Category Archives: Football Finance

Building a brighter future, on and off the pitch: Analysis of THFC’s accounts for the 2016 financial year

By Charles Richards / @spurs_report

(Update 21/04: Per ESPNFC, the £10m figure identified in this piece as a potential upfront NFL contribution to the stadium project has been confirmed. The mysterious £45m in accruals and deferred income remains in question. Answers on a postcard!)

Tottenham Hotspur’s newly published accounts for the 2016 financial year show a club in transition, still hamstrung by the constraints of White Hart Lane but moving clearly towards the altogether grander future that beckons.

Spurs chairman Daniel Levy has described the club, in its current state, as essentially two businesses — a football club, and a stadium development. This appears to be a useful mechanism for digesting the swathes of information contained in this annual insight into Tottenham’s finances.

In this analysis, I’ll focus on the football first, and then talk about the stadium. I’ll also talk about the NFL partnership — and ask whether the financial terms have finally been revealed.

For those new to this blog, I wrote a similar analysis last year. You can read my recent piece on stadium costs here, and my analysis of club spending through the construction phase here.

The club’s statement with the key figures is here, and you can find the full accounts in the Investor Relations section of the club website. Bear in mind, the accounts cover the 2015/16 season only — they end on June 30, 2016 and anything that has happened since then will be included in next year’s edition.

ON THE PITCH

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Cost controls

Spurs achieved something rare in 2015/16, particularly in the inflationary environment of the Premier League: the club lowered football costs and improved on-field performance.

However, if Spurs were hoping for any credit for finishing third in the Premier League on a budget dwarfed by the five wealthier clubs, this was dashed by Leicester’s remarkable title win and the limp finish.

What Spurs achieved in 2015/16 was highly impressive. While Leicester have fallen back to earth and mounted a title defence even limper than Chelsea’s in the previous season, Spurs have kicked on another gear since. There is a sustainability to what Mauricio Pochettino, Daniel Levy and others in the Spurs brainstrust have built, and that’s why the mood among Spurs fans is so positive. We see it, even if others don’t.

Once again, these accounts show Daniel Levy’s tight grip on the club’s finances. Net profit increased from £9.4m to £33.0m.

Spurs managed to reduce wages slightly, from £100.8m to £100.04m. Revenue, meanwhile, increased from £196.4m to £209.8m, an increase of 6.8%. As a result, wage to turnover ratio dropped from 51.4% to 47.4%. This continues the sharp downward trend — in FY 2014 it stood at 55.6%.

How did Spurs achieve this? A look at transfer activity and new contracts in the period shows how:

PLAYERS OUT: Paulinho, Holtby, Capoue, Kaboul, Stambouli, Chirches, Soldado, Lennon, Adebayor

PLAYERS IN: Wimmer, Trippier, N’Jie, Alderweireld, Son

NEW CONTRACTS: Dembele, Onomah (x2), Winks (x2), Alli, Dier, CCV, McGee, Pritchard, Bentaleb

Spurs managed to get rid of a lot of high earners — including a lot of flotsam from the failed Bale money splurge — while of the new signings, only Alderweireld and Son commanded “big” wages.

Meanwhile, Dembele was the only senior player to sign a new deal in the period — the rest were part of the “contract escalator” Spurs have in place for young players to increase their earnings as their role grows. Both Alli and Dier, for example, have signed new contracts in the current financial year, and will soon join the very top earners.

Crucially, with the old Premier League deal in its final season, Spurs were able to hold off on pay rises for all other senior players. This prevented “double dipping” — players seeking new contracts, then demanding another new one the next year citing soaring revenues.

Here are the players who have signed new contracts in FY 2017 so far: Lloris, Kane, Dier, Eriksen, Rose, Walker, Alli, Vertonghen, Winks, CCV, Wimmer, Carroll and Vorm.

That’s a lot of new deals — probably in the region of £15-20m of additional salary, by my estimates. But with Premier League TV income jumping by around £40m next season, it’s the perfect time to do it.

Looking at the ins and outs, you may be wondering why wages didn’t decrease further. Without transparency on player contracts, it’s hard to know — there may well have been some Champions League-related bonuses that kicked in.

Meanwhile, transfer spending ticked down. The “net spend” picture is confusing from accounts: the accounts reported a £27.1m profit from the “disposal of intangible assets”, but this isn’t a true picture of player trading.

I prefer to look at amortisation, the measure of the cost of new signings spread over the length of their contracts and reported on annual basis. A full explanation is in the notes of this story, but in the simplest way: If Spurs sign a player for £10m on a five-year contract, that equals £2m in annual amortisation cost.

For Spurs, amortisation dropped from from £38.6m to £31.8m, thanks to a large number of expensive failures leaving the club and mostly cheap replacements coming in.

If you combine wages and amortisation, you get a good measure of “real football spend” — how much clubs are actually investing in their playing squads. For Spurs, this decreased from £139.4m to £131.8m.

Here’s how Spurs compare with selected other clubs:

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As you can see, not only is the gap between Spurs and the wealthier five clubs growing, the gap between Spurs and the clubs below is narrowing. Spurs, simply put, are defying gravity — and no club better demonstrates the value of homegrown talent.

Revenue roadblocks

Revenue was a mixed picture, and further underscored what by now barely needs stating — Spurs need a bigger stadium and new sponsorship deals.

Matchday revenue was essentially flat, down from £41.2m to £40.8m, while commercial revenue dipped from £59.9m to £58.6m. If there is one area that will disappoint, it is the latter.

Spurs are stuck in the tail-end of the Under Armour kit deal (expiring at the end of the 2016/17 season) and are midway through the AIA deal, which ends in 2018/19. With each year, these deals grow less competitive. But success on the pitch failed to boost merchandise sales (which declined slightly from £12.3m to £12.0m). Lack of Cup success also hit commercial and matchday income.

As far as I can tell, Spurs did not sign any major new sponsorship deals in FY 2016. The partnership with Kumho Tyres started in FY 2017, and certainly, just comparing the “Partners” section of the club website compared with similar sections for other clubs, and you can see that Spurs are far less active.

Does it matter, given how tacky this stuff gets? Ultimately, if Subway want to offer £2.5m a year to be official sandwich partner, that’s the easiest money a football club will ever make. There’s significant room for growth in this area.

The bulk of the revenue growth came thanks to the increase in Europa League prize money. Previously an irritation, the Europa League is far more valuable now. Prize money increased from £4.7m to £15.5m due to the largesse of BT Sport. That’s a lot of money for not very many viewers, but Spurs aren’t complaining.

Premier League revenue also increased thanks to improved on-field performance. 21 games were selected for UK broadcast, compared with 18 in the previous season — under the old TV deal, each extra selection above the minimum 10 was worth around £750,000, while performance-based prize money jumped by around £2.5m for finishing 3rd compared with 5th.

In a previous piece, I noted a development whereby revenue and spending, previously moving in concert, were starting to diverge.

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As you can see, this divergence was amplified in FY 2016. I like this chart as I think it tells a story, of Spurs shifting from the “wheeler dealer” mentality to a more sustainable approach as the club enters the stadium build phase.

In the coming three years, this trend is only going to increase. Next year, Premier League revenue should increase to around £140m, while the brief Champions League campaign should bring in around £35m. In the following year, pending the official announcement, Spurs will have much higher gate receipts due to playing home games at Wembley. The financial year after that, we’ll be into the new stadium.

These are exciting times for Spurs: it feels like things are falling into place. We’ve got the right manager, the best core of players in years, and a boardroom focused — almost to the point of obsession — with delivering a world-class stadium. It’s going to be fascinating to see how we manage to screw this up.

OFF THE PITCH

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Stadium developments

Arguably the most important disclosure in the annual report concerned the stadium: the borrowing has officially started.

The first £200m portion of the bank finance Spurs have sought is in place, £100m of which was drawn as of June 2016. Interestingly, this facility was entered into on December 10 — six days before Spurs secured planning permission for the new stadium from Haringey council.

This is the “bridge” portion of the £350m loan Spurs will seek to cover a chunk of the construction costs. There has been public posturing over the finance of the project amid negotiations on public sector contributions and infrastructure delivery, but the annual report shows that financing is moving forward broadly as the club said it would in the planning process.

This £200m facility cost £855,000 in arrangement fees, but we don’t yet know the annual finance cost. The first £100m is repayable in December 2017 — or to put it another way, in December this year it will be refinanced into a bigger and longer-term facility. It may be that Spurs are able to borrow more than the planned £350m, given the increasing revenue and rising construction costs.

Overall, spending on the project has increased from £59m to £115.3m, per the club.

