Showing posts with label Daniel Levy. Show all posts
Showing posts with label Daniel Levy. Show all posts

Wednesday, December 14, 2011

Tottenham - Grounds For Optimism Or Concern?


In spite of their somewhat controversial defeat at Stoke City last weekend, Tottenham Hotspur have enjoyed a splendid season to date. Even though it did not get off to the most auspicious of starts with successive maulings at the hands of the two Manchester clubs, Spurs then embarked on a 12-match unbeaten run in the Premier League, comprising 11 victories and just one draw. The team has been in fine form, adding an unexpected consistency to their usual attacking flair.

This is all the more impressive, as it follows a difficult summer in the transfer market, traditionally a time when seasoned observers would expect manager Harry Redknapp to be heavily involved. Instead, it was dominated by the Luka Modric saga, a transfer that did not actually take place, even though the talented midfielder’s desire to move to Chelsea was made clear to all.

Chairman Daniel Levy’s staunch refusal to countenance the Croat’s departures could have had negative repercussions in the dressing room, but to his credit Modric has performed to his customary high levels so far. He has been greatly helped by the tenacious Scott Parker, who was signed from West Ham for a bargain fee of £5.5 million. In fact, very little money was spent, as the experienced goalkeeper Brad Friedel arrived on a free transfer and powerful striker Emmanuel Adebayor is on loan from Manchester City.

"Itching to leave?"

In contrast, many fringe players have been offloaded with Peter Crouch, Wilson Palacios and Jonathan Woodgate all heading to Stoke City, Alan Hutton moving to Aston Villa, Jamie O’Hara to Wolves and Robbie Keane taking his extravagant goal celebrations to LA Galaxy. In addition, Villa and West Ham have somehow been persuaded to take Jermaine Jenas and David Bentley on loan for the season.

Following the numerous departures and the lack of high-profile signings, it would have been legitimate for Spurs’ fans to lower their expectations this season, but Redknapp believes that this might be his best Spurs squad yet, capable of going further than the one that qualified for the Champions League two years ago. He said, “I think we’ve got the potential to be up there all year”, which might have sounded foolhardy a few weeks ago, but now does not seem so unrealistic, as Spurs currently sit in fourth place in the Premier League with a game in hand on the three teams above them.

Results have been equally encouraging off the pitch, as there was a solid improvement from last year’s £6.5 million loss before tax to a £0.4 million profit for the 2010/11 season. That was mainly due to the impressive run in the Champions League, which not only took Spurs to the quarter-finals before elimination by the mighty Real Madrid, but helped grow revenue by 36% (£44 million) from £120 million to £164 million, though this was largely offset by a 35% (£34 million) increase in operating expenses, primarily a booming wage bill. In addition, profit on player sales fell £7 million, though net interest payable also reduced by £4 million.

It should be noted that Spurs have a small property business segment, which made a small loss of £1 million, so the actual football profit was slightly higher at £1.4 million.

Tottenham are very profitable at the cash level with EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation) of £40 million being one of the best in the Premier League, only behind Manchester United and Arsenal, though non-cash expenses like player amortisation and depreciation lead to operating losses before player sales usually save the day.

In fact, profit on player sales has been a strong factor in Tottenham’s financial prowess over the last few years. If money from this activity were to be excluded, then Spurs would have consistently reported losses. This is most obvious in 2009, when the hugely profitable sales of Dimitar Berbatov to Manchester United and Robbie Keane to Liverpool produced an incredible £57 million gain, leading to a £33 million pre-tax profit. Without these sales, the club would have reported a thumping great £23 million loss.

Last year’s loss would have been even higher without the sales of Darren Bent to Sunderland, Didier Zokora to Sevilla and Kevin-Prince Boateng to Portsmouth. On the other hand, the 2011 profit would have been even healthier if Spurs had repeated their usual £15+ million profit here. Instead, the profit was relatively low at £9 million with the club receiving only a small fee from QPR for Adel Taarabt plus contingent receipts from prior year sales.

You might be thinking, “So what? This is a fairly standard part of any football club’s business” and you would be right. However, it is worth making the point that without the boost of Champions League money, it is very likely that Spurs will have to sell players if they wish to make a profit.

Of course, very few football clubs actually do make money, as can be seen by looking at the financial results for Premier League clubs for 2009/10 (the last season for which we have published accounts for all clubs). Only four of those 20 clubs were profitable: Arsenal, Wolves, West Brom and Birmingham City. All the other 16 clubs lost money with ten of them reporting losses higher than £15 million.

Of the big clubs to report 2010/11 results, Manchester United have swung back to a £30 million profit, but Arsenal’s profit has significantly reduced from £56 million to £15 million, while Manchester City’s loss has further widened to an astonishing £197 million.

Tottenham are cut from a very different cloth, as they have reported pre-tax profits in six of the last seven years, which is a powerful testament to how well Daniel Levy runs the club. Even Harry Redknapp, who undoubtedly would wish that the chairman loosened the purse strings, was forced to admit, “He’s a businessman, a clever businessman, with a fantastic business brain.”

On the face of it, it should be no great surprise that Spurs are doing well financially. After all, their 2009/10 revenue of £120 million was enough to place them 12th in the Deloitte Money League for European clubs (up three places from the previous year). Furthermore, the increase in revenue to £164 million should take them into the top ten when the 2010/11 review is published, over-taking Manchester City (£153 million) and Juventus (no Champions League).

However, that first glance is a little misleading, as Spurs are still a long way behind the leading English clubs, e.g. Manchester United’s revenue has now increased to £331 million, which is more than twice as much as Spurs, while Arsenal still generate over £60 million more than their North London rivals. Furthermore, the Spanish giants are on an other planet, also reporting substantial gains in 2011: Real Madrid from £359 million to £420 million and Barcelona from £326 million to £392 million.

That said, Tottenham’s revenue is still the envy of many clubs, as it is considerably higher than the next tier of challengers, e.g. Aston Villa are around the £90 million level, while Everton have only just broken the £80 million barrier.

In terms of revenue growth, Spurs also look impressive. They have managed to increase revenue from £71 million to £164 million in the last six years with a cumulative growth rate of 132%, which is only bettered by Manchester City’s 152%. However, it has to be remembered that this is from a smaller base, so is a little misleading. As a famous investor once said, “Elephants don’t gallop.”

