Tottenham – a class of their own

Why there has been no such thing as a Big Six

You know the Big Six? The Premier League clubs who always hoover up all the trophies? Well it turns out we were all wrong. There’s no such thing.

I’m not even talking about Leicester City and their extraordinary Premier League title win in 2015-16. I mean the Big Six doesn’t exist. What does instead, is a Big Five.

This isn’t a matter of trophies, because not even the most ardent Foxes fan would surely argue that Leicester fit in the Big Six. This is a question of resources.

And in those terms, Tottenham Hotspur, a frequent participant in the Champions League and a mainstay of the title race in recent seasons, just do not cut it.

There is a very clear delineation between the five biggest clubs in English football – Arsenal, Chelsea, Liverpool, Manchester City and Manchester United – and the rest.

First of all, let’s take a look at the aggregate revenues of all 20 Premier League clubs, as recorded in their statutory accounts (which at time of writing have not all been filed for the 2017-18 season, hence the 2016-17 data being used here. Spurs’ total revenues leapt over the 12 months to the end of June 2018, but so too did those of the Big Five; more on that later.)

As you can see, Premier League clubs have been growing pretty healthily.

But the growth has not been evenly shared. And in fact, Spurs’ turnover has been about as close to that of the average Premier League club’s, not including the five richest, as it has to the average turnover of those five clubs themselves. That much can be gleaned from the following dataset.

Taking both the average revenue for the Premier League Big Five and that for the other 14 clubs outside of Tottenham and you can see that, throughout the period, Tottenham’s revenues had been something of a halfway house between the two categories.

Across the eight seasons examined here, Spurs have earned in excess of £1bn less than the average of the five richest Premier League clubs. That’s not small beer.

£1.02bnhow much on average the Big Five earned
more than Tottenham between 2009 and 2017

The overall revenues can be broken down further into subsets. This is useful because it distinguishes between internally generated revenues – the Match-day, Commercial and “Other” categories – and the central distributions from the Premier League and Uefa in the form of the Broadcasting segment.

Where Tottenham have managed to stay in touch with, and even exceed the level of the Big Five average, is in terms of Broadcast revenues. This is great from the fans’ point of view, because it demonstrates how successful the team has been on the pitch.

But it is the internally generated revenues that clubs must create to remain competitive over the long term. And Spurs lag the five richest clubs quite dramatically here.

Clearly, the construction of the new stadium will redress that balance, putting them alongside and perhaps even beyond Arsenal and Manchester United, the Premier League’s two biggest earners in the match-day category. But the evidence of those two clubs shows that the gains here do not grow for years to come. They spike upwards with the stadium’s opening and plateau, or even decline slightly, as the new home becomes old hat.

There is also the risk with reliance on stadium income that the reduction in broadcast revenues from weak football performance is exacerbated by reduced match-day turnover too. This is seen in the chart below, when, amid a flattening general trend of cash through the turnstiles at both the Emirates Stadium and Old Trafford, Manchester United’s match-day revenues troughed in 2014-15, when the club had no European football to play.

Champions League absence would hurt Spurs even more than the five richer clubs. Their progression to the knockout phase of 2017-18’s elite-club competition contributed €61.3m (£46.7m at time of writing) to record seasonal revenues of £381m. But these were still lower than those of the Big Five clubs, all of whom topped £400m turnover in 2017-18; even Chelsea and Arsenal, who missed out on the Champions League. 

Tottenham’s more successful European campaign in the 2018-19 season has contributed to greater Champions League earnings for the year. But if that comes at the expense of missing out on the top four in the Premier League it could shave around €30m (£25m) from the broadcast revenue line the following season, even in the event of an equivalent run to the Europa League quarter-finals. Failure to qualify for Europe altogether in future years would be costlier still. 

A priority for Tottenham has been improving the commercial revenues they had previously been missing out on. With the shiniest new stadium in the Premier League, they have followed the template set by their north London rivals, Arsenal, a decade before. Forward selling their future shirt-sponsorship revenues in a 15-year deal has guaranteed the cash required to reassure lenders that they have steady cashflows to underpin the borrowing that has built the stadium.