Meanwhile, two other unusual items, a long way down the accounts, caught my eye.

The first was a payment of exactly £10m, received from “a company, which is not a related party, as a contribution towards future construction expenses related to the Northumberland Development Project.”

Who is this money from? Public sector contributions have been a matter of contention, and do not extend to the stadium itself — certainly no agreement was reached before June 2016. If it were Tavistock Group — Uncle Joe — injecting money, it would be listed as a related party contribution.

The second, found in the non-current liabilities section, was a disclosure of £45m, again an exact amount, in “accruals and deferred income”. In 2015, the club recorded £0 in the same category, likewise in 2013 and 2014.

Screenshot 2017-04-02 at 8.22.51 AM

Deferred income is income received for services that will take place beyond the period covered in the balance sheet. Season ticket income and payments received for commercial deals that stretch beyond the reporting period are listed in the current liabilities section.

While it has been reported that Spurs have agreed a deal with Nike as the next kit supplier, this has yet to be officially announced, and certainly wasn’t announced during the previous accounting period.

So what is it?

While no major new sponsorship deals were announced during the period, there was one major new commercial partnership: the 10-year, 20-game NFL deal. If there was a payment, it would be reported in these accounts — with stadium completion date yet to be confirmed, it would be deferred income.

No financial terms were announced, but it seems likely that Spurs would seek money “up front” from the NFL to at the very least cover the additional costs of installing NFL facilities within the stadium. Likewise, expect Spurs to see at least a portion of naming rights income up front to help with cash flow when a deal is agreed, and advance ticket sales income.

A concern has grown among some Spurs fans that the NFL may be “using” Spurs, in the same way the organisation brazenly exploits local taxpayers in the USA. But, in reality, trying to gauge the additional costs incurred by the NFL elements is hard.

Once the project stalled amid the legal dispute with Archway, the stadium design was always going to be tweaked so that Spurs could get as much into the site as possible. To make it a true NFL stadium, additional work had to be carried out to basement areas, plus there was the need to reconfigure the interior to allow for enlarged locker rooms and media facilities. The sliding pitch sums up how tricky it is to put a value on the NFL additions: it is a new and expensive piece of technology that, while useful to Spurs when hosting concerts and other sporting events, feels like an extravagance too far if there were no NFL contribution.

So can we now put a price on this partnership? A one-off £10m payment, plus a 10-year, £45m hosting arrangement that has been paid up front. In total, a £55m ($69m) contribution to the £800m or so total cost.

It certainly sounds reasonable, and realistic. For the NFL, it gives them the stadium they desire in London for future growth plans. For Spurs it is money that can be used to turn the stadium into the world-class venue the club has always hankered to build.

I can’t confirm this — any journalists looking for a story could do worse than run this up the flagpole — but it certainly seems possible. Certainly, there have been suggestions that the NFL is putting money into the stadium — including recently by MMQB journalist Albert Breer.

I welcome any other suggestions on where this £10m construction cost and £45m in deferred income may have come from. But my hunch says NFL.

Other business

Away from the stadium, Spurs are continuing to invest in the training centre with construction of a new player accommodation facility. The £16m loan facility for the training centre was expanded to £25m, at a cost of £265,000.

Spurs being Spurs, there is a commercial element to this. In addition to providing accommodation for the first team and youth teams, and players visiting for medicals ahead of signing, the facility will also be used by other teams. An agreement is in place with England to use it before games at Wembley — all those times England train at Hotspur Way isn’t an ad hoc arrangement — while it is also available to European sides ahead of midweek matches against other London sides. Both Barcelona and AC Milan even provided letters of support in the planning process.

The planning agreement makes clear this isn’t a hotel, but no doubt visiting teams and England will pay handsomely for the privilege. Speculation that NFL teams may use the facility is wide of the mark — at 45-rooms, it is simply too small.

There are a couple of other lines of note.

The first is exceptional items of £9.6m in “commercial and employment contract costs”. In the previous year, £6.5m was reported in “redundancy costs and onerous employment contracts”.

My assumption was that at least a part of last year’s exceptional items referred to Emmanuel Adebayor, who at some stage stopped being a footballer. More likely any payoff was included in this set of accounts. But as for commercial costs, it is hard to understand what that may be. £9.6m out of £209.8m total revenue is not an inconsiderable sum, and I’d welcome any suggestions. If there is an inference from the new description, I’m missing it.

Second is £500,000 paid by Spurs to Melix Financial Services, another Tavistock Group company, for “commercial advice on global sponsorship opportunities”. Melix, like much of Tavistock (the investment umbrella for Joe Lewis of which Spurs is just one part), is Bahamas registered — but beyond that, there is no public profile. If you Google the name, you’ll get a few links to a late 2000s Romanian property scandal, and that’s about it.

There may be a perfectly reasonable explanation, but it beats me. Answers on a postcard – preferably with a nice picture of the Bahamas on it.

Thanks for reading. Please follow me on Twitter for more Spurs chat. Comments welcome, either below or to spursreport at gmx.co.uk.

Can Spurs afford to finish 5th?

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With 13 games to go in the 2016/17 Premier League season, just four points separate second place and sixth.

Only Chelsea have managed to pull away from this almighty scrap: eight points clear and with no European distractions, John Terry can surely start dusting off his full kit and boots in preparation for the trophy celebration.

Two of Spurs, Arsenal, Liverpool and the Manchester clubs are going to miss out on Champions League football next season — who it will be, however, is anyone’s guess.

An air of manufactured perma-crisis has haunted the top of the table, with one manager continually forced to be “the one under pressure”. Jurgen Klopp felt the heat in January, but in February the spotlight appears to have shifted to North London and Arsene Wenger.

After a dip of form since the hammering of West Brom on January 14, and the ongoing inability of his Spurs team to perform well in Europe even against modest opposition, Mauricio Pochettino has also experienced a frustrating month. But averaging two points a game over 25 matches and into the quarterfinals of the FA Cup, this hasn’t been a campaign where the bad moments have lasted long.

Thanks to the excellent work of Pochettino, Spurs are defying Premier League gravity in terms of the resources they can bring to bear. But in a long, attritional campaign where no team is showing signs of relenting, this may be a season where depth is more important than ever. When Man City lose Gabriel Jesus, they have Sergio Aguero and Kelechi Iheanacho able to come in; when Spurs lose Harry Kane, it’s either an out-of-position Son Heung-min or Vincent Janssen, who has yet to score for the club from open play.

Combining a club’s wage bill and annualized transfer costs (amortisation, FY 2015) gives an idea of the “real football spend” at the top six clubs, and how hard it is for Spurs to compete:

Man Utd — £302.3m
Chelsea — £285m
Man City — £264m
Arsenal — £244.1m
Liverpool — £227m
Tottenham — £139.4m

Spurs, quite simply, are in a different league to the other five in terms of the amount invested in football. While disappointing, it therefore shouldn’t be a surprise if Spurs were one of the the two teams that eventually slipped down into the Europa League spots. This isn’t trying to create an excuse for failure, but rather establishing context: when Pochettino talks about the limitations he faces, it’s all true.

Leicester have shown money doesn’t always equal success, but most of the time it does. Per analysis by Michael Caley, 80 percent of top four places from 2000/01 to 2014/15 were secured by teams with the top four wage bills at the time.

With a £750m stadium project to finance, can Spurs afford to miss out on UEFA’s Champions League millions at this crucial juncture in the club’s history?

With Premier League TV income soaring to unimaginable levels and Europa League income increasing, Champions League football is no longer quite the silver bullet that it once was.

Last season, Spurs earned £95.2m from the Premier League TV deal, while the club’s share of UEFA’s revenue distribution — the governing body’s mechanism for dishing out TV money — was £17.7m. In 2014, Spurs took in £88.8m of PL money, and just £5.5m in UEFA revenue — that’s a jump of £12.2m year-on-year under the BT Sport deal.

This season, Spurs should bring in around £140m from the new Premier League TV deal, while UEFA revenues will be approximately £36m. The exact numbers will be known at the end of the season — the UEFA number is based on what Manchester United earned last season, after crashing out of the Champions League in the group stage, and then making an early exit from the Europa League knockout stages. Spurs are on course for a similar performance — but the 3rd place Premier League finish in the prior season may mean a little more.

As a percentage of club revenue, here’s how UEFA revenue distribution income has varied in recent seasons:

spurs-uefa-rev

(Note: Currency conversion throughout this piece is at current rates)

As you can see, Champions League remains a huge financial incentive. However, while in previous season the Europa League has been an irritation with marginal financial benefit, under the current deal, participation is much more lucrative.