In fact, despite the notable growth in their revenue, Tottenham have hardly made any impression on the absolute gap against other clubs. The difference is virtually unchanged relative to Chelsea and Manchester City, while it has actually expanded against Arsenal and especially Manchester United (from £95 million in 2005 to £165 million in 2011). They have only managed to get closer to Liverpool, thanks to the Reds’ absence from the Champions League.

Over the last four years, the driving force behind Tottenham’s revenue growth is clearly television. In that period £41 million (84%) of the £49 million total revenue increase from £115 million to £164 million has come from TV, with only £6 million from the much vaunted commercial operations and £2 million from match day income.

Please note that Tottenham include corporate hospitality in their commercial income, so I have added an estimated £10 million to gate receipts to produce a revised match day figure of £42 million. This is based on a review of similar re-allocations performed by Deloitte in their Money League split for the last three years.

Of course, the main reason for the dazzling revenue growth in 2010/11 is the glorious run in the Champions League, which featured a number of exciting performances, notably when Spurs defeated the trophy holders Inter Milan at a packed White Hart Lane. The fans may remember Gareth Bale’s arrival on the world stage via a hat-trick in San Siro, but the club’s board will look equally fondly on the additional £37 million from prize money and gate receipts.

Around £27 million (€31.1 million) of that is included in TV revenue, comprising €7.2 million participation (awarded to every team that plays in the group stages), €9.5 million performance bonus for reaching the quarter-final and €14.4 million from the TV (market) pool. Not much to complain about there, though the allocation for the TV pool is lower than the other English clubs (Chelsea €27 million, Manchester United €25.9 million and Arsenal €16.6 million).

This is because of the methodology used to allocate this element, which is as follows: (a) Half depends on the position that the club finished in the previous season’s Premier League with the team coming first receiving 40%, second 30%, third 20% and fourth 10%. As Spurs came fourth in the 2009/10 Premier League, they receive much less than the others. (b) Half depends on the progress in the current season’s Champions League, which is based on the number of games played. So Spurs received more than Arsenal, as they got a round further, but less than Manchester United who reached the final.

The other problem for Spurs is that they missed out on qualification for the Champions League last season (by one place), so they will have a hole to fill in the 2011/12 accounts. Although they are competing in the Europe League, this is a lot less lucrative financially. Last season, Liverpool and Manchester City only received €6.1 million for their laborious efforts in Europe’s junior competition, while the highest prize money was the €9 million awarded to Villarreal.

Although Levy insisted, “We shall fully embrace the Europa League this season”, his manager did not seem so convinced. Towards the end of last season, Redknapp lamented, “Teams who get into the Europa League want to get out of it. Half of them put reserve teams out in the early stages and it’s difficult to play every Thursday and Sunday.” From a financial perspective, it does provide some compensation via additional gate receipts, but it really is the poor relation of the Champions League.

That can be seen by looking at the TV money received by the leading English clubs last season, where the advantage enjoyed by those teams participating in the Champions League is clearly evident. In contrast, there is not a huge difference between the payments from the Premier League, due to the equitable nature of the distribution methodology.

Each club gets an equal share of 50% of the domestic rights (£13.8 million) and 100% of the overseas rights (£17.9 million). However, facility fees (25% of domestic rights) depend on how many times each club is broadcast live with £9.2 million for Spurs. Finally, merit payments (25% of domestic rights) are worth £757,000 per place in the league table, giving £12.1 million to Spurs. In total, this added up to £53 million.

That represented a £3.6 million increase over the previous season, even though the merit payment was lower, based on league position of fifth compared to fourth, and the facility fees were lower, due to only being shown live 17 times compared to 20. However, this was the first year of the Premier League’s latest three-year TV rights deal, which was worth more thanks to much higher payments for overseas rights.

The massive growth in TV revenue can be appreciated when looking at the near doubling of the money Spurs received last season compared to 2007, when they also finished fifth.

Gate receipts are heavily influenced by the number of cup matches, as the underlying income from the Premier League is flat, hovering around £20 million for the last three seasons, which is to be expected as the stadium is filled to capacity for every home game. There’s not much scope to raise ticket prices, as these are already among the most expensive. According to a recent BBC survey, the most expensive tickets are the third highest in the Premier League (only behind Arsenal and Chelsea), while the cheapest tickets are the fifth highest.

"van der Vaart generator"

Given that the annual report states that total revenue from the Champions League was £37 million and we know that the prize money was £27 million, we can conclude that this tournament contributed £10 million in additional gate receipts for six home games. The reason that the revenue growth was not higher is that Spurs only played two domestic home cup games in 2010/11 compared to five the previous season.

Last season Tottenham introduced an innovative split of their shirt sponsorship between software company Autonomy (now Aurasma, one of their products) for the Premier League and asset management group Investec for all cup competitions. These are both two-year deals running until 2012, the former worth £10 million a year, the latter £2.5 million. The total of £12.5 million is much better than the previous £8.5 million deal with Mansion and is the fifth highest deal in England, only behind Manchester United (Aon), Liverpool (Standard Chartered), Manchester City (Etihad) and Chelsea (Samsung).

Similarly, Spurs have announced a “record breaking” five-year deal with kit supplier Under Armour from the 2012/13 season. This is reportedly worth £10 million a year, which is double the £5 million paid by current partner Puma. That’s good progress, but still a fair way below the £25 million paid to Manchester United and Liverpool by Nike and Warrior respectively.

Merchandising income rose an impressive 23% to £9.6 million, aided by (yes, you guessed it) the Champions League.

Progress has also been made with secondary sponsors, such as a four-year extension with travel partner Thomas Cook and a new agreement with Sportingbet.com, who become Tottenham’s official online betting partner, though there is a long way to go before they come close to emulating the success of clubs like Manchester United, described by commercial director Charlie Wijeratna as being “three to four years ahead of us in this.” He suggested that much more could be done to leverage global interest in the club’s “distinctive brand around the issues of flair, style and adventure”, especially in Asia.

On the cost side, wages have shot up by 36% from £67 million to £91 million, which the club attribute to “a large squad playing in both domestic and European competitions”, backed-up by the growth in headcount for players and football administration staff from 142 to 159. Although not separately analysed, some of the rise is surely also due to performance bonuses following Champions League success.

