Words: Darren Smith
This time last year, I was writing a piece for the Pinch on the “richest game in world football,” the often-used description for the EFL Championship Play-Off Final. The Blades had entered the four-horse race to be crowned victors, a forlorn hope given our previous experiences, and so it proved again.
However, here we are, less than twelve months later. That penalty heartache was not a terminus but a station on route back to the Premier League. Losing to Forest meant losing out on a big prize: a put-the-permutations-to-one-side minimum of £170m via £90m in broadcasting income for finishing (at worst) rock bottom and a further £80m of guaranteed parachute payments after relegation.
Today, with the takeover returning to the fore, is that figure the whole story? Will prospective buyers be inputting “£170 million over three years” into their cashflow spreadsheets? Or are other factors at play?
Get the calculator out
When the Blades went up in 18/19, expectations of survival were low. Nevertheless, only COVID derailed our quest for European places in the top flight. But this time, let’s approach the season with a more modest prediction.
Let’s say we stay up by the skin of our teeth and finish 17th next season.
Based on the 21/22 figures (where Southampton finished), that earns c.£110m.
If we survive in 23/24 - and even if we follow that up with a rock bottom finish in 24/25 - not only would we still be guaranteed the £170m over three seasons, but we would also receive an additional parachute payment (£16m) in year three. (Something we would have received, too, had we failed to gain promotion this season).
So, staying up in 23/24 would make the prize, at worst, £296m over five years. A number that clearly influences how teams typically approach their first season back in the Premier League. Yes, promotion is good, but staying up is better. So I have looked at both
(a) how the Blades fared financially when last promoted
and (b) how others have fared on average over the last five seasons of promotions* to the top flight.
One thing to note: each league position is worth an additional £2.1m—Man City earned, in 21/22, £151m as champions. That, though, is just the TV side of the coin(s). With the Premier League comes profile, and with that comes greater matchday income and sponsorship.
Matchday income & Sponsorship
When the Blades were promoted last time, we boosted commercial revenues by £9m, including:
a move to new shirt sponsors USG
introduction of LED perimeter advertising etc
in 2021 Randox signed a 3-year deal as the main shirt sponsor, but it will be a major surprise if there isn’t an uplift in the annual payment from them after promotion
expect a similar uptick for all other sponsors; the stand, training kit, sleeve and back of shirt etc
Looking back over recent years for promoted clubs, that figure (£9m) is pretty much the norm. Wolves did particularly well in 18/19, growing their commercial income by £17m. But Leeds, promoted the season after us, only saw a £2m increase. Maybe Leeds suffered from COVID, or perhaps their smaller increase reflects how well they were doing in this area already.
Matchday revenues also increase, but probably not by as much as one would expect. Most clubs in a promotion season already draw near-capacity crowds and then offer discounted season ticket renewals to loyal fans that re-subscribe before promotion is confirmed. Then there is also the £30 cap on away ticket prices, and the number of home games reduces from 23 to 19.
The increases are confined to higher prices on the single game matchday tickets, larger away followings and, most importantly, the corporate side of matchday. For those that use a matchday to entertain clients and invite guests, it’s an easier sell when Man Utd are in the house rather than Luton Town. Both the cost and number of places will increase significantly.
In this area, United’s relatively modest capacity and lack of corporate facilities (by Premier League standards) hold us back. Our matchday revenue only went up by £1m last time, albeit the last few games were COVID impacted. Typically clubs see matchday revenues grow by about 33%, approximately £3m-4m. It just goes to show, though, in purely financial terms, how little the match-going spectators matter in the overall picture. Obviously, as the empty grounds proved during the pandemic, they mean everything to the spectacle and, in our case, results!
It just goes to show, though, in purely financial terms, how little the match-going spectators matter in the overall picture.
Overall, total income when we were last promoted increased from £21m to £143m. However, as we are in receipt of parachute payments this season but weren’t last time (2nd year, approx. £35m), and assuming we don’t finish 9th again, the increase will be lower. If, as per our modest predictions, that is eight positions lower (in 17th), that would be about £19m less. So we are probably looking at a boost to our income this season to next of about £70m. That is probably much lower than our fans were thinking.
So we are probably looking at a boost to our income this season to next of about £70m.