By way of contrast, when Spurs were forced out of the 2012/13 Champions League by Chelsea, this was a crushing blow. Spurs took in just £4.6m in UEFA revenue in the following season, while Chelsea scooped £26m for finishing 3rd in their group (and another £9m for going on and winning the Europa League).

Of course, UEFA revenue distribution is just one part of the picture. Matchday income is much higher for Champions League than Europa League — Spurs sold out Wembley for the three home Champions League ties, while Europa League matches are less of a crowd draw — plus there is the potential commercial uplift that comes with appearing in the more prestigious of the European competitions.

As regards the new stadium, this project is not contingent on Champions League football — in fact, the aim of the new stadium is to enable Spurs to put out a sufficiently strong team to qualify for the competition on a regular basis.

In the Viability Report for the project, “better than estimated on-field performance” is listed among potential factors that may increase return on investment in the scheme — alongside reduced construction costs, player costs dipping below 45 percent of revenues and the club securing an NFL franchise (eyes passim).

Spurs have been prudently run for years, and budgets are based on the expectation of Europa League football, not the hope of Champions League football. This refusal to gamble frustrates some segments of the fanbase, and pleases others — but as long as Daniel Levy is controlling the purse strings, this approach won’t change. There’s no gamble being made about Spurs being able to overachieve on the pitch through the stadium construction phase — two seasons of CL football in a row would be a tremendous bonus.

But this doesn’t mean there isn’t a price to be paid were Spurs to miss out on Champions League football next season.

For fans, it will mean missing out on Europe’s elite competition yet again. This year’s campaign never caught alight, starting with an extremely boring draw that meant no “big” team coming to Wembley in the group stages. Gareth Bale’s heroics against Inter Milan were six and a half years ago — even the most patient of fans need fresh inspiration to feed the soul.

For the players, the Europa League represents a step back. Pochettino has nurtured a hungry group with a solid core of Champions League calibre players. With so many key players signing new deals and a palpable sense of excitement at the club as the new stadium takes shape, there’s little danger of losing players this summer. But footballers who make the top level are by nature ambitious, and Champions League is the benchmark.

However, for both fans and players, there are other ways to square this circle — the FA Cup would give fans a moment to savour, and demonstrate to the players that it’s possible to win trophies at Spurs. Judging by the performance at Fulham, the team is focused on the competition, and lifting the trophy in May would represent an important yardstick for this group.

That’s not to say the FA Cup is a panacea — for the team, there’s still a development cost to missing out on the Champions League. In three years under Pochettino, Spurs have been consistently poor in Europe. It’s hard to put a finger on why: Squad limitations? Focus on the Premier League? Tactical issues? The only way Spurs are going to get better is by playing quality European opposition on a regular basis, and figuring it out. It took Manchester City several seasons to find their way in the Champions League after the club struck oil, but they reached the semifinals last season and it’s not impossible to see them going a step further this time.

Then there’s the cost of one of the other teams sneaking into the Champions League at Spurs’ expense. At every other club, a far greater sense of crisis will be felt if they miss out — another season of failure at, say, Manchester United, has the potential to have repercussions that could open doors to Spurs in years to come. Maybe that’s getting a bit tangential, but to put it another way, it sure is enjoyable making Jose Mourinho squirm.

Hopefully, this is all moot: Tottenham’s run since the West Brom win is simply just a dip in form, an inevitability in a long old slog of a campaign, and the team starts purring like the fine-tuned machine we’ve resembled at times this season. The performance at Craven Cottage suggests as much.

However, if Spurs do end up missing out on Champions League football next season, it’ll be disappointing, but not disastrous.

Thanks for reading. Please follow me on Twitter for more Spurs chat.

What is behind the great Premier League switch-off?

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Last Sunday, for the first time in as long as I can remember, I didn’t watch any football.

I wasn’t busy, it wasn’t an international break, and there wasn’t another major sporting event that I wanted to watch between 2pm and 6pm. Instead, I looked at the two Premier League games that were being shown by Sky Sports — Middlesbrough vs Watford, followed by Southampton vs Burnley — and thought: “Nah, I’ll pass.”

The uninspiring choice of Sunday games came at an awkward moment for Sky, following a report by the Daily Mail’s Charlie Sale that viewing figures were down 19 percent year-on-year. The broadcaster will have pinned hopes on Monday’s game between Liverpool and Manchester United, the clubs with the two biggest fanbases, to quell talk that the Premier League bubble is starting to burst.

So, how real is the dip in Premier League audiences? And what are the factors that could be behind Sky’s audience dropping so dramatically?

First, it should be noted that the season is still young, and normally viewing figures increase as the evenings draw in, particularly in the Sunday 4pm and Saturday 5.30pm slots. But, as someone who tracks audience figures for Spurs matches out of personal interest, there are signs that the numbers tuning in are indeed low.

The most-watched Premier League game so far this season (excluding Liverpool v Man Utd, which isn’t publicly available yet), by BARB’s “average audience” measurement, was the Manchester derby on September 10. This drew 1.18 million in the lunchtime Saturday kick off. The equivalent game last season, a Sunday 2pm kick-off, drew 1.98 million. The reverse fixture in March, in the Sunday 4pm slot, drew 1.82 million.

After the Manchester derby, by my count, the second most-watched match was Spurs vs Manchester City on October 2, which averaged 1.06 million viewers in the Sunday 2pm slot. This just pipped Chelsea vs Liverpool, a Friday night offering that averaged 1.04m.

While 1.06m is more than respectable for Spurs v Man City, it is below the average for televised Spurs matches last season, which was 1.13 million. When Spurs travelled to Manchester City in February last season, that drew 1.78m in the prime Sunday 4pm slot.

One area in particular where Sky is apparently hurting is the Sunday 4pm slot, normally the prime selection of the week. The last four matches — Swansea v Chelsea, Spurs v Sunderland, West Ham v Bournemouth and Burnley v Arsenal — all failed to crack the 1 million mark. In the equivalent fixture block last season, these matches averaged over 1 million.

(BARB’s average audience measure isn’t perfect, and the broadcasters prefer to refer to the “peak” audience figure. However, the average audience is the only one that is made public, and it serves a purpose of enabling comparisons. More explanation in my previous piece on the subject.)

So, what could be behind it?

There have been some interesting explanations raised, from the tedious football being played by some of the Premier League’s lesser lights, to piracy, cost of subscriptions and crap coverage.

These explanations are all, no doubt, true to an extent.

I watched Burnley v Watford a few weeks ago, or rather started watching it and switched off and watched a couple of old episodes of Elementary for the third time instead. The standard was abysmal, but not entertainingly so, and anything was better than watching that.

Piracy continues to advance in terms of quality and accessibility, through streaming services like Kodi and other new technology. I subscribe to both Sky Sports and BT Sport, but last Saturday at 3pm I was forced to find a stream to watch Spurs. I have zero sympathy with the Premier League (and yes, there are a number of parties that would need to agree to a change) on this score. In 2016, there is simply no justification for viewers in the UK not getting the same choice as fans everywhere else in the world. It borders on cruelty and has created a market for piracy.

When the pirated offering is better — or at least, more comprehensive — than the paid offering, it’s going to mean less people pay. How you measure this, however, I don’t know — Sky’s revenues continue to climb, but subscriber growth is growing, per the last quarterly report.

Cost is undoubtedly a factor too, especially given broader economic trends that have seen a divergence in incomes both geographically and generationally. Football on TV is incredibly expensive now. A full subscription to BT and Sky will cost over £1,000 for a household, and this doesn’t even get you 2/3 of the matches. It doesn’t feel like great value now.

I’d add here, an argument gets made that we are experiencing “overkill” due to too much football on UK TV — personally I think it is the opposite, with too many fan bases getting too small a selection of games, meaning limited incentive to subscribe. Leicester, for example, were only shown eight times in total in the season before their miraculous title-winning campaign — hardly a huge incentive to subscribe to both Sky and BT. This season, with many more Premier League games and Champions League football, it is much better value for a Leicester City fan, and you can be sure that Leicester’s audiences have crept up somewhat as a result.

Rising prices, and advances in illegal streaming, may have led to a reduction among rated audiences. But it’s impossible to know how many, and it’s not like streaming sites have only sprung up this season. Also, while it seems like many, many people must be doing this if you judge by Twitter, it’s useful to remember that Twitter is a small sample and generally a terrible reflection of reality.

As for punditry, I’m not sure how much of a difference that makes. While Jamie Redknapp and Thierry Henry are dreadful, Sky still boast three of the best of the business in Gary Neville, Jamie Carragher and Graeme Souness. Sky’s coverage certainly hasn’t gotten worse compared to last year. But either way, it is fairly inconsequential — most fans tune in for the game, not the talking.