Although the size of the increase might well raise eyebrows, Spurs are “only” sixth in the English wages league, still a long way behind Manchester City £174 million, Chelsea £173 million (2009/10), Manchester United £153 million, Arsenal £124 million and Liverpool £114 million (2009/10). Funnily enough, the gap between Arsenal’s wage bill and Tottenham’s of £33 million is exactly the same as the difference in 2005. Go figure.

The problem for Spurs is that even after this substantial rise, their wage bill still pales into insignificance compared to Manchester City. As Redknapp complained, “I think the wages have gone crazy. It’s gone beyond all belief in the last little spell.”

"Clap Your Hands Say Yeah"

This has inevitably put pressure on Tottenham’s famously rigid wage structure, where the top salary is reportedly only £70,000 a week, though it can be increased with performance bonuses. You and I might just about get by on that, but it is peanuts for a world-class footballer. It means that the club struggles to attract the top talent, e.g. on-loan striker Adebayor has said that he would not accept a pay cut to make his move permanent. He can only ply his trade at White Hart Lane now, because Manchester City subsidise his £170,000 weekly wage to the tune of £100,000.

Modric is looking to increase his weekly wage up to £100,000, aided and abetted by that old spendthrift Redknapp, “You can’t say he is worth £40 million and want to pay him the wages of someone who is worth £5 million. You have to look after the boy.” The trouble is that if the club accedes to his claims, then others will not be far behind in seeking a pay rise.

Daniel Levy is at pains to emphasise the club’s tight financial control, “We continue to work on driving revenues to ensure that the wages to revenue percentages remain within our key performance targets.” In fairness, Tottenham have managed to do that to date, maintaining the important wages to turnover ratio in a narrow range of 54-56%, which is very respectable. Furthermore the wages growth of 124% since 2006 is almost exactly in line with the revenue growth of 121% over the same period.

The quandary facing Spurs in the next set of accounts is that they will no longer have the benefit of £37 million of Champions League revenue and the Europa League is not likely to provide more than £10 million compensation. Ceteris paribus that would increase the wages to turnover ratio to 67%, which is by no means disastrous (Manchester City’s is 114%), but is probably higher than Levy would feel comfortable with.

That is one reason why so many players left in the summer, either permanently or on loan, as the club attempted to follow Levy’s edict to “streamline the squad where appropriate.” On the other hand, the annual report states that “core players” have been given new, longer-term deals on “higher, competitive salaries”, so the wage bill might not come down by as much as some people might expect.

"Fast company"

My guess is that the club is still keen to trim the fat, especially as Levy has noted the other challenge facing Spurs in terms of players, “We currently have one of the largest squads in the Premier League and given the 25-man squad rule, it is no longer practical to retain players who are unlikely to qualify within that limit.” It would therefore be no great surprise if the exodus continued with many players poised to leave, including Heurelho Gomes, Niko Kranjcar, Roman Pavlyuchenko, Sebastien Bassong, Giovani dos Santos and William Gallas, though that may be easier said than done, given their decent wages.

So Levy has done a fine job in keeping wages down, but he has proved equally adept at negotiating his own remuneration, which has increased from £250,000 in 2004 to £1.8 million in 2011 (up from £1.35 million the previous year), though, in fairness, this is not an outrageous sum when compared to the money earned by some of his peers (Garry Cook, David Gill and Ivan Gazidis).

The other aspect of player costs, namely amortisation, rose steeply in 2008 from £19 million to £37 million, but has barely increased in the last three years. To explain this, when a new player is bought, football clubs do not expense the cost immediately, but instead book it onto the balance sheet as an intangible asset and write it off over the length of the contract. As an example, Rafael van der Vaart was bought for £8 million on a four-year contract, so the annual amortisation charge is £2 million.

The sudden increase in amortisation, followed by little movement, suggests that Tottenham’s spending in the transfer market first rose, then slowed down, and this is indeed the case. If we split the last nine years into three equal periods of three years, we can see that the net spend was £37 million up to 2006, it then increased to £77 million up to 2009, but has fallen dramatically to net sales of £1 million in the last three years. Redknapp is a renowned big spender, but it looks as if he has more than met his match in Levy.

Of course, it would have been difficult to keep spending at the rate of a few years ago without getting rid of some of the dead wood. If we look at the last six years, Tottenham have actually still outspent Manchester United (£57 million) and Arsenal (net sales of £46 million), while they have spent about the same as Liverpool (£84 million). They are way behind Manchester City (£437 million) and Chelsea (£145 million), but that is only to be expected.

Another intriguing point to emerge recently was that Tottenham were the second highest spenders on agents’ fees in 2010 with £7.6 million, only surpassed by Manchester City £9.7 million.

The reduced activity in the transfer market has helped the club reduce its net debt (for the first time in many years) from £64 million to £57 million, despite continued investment in capital projects. There is no longer any classification issue with the Convertible Redeemable Preference Shares, as these have were all converted to ordinary shares or redeemed last year.

The debt comprises £52 million of bank loans, including a £15 million short-term revolving loan from HSBC, a £30 million facility with the Bank of Scotland at a floating rate linked to LIBOR and a new £7 million facility from Investec specifically for funding the new training ground; plus £25 million of loan notes at an interest rate of 7.29% repayable in equal installments by September 2023; less £21 million of cash.

In addition, trade creditors include £21 million for outstanding transfer fees, though this is partially offset by £3 million transfer fees owed to the club in trade debtors, while there are contingent liabilities (depending on success of the team and individual players) of £24 million with contingent assets of £11 million.

Nevertheless, the balance sheet remains strong. In fact, thanks to the reduction in liabilities, net assets have increased from £71 million to £81 million, including tangible assets of £150 million, comprising White Hart Lane and current training ground £39 million, new stadium project £83 million and the new training ground in Enfield £28 million, and intangible assets (players) of £101 million. Of course, the market value of the players in the books is far higher than the carrying value in the accounts with the respected Transfermarkt website estimating a value of £240 million.

