False profits – a look at the finances and spin of the Spurs

Tottenham’s finances part two By Phil Gregory

Obviously it is a good idea to have read part one first – if you didn’t here it is.

Prospects for future growth:

Attendances account for 99% of capacity at Tottenham, and their matchday revenue is dwarfed by the sides at the top of the table that they wish to compete with, which is why they are so keen on their new stadium. In the 07-08 accounts, the word seemed to be redeveloping the current site at White Hart Lane, and this certainly seems to be the case. In the 08-09 accounts, the various costs associated with planning the stadium came to a staggering £61 million.

Due to some clever design work, while the new stadium would be built on White Hart Lane, they would be able to construct over half of the new stadium while the old one is still being used by the team. This would allow them to minimise the amount of time where they are effectively without a home , and they’d hope to move into the partially-built stadium for the start of 12-13 season with the whole project finished by the start of the following season, giving them a capacity of 56,250.

The impact that this project will have on Spurs is unclear. If they have to do as Arsenal did, they’ll be looking at substantial debts that will need paying off. Unless they want to be repaying for twenty years, they’ll probably have to limit expenditure on players and focus their profits on paying down the debt.

With their ownership shrouded in secrecy, you can’t discount the possibility that wealthy owner Joe Lewis will provide the funds for the stadium on a low-interest basis, as would be a sound financial decision. However this is the man who in 2007 paid an average of $107 for shares in Bear Stearns, an investment bank which then got into difficulty during the financial crisis that followed shortly and were taken over by a rival for a cool $10 a share, and Lewis was said to have lost around a billion dollars. So a sound business decision may well be too high an expectation.

In regards to commercial revenues, it seems likely to expect good growth from these in the future, too. Teams at the top end of the table aren’t struggling to find sponsors willing to pay substantial sums of money for the privilege of being on the front of a shirt (unlike lower-table sides) and Spurs will have the additional revenue stream of the new stadium’s naming rights, as well as an innovative idea that involves multiple shirt sponsors for the cup competitions they compete in until the fourth round. In relation to us, I argued in my Arsenal article why I think our commercial revenues will be on the way up, so I doubt the relative position between the two clubs will differ much.

On TV money, Spurs will no doubt see a  boost in the 09-10 accounts thanks to the 4th place finish that season, while their participation in the group stage of the Champions League (sadly I’d expect them to make it through the play-off round given the fact they are seeded, but we can hope) will be worth around £20million, more if you consider the revenue from the extra home games against potentially glamorous opposition.

Against all that, Spurs are likely to face significant wage pressures. Talk of singing Joe Cole is rife and his wage costs would be substantial. What most fans forget is if you introduce a big new earner,  you have to promote your other stars accordingly. Let’s be conservative and assume Joe Cole comes in on £90,000. That’s an extra £4.7million a year, or a rise of over ten percent in the total wage bill for a single player. Then factor in current players demanding parity (I’d imagine Modric and King for starters) would mean their wages would be way, way up. Such wage pressures are likely to be a big problem for Spurs, with City setting the bar quite high in the transfer window so far this season.

This all adds up to quite a lot of expenditure for a team who  most neutrals would argue are likely going to get edged out of the Champions League places next season due to City’s splurge, and will also face an interest bill from their new stadium.

The gibberish

For the final part of this article, I’d like to point out the nonsense in Spurs’ “Summary and Outlook” section, right at the front of their accounts. This is likely as far as most sports journalists ever go into their accounts, so it has quite a scope to contort the truth, and indeed it does just that.

“Player trading profit of £56.5million”. The fact that they dress it up as a player trading profit is totally transparent, as less than a page earlier in the accounts they refer to it as a profit on disposal of intangible assets, which we’ve already talked about as being not reflective of an actual profit on player trading.

To claim it is a player trading profit implies that after all buying and selling over the financial window, they’ve made £56.5million, which is an outright lie. It looks all the more hollow when you see the figure of £119.3million right below it, for player acquisitions. Going by the average Joe’s perception of player trading profit, they’d need to have received £175.8million in transfer fees for their players to make a player trading profit of that amount. It is pure lies, that they get away with somehow, and I plan on getting in touch to see how they defend it.

“Revenue remains high at £113million”. Well that sounds good, doesn’t it! Not really, when you consider revenue actually fell compared to the previous year.

Record profit before tax of £33.4million” Or alternatively, why don’t you mention how operating profit, a measure of the clubs core business, has fallen by £11million compared to the previous year? This “record profit” is all to do with the false profits from player trading and nothing else. It’s  not hard to turn a pre-tax profit when some nonsense accounting can turn your player trading income into a profit of £56.5 million.