However, there are also some other explanations for Sky’s poor ratings that are worth a mention.

First, swapping their Saturday slot with BT was always going to be bad for Sky’s audience figures.

The Saturday 12.30pm kick-off routinely draws a low audience, as people have, well, life to be getting on with at that time of a weekend, whereas by 5.30pm you are far more likely to be ready to put your feet up and watch a game. The Saturday 12.30pm kick-off, however, is excellent for fans in Asia, so the Premier League will still want its big guns in that slot even if it doesn’t suit Sky.

Second, the Premier League is missing some “big” clubs this season, and this is harming ratings.

When Aston Villa played Newcastle last month, an average of more than 500,000 tuned in — that is the first time that I’ve seen a Championship match on BARB’s Top 30 weekly ranking.

The 2016/17 Premier League must feature the smallest number of “big” clubs of any edition to date.

That’s not to say the likes of Bournemouth, Swansea and Watford don’t deserve to be there, while Leeds, Villa and Newcastle should automatically be in the top flight in some Charlie Stillitano-inspired ratings stitch-up. But when you have big fanbases out of the top flight and not engaged with the Premier League, this may have an impact on TV ratings.

There are a couple of ways to quantify this idea.

Of the Top 30 club stadiums in England, just 13 are hosting Premier League football this season. Huge stadiums like Villa Park, St James’ Park, Elland Road and Hillsborough host Championship football. Stadium size is a historic measure of how big clubs once were, rather than still are, but it’s still a decent gauge. I watched Sheffield Wednesday’s Championship playoff semi-final last May at sold-out, 39,000-capacity Hillsborough. The atmosphere was extraordinary, and it sure as hell felt “big” as a TV viewer.

Further to this, there are demographic factors that may be having an impact on Sky’s ratings. While Greater London (9.8m) and Manchester (2.5m) are well represented, the West Midlands (2.4m) has only one club — and arguably its smallest in West Brom — in the top flight, while West Yorkshire (1.8 million) has none. Tyneside (774,000/7th largest in England, and that it excludes Sunderland), Nottingham (730,000/8th), Sheffield (685,000/9th) and Bristol (617,000/10th) are all major urban areas without a Premier League club.

To make a comparison, this would be like a US major league such as the NFL not having teams in Miami, Houston, Washington, Atlanta and Boston. Ratings would surely suffer.

It doesn’t mean no-one is watching Premier League football in these urban areas, but given the local nature of the majority of football support in England, this may have an impact on how many are tuning in. With all due respect to Burnley (149,000/54th) and Swansea (300,000/27th), they can’t drive the audience numbers in the same way.

(Obviously, football in Yorkshire has been struggling for a long while with Leeds and the Sheffield clubs a long way from the Premier League, but the loss of Newcastle and Aston Villa is sure to have an impact this season.)

More subjectively, how we view teams changes very slowly. I still see Leeds and Sheffield Wednesday as “big” clubs in a way that Swansea or Watford will never be, or at least not be for a long time.

To me, Newcastle, Villa, Leeds, Wednesday, Forest and Wolves still rank ahead of Watford, Burnley, Stoke, Swansea, Hull, West Brom, Middlesbrough and Bournemouth, and I suspect I’m not alone in that. There are too many games that just lack that “big match” aura — and when an early-season encounter between lower-ranked teams like Burnley vs Watford is so abysmal, it hardly encourages you to watch them again.

The final theory, that I’m still collating data for but want to throw out there, is that Manchester United’s audiences aren’t quite what they have been in previous years. Doing my weekly checks last season, the United average audience outside the derbies against City and Liverpool was often somewhat on the low side. Understandable, really, given the dross that was played by Louis van Gaal’s team.

Liverpool still carry massive audiences as a legacy of their two decades of success, and United will continue to be a draw even as a similar dynastic decline sets in. I’m sure, in 20 years, articles will be written about whether Tottenham’s dominance is starting to wain and if broadcasters should start diversifying away to other rising teams.

But seriously, with all six of United’s opening slate of games selected for coverage (by Sky and BT), there is an argument to be made that broadcasters need to be a little more imaginative. Quite how Spurs v Leicester, the two title challengers last season, has escaped live broadcast on October 29 is truly baffling.

The Premier League’s decline comes at the same time as a sharp drop in NFL viewership, bringing the issue to greater relevance. However, trying to connect the two would be yet more conjecture, although US audiences for the Premier League are also down. Here’s a good read on the NFL issue. It should also be noted that this is only Sky’s ratings, we don’t know what is going on at BT Sport. BT Sport’s ratings for live football are routinely so low they fail to crack BARB’s weekly top 30 of non-terrestrial channels, so even though Sky’s ratings are down, at least they aren’t so low they can’t be tracked in this way.

In conclusion, in all likelihood a combination of factors are in play here. More commonly discussed factors such as cost and piracy, combined with poorly chosen matches, the absence of a number of big teams and the loss of the Saturday evening timeslot have combined to harm Sky’s ratings.

Has the bubble burst? It’s way too early to say, but I’ll be keeping an eye out, for sure.

It’s also been a very dry, warm September and October, so you never know, it may just be down to that, no matter how silly it sounds.

Thanks for reading. Please follow me on Twitter for more chat about Spurs and other things.

Naming rights and wrongs: Tottenham begin the search for stadium sponsorship deals

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Earlier this month, Spurs began the process of securing sponsorship for the new stadium. The deals struck in this phase will form a key pillar of the project’s funding strategy, and also come to define how fans see and discuss the team’s new home when it opens before the 2018/19 season.

Per reports, the club, or those acting on behalf of the club, will be approaching around 300 entities ranging from multinational corporations to government investment funds in the course of the tender.

The figures being talked about vary from report to report. While the Standard stated the club was seeking £400 million over an unspecified period, The Times reported that the club was scaling back its ambitions and was seeking £150 million for the core naming rights over ten years.

These wildly divergent figures can be confusing, and in this post I want to clarify where things currently stand. Spurs going to market has created plenty of chatter, and we can expect more stories in the weeks to come.

The key agreement will be for the naming rights to the stadium, and this will attract most of the headlines. But in addition, there are a myriad of other sponsorship possibilities available, ranging from ticket booths to corporate suites and fun elements of the project like the Sky Walk.

These will have, in the most part, been designed into the stadium by the club and the architects, Populous. This graphic by Adweek on the Levi’s Stadium in San Jose, home to the NFL’s 49ers, shows how it can be done.

Obviously, excessive commercialisation will appear tacky, but I think most fans can accept the need for at least some sponsorship. Ultimately, £675m-£750 million will have to be found from somewhere, and you can pick your poison — whether that be naming rights, public funds, selling players, high ticket prices, massive debt or ownership largesse.

The club has made clear, from the outset, that it will seek a naming rights sponsor. However, in its financial modelling for the project, this will have been one of the hardest aspects to gauge. Simply put, there are few comparable projects which means establishing a “market” value will be hard.

The Standard report referenced Manchester City’s £400m, 10-year deal with Etihad as the ambition for Spurs, but this is wildly optimistic. The Etihad deal was part of a concerted, and unsuccesful, effort to dodge Financial Fair Play regulations, and did not in any way reflect the market value of the rights to the old City of Manchester stadium.

More relevant to Spurs is Arsenal’s deal with Emirates. Under a 2012 agreement, Arsenal received £150 million from the airline, which covered shirt sponsorship until 2018/19 and naming rights sponsorship until 2028. This was an increase of the initial Emirates deal from 2004, which earned Arsenal £90 million, split again between a shorter-term shirt agreement and longer-term naming rights deal. The Guardian estimated the naming rights in this agreement at just £2.4 million per year.

If Manchester City’s deal is inflated, Arsenal’s is widely seen as undervalued. I’d add, we’ve gone through a spike in shirt sponsorship in recent years which makes the Emirates deal look poor for Arsenal, but it probably wasn’t so bad when it was signed.

After Arsenal and Manchester City, there are few comparisons in the UK. A sponsorship agreement has not yet been reached for the Olympic Stadium, while Chelsea are still mired in the planning process for their new stadium. Liverpool failed to secure a sponsor for the new stand at Anfield — but it was only a stand, not the whole naming rights package.

Generally you have to look across the Atlantic for other potential comparisons. Here are the top 10 naming rights deals for US stadia. The data is from Forbes, and I’ve added the annual value.

naming-rights-us

As you can see, there is nothing that comes close to the £40m per year that Manchester City have from Etihad, while only two deals break the annual $20m mark.

