Football clubs 'on brink of financial ruin' despite passing £1bn goal

The English Premiership officially may be the world's richest football league, but most of its clubs are running a serious risk of financial ruin in their attempt to compete in it, a report warned yesterday.

The English Premiership officially may be the world's richest football league, but most of its clubs are running a serious risk of financial ruin in their attempt to compete in it, a report warned yesterday.

The total income for English clubs broke the £1bn barrier for the first time last season – a rise of 13 per cent – with the Premiership's 20 teams cashing in on television deals to provide saturation coverage of the national sport.

But revenues from the media, turnstiles and merchandising have been wiped out by players' wages, which have continued to rise with the record transfer to Arsenal last month of the England defender Sol Campbell for a reported £100,000 a week, the 10th Annual Review of Football Finance, by the accountants Deloitte & Touche, revealed.

The wages bill has resulted in total pre-tax losses for teams in the top flight of £34.5m last season, compared with a profit of £13.7m the previous season.

For the first time, managers of English clubs spent more of their transfer budget for the 1999-2000 season on overseas players – a trend that has fuelled concerns for the grass roots of the game and led to fears among football finance experts that clubs are approaching the financial brink. Last summer, clubs from all divisions lavished an average of 53 per cent of their £340m transfer budget on overseas players. The flow of capital out of the English game showed no sign of slowing this summer with the purchase of big names such as the Dutch international Ruud van Nistelrooy and the Argentinian Juan Sebastian Veron.

Authors of the report said that only three clubs – Manchester United, Leeds United and Watford – were well within their limits having spent 50 per cent or less of their income on paying players and other staff. The wages/turnover ratio, an accountants' yardstick of financial stability, reached alarming proportions in the First Division where teams are spending, on average, 95 per cent of their income on paying players they hope will get them into the top flight, for which the club earns a £23m windfall, the report said.

Gerry Boon, the head of Deloitte and Touche Sport, said: "While English professional football has generated massive income increases in the last decade, this has been more than matched by clubs' ability to spend it."

Last week bookmakers announced odds of 10-1 on a Premiership club going into receivership, and experts fear that boardroom directors are playing a dangerous game of brinkmanship by spending next year's enhanced television revenue on players' wages now. The report adds that in the past season, only 18 out of the 92 English league clubs made a profit, led by Manchester United, Arsenal and Chelsea.

The report's authors forecast that total income for Premiership teams this season will pass £1bn and, fuelled by new broadcasting deals, will reach £1.5bn next season. Mr Boon said: "It is now up to clubs to use [broadcasting and internet revenue] to secure a viable future. The numbers may differ but costs need to be managed effectively at all levels of the game."

Long-term financing of football clubs is drifting away from banks towards media companies and football fans, the report says. The coffers of Premiership clubs have been boosted by a total £255m deals with media companies hoping to cash in on their broadcasting rights. In the lower three divisions, teams are being propped up by "soft loans" of £111m in total from fans or rich individuals. These include contributions from the publishing magnate John Madejski, for his adoptive Reading Football Club. Higher-profile contributions have come from Mohammed Al Fayed, to Fulham, and from the late industrialist Jack Walker, who bankrolled Blackburn.

Brian Lomax, the chairman of Supporters Direct, said: "We would prefer a more equitable distribution of television revenues coming down to grassroots level. Too much money is concentrated in the hands of fewer and fewer clubs at the top of the game."