During the 1991/92 season, the 22 football clubs playing in England’s top league (Division 1) reported aggregate revenue of £170 million, of which around 48% was from matchday and just 9% from broadcasting (Deloitte 2013:30). In 1991 neither the Premier League (PL) nor the UEFA Champions League existed, and broadcasting revenue was limited through the duopoly enjoyed by the BBC and ITV. The PL commenced in August 1992 since when clubs have seen rapid and sustained growth in revenue driven primarily by broadcasting contracts negotiated collectively by the PL. The most successful clubs have also seen a rise in commercial revenue and generated additional income from regular participation in European club competitions. During 2022 the 20 clubs that made up the PL generated aggregate revenue of £5.5 billion, 54% of which came from broadcasting (Deloitte 2023:14).
Unlike other business sectors in which companies focus on profit maximisation, the primary objective of a football club is sporting success, however this must be balanced with good financial management. For many clubs in the PL, pursuit of sporting success meant that between 1992 and 2013 increases in players’ salaries and transfer fees outstripped growth in revenue resulting in losses and a reliance on debt. Although aggregate revenue increased from £1.4 billion in 2004 to £2.5 billion in 2013, PL clubs’ reported an aggregate loss before tax in every single year and several clubs experienced significant financial problems, including Portsmouth which in 2010 became the first club to enter administration while playing in the PL.
A similar picture was seen in football leagues across Europe and to address financial difficulties UEFA introduced Financial Fair Play Rules (FFPR) from 2012. In 2013 the PL introduced Short Term Cost Control which restricted increases in players’ salaries without corresponding growth in commercial or matchday revenue. PL financial regulations were further strengthened in 2015 with the introduction of Profitability and Sustainability Rules (PSR), which required adjusted losses over a three-year period to be matched by a corresponding injection of equity (PL 2023a:131). Where cumulative adjusted losses exceeded £105 million, a club was considered in breach of PSR which could lead to a range of sanctions including fines or a deduction of points (PL 2023a:131). Continued growth in the scale of broadcasting contracts accompanied by stronger regulation meant the financial performance of clubs in the PL improved from 2014 onwards.
In March 2023 the PL referred Everton Football Club to an independent commission for breaching PSR. The table below shows the scale of pre-tax losses reported by Everton during the period 2020-22, and the huge amounts spent on staff costs. Losses would have been even greater without significant profits generated from the sale of players. In November 2023 the commission imposed a deduction of 10 points, meaning Everton fell into the PL relegation zone (PL 2023b). Everton is the first club to be deducted points for breaching PSR and the scale of this punishment surprised many observers. The club has appealed against the severity of the punishment but could face further penalties once its financial statements for 2023 are submitted. Under PL rules clubs have until 1 March 2024 to submit audited financial statements for the accounting year ended 2023.
Manchester City Football Club Ltd
Everton isn’t the only club under investigation for breaching PL financial regulations. In February 2023 Manchester City was referred to an independent commission for alleged multiple breaches of financial rules between 2009 and 2018, this included breaching the requirement for ‘accurate financial
information that gives a true and fair view of the club’s financial position, in particular with respect to its revenue (including sponsorship revenue), its related parties and its operating costs…’ (PL 2023b). The case is expected to be decided during 2024.
Manchester City was previously found guilty of breaching UEFA’s FFPR when it treated cash from related parties as sponsorship revenue. UEFA initially imposed a fine of €30 million and banned the club from competing in the Champions League for two years. However, in June 2020 the Court of Arbitration for Sport overturned the ban and reduced the fine to €10 million, citing that ‘Most of the alleged breaches were either not established or time-barred’ (Conn 2020).
The PL is also looking into whether Chelsea submitted incomplete financial information during the period 2012-19, irregularities that were discovered during the club’s takeover in 2022 (Davies 2023).
In financial statements for the year ended 2022 Manchester City reported revenue of £614 million and a pre-tax profit of £42 million (Manchester City FC Ltd 2022:19) and Chelsea reported revenue of £481 million and a pre-tax loss of £121 million (Chelsea FC Holdings Ltd 2022:15). Following Everton’s punishment it will be interesting to see how the commission deals with Manchester City and Chelsea, both of whom have arguably incurred more serious breaches of PSR.
Dr Philip McCosker
Associate Professor in Accounting and Associate Head of School (Quality and Accreditation)
References
Conn, D (2020) ‘Manchester City’s Champions League ban lifted by court of arbitration for sport‘. The Guardian [online] 13 July available from https://www.theguardian.com/football/2020/jul/13/manchester-city-champions-league-ban-lifted-cas-court-of-arbitration-for-sport
Davies, R (2023) ‘Chelsea facing FA and Premier League investigation for possible FFP breaches’. The Guardian [online] 16 November available from https://www.theguardian.com/football/2023/nov/16/chelsea-facing-fa-and-premier-league-probe-for-possible-ffp-breaches
Deloitte Sports Business Group (2023) A balancing act – Annual Review of Football Finance 2023 [online] available from https://www2.deloitte.com/uk/en/pages/sports-business-group/articles/annual-review-of-football-finance-europe.html
Deloitte & Touche Sports Business Group, and Jones, D. (2013) Annual Review of Football Finance. Manchester: Sports Business Group at Deloitte
Premier League (2023a) Premier League Handbook Season 2023/24 [online] available from https://resources.premierleague.com/premierleague/document/2023/08/31/132475d9-6ce7-48f3-b168-0d9f234c995a/PL_Handbook_2023-24_DIGITAL_29.08.23.pdf [22 November 2023]
Premier League (2023b) Premier League statement [online] 6 February available from https://www.premierleague.com/news/3045970 [22 November 2023]
Premier League (2023c) Everton FC deducted 10 points by independent Commission [online] 17 November available from https://www.premierleague.com/news/3788486 [22 November 2023]
Annual reports and financial statements available from https://beta.companieshouse.gov.uk/)
Chelsea FC Holdings Ltd
Everton Football Club Company Ltd
Manchester City Football Club Ltd