But the comparison only goes so far. If you look at the sponsors, most are companies or brands with a local connection — eg U.S. Bank in Minnesota. This reflects the introspective nature of US sport — the NFL and MLB don’t have nearly the same global audience as the Premier League.

And while we’re on the subject of the NFL, Spurs are in unchartered territory by building the first combined Premier League/NFL stadium. Spurs will, I’m sure, leverage this in its negotiations and it will enable the club to pitch the stadium as a truly global offering. But what is it really worth? Spurs will be offering just two games a year initially and no clear connection to an NFL franchise, which may limit the extent to which Spurs can monetize this aspect.

Ultimately, there are few good comparisons for what Spurs are offering, meaning it is hard to estimate what a “fair” market price would be. There may be a company out there that sees the stadium as a perfect vehicle for its global ambitions, but there may not be. If not, Spurs will be forced to readjust. There are no guarantees, no matter what the marketing gurus — a ceaselessly optimistic species — claim.

The piece in The Times by Matt Hughes hinted that a degree of realism was starting to sink in, with the initial £25 million per year target being reduced to £15 million. No doubt, this would be somewhat disappointing to the club, but as I’ve said previously, this will have been a hard part of the funding strategy to model.

(For what it’s worth, I would expect Spurs to borrow against future naming rights income — this will enable more money to be piled into the project through the construction phase, at a cost of commercial revenues received later on. Likewise for “debentures” — long-term options for corporate seats and even ordinary season tickets, an approach also used by Arsenal when funding the Emirates. We’ll have to wait for future accounts to know if this has actually taken place or not, but it isn’t unreasonable to speculate here.)

In the Viability Report for the scheme, Spurs identified the amount of additional commercial income expected from the stadium as being approximately £30m.

“Key drivers of commercial revenue growth in the new stadium are expected to be stadium and cornerstone naming rights, and income in respect of increased merchandising and conference events, which together will give annual incremental income of approximately £30 million per year.”

Ultimately, Spurs will be looking to land a naming rights package that is greater than that achieved by Arsenal. A £15 million per year package would put Spurs in the right sort of territory, with a further £15 million per year to be raised from other sponsorship opportunities and an increase in stadium-related commercial activities in order to hit that £30 million target. It seems feasible to me.

While it may be disappointing not to smash through the £20 million mark, we’ve shown in recent days that we have other ways of setting records. Certainly, any potential sponsors watching on Wednesday night will have been left in no doubt about the potential Spurs have as a club and partner.

 

A couple of other points by way of post-script.

On Nike

Whenever the subject of naming rights comes up on my Twitter timeline, I get someone saying “Duh, it’s already agreed with Nike”. There was some ITK to that effect a while ago, and it has stuck. The news last week that the rights have just gone to tender prove that this ITK was wrong. If Spurs had a naming rights deal with Nike, it wouldn’t be going to tender.

My guess is that chatter about kit supplier negotiations got confused with naming rights negotiations. Or someone just made it up.

Of course, it may end up being Nike — I’m sure they are being asked — but it would be a surprising move by the company, as it has shown little interest in being a stadium naming rights partner. It focuses on athletes and teams, not buildings. There is a Nike stadium in England already though — the John Nike athletics stadium in Bracknell.

From what I’ve read, Nike will be the next Spurs kit supplier, replacing Under Armour. But the fact that Nike immediately went out and offered Chelsea more than double what they’d just agreed to pay Spurs hardly suggests the start of a close and wide-ranging partnership. I just hope Spurs put a break clause in it and play this market far more aggressively in future. There’s no value in loyalty, and if you’re excited by what Nike will do for Spurs kit design, just look at the England shirts. Eesh.

On Qatar

Both The Times and the Standard reported that Qatar Sports Investments, the owners of PSG and a subsidiary of the Qatar Investment Authority, the emirate’s sovereign wealth fund, were amongst the many hundred entities being approached over sponsorship. Per The Times, these talks have “intensified” amid reports Qatar Airways may not renew its relationship with Barcelona.

This caused some disquiet among Spurs fans, to put it mildly. On my timeline, I had people complain about human rights, labour practices and Qatar’s support for terrorist organisations. Charmingly, one person countered by accusing those making reasonable criticisms of “100% zionism”. A taste of what is in store, no doubt.

As The Times pointed out in a very reasonable way (and shoddy, theft-based sites such as 101greatgoals and HITC highlighted in distasteful, garbage-click-inducing ways), there is also the question of the club’s Jewish heritage.

I won’t go into all the arguments here. If you want to read more about this subject, I’d highly recommend A People’s History of Tottenham Hotspur by Martin Cloake and Alan Fisher. It offers a detailed and nuanced explanation of the club’s Jewish roots and current image as “the Jewish club”.

But three points:

First, chants of “Yid Army” in the “Qatar Airways Stadium” would appear problematic, for a variety of reasons. The club and QSI will be aware of this.

Second, Spurs will absolutely want Qatar in the conversation when negotiating with other entities as it will drive up the price. Qatar basically has a blank cheque at the moment as it prepares for the 2022 World Cup, and that’s useful to Spurs right now.

Third, I was curious about fan views on this, and did a quick Twitter poll before publishing this piece. The final result was as follows:

So out of nearly 600 votes, not a disastrous sample size, a third said they were unhappy with a Qatar Airways deal, while two thirds were either fine with it or not bothered either way. This surprised me slightly as I thought most would be against it. There were certainly some very strong opinions against Qatar, but these views weren’t the majority.

My personal view is that I’m not wild about Qatar Airways being the sponsor, and would rather someone else. But I’m also a deeply cynical person and I know that my irrational love for all things Spurs will ultimately trump my dislike for Qatar. A bit like before the Olympics when I swore I’d not watch following the IOC’s cowardly surrender to Russia over doping, and then watched every moment as Team GB’s gold rush hit full speed. I’m terrible, I know.

Who’s it gonna be?

I often get asked who I think the stadium sponsor will be. I normally reply “I have no idea”, as I don’t have any particular knowledge. But it’s a fun guessing game, so let’s play it.

I think Qatar Airways is a strong possibility, as they’ve got loads of money and surely want to keep up with their competitor Middle Eastern airlines in the global branding race.

Also high on the list will be companies in the financial services sector. Just like Nike prefer athletes and teams, banks and insurers like sponsoring solid, long-term things like stadiums. It just kinda fits the image.

You can bet that Barclays, previously the name sponsor for the Premier League and with a marketing budget that needs spending, will be getting a call. Barclays sponsors the new NBA arena in Brooklyn, and may have an interest in the NFL aspect as it seeks to develop its brand in the US.

I’m sure almost every major global insurance company will be approached too. Two major recent deals in the US — the MetLife Stadium and SunTrust Stadium — have been with insurers. Current shirt sponsors AIA may have an interest.

(German insurer Allianz had attempted to sponsor the new NFL stadium in New York several years ago, but ran into trouble with the local Jewish community due to its war-time connections with the Nazi regime. MetLife swooped in at a lower price after Allianz withdrew.)

The one other possibility that has sprung to mind is EE. The mobile network is owned by the BT Group, which is pushing aggressively into the sporting rights market and sees synergies everywhere. BT is sitting on a gold mine as it owns most of the UK’s broadband infrastructure, and has so far avoided being broken up by regulators. EE has shown interest in this sort of deal through its agreement with Wembley.

I’m throwing out names — 300 entities are being approached, so it may take some time. Ultimately, it’ll be who it’ll be.

Some of us will be OK with it, others will hate it; most of us will get used to it, others will want to keep on calling it White Hart Lane. We’re fans, we get to be like that.

For the club, the most important thing is building a new stadium, and the naming rights is a key part of ensuring that the money is in place to do that. “How much” will trump “who”, within reason.

Thanks for reading. Please follow me on Twitter for more Spurs chat.

The balancing act: Can Spurs find a way to remain competitive through the stadium construction phase?

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If it didn’t already feel real, the sight of the new stadium starting to rise up from the ground illustrates that a new era is finally dawning on Spurs. The next five years promise to be one of the most exciting, and most risky, periods in the club’s history.

Spurs are borrowing at least £350 million from banks, plus securitising future commercial and matchday revenues, in order to fund the stadium project and associated development.

The debt load will surpass what Arsenal took on to build the Emirates a decade ago, and will only be topped by Manchester United, who last year paid around £35 million in financing and £15 million in dividend payments for the privilege of being owned by the Glazer family.

Having spent a decade wading through the planning process and acquiring the land, now the club has the challenge of delivering a 61,000-seater stadium in a densely populated part of London on a tight timeframe, and to budget.

