Winning in more ways than one
Everybody loves tables, especially ones where you come out top. So the latest
Deloitte money league of football clubs was bound to create debate when it
showed Manchester United had been overtaken by Real Madrid for the first time.
As a football business the real measure is not revenue, but operating profits
before depreciation and amortisation – a gauge of the business’s success in
converting their revenues into profits thus generating free cash flow.
On this assessment, Manchester United is still top. How a club then uses the
cash generated to reinvest in the team and stadia or distribute to its
shareholders or funders of the company will depend on its particular
circumstances and financial structure.
The problem with Deloitte’s table is the absence of standard revenue
recognition accounting policies for all football clubs in Europe, particularly
with regard to media and sponsorship revenues. Clubs structure their business in
Operating our MUTV channel through a joint venture means two-thirds of these
revenues are excluded from our published turnover. Our merchandising business
operates under an outsourced contract with Nike, so we only recognise our share
of profits from the agreement. Including the gross revenue from these
businesses, this would have raised revenues to around £200m in the period
covered by the Deloitte list.
Using the ratio of wages to turnover as a control mechanism is fraught with
problems – it does not enable football analysts to make valid judgements or
comparisons unless they understand the differences in revenue recognition that
each club adopts and the underlying profitability of the business.
A more useful measure of wage bills would be the degree to which this bill is
capable of flexing as performance on the pitch varies. The variable element of
wages and the length of commitments is more telling on whether a football
business can adjust to changes from its hoped for performance level. As so
often, focus on one measure is likely to lead to erroneous conclusions.
Nick Humby is group finance director of Manchester United Football
But there’s more to the story
Real Madrid being highlighted as the wealthiest club in the world by the
Deloitte football money league comes as no surprise. But there is a lot more to
the story than just David Beckham.
The different fiscal regime in Spain means that UK-based clubs have to pay
significantly more in tax and national insurance to attract players, and despite
nearly 50% of the clubs in the top 20 being British, this could easily be
diminished by Gordon Brown’s policies.
The current UK tax system is unattractive to high-earning sportsmen and is
preventing the UK from luring and retaining talent. The impact on footballers,
many of whom earn substantial sums of money, albeit over a potentially short
career span, is an effective tax burden of around 50% of gross salary. Since the
stars think only in terms of net income, it is the clubs which have to bear the
brunt of this higher effective tax rate and, as a result, the Premiership is
losing out on some of the world’s top stars.
If a footballer demands £50,000 per week net, the actual cost to the UK club
is around £100,000 per week, taking into account the players’ tax liability and
national insurance costs. This is outside of the scope of all but the wealthiest
clubs, whereas the equivalent Spanish club would only have to pay out around
£66,000 per week.
If the regime was more sympathetic to footballers, I’m sure Manchester United
would still be the richest club in the world and English football would have
even more talent than it currently does.
Clubs that invest in proper tax structuring can reduce the burden of
unnecessary tax and would be able to afford better squads, while at the same
time providing long-term wealth, financial and tax arrangements for the playe
This type of structuring is moral, ethical and legal. As well as being
beneficial for the football clubs and players it would be hugely beneficial for
the UK economy, as it attracts more high profile players with more disposable
income to the UK.
Miles Dean is director of International Fiscal Services
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