However, the importance of achieving promotion is really in “what might have been without it”—we would have faced a £20m drop in income next season and a further £15m the season after (due to 3rd year and then no parachute payments). Whereas now we have next season in the Premier League, and even if relegated, instead of managing a significant decline in revenue, we’re sustaining income at current levels or more through to 25/26.
That’s the positive. But it is all top-line revenue, and as accountants often say, “sales are for vanity, profits are for sanity.” It’s also clear that wages and other expenses surge for those in the top division.
Bills, bills, bills
The uplift in wages starts well before clubs see any increased income, with most teams offering squads significant promotion bonuses, payable usually at the end of June. But the first tranche of TV money doesn’t arrive until mid-July. These bonuses are unaffordable on Championship income and are effectively the first call on the Premier League income and, in accounting terms, you could argue are a cost of the Premier League.
As the Blades plan for next season on the pitch, those wages will be a significant factor. Those under contract and those being offered a new contract will see their remuneration increase, while new players will only be attracted by Premier League salaries.
The balancing act here is offering 2, 3 or even 4-year contracts when Premier League money is only guaranteed for a single season. This is why parachute payments were introduced, but even with those, it is difficult to maintain a Premier League wage bill. The obvious answer is to include relegation clauses and bonuses based on league position.
Many clubs effectively earmark the £2m-per-position prize money for salary bonuses in order to keep basic wages to a minimum in the event of a poor season. All of this makes it difficult for newly promoted clubs to attract top talent compared to established top-flight clubs. Hence why our interest in Sander Berge was more likely to be met with interest in the winter of 2020 when we were safe, rather than when we spoke in the summer of 2019 after promotion as we were favourites for relegation. In short, pay-cut clauses are much easier to swallow for a player when you are not going down (well, for at least 18 months rather than 12).
In the past five years, promoted clubs have typically seen their wages grow by £30m, from £50m to £80m. However, that £50m is the inflated (inclusive of promotion bonuses) figure and also reflects the number of yo-yo clubs usually in receipt of parachutes and still, therefore, sustaining a semi-top flight playing squad when promoted.
When the Blades were promoted last, the wage bill increased from £41m to £72m (restated to a 12-month basis). The following season the wage bill fell to £61m (also restated to a 12-month basis) despite the squad all signing new contracts. You can safely assume after the success of the first season in the top flight that players were offered and signed on better terms than those previously.
This reflects how the Blades, more than most (any?) clubs, put so much emphasis on top-up incentives for promotion/placings/appearances with a lower basic salary. A sensible policy but one which will potentially make the club less attractive compared to others that will guarantee a higher salary to players irrespective of results.
How much of the £70m uplift will be committed to the wage bill this time around is difficult to judge, particularly as the club has not published accounts for either of the seasons in the Championship. However, Chris Wilder, after his departure, did let slip the squad had taken “50% pay cuts” and Hecky has also said he was working on a budget in the second season lower than that in the first.
In the 19/20 promotion season, the Blades wage bill was 194% of income, £1.94 paid in wages for every £1 earned (a figure skewed by the promotion bonuses).
In 18/19, the first season in the Championship, the wage bill was £19m. It is reasonable to assume Chris was given a bigger budget in the second season, but this similarly suggests the bonus element of that £41m cost was at least £15m or so.
In the Premier League, this wage ratio dropped to 54% of income, again a slightly misleading figure as salaries, I suspect, were not budgeted based on the revenue that came with 9th place. Let’s be charitable and say it was based on 17th. If that had been our placing, it would have been 62%, which is also the average for all promoted clubs over the last five years.
On that basis, with the evidence above, we could maybe assume the current payroll is around the £25-30m mark then we can expect a large chunk of that additional £70m in income to be committed to the payroll. In fact, based on last time, maybe even £15-20m has already been earmarked for promotion bonuses for the squad this season (the press reported £8m recently, but that seems low compared to last time).
On a projected income of £125m and staying up, 62% would be £75-80m. If we go down, given the incentivised nature of our contracts, we could probably expect that to drop as low as the £61m seen last time we were relegated.