Things appear to be on track at this early stage, but an extraordinarily challenging few years await. The reward is clear though — New White Hart Lane promises to be a world-class stadium, and a true sporting cathedral that is everything the dreary Olympic Stadium will never be.

I have previously written about the stadium financing issue in great detail. In this post, I am going to take a look at the broader state of the club’s finances, and the challenges that lie ahead through the stadium construction phase.

Moving away from pragmatic player trading

A look through the recent financial history of Spurs reveals a number of distinct eras, layered on top of each other like sedimentary rock.

From 2001 to 2007, you have the “Early ENIC” years, in which Daniel Levy inherited the mess from Alan Sugar and piled on more mess as he tried to get to grips with the intricacies of Premier League chairmanship.

From around 2007, the “Wheeler Dealer” era truly began. This was a period of frenzied transfer activity that gradually pushed Spurs from mid-table to the fringes of Champions League contention, but without any sense of stability or sustainability beyond the confidence that more bargains would be found, and more mega fees extracted. This era came to a shuddering halt with the failure of the Bale money splurge, and the realisation that Spurs were never going to be able to compete with the moneybags elite when needing to sell as well as buy.

Since 2014, a new era has emerged, with a more prudent approach to player trading and a greater focus on cost controls. How much this is connected to the stadium funding, or the arrival of Mauricio Pochettino, is unclear. Certainly, you suspect Andre Villas-Boas was supposed to be ambitious young manager to lead Spurs through the tricky stadium construction phase, but there was a problem with a beanie hat and not everything works out.

Pochettino has made a virtue out of having a young, hungry and therefore relatively cheap squad, and the narrow band into which most of the player salaries reportedly fall is seen as a contributing factor to squad unity. Likewise, the club has had the incentive to ensure its accounts are glistening as it struck agreements on financing — a little money saved now could mean a lower rate of interest on the £350 million stadium loan.

Tottenham has been a consistently profitable club in the past decade, but has been reliant on player trading (profit on disposal of intangible assets, as it is known) to achieve this, as the following chart shows:

ProfitandTrading

In the past decade, the club is £152 million in profit. However, in that time, accounting profit on player trading is £295 million — without player trading, the club would have theoretically lost £143 million. Of course it’s not nearly that simple, but it illustrates the degree that Spurs have needed to sell in order to buy.

When Levy referred to “pragmatic player trading” in the club’s rather panicky statement to reassure disgruntled fans in September 2015, it didn’t sound right to me due to the suggestion of a continuation of the “buy low, sell high” era that had already started to pass. “Prudent player trading” would have been a better phrase — no need to sell players the manager wants to keep, but limits on what can be spent and a more cautious approach to acquisitions.

What the stadium financing phase needs is as great a degree of stability as is possible in the anarchic environment of Premier League football. Player trading is the biggest uncertainty of them all in football’s financial landscape. Now that Pochettino has cleared out the flotsam inherited from the Franco Baldini era, fans can expect the “churn” to reduce in transfer windows to come.

Cost controls in action

If you read any analysis of THFC finances from recent years, you’ll see some variant on the following phrase: “Daniel Levy runs a tight ship”.

There are many stories of these cost controls in action — my personal favourite was Mido being told to run across the tarmac to ensure he got a seat with extra legroom on a budget airline flight to London after being bought from Roma.

For a couple of months a year, this gets frustrating. The club’s approach to transfers is akin to dental surgery — deals are done painfully and slowly. Contract negotiations seem to drag on endlessly, key targets are missed, players leaving the club are left in limbo while the market is scoured for someone desperate enough to pay the premium.

Part of this, undoubtedly, is personality driven, and there appears a genuine relish in tough negotiations and brinkmanship. But part of this is necessity — with matchday revenues at their limit, and the club unable for various reasons to match the commercial growth of the richer clubs, it has become increasingly important to find value in the transfer market and control player costs with the stadium financing ahead.

I want to illustrate “where the money goes” at Spurs, and demonstrate what these cost controls actually look like.
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I’ve gathered data from the past 10 years for revenue and the two major outgoings, namely wages and transfer spend.

(For transfer spend I will use the figure for amortisation. Amortisation is an accounting method whereby the cost of buying players is spread over the lengths of their contracts. There’s an explanation at the bottom of this piece, but essentially amortisation is an annual figure that shows how much the club is actually spending on transfers. The advantage of this is that, while most transfer fees are undisclosed, the amortisation figure is listed in the accounts.)

Here is a chart:

RevWageandAmort

This gives you a picture of how revenue and wages are rising, but transfer spending has actually been quite flat.

However, if you combine wages and amortisation, something interesting happens:

RevWplusA

As you can see, wages plus amortisation tracks revenue remarkably closely from 2007-2014, to the point that it is almost a mirror. It is only in 2010 (financial year) when the gap becomes close. You can see the balance-sheet management in play to ensure spending remained at the desired level.

Why am I so confidently proclaiming a new financial era? Look at 2014. For the first time, revenue starts to diverge, and there is every indication that the divergence will grow starker over the next two financial years.

In the next accounts, the following senior players will come off the books, or be added:

OUT: Paulinho, Holtby, Capoue, Kaboul, Stambouli, Chirches, Soldado, Lennon, Adebayor.

IN: Wimmer, Trippier, N’Jie, Alderweireld, Son,

While there have also been a number of new contracts, and there are hints some of Adebayor’s contract pay-off may have been factored into the 2015 accounts, in all likelihood the wage bill is going to be level or even lower in the 2016 accounts. Meanwhile, the strong league performance means TV money will increase. In the 2017 accounts, we’ll have both the new Premier League TV deal kicking in, and Champions League revenue, to counterbalance a series of new contracts and the signings made in the past window.

My prediction is that revenue and first-team spending will continue to diverge in the next two years. This puts Spurs in opposition to most other Premier League clubs, which are frantically offloading the new TV money on transfer fees and wages as fast as it is pouring in.

As it stands, here are the combined wages and amortisation for the four clubs arguably “closest” to Spurs financially (United are on a different planet, and Chelsea and City are billionaire playthings, so a comparison isn’t worthwhile):

Arsenal — £244.1m
Liverpool — £227m
Tottenham — £139.4m
Everton — £97m
West Ham — £94.3m

In previous years, Spurs have been all alone in “sixth” place in spending on wages (among several other indicators of club “size”) — we will start to see other clubs narrowing the gap. Some may interpret this as a lack of ambition, but ultimately Spurs have a £750 million stadium scheme to fund, which seems pretty ambitious to me.

The growing gap between revenue and first-team spending means more funds that can be rolled into the stadium project. Spurs appear to be positioning themselves to absorb the spike in financing costs that is to come.

In short, since 2014 Spurs have been shifting to a more sustainable model that relies less on big transfer fees to balance the books. The emergence of home-grown stars like Harry Kane, smart acquisitions like Dele Alli and Eric Dier, and the strong management of Mauricio Pochettino have turbocharged this shift. Sometimes you need a bit of luck.

Learning from Arsenal

Over the next five years, the period of peak financing, Spurs need to strike a balance between funding stadium construction, and remaining competitive on the pitch.

Over the next two seasons in particular, the financial benefits Spurs can accrue from being competitive (Champions League money, greater share of British TV money, improved receipts from Wembley), relative to the amount of money that can be saved, justify continued investment in the playing squad. A competitive and appealing Spurs team will greatly help the club sell the increased number of tickets and long-term hospitality packages that is the rationale underpinning the whole project.

Levy has repeatedly stated that there is no need to sell players to fund the stadium, including at the last board-to-board meeting with the Tottenham Hotspur Supporters’ Trust. This isn’t just a statement of confidence in the funding package for the stadium, but also recognition of the need to ensure Spurs field a strong team on opening day of the 2018/19 season.

However, there is a difference between not needing to sell players, and having limits on what can be spent to secure new ones. The extent to which Spurs can compete for new players over the next five years will depend on how much Spurs will have to spend to finance construction. Spurs will be taking on huge debt — at least £350 million — but the key will be controlling the amount that is spent each year on interest payments and repayment of principal.

(Why do I keep saying five years? As previously reported, the £350 million loan will be a five-year loan, which will then be refinanced — per the Viability Report for the project submitted during the planning process. Until I hear otherwise, I will assume the basic funding plan is the same.)

As the only other club to have built and financed a comparable project, the best example for what lies ahead is Arsenal. I don’t want to go into too much detail as the comparison isn’t perfect, but there are a few points worth making.

