Premier League clubs have been warned to keep a tight hold on their expenses, after a Goal.com report suggested player wages had reached record levels, resulting in massive losses. According to a report by Deloitte's Annual Review of Football Finance for the 2010/11 season, total player wages in the Premier League was £201mn and by the end of the next season, this figure rose by 14 percent.
The recent trend of big teams spending more money on transfers means a record-breaking 70 percent of revenue generated by these teams goes to player wages. When the Premier League started its present avatar - in the 1991/92 season, the same figure was only 44 percent. Chelsea are, at present, the club with the highest wage bill - a staggering £191mn - and they are closely followed by Manchester City and Manchester United at £174mn and £153mn respectively.
Alan Switzer, a Director at the sports business group of Deloitte, has warned these big-spending clubs to keep wage expense in control so as not to face problems with UEFA's Financial Fair Play (FFP) rules, which are to be introduced shortly. The FFP rules were made to help clubs reduce losses and balance finances.
"If the wages to revenue ratio is 70 percent or higher it's very difficult to make an operating profit," AFP (Agence France-Presse) reported Switzer as saying.
"In our view it is too high as a league and the clubs need to be edging back to the low 60s. Every one percent that it drops should increase operating profits by £20 million to £25 million," he added, according to a Daily Mail report.
The increase in wage expenditure at big clubs can be attributed to the income they generate from outside the Premier League. However, once the FFP rules are put into effect, clubs will have to balance income and expenditure, meaning they may have to sell existing players if they want to recruit new faces. If they fail to meet these requirements, they will risk fines and suspension from competitions.
Switzer believes Chelsea and Manchester City, owned by Russian billionaire Roman Abramovich and the Abu Dhabi-based Sheikh Mansour respectively, are the teams who are in danger of being penalised.
"Chelsea and Manchester City are the clubs which have recorded the biggest losses so they are the two which have the most to do, and to be fair to them they have been pretty public about needing to take action," the Guardian quoted Switzer as saying, and adding, "A significant number of clubs around Europe have some distance to travel on the road towards compliance."
"The challenge for clubs remains converting impressive revenue growth into sustainable profits," said Adam Bull (consultant in the Sports Business Group at Deloitte), according to The Independent.