Premier League club losses likely just temporary, says expert

New figures published by Deloitte have revealed that Premier League clubs recorded a combined pre-tax loss of approximately £110 million in 2015/16, despite their total revenues rising to a record £3.6 billion that season. Deloitte said it was the first time since season 2012/13 that Premier League clubs had recorded a combined loss. It cited a 12% rise in total wage costs to £2.3bn that was recorded by clubs as a factor in the losses.

Trevor Watkins of Pinsent Masons, the law firm behind Out-Law.com, said, though, that the 2015/16 season was the final season before a new lucrative TV deal took effect for Premier League football in the UK.

The Premier League currently has a broadcasting partnership with Sky and BT Sport worth £5.136 billion, which gives the broadcasters the rights to broadcast more than 150 matches between them for each of the 2016/17, 17/18 and 18/19 football seasons. The broadcasting deal replaced a £3bn three-season contract the Premier League had with the same broadcasters, which applied during the 2015/16 season.

Watkins said some of the clubs likely spent beyond their means in the 2015/16 season in anticipation of the rise in revenues in season 2016/17 and said he expects Deloitte to report a return to overall profitability for Premier League clubs when it publishes the next set of figures for season 2016/17 next year.

"The £110m loss figure is very surprising at face value, but what we are looking at here is the last year of the previous cycle and clubs beginning to spend in anticipation of the new money that was coming in to the Premier League through the new TV deal," Watkins said. "I think we will see a return to profit over the next couple of years."

Watkins said, though, that clubs cannot afford to be blasé with their spending. He said that financial fair play regulations already limit the amount clubs can spend relative to their revenues, and that the effect of Brexit and increasing digital consumption of matches pose further challenges to the traditional business model of rising TV revenues that clubs have been reliant on.

On Brexit, Watkins specifically referred to the potential effect that a weak pound could have on English clubs engaged in player transfers with clubs across Europe that deal in euros.

In its Football Money League report for 2017, Deloitte said that "the weakening of the pound relative to the euro following the UK’s decision to leave the European Union" could jeopardise Manchester United's current position at the top of the Football Money League next year. Manchester United recorded total revenues of £515m for season 2015/16, according to the report, putting the club ahead of Barcelona, Real Madrid and Bayern Munich in terms of revenue generation.

"There is a fine line between the amount spent on wages and the amount coming in in TV income and, in the world we face now post-Brexit, and in the digital age with new players coming into the market such as Amazon, there is going to be a lot of emphasis on whether or not the TV revenues are sustainable," Watkins said.

Watkins said that the illegal streaming of games online has a "huge" impact on revenues, and said the Premier League had "rightly" been aggressive in asserting its copyright and seeking court orders to "shut down operations that might cut across the very life blood of the finances that feed the game".

In future, legitimate online streaming services could become the main way in which people watch Premier League matches, and said that the Premier League could look to growth in overseas markets to counter any plateauing in the value of rights for matches in the "increasingly complex" sports rights market in the UK, Watkins said.

The former AFC Bournemouth chairman's comments came as Sky published a new trading statement (9-page / 336KB PDF) for the nine months to 31 March 2017 in which it reported "stable" customer churn for the last quarter, despite raising the prices for its broadband and telephone services.

Sports law and media rights expert Julian Moore of Pinsent Masons said that, beyond the threat of illegal streaming, changing consumer viewing habits could have an impact on the value of sports rights deals in future.

"People nowadays consume media in a very different way from the way they did even a few years ago," Moore said. "While watching football in front of the TV remains a very popular activity, there is more competition for consumers' attention from rival entertainment services, over-the-top communication providers, clip services and social media. This is making the market more fragmented and complex and it raises the question of whether these changes in consumption will begin to impact on the value of the Premier League's broadcasting rights deals."

Watkins said that despite the challenges ahead, the popularity of the English game would remain strong and that clubs are largely in a very health financial position.

"It should not be forgotten that 18 out of the 20 Premier League clubs made an operating profit in 2015/16 and that 12 made a pre-tax profit, so it is not as if the game is going to the wall," Watkins said. "We are still seeing huge interest in investing in English football from clients around the world and that is not likely to diminish. This is a very popular sport that dwarfs every other European league."