Arsenal, notoriously, felt the squeeze during construction, creating a need for parsimony that some fans argue Arsene Wenger has never really shaken off. Spurs have the great advantage of learning from Arsenal’s experience. From my understanding of what I have read, Arsenal ploughed ahead without all the required funding in place, which made it more expensive and at one stage forced construction to stop. Spurs can’t afford such a delay given the tight time schedule imposed by the need to play away from White Hart Lane.

I’ve attempted to gather data for the finance costs paid out by Arsenal, to demonstrate, not so much the amounts, as the “profile” — how finance costs will peak and then reduce and flatten to a tidy annual sum. This is extremely hard — Arsenal have refinanced their debt load on several occasions, making it hard to track. The chart below gives the club’s stated figures for interest charges in the period, and debt payments due in the coming year (repayment of principal).

Arsenal raised debt for both the Ashburton Grove stadium project, and the redevelopment of Highbury — likewise, Spurs will be funding property development (on the “southern development land” on the stadium site and at 500 White Hart Lane) as well as stadium construction. I can’t be sure all the debt payments relate to stadium/property development, so take the figures with a pinch of salt. But, it is a consistent measure.

Arsenal Emirates Financing

The 2007 figure isn’t right, as I can’t find the “repayment of principal” number due to refinancing, frustratingly. But for the first four years, you can see how total financing costs were between £35m and £45m — quite a burden. From 2008, things levelled out, and Arsenal continues to spend around £19m a year on its Emirates “mortgage”.

Spurs can expect a similar profile to this. For five years, repayments and interest will be high, but then the bank loan will be refinanced into a long-term debt package at a lower rate of interest. Arsenal’s debt is split about 80-20 between fixed-rate and floating-rate bonds, at 5.8 percent and 6.6 percent interest respectively. More than any aspect of this whole project, I expect Daniel Levy to get the best possible terms on this sort of financial jiggery-pokery — he has years of experience.

We won’t know how much Spurs are spending on financing costs (I could ask, but I will get a polite note stating the commercial sensitivity of the topic, I guarantee) until the accounts covering the financing period are published — we’ll have to wait for the 2016 accounts, published in April/May of 2017. Any attempt to put a figure on it on my part would be conjecture. But it will be substantial.

One final point of comparison with Arsenal is the shift in the broader financial environment of a Premier League football club in the past decade. Here are the comparative revenues of Arsenal at the peak of Emirates financing, and Spurs last year:

ArsSpurRev

As you can see, Tottenham’s revenue is nearly £60 million higher, due to more commercial income and TV money (and that number will spike in future accounts with the new TV deal).

On the one hand, Spurs are taking on a bigger finance package — £350m versus £260m. On the other hand, Spurs are doing it from a stronger financial position — £196m revenue versus £137m.

The ability of Spurs to control financing costs and maximise revenues during the construction phase will ultimately determine the amount that is ringfenced to be spent on transfers and wages.

Capital expenditure

What shouldn’t be forgotten amid the talk of the massive new financial burden is that, for years now, Spurs have been investing heavily in both the stadium project and the training centre.

In the meeting with the THST in May this year, Daniel Levy stated that £150 million had been invested in the stadium project to date. Per the last accounts, the “cumulative” spend on the stadium (professional fees and “enabling works”) was stated to be £59 million, up from £40.9 million in the previous year. On top of that £59 million are property acquisitions, professional fees/other costs for the previous design that will have been written off, and construction costs in the six-week period between when Spurs gained the final green light and the board-to-board meeting.

As for the training centre, upon opening, it was capitalised at £27.5 million — in line with the £30 million price tag that is generally put about for the wonderful facility.

This £177.5 million capital expenditure has taken place over the past nine financial years (prior to 07/08 there was none). The average spend is about £20m per year, although of course it is far from a straight line. This investment has been funded by a combination of equity contributions, bank loans and club profits.

As an aside, I was curious to see how much money has been put in by ENIC to fund this sort of expenditure in the past decade, and how much has come from loans/profits.

This stuff gets hard to track as the club accounts are pretty complex. But from what I can make of it, in 2014 there was a £40m injection, while in 2010 there was a £15m injection plus a further £18.4m “investment in group companies”. This refers to the many subsidiaries that are mostly focused on property, so it would be reasonable to suggest this was for property purchases.

From my chats with people who know about this stuff (OK, that’ll be @ztranche), this equity contribution has been in the form of loans converted into preference shares.

The combined equity contribution is £73.4m, meaning the rest — £104 million or so — has been funded by loans and from profits. This is equity contribution is fairly modest, given the size of Joe Lewis’s Tavistock Group portfolio and the way the value of the club is going to soar once the stadium is complete. I’d compare this level of investment to adding a conservatory to your house to increase the value, rather than being a sugar daddy and sticking a helipad on the roof. But the money was found, and the investment now will help the club in years to come (and help “Uncle Joe” cash in, if and when he sells).

Overall, while not on the level of the stadium financing costs once the £350m loan kicks in, this £177.5m is not an inconsiderable amount of capital investment in the period. It will have given Spurs experience in managing its balance sheet to ensure not all the TV money is pissed away on agents and transfer fees. There is an adjustment coming, but won’t be like Spurs are accelerating from 0 to 60mph — we’ve already been cruising along at 30mph for a while now.

Final thought

The next five years is about finding the right balance between funding the stadium and funding a competitive team. It’ll be hugely challenging, and even if Spurs get it “right”, events out of the club’s control — luck, relative performance of others, macroeconomy, you name it — may mean it looks like the club got it “wrong”.

Underinvestment in the playing squad could have a negative impact on the viability of the stadium project, just as overinvestment could. It is safe to assume Spurs will be on the cautious side of this spectrum — the unofficial target of a 45 percent wages-turnover ratio hints as much.

But, building a new stadium doesn’t mean the club must put away the chequebook for a few years — in fact, the club must not. A drift back towards mid-table would be counterproductive in terms of both lost revenues, and the potential loss of Champions League calibre players that would harm the effort to sell tickets and hospitality packages in the new stadium when it opens.

I don’t want to see the club hide behind the stadium project as an excuse for not sufficiently strengthening the playing squad. The fact that Spurs were prepared to overpay on deadline day to secure a player like Moussa Sissoko shows the money is there, and the club is prepared to spend it. Likewise, continued investment in Hotspur Way through the construction of player accommodation shows the bigger picture isn’t being ignored, and the club is not being stretched beyond its limits by the stadium scheme.

The data I have gathered shows, in my opinion, that Spurs are well positioned for the huge leap that is now being taken. Years of pragmatism in the transfer market, and stringent cost controls, mean Spurs are as well prepared as they could be for the jump in stadium-related spending that is coming.

The spike in Premier League money, improvements in performance under Mauricio Pochettino and emergence of a clutch of homegrown talents are perfectly timed and give Spurs a little more leeway, arguably, than Arsenal had when building the Emirates. Of course, the Premier League TV deal has an inflationary impact on transfers and wages, which makes finding value harder.

Investing big bucks during boom years on capital projects such as training centres and stadium upgrades is exactly what a football club should be doing from a business perspective. Personally, I am very happy with what is being attempted and fully supportive. Some readers will disagree — that is your right.

For Daniel Levy, the new stadium is his vision and the defining project of his chairmanship. He has skin in the game — as the owner of a significant portion of the club, his net worth will soar if the stadium project is completed successfully.

The incentives for him to get things right are clear. But finding the right balance will be hugely challenging, and involve much guesswork. It’s going to get interesting, folks.

Thanks for reading, please follow me on Twitter for more chat. I welcome comments and criticism (preferably constructive) — I’m not an accountant or economist, so there are bound to be areas where my analysis falls short.

Tottenham’s most expensive signing, relative to revenue

“Has English football gone mad?”

With Manchester United set to smash through the £100 million barrier with their deal to bring back Paul Pogba, and Manchester City considering spending £50 million on a relatively unproven John Stones, the sentiment is frequently expressed by journalists and fans.

No doubt, similar questions about the game’s financial sanity were asked 20 years ago when Newcastle spent £15 million to bring favourite son Alan Shearer back to the northeast from Blackburn.

Of all the transfer deals I can remember, it was the Shearer one that stood out and made me think: How much?!?

It seemed an incredible amount of money for Newcastle to spend on a single player in 1996. By contrast, huge fees paid by Real Madrid, for example for Gareth Bale, have always seemed more understandable given the vast wealth and global reach of the Spanish club.

This got me wondering, how expensive was Shearer for Newcastle at the time? Adjusted for inflation, £15 million would now be £25.4 million. But more, my question was how big a deal was Shearer for Newcastle at the time, compared to its total revenue as a football club back in the very early days of the TV boom?