However, as the accounts say, “This huge investment over the last six years has been funded through profits, equity contributions and long-term debt financing.” Although the club generates a lot of cash from its operating activities (£163 million in the last five years), this has not been enough to cover player purchases (£112 million) and property investments (£117 million), which has required £72 million of additional funding, either via new loans or additional share capital. Even then, most years have seen a net cash outflow, though last season again benefited from the Champions League.

This is a mere drop in the ocean compared to the funding that would be required to build the proposed new stadium. Although there are many risks involved in such a project, Levy is adamant that an increased capacity stadium is “critical to our continued success” and “central to delivering our ambitions for this club.”

White Hart Lane’s limited capacity of 36,000 cannot compete financially with Old Trafford’s 76,000 or The Emirates’ 60,000 and is a source of frustration for the 35,000 Spurs fans on the season ticket waiting list. Manchester United and Arsenal earn £3.7 million and £3.3 million every match, which is more than twice the £1.6 million generated by Spurs, leading to a revenue shortfall of £50-60 million a season. Without this additional revenue, it would be virtually impossible for Tottenham to match their wage bills.

The club has been pursuing two options: (a) the Northumberland Development Project (NDP) in the area around White Hart Lane; (b) relocation to the Olympic Stadium in Stratford.

Although Spurs’ interest in the Olympic Stadium initially appeared to be little more than a negotiating tactic, it became clear that this was in fact the club’s preferred alternative, as it would have been significantly cheaper (around £200 million less than redeveloping White Hart Lane) and there are excellent transport links already in place. So Tottenham prepared a comprehensive bid along with their partner AEG, the operator of the O2, which included plans to host major concerts and other events in a stadium purpose built for football plus a healthy return to the taxpayer.

"My wage packet is this big"

Crucially, they did not agree to retain the running track, even though they offered to fund a much improved athletics facility at Crystal Palace that would be available 365 days a year, so West Ham were selected as the preferred bidder. Given that Tottenham were encouraged to bid, they must have felt that, ahem, the goalposts had been moved.

Even though a club survey showed that very little of its support actually comes from the Tottenham catchment area with the vast majority coming from Hertfordshire and North Essex, many Spurs fans were understandably against Stratford. In addition, there was the small matter of Premier League rules, which stated that any move should not adversely affect clubs in the immediate vicinity, which was surely the case with Leyton Orient.

Although Tottenham mounted a legal challenge against the decision, they have now formally said that the Olympic Stadium “has ceased to be an option”, though ironically the deal for West Ham to move there has now collapsed.

"The light pours out of me"

So Spurs are now “totally committed” to the NDP development that Levy described as unviable earlier in the year on account of its prohibitive expense. Development restrictions have increased costs and reduced the amount of residential property that could be built to help fund the construction cost of the proposed 56,250 capacity stadium.

Beyond saying that it would require “hundreds of millions”, the club has not confirmed the total cost, though they have already invested £60 million in buying land and £26 million on the planning process. Incidentally, the latter fees have been capitalised and would have to be written-off if this project were to be abandoned.

Planning permission was granted in September 2011, but the summer riots in Tottenham that caused the opening match of the season to be cancelled have made investment less appealing. Indeed, the club stressed that public money must be spent on improving the infrastructure of the area before the club will be convinced to invest themselves. They have been offered £17 million of public money from the Greater London Authority and Haringey Council in order to help persuade them to stay in the area, though Orient’s ebullient chairman Barry Hearn has described this as a “bung”.

"Hey, Heurelho, you're now No. 2"

The club has announced that they will de-list from AIM to help the prospects of raising funds. Apparently potential investors said that this would be easier if the club were privately held, though this seems dubious to say the least and it is more likely that the club’s owners are just fed up with the exchange’s compliance requirements.

Although interest rates for bank loans are at historic lows, Tottenham have explored other ways to finance the construction, including stadium naming rights, where the cash could be front-loaded like Arsenal did with the Emirates, ten-year premium seating packages along the lines of Club Wembley and a supermarket. The objective is to reduce the amount of debt that the club would have to take on.

However, some fans might ask why the club is enduring such contortions when it is owned (via ENIC) by one of the world’s wealthiest men, Joe Lewis, who is worth an estimated £2.8 billion. Surely he could put his hand in his pocket in the same way as Sheikh Mansour or Roman Abramovich instead of scrambling for public money?

Whatever mix of funding they secure, it will take at least four years before the new stadium is completed.

"Everybody's happy nowadays"

UEFA’s new Financial Fair Play (FFP) rules, which mean that clubs can only spend the income they generate through the activities of the football club, provide an added incentive to build a new stadium. As Levy has pointed out, “If you look at the stadium capacities of the top 20 clubs in Europe, they all exceed ours.” Not only that, but UEFA’s new regulations actively encourage such investment, as any costs incurred for a new ground, such as interest on loans, is excluded from their break-even calculation.

This is important for Spurs, because, although the club has publicly welcomed UEFA’s attempts to “level the playing field”, as this should vindicate their prudent approach, it will not be easy for them to break-even without the infusion of Champions League money – or selling players.

Furthermore, FFP underlines Tottenham’s focus on investing in young talent, as youth development costs are also excluded from the break-even calculation. Last season four academy graduate played for the first team: Jake Livermore, Steven Caulker, Danny Rose and Andros Townsend. In addition, Spurs are scouting for talent overseas, such as Souleymane Coulibaly, the Ivory Coast forward who won the Golden Boot at this summer’s U-17 World Cup.

"Miss me blind"

The new training centre in Enfield, due for completion in summer 2012, is designed to “help us attract, develop and retain the highest quality talent.” Even before that is ready, Tottenham’s youngsters are progressing well, as seen by them winning their group in the NextGen Series, thrashing Inter Milan and PSV Eindhoven en route.

In the short-term, it is likely that Tottenham will make a loss in 2011/12, as they are now in the unfortunate position of having a squad on Champions League wages without actually gracing the tournament with their presence. Although they have removed quite a few players from the payroll, this is almost certainly insufficient to cover the revenue loss. There will also be profit on these player sales, but my calculations suggest that this will not be a great deal more than last season unless more leave in January.

In other words, it is very important that Spurs qualify for next season’s Champions League, but as Redknapp himself said, “It’s very hard to get into that top four… very, very difficult.” The likely elimination from the Europa League should help, as it removes that distraction, and the team certainly looks a good bet at the minute. However, it’s a funny old game and Spurs suffered a terrible drop-off last season, following an injury to the dominant Bale and van der Vaart’s loss of form.