Realistically though, Hecky will be working with a bottom three budget, such are the harsh realities of the financial clout of those clubs that have been in the Premier League for a number of years. A challenge faced by all newly promoted clubs and why several come straight back down with, or without, further owner cash injections.
Hecky will be working with a bottom three budget
Another factor to consider is transfers, “why aren’t we spending all this money on transfer fees” fans of promoted clubs cry. Everything I note above about income - £170m+ boost to the coffers - inevitably leads to pressure from the fans to spend, and clearly, a Championship squad with no strengthening would struggle in the top flight.
In fact, this is the rationale for parachute payments; the Premier League want clubs to spend and “give it a go”, knowing there is a safety net if they are brave but fail.
When we were promoted last, our spend was £66m on player acquisitions. That was higher than any promoted club had spent in that or the previous three seasons, bar Villa in the same season and Fulham and Wolves in 18/19. However, the biggest spenders are not always the ones with the most success. Fulham spent £120m in 18/19 and were relegated, and Villa £156m(!) in 19/20 to only be saved, as we know only too well, by a technology blip. Only Wolves reaped an immediate dividend on that spend, qualifying for Europe.
However, as was put under focus when the Blades fell into a transfer embargo, this transfer “spend” is not always what it quite seems. Fees paid (and received) are usually spread over an instalment plan, typically over 2,3 or even 4 years. It was reportedly the default on monies due to Liverpool on the Brewster transfer agreed in the summer of 2020 that left the club unable to sign players in the winter of 2023. Clearly, these deals in the Premier League can have repercussions well beyond the time they are made.
Amortisation, Agents, Ancillary costs
This then introduces us to the term amortisation. An accounting principle, which, aside from how a fee is agreed to be paid, sets out that the cost of an asset, in this case a player, is spread over its useful life, in this case, a contract. So in the example of Rhian Brewster, a £20m initial fee, will, in the accounts, be spread equally over the five years of that contract, £4m/annum. This is something I will return to later.
In contrast, promoted clubs usually make very little from player sales. In fact, profits on player sales are usually higher in the preceding year as a (relegated) Championship club than the following season as a Premier League club. No surprise here, the pressure to sell is much less, particularly given the number of yo-yo clubs and promotions by teams in receipt of parachute payments. Selling players but still having the strength relative to the rest of the league to mount a promotion challenge has become the norm (much to the chagrin of many Championship clubs who berate the lack of an even playing field, with a number calling for the end of the parachute system).
Although it is evident player costs in both wages and fees, including ancillary costs such as agents’ fees, eat up much of the inflated income, other expenses shouldn’t be discounted either.
Promoted clubs are obliged to incur a high level of infrastructure costs both in compliance with Premier League standards (e.g. floodlights, broadcasting and media facilities and so on) but also voluntary upgrades on player facilities, medical, academy, dressing rooms to help with attracting the quality of player needed at the top level, and in corporate lounges and stadium, comfort to help draw in the extra income that the new status allows.
On average, these running costs grow nearly 50% compared to the previous season in the championship.
When the Blades were last promoted, these costs were disproportionally high as, after spending more than a decade outside the top flight, we had a lot of catching up to do. Our spending on infrastructure was £11m (excluding the purchase of the assets from Mr McCabe), and our running costs more than doubled from £11m to £28m. Hopefully, with only two years of absence this time, the capital expenditure and increase in running costs will be more modest and in line with the average as we are more Premier League-ready.
So if income is for vanity and profit for sanity, how do promoted clubs fare on the sanity measure? As you would expect: quite well. Stripping out the COVID years, clubs reporting large losses in the Championship usually turn that around to profit in the Premier League. In the three years to 18/19 (pre-COVID), the average operating loss of £36m swung to a profit of £11m.
But, and a big but, this is where that pesky amortisation comes into the spotlight. The Blades reported a profit of £17m in the first season of the Premier League, yet, upon promotion, the club had debts of £10m (£4m financial debt and £6m of transfer debt). But after a season in the top flight, that grew to £34m (£17m financial and £17m transfer). It grew further in the second season to £67m (£30m financial and £37m transfer) despite another profit of £9m.