For the 1996/97 season, Newcastle’s revenue, according to club accounts filed with Companies House, was £28.97 million. The deal for Shearer, at £15 million, was equivalent to 51.77 percent of the club’s total revenue.

Newcastle’s total revenue, according to the last accounts, now stand at £128.8 million. If you fired up the time machine and did the same deal today, Newcastle would be spending £66.8 million on Alan Shearer.

As Newcastle fans will be painfully aware, Mike Ashley is more likely to offer his Sports Direct slaves permanent contracts than spend that much on a footballer.

Using the same 51.77 percent figure, this would be equivalent of Manchester United spending £204 million on Pogba, or Manchester City spending £182 million on Stones.

For Spurs, it would be the equivalent of spending £101.5 million on a player. Can you imagine Daniel Levy sanctioning that?

This in turn got me wondering, who is Tottenham’s Shearer? While Erik Lamela is the club’s record signing, at £30 million (£25.8m plus clauses), who was the most expensive Spurs player, relative to the club’s revenue at the time?

I dug out some data* and created the following chart.

TransferRevenueHistory

As you can see, the most expensive, at the time, and by quite some margin, was Sergei Rebrov. His £11 million move from Dinamo Kiev was equivalent to nearly 23 percent of the club’s annual revenue that year.

Rebrov is followed by Les Ferdinand (19.4 percent) and Chris Armstrong (18 percent). In fourth is Lamela.

When I first thought about this, my guess was Darren Bent, but his transfer was funded by one of the biggest jumps in revenue (with a new TV deal kicking in), so he is only in fifth place on the all-time list. I daresay Sandra Redknapp would have been higher.

Of course, this is just a snapshot and not to be taken too seriously. As a club that has been run for a profit, rather than as a plaything, what Spurs spend is a reflection of what has been received.

But nonetheless, as a snapshot, it is an interesting one. Some of those names — Fazio, Bentley, Reid, Vega and Rebrov himself — are a reminder of what a massive crapshoot the transfer market is. Which is why spending an amount equivalent to 51.77 percent of your revenue is a crazy idea, and one unlikely to be repeated any time soon.

English football may well have gone mad, but it went mad a long time ago. If anything it has become a little more sane, but as the numbers get bigger, it just doesn’t seem that way.

Thanks for reading. Please follow me on Twitter for more Spurs chat.

*Revenue data from Companies House. Transfer data from @ztranche

Fun with numbers: How the new stadium will enable Spurs to join the Premier League’s £1 billion club

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I was chatting football finances on Twitter the other day, and the conversation turned to the value of Spurs — specifically, what impact the new stadium is going to make.

Stories have surfaced now and again in recent years about possible interest in the club, and a valuation of £1 billion has been bandied around. This has generally been dismissed as excessive, and a figure aimed at deterring potential investors. Nonetheless it is widely accepted that the value of Spurs will soar once the new stadium is built.

The question my co-conspirator (who may or may not have been @ztranche) and I were wanting to answer was: what sort of increase in value are we talking about?

Clubs are valued in many ways, most famously by Forbes, but also by standard measures in the investment world such as through cash flow or revenue multiples.

These valuations often serve as poor guides for what a club may fetch when sold, but nonetheless movements up and down the Forbes rankings serve as fodder for the “my club is bigger than yours” pissing contest that football fandom so often comes down to.

In 2013, an academic and soccer nerd, Dr Thomas Markham, proposed a more sophisticated valuation system, the Markham Multivariate Model, which correlates far more closely with the actual price of clubs when sold.

The key is in the word “multivariate” — and yes, in case you are wondering, we are deep into the off-season.

The model uses several variables — revenues, assets, profit, wage ratio and stadium utilization percentage — that better represent the business of football and the differences among clubs.

The formula is as follows:

MMM variate

Dr Markham’s last published rankings in August 2015 valued Spurs at £710 million — comfortably above Liverpool (£537 million), but well behind Arsenal (£1.18 billion).

That figure was based on the 2013/14 accounts, so first I wanted to get an updated value using numbers from the recently published 2014/15 accounts. I don’t have the exact stadium utilization percentage, but it is fair to assume it is somewhere around 99 percent, which most sold-out Premier League stadiums are.

The “current” value of Spurs: £717 million.

The small increase in value reflects moderately increased revenues and a decrease in wage ratio. It seems “about right”, as really the value of Spurs won’t have changed all that much given how static things are while we are stuck at White Hart Lane, and with the TV deal flat in the period.

But what happens once the new stadium is built?

I have done some quick and dirty calculations. There are too many variables to sensibly project what the revenue will be in 2018/19 given soaring TV deals and critical commercial deals to be negotiated. But, with Arsenal having built a similarly sized stadium in a nearby part of North London, there is a very useful proxy for projecting what sort of uplift a new stadium may have for Spurs, were it to open tomorrow.

Arsenal’s revenue increased from £137.2 million to £200.8 million after its move to the Emirates, according to its accounts for the 2006/07 financial year. This is an increase of 46.4 percent.

Revenue mix varies from club to club: Arsenal recorded sizeable income from property development but only increased commercial revenue by £7 million, far below the target of £30 million Spurs have set for commercial revenues associated with the new stadium. But nonetheless this feels a decent starting point, as much of that increase was from rising matchday revenue due to the larger capacity and better corporate facilities.

Applying the same 46.4 percent increase, Spurs revenue would jump from £196.4 million to £287.5 million.

Net assets are interesting. The key is “net” — while Arsenal’s fixed assets soared when the club moved to the Emirates, so did what it owed to creditors. In the two years that covered the final year at Highbury, and the first year at the Emirates, net assets increased by only 8.7 percent. This slightly broader view seems a better gauge as it cuts out year-to-year churn, and I will apply the same increase to Spurs. This would take net assets from £183.0 million to £199.0 million

Arsenal’s profits dipped slightly in the first year at the Emirates (but the club remained profitable). I don’t want to get too involved in guessing what direction Spurs profits will move as it is actually quite a small variable in the calculation, so I’ll keep them the same. Likewise, stadium utilization will remain at 99 percent, if the season ticket waiting list turns out to be an accurate measure of interest, and not some Potemkin justification for the whole project.

I’ll calculate a range for wage ratio: from the current 51.35 percent, to the desired 45 percent (Arsenal got wage ratio down to 46 percent at the lowest point).

So, plugging these variables into the MMM formula, what is the value of Spurs once our shiny new stadium is opened?

My calculation: £968.5 million to £1.105 billion.

As stated, the revenue is hard to project given the changes in the TV deal, meaning that by the time 2018/19 rolls around, this is likely a very conservative estimate. But it shows that the new stadium, right now, would add £250 million to £386 million to the value of the club.

It also shows that the £1 billion figure that is batted around isn’t actually all that optimistic. This simple MMM projection shows it is a good ballpark figure for what ENIC may seek should they chose to cash out once the stadium is built, or as a guide if they seek new investment to help bridge any funding gaps in the project.

A valuation of £968.5 million to £1.105 billion would put Spurs third in the current MMM rankings, and hot on the heels of Arsenal. They still have advantages in commercial revenue, and Spurs have not shown any indication of being able to land the big sponsorship deals to narrow this gap. But it would put Spurs ahead of the two oligarch playthings, Chelsea and Manchester City.

Tottenham Hotspur has been one heck of an investment for Joe Lewis and Daniel Levy, and no doubt quite the ride.

In 2000, when ENIC first bought into Spurs, the deal valued the club at around £60 million. In 2007, when ENIC bought out Alan Sugar’s remaining stake, the deal valued the club at £209.5 million. The club is now valued, by my calculation, at around £717 million, and once the new stadium is complete this should pass the £1 billion mark.

Some may be curious about what this means for Daniel Levy himself? Remember, he owns* 29.41 percent of ENIC, which itself owns 85.55 percent of the shares in the club.

(*The exact wording is, “Daniel Levy and certain members of his family are potential beneficiaries of discretionary trusts which ultimately own 29.41 percent of ENIC’s share capital”)

Actually, I’ll let you do the maths as it feels a bit gauche to be spelling it out. But, put it this way, the new stadium could see the value of his stake increase by something approaching £100 million, which is very nice and is one heck of an incentive to make sure this thing gets built on time and on budget.

I have no idea if ENIC really want to sell — this has always been an investment with an emotional component. But if they do, ENIC will be quids-in once the stadium is built. The value of Spurs is about to soar — and for the first time in a while, this may actually be mirrored by success on the pitch.

Thanks for reading. Please follow me on Twitter for more Spurs chat. Thanks to Sam Z for pointing me to Dr Markham’s research.