"King without a crown"

If they don’t make it, then the smart money has to be on a series of player departures, including the aforementioned Bale and Modric for starters. Although Levy has argued against this, “We have a great squad with exceptional talent and none of the main players will be leaving in January”, that does not rule out next summer and there have been many precedents in the past for such big money sales when there was a need to balance the books.

Furthermore, there are weaknesses in the Spurs side that need to be addressed sooner rather than later, most notably in defence where Ledley King and Michael Dawson are increasingly injury-prone, William Gallas is too old and Sebastien Bassong is not trusted by the manager.

If only Spurs had a wheeler dealer in charge who knew how to work the transfer market…

Speaking of which, there are a couple of whispers about ‘Arry that might just slow down the positive momentum that Tottenham have enjoyed for a while. He is an obvious candidate to succeed Fabio Capello as England manager after next summer’s Euros, while he might also be prompted to leave by health problems (he underwent minor heart surgery recently) or by legal issues, as he faces trial in January on charges of tax evasion. Although Redknapp has his critics (including this writer), his achievements in establishing Tottenham in the elite should not be under-estimated, so his departure would be damaging.

"Reasons to be cheerful, part 3"

The other threat to Spurs’ stability is the possibility that the current owners might look to sell the club, especially if they put together a credible plan to build a new stadium. Levy denied this, “We haven’t put this amount of effort into building up Tottenham with the intention of moving it onto someone else. We want to see this project through.” That’s fairly unequivocal, though nagging doubts remain.

In the wonderful film “In Bruges”, the character played by Colin Farrell muses, “Purgatory's kind of like the in-betweeny one. You weren't really shit, but you weren't all that great either. Like Tottenham.” Spurs appear determined to challenge that stereotype and this season it looks like they just might succeed in doing so.

In any case, they have done very well to compete at the highest levels without compromising the financial future of the club. Going forward, whether they can manage to address the twin challenges of regularly qualifying for the Champions League and building a new stadium is a whole new ball game.

Wednesday, December 1, 2010

Spurs Daring To Dream


When Tottenham Hotspur were three-nil down to Young Boys Bern after only 30 minutes of their Champions League qualifying match in August, it looked for all the world as if their European adventure would be over as soon as it had started. With Michael Dawson and Sebastian Bassong doing passable imitations of Bambi on ice, the Swiss minnows were ripping the North Londoners a new one every time they attacked. After many years of waiting for a chance to have a crack at Europe’s elite, the hopes and dreams of the Spurs fans were disintegrating before their eyes on YB’s plastic pitch.

However, Spurs somehow reduced the deficit and predictably crushed their unheralded opponents in the return leg at White Hart Lane to secure their place in the Champions League group stage. Since that nervous start, Spurs have at times played some exhilarating football in Europe’s premier tournament, winning all three of their home games by wide margins, including an unexpected 3-1 demolition of the reigning champions Inter, leading to them already qualifying for the last 16 with a game in hand.

They are also riding high in the Premier League, currently sitting in fifth, just one place outside the qualifying positions for next season’s Champions League, so everything would appear to be rosy in Tottenham’s garden these days.

The news off the pitch also seems very good with the club’s press release for the 2010 financial results highlighting “record revenues of £119.8 million” and “profit from operations excluding football player trading of £22.7 million.” You have to look long and hard before you discover that Tottenham actually reported a pre-tax loss of £6.5 million, a decline of nearly £40 million from last year’s profit before tax of £33.4 million.

Of course, most companies will accentuate the positives in their results, but this is particularly misleading, not to mention absurd if you consider that “football player trading” is almost by definition a core part of a football club’s business, especially as it forms an essential element of the modus operandi at Spurs, and represents real income and expenses. Funnily enough, the 2009 annual report instead opted to focus on the “record profits before tax of £33.4 million”, rather than mention the “profit from operations excluding football player trading”, presumably because that actually fell last year from £27.5 million to £18.4 million. There’s so much spin in these statements that you almost expect to hear an Australian wicket-keeper cry, “Bowled, Warnie”, as the great man delivers another vicious leg-break.

To be fair, there are two ways to interpret these accounts. Taking a negative stance, I would point out that, despite reporting record turnover, the club still made a loss. They might argue that the cash profit (EBITDA) of £25.4 million, comprising the profit from operations excluding player trading of £22.7 million plus £2.8 million depreciation added back, is fairly impressive, but this is still not enough to cover interest payments of £5.0 million and net transfer spend of £27.5 million (£34.5 million of sales less £62.0 million of purchases).

"Tactics? Absolutely delicious"

On the other hand, more positively, almost all of the reduction in profits came from lower player sales with the £15m earned in 2010 (Darren Bent to Sunderland, Didier Zokora to Seville and Kevin-Prince Boateng to Portsmouth) nowhere near as much as 2009’s unprecedented £57 million (Dimitar Berbatov to Manchester United and Robbie Keane to Liverpool). Wages rose £7 million, but this was covered by higher TV money.

In fact, compared to the losses made at other leading clubs recently (Manchester City £121 million, Manchester United £80 million), Spurs’ modest loss of £7 million is quite encouraging, especially as their figures do not include any money from the Champions League. As Roy Kaitcer from stockbrokers Brewin Dolphin said, “The figures look very good. If I was a Spurs fan, I’d be pretty happy.”

That’s why the blatant attempt to “spin” the results is so disappointing, as there’s really no need to do so, with the figures indicating that the club is well run financially, all things considered. This should come as no surprise, given that this year’s loss is the first since 2004. For a club with Champions League aspirations on a relatively low turnover, that’s no mean feat and should be applauded.

Even with this year’s increase in revenue to £120 million, Spurs are still a long way behind the traditional Big Four clubs in England: Manchester United £286 million earn more than twice as much; Arsenal £223 million (football income only) earn over £100 million more; while Chelsea £206 million and Liverpool £185 million also have significantly higher turnover, even though those are last year’s figures. Manchester City have also overtaken Spurs with their revenue rising from £87 million to £125 million.

