Financial Uncertainty Curbs Premiership Spending
Gross spending has fallen dramatically in the winter 2010 transfer window, KPMG's Football Transfer Monitor shows. Premiership clubs spent a total of £44.8 million during the January period, less than 25% of the £190.5 million spent in the previous year's winter transfer window, and over one quarter of this amount is attributed to the sum that Manchester United have agreed for Chris Smalling of Fulham, a fee that could potentially rise to £12 million, after he agreed terms on a deal that would see him join Manchester United at the end of the season.
Regarding the lack of significant spending in the winter 2010 transfer window, Geoff Mesher, Head of the Forensic Sports Industry Team at KPMG, said: "Whilst the UK has just recently exited recession it appears that football may just be entering it. Financial uncertainty still exists for a number of English football clubs and many football club chairmen will look at the current plight of Portsmouth, facing a winding up order on 10 February in the High Court, with concern."
"There had been some expectation that Manchester City's wealthy owners, and the arrival of Carston Yeung at Birmingham City, might have produced some high value signings and that the funds raised from such deals would initiate further spending as they were recycled through the transfer market, but this has not happened."
Richard Fleming, UK Head of Restructuring at KPMG, further commented: "Football clubs have not been immune from the effects of the recession and indeed we have already seen credit crunch casualties. Football clubs have three major sources of revenue: season tickets; broadcast revenue and the transfer windows. Accordingly, for clubs in financial distress, these are 'crunch points' when they are likely to go into administration. The end of the transfer window today is the last chance for clubs to generate significant revenue before the season ends; this could prove to be the final solvent testing point for distressed clubs as their ability to meet demands on their cash becomes apparent. With up to 90% of turnover in football clubs accounted for by players' wages, the main creditor is often HMRC. Clubs which have abused HMRC's flexibility by breaking promises to meet their tax liabilities repeatedly may be in for a short, sharp shock."
Last month UEFA continued to raise concerns about excessive spending at clubs in Europe with its survey reportedly finding that nearly half of clubs in Europe are running at a loss every year with around 20% of clubs spending as much as 120% of revenue each season. The majority of this spending was found to be on player salaries with one third of clubs spending 70% or more of their revenues on wages. Geoff Mesher commented: "Player salaries appear to be outstripping club income and this may go some way to explain the lack of significant spending by English teams in the most recent transfer window. Reports from UEFA that the salaries of players and coaches are increasing at nearly twice the rate of revenues across Europe are more concerning though and raise questions as to how sustainable this trend is for the individual clubs and the football industry in general."
The gross spend of £12.3 million by the traditional "Big Four" clubs is almost all down to Manchester United's signing of Chris Smalling. Liverpool have the second highest net fees received in the Premiership following the sales of Andrea Dossenna and Andrei Voronin and no players being brought in for a fee. Arsenal's gross spend amounts to just £0.5 million on a single player whilst Chelsea have not spent any funds on transfer fees this January.
Geoff Mesher said: "Clubs across the board may also see the current state of affairs as unsustainable and could be waiting for an adjustment in the market value of player transfer fees, or perhaps more importantly wages, before making major investments in new playing staff - but in the competitive world of football can they afford to wait?
"In the short term though it seems that financial uncertainty, brought into sharper focus by the experiences of clubs like Portsmouth and Crystal Palace, is resulting in a degree of financial prudence amongst many English clubs for now."
For a discussion with KPMG's Forensic Sports Disputes Team contact Geoff Mesher.
Football Transfer Monitor Winter 2010
KPMG’s Football Transfer Monitor provides analysis and commentary in respect of key financial data and trends in the January 2010 transfer window.
Date: 02/01/2010 | Filetype: PDF (215 KB)