Unless you have any background in accounting, when you read those numbers you are just going to see “profit” and “£33.4million”, hence why they do such blatant spin doctoring. This is why one of the key reforms I’m proposing in a report on Premier League finances would be a consistent set of performance indicators that all clubs have to report. No more cherry-picking the measures that show the club in the best light if I had my way.

And just for a quick giggle: they actually cite winning the Barclays Asia Trophy as an achievement. Well done Tottenham, I won a raffle on holiday.

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15 Replies to “False profits – a look at the finances and spin of the Spurs”

  1. Phil,

    I just wanted to bring up the idea that GF60 brought up in the other article on tottenham.

    Is it possible to know how much taxes clubs pay on their profit? Because this is maybe the ultimate answer to how a club really is doing. If they make a profit they will pay tax over that profit (I guess this is the way it works also in the UK?) and if they make a loss they don’t pay tax.

    But I don’t know if this is something that can be found easily.

  2. Doesn’t the concept of amortisation seem little bizarre? Buying a player for £10 mil on a four year deal and selling him for £6 mil after 2 years gives them a profit of £1 million? Obviously this concept of amortisation has a serious flaw. Players are not like machinery, whose values get depreciated every year and by the end of the contract, their sale like scrap value brings profit. The wages the clubs pay their players represent payment for their professional services but when they are payin another club to break their contract, it has to be included in the player trading books rather than dividing it on the number of contract years. Surely, an amount a club pays is not the value of the player, but the value of the contract. And mostly such an amount is paid in a single amount, so how can it be divided in the number of contrav years or ‘amortised’??

  3. If Arsenal sells a player for £20 million and buys 3 players for £20 million on a four year deal, then, in the first year, by the amortisation concept, arsenal will hav a profit of £5 million rather than a loss of £40 million in their player trading accounts. Why is it that only the amount used to purchase a player gets divided?? Then the selling value should also be divided. Or else the whole concept of amortisation should be scrapped and the whole amount of the purchase should be debited in the accounts in one year.

  4. A simple thing has been made very complicated by accounting methods just to confuse everyone. Easy way to do would be, “total money received on selling players minus total money spend in buying players in that financial year”. This would create a profit or loss on player trading in that year. Why make it complicated by using amortization on each player for a squad of 25/30 at each club. This leave a very clear picture of profit and loss on player trading.

  5. Does anyone think that the Spuds will get thier new stadium built, i’m not so sure.

  6. The most important thing about accounting is to make things difficult, Sam. 😉
    It has all to do with the clearder accounts are, the easier it is for the taxman to see what he must charge.
    So the more difficult the rules and the more confusing it all is, the more a company can try to fool the taxman. Well that is how I have experienced it.

  7. as regards commercial revenue Spurs have actually been quite active( and smart) in building their brand in Asia. The tours aside, they provide equipment and kits(perhaps coaches too) to semi professional and amateur teams in India and sponsoring the Indian team at something called the homeless world cup(check it out). They also provided kits to a small island nation (link below)… its a small drop in the ocean but it is a clever marketing strategy.

  8. Dark Prince: I agree with you. Amortisation is very linear, whereas players hold their value over a period and then it falls off dramtically near the end of their contract.

    One point I’d like to emphasise that I don’t in the article is that amortisation is included in the accounts, so the perhaps unrealistically quick fall in value of the asset is a cost paid by the club over a number of years, whereas the windfall of the profit on its sale is all in a single set of accounts, so the issue is one of a large distortion of the bottom line in a single set of accounts, hence why I tend to stick to operating profits as a guide which are unaffected by this.

  9. great article, surely such deceiving acts will catch up with them sooner or later.

    Would like to ask have to thought about writing in match fixing in football. I know Germany is investigating over 200 games and with the increased influence of bookies in the game there is always that threat. It has happened in other sports such as cricket and some of those implicated in that instance are anything to go by no one is immune from falling to the offers.

    also, if I may, we have a face book group going that plans to write to Barca, FIFA and UEFA regarding the Cesc tapping up and we have nearly 1000 members and would like more to join us. You can find us in the link below

  10. Walter: I’m unsure on that. You can find out the amount paid in tax, but I’d have to do more research to see if that is solely a tax on profits as I’m not particularly familiar with UK taxes and the like.

  11. Oh yeah – Sorry Phil,

    Yet another fantastic article – always look forward to your posts!


  12. I think you will find that amortising players is extremely common and very much in line with recognised accounting principles, and also, that Arsenal do it to.

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