The problem for Spurs is that even though their revenue has grown at an imposing 69% over the last five years, this has been more than matched by other clubs, who have increased their revenue at an even faster rate. Both Manchester United 72% and, even more emphatically, Arsenal 94%, thanks to the Emirates effect, have outpaced Spurs. The 2010 accounts for Chelsea and Liverpool have not yet been published, so we don’t know their growth rate over the full period, but we can be fairly sure that the revenue gap in absolute terms will not have diminished.

However, Spurs’ 2009 revenue of £113 million was still enough to place them 15th in the Deloittes Money League for European clubs, so it’s not that shabby. To place that into context, it’s not far behind Lyon’s £119 million, which was sufficient to fund a team that reached the Champions League semi-final last season. Moreover, if the £40+ million revenue that Spurs can expect to gain this year, mainly from their run in the Champions League, were to be added to the current revenue of £119 million, they would then have turnover of around £160 million, which would not be too far behind Inter’s £167 million – and they actually won the trophy.

Partly as a result of the lack of Champions League broadcasting income, Spurs’ revenue mix is fairly well balanced, though the increasing influence of Sky TV money is evident, now accounting for 43% of the total turnover. Although this is obviously a key factor, Spurs are still far less reliant on TV income than most clubs in the Premier League, with only the Big Four having a lower percentage and other clubs dangerously dependent on TV with over 70% of their money coming from the Murdoch empire. The other obvious trend for Tottenham is the declining significance of gate receipts, which have fallen from 30% to 23% of the total income, hence the plans for a new stadium.

Media and broadcasting revenue increased this year by 15% (or £7 million) to £52 million, largely due to a higher central distribution of £49 million from the Premier League. This was attributable to a higher merit fee award based on the final league position of fourth compared to eighth the previous season (£4 million increase) and a rise in the facility fee, based on the number of times Spurs featured in live television games (£2 million increase).

The last time TV revenue rose by a similar amount was in 2008 (from £34 million to £40 million), which was as a result of the new Sky contract for 2008-2010. In the same way, the new three-year deal for 2010-13 will also deliver higher revenue to each Premier League club, thanks to the significantly higher money for overseas rights, which could be worth up to £10 million extra for Spurs.

In spite of these riches, Spurs’ TV income in 2010 is still much lower than the other top English clubs, who enjoyed the benefit of additional cash from the Champions League, which in 2009/10 was worth an average of £30 million for the English teams (Manchester United £39 million, Arsenal £28 million, Chelsea £27 million and Liverpool £24 million).

"Best player in the world"

The money that Spurs will receive from UEFA for the Champions League 2010/11 is primarily dependent on how far they progress, though there is also a sizeable chunk linked to the TV (market) pool.

Every team that qualifies for the Group Stage is awarded €3.9 million for participation plus another €550,000 per match played in the group phase, regardless of the result, so that’s a guaranteed €7.2 million. On top of that, there is also a performance bonus of €800,000 for every win and €400,000 for every draw in the group stage. To date, Spurs have won three matches, drawn one and lost one, giving an additional €2.8 million. If we assume that the final away game to Twente Enschede is a draw, that would increase to €3.2 million. Spurs will also pick up €3 million for advancing to the last 16. Even if they were to get eliminated at this stage, they would receive the princely sum of €13.4 million in prize money.

There is additional performance money for each further stage reached, so if Spurs were to hit the ball out of the park (sounds wrong, but you know what I mean), they would receive the following: quarter-final €3.3 million, semi-final €4.2 million, finalists €5.6 million and winners €9 million. So if Spurs went all the way and won the damn thing (miracles can happen), they would earn around €30 million, which is serious money in anybody’s book(s).

"Crouchie's having his nachos"

In addition to these fixed sums, Spurs will receive a share of the television money from the market pool. This is a variable amount, which is allocated depending on a number of factors: (a) the size/value of a country’s TV market, so the amount allocated to teams in England is more than that given to, say, Spain, as English television generates more revenue; (b) the number of representatives from your country, so an English team (with four representatives) might receive less than a German team (with only two representatives); (c) the position of a club in its domestic championship in the previous season, so if two teams from England both reach the quarter-final, the one that finished ahead of the other in the Premier League would get more money; (d) the number of matches played in the current season’s Champions League. This all makes it difficult to estimate but a reasonable figure for Spurs would be around €17 million, based on a small uplift to last year’s figures.

That would give Spurs a total of €30 million TV money from UEFA for the Champions League, which is equivalent to £25 million at current exchange rates. That’s a tidy sum, which on its own would increase Spurs’ turnover by over 20%. Given its potential impact, it’s easy to see why clubs strain every sinew (and spend to their limit and sometimes beyond) to reach the promised land of the Champions League. Of course, there are “only” four places available, so it’s still a gamble, but the size of the prize is striking.

"Razor sharp"

Spurs have received many plaudits for their commercial acumen, but this has not yet been reflected in the financials, as commercial revenue has actually been falling for the last two seasons from £38 million to £34 million. Much of this decrease comes from corporate hospitality, which has suffered both from the economic recession and the club not being in a European competition, though the latter cause should have been addressed this season. Merchandising rose slightly to £8 million this year, but is still below the peak of £10 million in 2008, which was boosted by shirt sales relating to the clubs 125th anniversary and new kit launches.

However, Spurs will benefit from two new shirt sponsors in what they describe as “a ground-breaking innovative split of the shirt sponsorship inventory”, with software company Autonomy becoming the sponsor for all Premier League matches (£10 million a season) and asset manager Investec taking on the sponsorship for all cup competitions (£2.5 million a season). Both agreements run from July 2010 for two years, with the Autonomy deal having an option to extend for a further five years, so will only be reflected in next year’s accounts.

"The only way is up"

The combined £12.5 million is worth £4 million more a season than the £8 million paid by previous sponsors Mansion and is the fourth highest in the Premier League, only behind Manchester United, Liverpool and Chelsea. It’s also a lot higher than the £5.5 million that Emirates pays Arsenal, though that is largely due to the upfront cash payments that were needed to help fund the Emirates construction. Nigel Currie of sponsorship consultancy Brand Rapport has praised the Spurs’ arrangement, “It seems if clubs can cut their sponsorship cloth a different way, they can extend their offer to more than one brand. I think that other clubs may now look at ways of increasing the value of their shirt sponsorship.”