But that is not without its downsides. Commercial incomes have been the fastest-growing segment among the big-five clubs and locking in the revenue from the valuable shirt property at 2018 levels through to 2033 creates a future opportunity cost. Selling naming rights for the stadium is clearly one area they can exploit and having an American Football tenant will bring valuable US audiences to the venue, but these deals have not typically created the enormous NFL-style naming rights for Premier League clubs who have them. Spurs would be bucking a trend if they do.

Even before the costly delays to the stadium project’s completion, Spurs’ net debt at the end of the 2017-18 season was £366m. With a development facility of £637m having been made available, it is not beyond reason to think this could rise by three-quarters – or perhaps even more if the build has blown its budget. 

The current loan term expires in April 2022, suggesting it is a high-interest facility. The Spurs chairman and part owner, Daniel Levy, intends to renegotiate this into longer-term loan notes with various repayment dates. For simplicity’s sake, let’s imagine the next set of loans settle at £637m and need to be repaid over 20 years at, say, a 3% loan rate (which would be generous for a football club). Then annual interest service and repayments would amount to £42.2m. At 4.5% they would be £48m. 

This would bite a large chunk out of the additional £80m to £100m – if they are lucky – Spurs might be expecting to earn in additional match-day revenues from their new stadium.

Daniel Levy: negotiating

Over time, the huge residential and mixed-use construction project around the ground will contribute large spikes in “other” revenues as sales of the new-builds take place. But this is no simple task. Arsenal, who went through the same experience a decade ago, found the transformation from football club to property company tricky to master. And Spurs’ project has cost more than double what Arsenal’s did. The climb up the ladder to becoming one of the biggest Premier League clubs by riches is imperilled with snakes. And it is clear from their prior financial performance that they have only ever been halfway up that ladder. 

So why, if they have not been part of it, do we all refer to Spurs as being one of the Big Six?

Well that is entirely down to football performance. And despite the obsession in so many quarters about their lack of trophies, there is absolutely no question that under Daniel Levy’s chairmanship and Mauricio Pochettino’s management, Spurs have been punching way above their weight.

By combining clubs’ expenditure on wages and net spending on transfers it is possible to calculate a club’s total Football Investment. More even than in turnover terms, Tottenham’s average annual football investment is much closer to the average spending of the 14 other clubs outside the Big Five than it is to the Big Five itself.

In fact, almost exactly like for the revenues generated by the Big Five relative to those of Spurs, between 2009-10 and 2016-17, the average amount those richer clubs have spent on Football Investment has exceeded Spurs’ by a whopping £1.03bn.

£1.03bnhow much on average the Big Five spent on wages and transfers
more than Tottenham between 2009 and 2017

How long Spurs’ frugality can be kept up is unclear. In the summer of 2018, the World Cup Golden Boot-winner, Harry Kane, signed a long-term contract. Pochettino and Kane’s England team-mate Dele Alli did the same. But this spending on wages came at the expense of transfer investment. In that World Cup summer, Spurs were the only Premier League club not to acquire a single player.

It may be that Pochettino is not prepared for a repeat of this situation in future. He has made some pointed comments about how the club must “take risks” in investing in the squad.

Mauricio Pochettino – pointed

With heavy debt-interest service and repayments needing to be budgeted for, it remains to be seen how possible that will be. In 2016-17 Spurs’ young team finished second in the Premier League on a wage bill that was only £14.5m more than Southampton’s and less than half that of the Manchester United side who finished sixth.

Those same players are now two years older and fully aware of their value. It is far from inconceivable that merely keeping the squad together will cost an extra £60m a year in wage payments, which, coupled with the debt burden and the cost overruns, might wipe out all the financial gains Spurs achieve from their hard work in building the new stadium.

There is headroom, and there is far more opportunity for revenue generation in the new White Hart Lane than the old, but it is possible a massive new squad-building exercise may prove out of reach.

And if their ambitious players feel that means trophies will remain out of reach too, their loyalty will be tested. Certainly they seem to be aware of the financial realities. That much seemed to be clear when the England captain, Kane, told ESPN: “It’s not just, when we look back in 10 years, ‘we had a great team’. It’s ‘look what they did, look what they won.’

“The challenge for us is can we keep going up and up and up? It’s going to be difficult in the next couple of years with the stadium and the finances.”

The Big Five will continue to strive for more football and financial gains, continuing to use their ampler free cash flows to improve their playing squads. Tottenham are getting closer, but even with the best club stadium in England as their home, six into five won’t go yet.

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