Exclusive: Why our solvency index is the best indicator of the current health of the Premier League
Premier League football clubs, like any household, need cash to survive. This is the principle which underpins Telegraph Sport’s analysis of financial well-being among English football’s leading clubs.
By Matt Scott
11:58PM BST 09 May 2012
Many studies have been undertaken before but they have always relied most heavily on the figures for operating profit and loss. This is the first to look at exactly how much real money is going in and out of clubs, a measure which anyone considering buying any business would want to see first.
When the cash runs out at a football club, administration quickly beckons, which is what happened at Portsmouth: it simply did not have enough cash to pay its bills.
Premier League clubs are carrying £1.4 billion of debt, which sounds frightening but need not be, if it can be managed.
It does become a major problem for clubs who cannot afford to service the debts from within their own core operations – Everton and Blackburn Rovers being among them. But most can.
Arsenal's net debt peaked at £318.1 million in the summer of 2008, but this was spent on building the Emirates Stadium and redeveloping Highbury into flats. As income grew to £3 million per match at the Emirates, Arsenal could shrug off an annual interest bill of £17.2 million.
With a strong football business that has consistently generated cash and property sales on their Highbury stadium redevelopment bringing in substantially more, the debt was worked down to below £100 million last year.
These incomes should continue long after the debt has been paid off, and it would not have been possible to harness them without introducing that debt in the first place.
It could even be argued that Manchester United’s £440 million of loans, costing more than £50 million a year in interest to service, have also given rise to fresh incomes. Had the Glazer family not taken over the club in 2005, their 2011-12 commercial incomes of £103.4m – more than the overall revenues of all but five other Premier League clubs – might never have been raised. It should be noted that in the final season before the Glazers’ takeover, United earned £1.7 million from commercial income.
The Glazers certainly scored a public-relations own goal by loading their takeover loans on the club, but their subsequent business decisions have more than made sure they are paid for.
Our analysis in the accompanying table shows the amount of money clubs have left over after all their running costs have been paid for, along with debt-interest payments, the best measure of their solvency, their financial health as standalone entities.
Premier League solvency index 2011
( Solvency index for 2010-11 is compiled using operating cashflow minus interest paid/plus received)
Index (£m)
Manchester United 70.332
Tottenham 66.388
Arsenal 35.922
Chelsea 29.035
Wolves 17.888
Newcastle United 14.923
Liverpool 11.540
Blackpool 9.859
Wigan 7.028
Stoke City 6.837
Aston Villa 3.386
Sunderland 3.251
Fulham 2.996
West Ham United 2.914
Everton -2.216
West Bromwich Albion -2.944
Bolton Wanderers -3.912
Blackburn Rovers -4.577
Manchester City -22.026
It can also be read as a metric of the transfer-market muscle of each Premier League club. For some, such considerations are irrelevant: Manchester City, Aston Villa, Stoke City and Bolton Wanderers are a few examples of clubs who have been able to punch above their weight in the transfer market due to the support of very wealthy shareholders.
Alongside United as the next-biggest success story of 2010-11 are Tottenham Hotspur, for whom Champions League qualification improved cash flow by £50 million. It meant that after all their running costs and debt interest had been paid, Spurs brought in £66.4 million in cash, money that in theory could be spent on player signings. (Although, with construction projects at their new stadium and training ground under way, Spurs’ board directed the bulk of it, £32.1 million, at those developments instead.)
For clubs whose participation in the Champions League has in recent seasons been more assured than Spurs’, the rewards are obvious. Arsenal, with £35.9 million, and Chelsea, with £29 million, both recorded very significant cash inflows, permitting them great freedom. How they used it reflects their two contrasting approaches: Chelsea invested £85 million in new signings while selling £24.4 million worth of players; Arsenal spent a net £1.5 million on transfers.
But the flipside is that some clubs’ incomes do not cover their outgoings after debt interest has been paid, and here Bolton Wanderers, Blackburn Rovers, Everton and Manchester City have had two seasons of consecutive cash losses. Bolton and City both have the support of wealthy benefactors but this analysis could have foretold the unravelling of relegated Rovers.
Indeed, if Blackburn and Bolton finish the season in their current League positions – second and third-bottom respectively – it will reflect their rankings in the 2010-11 solvency-index table. (There is one caveat: Birmingham City, who were relegated from the Premier League in 2011, have not filed their annual accounts, meaning only 19 clubs have been studied, whereas 20 competed in the League this year.)
The analysis underlines the importance of the £1.1 billion-a-year broadcast deal agreed by Richard Scudamore and his Premier League executives. In 2009-10, the final season of a three-year broadcast cycle, eight top-flight clubs recorded cash losses after paying debt interest, their core activities before discretionary spending such as transfer activity or spending on infrastructure.
When the new 2010-11 season brought a new three-year cycle and hundreds of millions of pounds more to the clubs, there were only five whose debts and operations brought a deficit – and of them, West Bromwich Albion only did so because of alterations in the corporate structure forcing a one-off, eight-figure repayment of debts. With so many clubs pedalling hard to keep up with their rivals, the release last week of a new tender process for the next three-year TV deal will no doubt have come as a relief.
http://www.telegraph.co.uk/sport/fo...the-current-health-of-the-Premier-League.html
