The best players get well paid for their trouble. According to the Global Sports Salary Survey for 2017, the average salary for players at the two Manchester clubs, United and City, was £5.2 million ($6.8 million) per year. Clubs such as Barcelona, Paris St. Germain and Real Madrid shell out even more, with the average Barca player earning 25% more than their counterparts in Manchester. If a top flight player can expect to play 60 games per season, an average player in Manchester earns around £87,000 per game – or nearly £1,000 for each minute they are on the pitch. Clearly, that is an awful lot of money to shell out but the simple truth in sport is that if you want to win, you have to pay.
Contrary to the view on the terraces that clubs have to spend in the transfer market to be successful, the academic evidence clearly shows a stronger correlation between the wage bill and football success. This reflects the fact that clubs which spend most on wages tend to attract the best players. As the chart below shows, there is a decent linear relationship between the average wage per player and Premier League position in season 2017-18. Those clubs lying above the line underperformed relative to their wage bill whilst those below the line outperformed. This brings me nicely to one of own personal pet peeves since I am a long-suffering fan of Newcastle United – a club that is perennially perceived to be one of the great underachievers of modern English football.
As is evident from the chart, Newcastle significantly
outperformed its wage bill last season largely thanks to the outstanding
performance of the manager Rafa Benitez, who has an impressive managerial CV at
some of Europe’s top clubs. Although it is only one data point, it is testimony
to what a good manager can achieve without spending huge amounts of money. But
it is hard work to operate like this on a sustainable basis and Benitez is used
to competing at the top of the table with clubs like Liverpool, Inter Milan and
Real Madrid (his last job before Newcastle). Like most Newcastle supporters, I
am frustrated at the refusal of the club’s owner, retail magnate Mike Ashley,
to loosen the purse strings which would allow Benitez to strengthen his squad to improve the chances of winning something. Indeed, there is a common perception that Ashley is the root of all evil at the club (see, for example, this article from the German magazine Kicker). But a closer look at the club’s
finances make it clear that matters are far more complicated than
they appear on the surface.
At first glance, the club would appear able to spend more. Since he took the job in March 2016, Benitez has recouped almost £58 million in net transfer fees alone. Moreover, since Ashley took control of the club in 2007, he has sanctioned an average net spend of just £11 million per year which is around the going rate for one player these days – one new player per season is just not going to cut it. This failure to invest means that in the last nine years the club has suffered two of the six relegations in the club’s 126 year history. And the costs of relegation are significant. Relegation in season 2015-16 cost the club £40 million in lost revenue with the result that a modest profit of £4.6 million in 2016 was transformed into a loss of £41 million. Were Newcastle to have spent more than one season in the Championship (the second tier), parachute payments available to relegated clubs would have dwindled and revenue losses would have been even higher.
Doubtless Ashley would retort that increasing outlays would bring in little additional revenue. Each gain in league position only generates an additional £1.9 million in prize money. In order to justify spending an extra £10 million would require the club to improve its position by 5 places. Having finished 10th last year it would be a tall order for the club to be in the running for a Champions League spot. But this penny-pinching approach is at the extreme end of the feast or famine approach which characterises football finances. Once we factor in TV revenue, Newcastle generated a total of £123 million last year purely from being in the Premier League.
There again the club’s wage bill in 2017 was around £112 million so a large part of the Premier League revenue is eaten up by costs. And the club is also heavily indebted (as indeed are many top flight clubs in England) with the total amountng to £144 million as of mid-2017 which is more than 100% of income. Fortunately, the debt is held by Ashley and is not subject to interest charges, and the owner’s strategy appears to be to manage the club such that current costs are met out of current income. Whilst this is a laudable aim – and debt has been broadly stable over recent years – it is not enough to satisfy fans who want to see the club actually win things. Winning the FA Cup would generate £6.8 million in prize money (even reaching the final would bring in another £5 million) plus gate receipts. However, the EFL Cup (as this season’s League Cup is called) is not even worth bothering with on a financial basis (here).
As a Newcastle fan, I want to see my club win things or at least make a decent attempt at doing so. But the economics of running a football club mean that unless you have ultra-deep pockets it is difficult to compete on a consistent basis. In many ways, Ashley has not been a good steward of the club: He is a lousy communicator, is overly parsimonious and fails to appreciate the importance of the club to the local community. But it is hard to disagree with the underlying business ethos that the club must live within its means. The romantic in me harks back 20 years to the days when Kevin Keegan’s team swashbuckled their way up the league, spending huge amounts of money in the process. But the legacy is a large debt which, two decades on, continues to constrain the club’s ambition.
At first glance, the club would appear able to spend more. Since he took the job in March 2016, Benitez has recouped almost £58 million in net transfer fees alone. Moreover, since Ashley took control of the club in 2007, he has sanctioned an average net spend of just £11 million per year which is around the going rate for one player these days – one new player per season is just not going to cut it. This failure to invest means that in the last nine years the club has suffered two of the six relegations in the club’s 126 year history. And the costs of relegation are significant. Relegation in season 2015-16 cost the club £40 million in lost revenue with the result that a modest profit of £4.6 million in 2016 was transformed into a loss of £41 million. Were Newcastle to have spent more than one season in the Championship (the second tier), parachute payments available to relegated clubs would have dwindled and revenue losses would have been even higher.
Doubtless Ashley would retort that increasing outlays would bring in little additional revenue. Each gain in league position only generates an additional £1.9 million in prize money. In order to justify spending an extra £10 million would require the club to improve its position by 5 places. Having finished 10th last year it would be a tall order for the club to be in the running for a Champions League spot. But this penny-pinching approach is at the extreme end of the feast or famine approach which characterises football finances. Once we factor in TV revenue, Newcastle generated a total of £123 million last year purely from being in the Premier League.
There again the club’s wage bill in 2017 was around £112 million so a large part of the Premier League revenue is eaten up by costs. And the club is also heavily indebted (as indeed are many top flight clubs in England) with the total amountng to £144 million as of mid-2017 which is more than 100% of income. Fortunately, the debt is held by Ashley and is not subject to interest charges, and the owner’s strategy appears to be to manage the club such that current costs are met out of current income. Whilst this is a laudable aim – and debt has been broadly stable over recent years – it is not enough to satisfy fans who want to see the club actually win things. Winning the FA Cup would generate £6.8 million in prize money (even reaching the final would bring in another £5 million) plus gate receipts. However, the EFL Cup (as this season’s League Cup is called) is not even worth bothering with on a financial basis (here).
As a Newcastle fan, I want to see my club win things or at least make a decent attempt at doing so. But the economics of running a football club mean that unless you have ultra-deep pockets it is difficult to compete on a consistent basis. In many ways, Ashley has not been a good steward of the club: He is a lousy communicator, is overly parsimonious and fails to appreciate the importance of the club to the local community. But it is hard to disagree with the underlying business ethos that the club must live within its means. The romantic in me harks back 20 years to the days when Kevin Keegan’s team swashbuckled their way up the league, spending huge amounts of money in the process. But the legacy is a large debt which, two decades on, continues to constrain the club’s ambition.
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