above calculation is telling us that over the last six months the management team has taken £66.9m of the company shareholding wealth and, through their strategies and decision making, have effectively given it away to other stakeholders.  

Of course, we would advise caution against drawing too many conclusions from a single period of economic profit.  However, our initial workings reveal that from 2017 to March 2019, cumulative economic losses exceeded £1bn .

This is clearly a business caught in a very challenged situation.


We would not be amazed if a full value audit revealed something like the following:

  • The majority of Marks & Spencer stores across the UK network are economically marginal and have been for quite some time. We suspect that the landmark stores in London Marble Arch, Manchester, Birmingham, Edinburgh and Newcastle etc are locations where value is likely created.
  • That the property portfolio is too big and predominantly in the wrong locations for the current environment.
  • That not all of the M&S customers are adding value – and that “marketing” could actually be targeting the wrong customer segment.
  • That incentives for the senior team are misaligned with driving value for shareholders.
  • That the current strategic priorities are poorly aligned with the underlying economic engine room of the business.
  • That a very powerful “institutional imperative” is hampering or even blocking attempts to change the business. We find it worrying that there are, according to the interim statement, repeated issues with clothing lines “misaligned with a family customer profile.”  

We don’t for a second pretend to be remotely qualified to discuss the merits or otherwise of the M&S fashion offer. However, we do wonder whether a customer proposition based on a “growing family of businesses under the M&S brand” is really the value-maximising way forward for shareholders. 

Perhaps a more targeted and older/wealthier customer segment might be a proposition likely to yield more encouraging results?   


10th October 2019 Red Mist – Manchester United’s 2019 FY numbers and the stagnation of England’s biggest revenue-earning club

7th September 2019Not Just A Loss But… – A detailed look at the decline in Marks & Spencer’s fortunes

29th August 2019Telling It Like It Is… – What really happened when we talked to the English Football League

5th July 2019Chopping Board – Knives out for former Tesco chief

25th May 2019 – Repeat Prescription – Few believed us the first time around regarding football’s financial plight…

19th March 2019Stuff and ‘Nonsense’ – Why the Economic Profit metric is the most transparent measure of business performance

13th March 2019Financial Fair Play – Guilty as Charged? – Our thoughts on FFP schemes and their key weakness

18th December 2018Long Division – The Post-Ferguson years at Old Trafford have come at the expense of declining economic and on-pitch performance

20th November 2018The Relegation Game – Tales of woe and economic performance at the wrong end of the Premier League table

9th October 2018A Different View – Why fans ought to be acutely aware of football’s financial dynamics

17th August 2018The End of the Beginning – La Liga heads west to conquer new worlds

9th August 2018Reaching for Sky – the sequel – Latest offer price for satellite TV company is good for shareholders, less so for prospective owners.

8th August 2018American Dreams – English Premier League economic dynamics and American money – is a Euro Super League the next step?

3rd August 2018Mall Administration – Retail Property Co. bonus payouts at odds with increasing shareholder value.

20th April 2018Goonernomics Part Deux – The departure of Arsene Wenger…

18th April 2018The Price of Everything – Tesco’s latest numbers offer little in value.

12th April 2018Say What? – WPP’s very mixed message.

14th February 2018In Case of Emergency – Premier League’s UK TV rights auction comes up short.

7th February 2018 – Lost in Transmission – Top Premier League clubs look beyond domestic TV rights.

4th December 2017A Billion here, a Billion there… – The Premier League reaches a major milestone, quietly…

25th November 2017Getting out of Toon. – Is Mike Ashley pitching the sale price of Newcastle United at the right level?

16th October 2017 – Goonernomics. How the ‘Bank of England’ club falls short of its North London neighbour.

25th September 2017 – Highlights. More record-breaking numbers from the biggest football club in the land, but no economic profit…

23rd September 2017Football’s Economic Back Pass. A guest blog for the Soccernomics website.

12th September 2017 – Crystal Balls-up. Changing strategic direction is not a good idea when you haven’t looked at the economics.

27th July 2017Football’s Summer of Money and the £65 pint of beer. The sport that just can’t spend enough.

11th July 2017Football Special. Observations following the launch of ‘We’re So Rich…’

9th May 2017Illuminating, non? Political energy lacks vision and power.

2nd March 2017Claudio’s Burden. The price of failure outweighs the price of success.

12th January 2017Shopping for Godot.A never-ending quest for value in Retail.

27th December 2016Reaching for Sky. Is Rupert Murdoch’s £10.75 per share a fair price?

6th December 2016Auld Lang Syne. A reminder from history of the damage that poor financial planning can cause.

1st December 2016Fork Handles? Four Candles? Tesco’s blurred strategic vision.

27th November 2016Football’s Instant Replay. Financial warning signals for the top English Premier League clubs.