In contrast, those perennial yo-yo boys, Norwich City, the same season broke the trend, lived frugally, and reduced their debt by £16m. However, while we “enjoyed” (or should that be endured?) a second season in the top flight doing the same again, making a profit but putting ourselves even further in debt, they “suffered” a season back in the 2nd tier (winning every week and securing the title).
Interestingly, Fulham, having spent an eye-watering sum in 18/19 on transfers only to go down, did the opposite in 20/21, using the Premier League money to straighten themselves out and pay down the debt incurred two years earlier rather than adding to it. They reduced their transfer debt from £86m to £51m over that season. They still went down but in a much more financially healthy position than previously. It may be telling, from that foundation, they walked the Championship in 21/22, sold Fabio Carvalho, and yet this time didn’t go back down but thrived in the Premier League.
Who buys a football team?
If owners see the promised land of the Premier League as an opportunity to get back what they have put in trying to get there, they are sadly mistaken (in the first season, at any rate). Owner funding, on average, having increased from £25m in the promotion season to £30m in the Premier League season. In fact, the latter figure would be higher if you excluded Vincent Tan of Cardiff City. He took back £32m in their Premier League season (before you judge him bear in mind he was over £200m down in getting them there!). On the whole though, an owner stumping up cash doesn’t end with promotion.
In February, the Blades filed a resolution at Companies House confirming the owners had converted £27.6m of debt into share capital. It is reasonable to assume this reflected the level of investment the owner had put into the club to keep it liquid post-relegation. In the absence of sales, bar Aaron Ramsdale, this would be consistent with the transfer debt we carried in the last accounts published after relegation. As we saw after that date with the reported cashflow issues, embargo and stories of slow payment to suppliers, even this wasn’t sufficient to cover the full shortfall.
If the owner was looking to recover this from the promotion proceeds, that would certainly be a big chunk of cash that would have to come from other potential areas of the budget, be it salary, transfers or infrastructure. In view of the comments made shortly after promotion, though, it would suggest Prince Abdullah recognises this as he stated his preferred route was still to sell the club after the expiry of the exclusivity period given to Dozy.
Prince Abdullah…stated his preferred route was still to sell the club after the expiry of the exclusivity period given to Dozy.
All in all, it does make you wonder what motivates a person(s) to buy a football club. You spend to get out of the Championship, which, despite solidarity payments from the top flight, is a financial graveyard for any owner, and once you achieve that, you spend again to stay there, as once you see the money finally coming in the last thing you want is to lose it, and you don’t ever seem to reach that equilibrium of safety, consistent and sustainable income where you can start to take out rather than put in without looking over your shoulder.
But let’s hope the prospective new owner is out there thinking Dem Premier League Blades are a bargain: that Accountant fella is a pessimist and should stick to bean counting, and they - the new owners - are going to be the first to deliver success on the field and make money as well.
In conclusion, promotion is worth more than the £170m of guaranteed TV money, but that is too simple a measure of what it does for the club (and owner) finances. With salaries, fees, ground and infrastructure improvements and increased running costs, actual profitability is much more modest and in the single digits.
Often owner injections are still needed, and all of that money into the club can be easily undermined by spending giving rise to debt that cannot be repaid easily, even with parachute payments. It feels obvious, but the facts clearly back this up, promotion can improve the finances of a club…but only if you spend it wisely.
*NB: 16/17 to 20/21 as not all 21/22 accounts have been published (including ours)
Darren Smith is an accountant who has been involved in football finance for a number of years. A lifelong Blades fan, he moved to Girona in Spain 13 years ago, became an English speaking contact for local club Girona FC and had a regular spot on The Week In Football, an English language show that aired on Catalan TV. Now his Twitter account is a good source of info on football finance and Blades insight.
That’s a bit of an eye-opener, and explains why without new ownership (that’s willing to invest significant funding) we’re unlikely to spend much at all this summer. And it’s probably why we may retain more of the expiring contracts on modest wages to fill out the squad than go for lots of new faces.
What I hope we focus more on is protecting the club long-term. While PA’s gamble this season has ultimately paid off, it so easily could have gone the other way – and even selling Ndiaye & Berge (probably for modest amounts given their contract lengths) wouldn’t have been enough to pay off what we owe. Next season financially would have been a huge problem. If we’re to become a yo-yo club let’s make sure we’re one that can come back a little healthier every time.