The five-year kit deal with Puma worth a reported £5 million a season has been extended by a further year to run until the end of 2011/12. This is just one of a number of high quality partners, the list also including BT, Thomas Cook, MBNA, Sportingbet and Ladbrokes.

The other revenue stream, gate receipts, has also been decreasing: from £31 million in 2007 to £27 million in 2010, though this is heavily influenced by the number of cup matches. In the 2006/07 season, Spurs had three major cup runs, reaching the quarter-finals in both the FA Cup and UEFA Cup and the semi-finals in the Carling Cup, generating gate receipts of £13 million, compared to £7 million in 2010. This also explains the large jump in gate receipts in 2007, as the previous year included only £100,000 for cup competitions. In other words, qualifying for the Europa League can still be beneficial in terms of match day income (assuming the fans turn up), even though the prize money is considerably less than the Champions League.

"Huge talent"

Underlying gate receipts, i.e. those from league matches, have actually been steadily increasing every year, from £17 million in 2005 to £20 million in 2010, when the stadium was filled to its 36,500 capacity for every Premier League match, despite the season ticket prices being the third highest in the country (though prices were frozen for up to two years in 2009).

In the annual report, the club is keen to emphasise its focus on the cost side of the business. In 2007, it somewhat ostentatiously stated, “Whilst more and more money enters the game, primarily from the central FAPL TV deal, we endeavour to control our significant cost base”, while the 2009 accounts also mentioned “the club’s ongoing and prudent cost control policies.” I have little doubt that Spurs have indeed attempted to control costs, but the fact remains that (including player amortisation) these have grown by £66 million (94%) in the last five years, while revenue has only increased by £49 million (70%). Heaven knows what the cost growth would have looked like if they hadn’t adopted this frugal approach.

Obviously, what has been driving the cost growth, just like any other football club, is player costs, namely wages and amortisation. There is some evidence of the famed Redknapp effect with wages increasing £14 million since his arrival in 2008, but, truth be told, other managers have contributed just as much to the growth with wages also rising £20 million in the previous three season. It appears as if chairman Daniel Levy is keeping the old rogue on a tight leash – a case of an irresistible force meeting an immovable object. That said, Spurs’ salaries did grow by a worrying 11% last season, which is higher than Manchester United’s 7% and Arsenal’s 6%.

This lead to an increase in the important wages to turnover ratio to 56%, but this is still very good and is, in fact, the third best in the Premier League (only behind United and Arsenal), which is a notable achievement given the small turnover. This is because Levy’s negotiating skills have managed to keep the wage bill in check to date. He has refused to compromise the wage structure at Spurs, so in the summer they were unwilling to foot the bill for Joe Cole’s exorbitant wage demands and only took on William Gallas when he lowered his salary.

Moreover, the 2006 annual report intriguingly mentions, “The policy throughout the club is to reward performance based on the continued success of the club”, which raise the possibility that Spurs, unlike many other clubs, have actually got their bonus scheme right, though cynics might point out that there has been precious little success to reward.

I also wonder how much of an impact on the wage bill the decision to withdraw from the Reserve League has had. For example, the 2009 accounts stated that 19 players had gone on loan, which is a policy that clearly reduces the payroll.

Whatever the reasons, Tottenham’s wage bill of £67 million is by some distance the lowest of the “mini league” featuring the Big Four plus Spurs and Manchester City. It’s effectively half the size of Chelsea, City and United; £44 million less than Arsenal; and £23 million below Liverpool. Of course, at the same time, it’s higher than the other teams in the chasing pack like Everton and Aston Villa, leaving Spurs in an uncomfortable “piggy in the middle” position. If they want to consistently match the big boys, the chances are that they will have to push forward and spend more on wages, but they will also need to grow revenue season after season if they are to do that with confidence.

So Levy has done a fine job in keeping wages down, but he is equally adept at negotiating his own remuneration, which has increased from £250,000 in 2004 to £1.35 million in 2010, split evenly between fees and bonus. Similarly, the remuneration of the Finance Director, Matthew Collecott, has increased from £96,000 to £504,000 in the same period. All told, these two directors have received £5.5 million and £2.1 million respectively in the last seven years. In fairness, these are not outrageous sums when compared to the figures earned by their peers at the Big Four, though some might argue that they are bigger clubs (larger turnover, more success, higher profile), so there should be a premium.

There has also been a steep increase in player amortisation, namely the annual expense of writing down the purchase price of new players, which has more than tripled since 2005, rising from £13 million to £40 million. That’s a lot (it’s the same as Manchester United), though it’s still on the low side compared to clubs known for being big spenders in the transfer market: Manchester City £71 million, Chelsea £49 million.

The concept of amortisation confuses many people, but it is simply how accountants handle player transfers. Instead of booking 100% of the player’s transfer price as a cost in the year of purchase, accountants treat players as assets, so the cost is capitalised and written-down (amortised) over the length of his contract. At the end of the contract, he is considered to have no value, because he can then leave the club on a free transfer.

It’s probably easier to understand with the recent example of Rafael van der Vaart. Spurs bought the Dutch maestro for £8 million, so if we assume that his contract is for four years, then the annual amortisation is £2 million. After three years his net book value in the accounts will be £2 million (the original cost of £8 million less three years amortisation at £2 million per annum).

Spurs’ ever-rising amortisation therefore suggests that they are big spenders in the transfer market and that is indeed the case. The last time that Spurs had a net surplus on their transfer spend was ten years ago in 2000/01, while since then they have been the very definition of a buying club, leading to an aggregate net spend of almost £150 million in the decade (£320 million purchases less £170 million sales).

To place that into context, only Manchester City, fuelled by the Sheikh’s billions, have spent more than Tottenham in the last five years. With a net £91 million, Spurs have spent twice as much as Liverpool, four times as much as Chelsea, nine times as much as United, while Arsenal have actually generated a surplus from their transfer activities. In fairness, the frequent changes of manager (Martin Jol, Juande Ramos, Harry Redknapp) have made a high level of player turnover inevitable, leading to what the chairman described as “one of the largest squads in the Premier League.”

Levy would argue that the investment in the first team squad has been worthwhile in that it has meant qualification for the Champions League, which is clearly a valid point, though the impact on the club’s financials is not so palatable. Remember that this year the club made a profit before player trading of £22.7 million, but this became a £6.5 million loss after the impact of splashing the cash in the transfer market was taken into consideration. And there’s little sign of this abating, as the squad was “boosted” after the year-end with yet another £20 million of purchases, including van der Vaart, Gallas, Sandro and Stipe Pletikosa.

To be fair, the high level of player purchases has not put the club into debt. Yes, the club holds net debt of £64 million (excluding CRPS liabilities), but the vast majority of that is property specific. In 2006 the club was actually in a net cash position to the tune of £24 million, but since then the debt has been rising year after year: 2007 £2 million, 2008 £15 million, 2009 £46 million and 2010 £64 million. If the liability component of the Convertible Redeemable Preference Shares were classified as debt (as the accounts do in the analysis of Total Borrowings), then the net debt could be considered as £79 million.

The debt comprises £50 million of bank loans, including a £15 million short-term revolving loan from HSBC and a £33 million facility with the Bank of Scotland at a floating rate linked to LIBOR; plus £25 million of loan notes at an interest rate of 7.29% repayable in equal instalments by September 2023; less £11 million of cash. All the loans are secured on club assets.

Even though debt has been increasing, total liabilities actually fell £11 million to £218 million last year, largely due to a decrease in trade payables. In fact, the balance sheet is quite strong with net assets of £71 million, including tangible assets of £124 million, comprising White Hart Lane £39 million, new stadium project £72 million and the new training ground at Bulls Cross in Enfield £12 million, and intangible assets (players) of £116 million. Of course, the market value of the players in the real world is far higher than the carrying value in the accounts. Transfermarkt estimates a value of £258 million, but even that is under-stated, as they only ascribe an £18 million value to Gareth Bale, who is, of course, the eighth wonder of the world.

However, as the accounts say, “This huge investment over the years has been funded through equity contributions and long-term debt financing.” Although the club generates cash from its operating activities (£20 million in 2010), once it has made interest payments and invested in capital expenditure (players and property), it has a net cash outflow (£33 million in 2010). This has only been (partially) compensated by additional funding, which last year came via a combination of £10 million more debt and £15 million of new share capital. In fact, in the last four years, some £70 million of additional financing has been required to maintain the cash outflows at a manageable level.

This trend is likely to increase in the future, as Spurs will have to invest a great deal of money in the planned new 56,000 stadium. As Levy explained in a statement on the club’s website, “It is indisputable that we now need an increased capacity stadium in order to continue to move the club forward and compete at the highest levels.” White Hart Lane may be an atmospheric stadium, but its 36,500 capacity cannot provide the £100 million match day revenue enjoyed by clubs like Manchester United and Arsenal. To give a fair comparison, some corporate hospitality should be added to Spurs’ gate receipts of £27 million, but their revenue would only be around £40 million (per Deloittes Money League), which is still £60 million lower. Spurs’ enthusiasm for the project is even more understandable with 33,000 supporters on the (paid-for) season ticket waiting list.

The search for a new stadium has effectively come down to two viable options: (a) the Northumberland Development Project in the area around White Hart Lane; (b) relocation to the Olympic Stadium in Stratford. Up until a few months ago, it seemed that the NDP was the only game in town (2009 accounts: “as a club, we are proud of our roots in Haringey”), but there is now a distinct possibility that Spurs will move away from their spiritual home. Although the plans have now been approved by both the local council and the Mayor of London, revisions have added £50 million of costs, bringing the total budget required to an eye-watering £450 million.

In order to minimise the club’s exposure to debt, it hopes to subsidise the project costs with supporting developments, such as new homes, hotel and supermarket, and sell naming rights for the stadium. According to an article in the Daily Mail, the new commercial director, Charlie Wijeratna, has been tasked with securing an astonishing £300 million over 20 years for naming rights, which would go a long way towards solving the funding issues (though there may be some implications for shirt sponsorship). However, Levy has confirmed that additional financing would still be required, either through issuing new shares in the club or bank loans, which would not be cheap (Manchester United’s bond is 8.75%, while Arsenal’s is 5.75%).

"Grounds for optimism"

As well as the high cost, there are other issues with this project, namely the total lack of public money being made available for regeneration (in contrast to the stadium developments at Wembley and Arsenal) and the chronically poor transport infrastructure, so it is only prudent to consider other alternatives. However, if Spurs were to abandon the White Hart Lane solution, they would face some other financial issues. First, they would have to write-off the £20 million of planning and professional fees currently held on the balance sheet. Second, they would have to sell the £50 million of property that they have already purchased, which may prove difficult, as this is by no means prime real estate, though the accounts do state that they have gained “the critical mass to achieve a substantial site sale as a contribution to a relocation.”

Hence, the decision to keep the club’s options open by registering its interest in the Olympic Stadium site (along with AEG). Estimates of the costs required to convert this into a football stadium vary, ranging from £100 million to £200 million, but there’s no doubt that this would be a significantly cheaper opportunity, especially as there is apparently £35 million available in the Olympic legacy fund to help finance the conversion. Some of the costs would also be recouped by Tottenham selling their property around White Hart Lane.

"Appy 'Arry"

Many regard Spurs’ interest in the Olympic Stadium as simply a negotiating tactic, an act of brinkmanship designed to persuade Haringey council to contribute money towards the cost of the Northumberland Development, but Tottenham director Sir Keith Mills insists that the club is serious, “If the Olympic Park Legacy Company decides our bid is the preferred one, then we’ll put all our efforts behind trying to move there.” Indeed, Levy has pointed out that the Olympic site is only five miles from the current stadium with excellent transport links.

Obviously, the majority of Tottenham fans are nervous about this prospect, including local MP David Lammy, who complained, “Levy is willing to sacrifice the atmosphere of White Hart Lane to stuff the Olympic Stadium with corporate hospitality boxes. Tottenham Hotspur should be a club for everyone, not just the suits in the City.” That’s a bit harsh, given that the chairman has a responsibility to the financial stability of the club, but essentially that’s what the argument boils down to: history and tradition against financial benefits.

Of course, it may not be up to Spurs, as West Ham are still considered the favourites for the Olympic Stadium, not only because they are the local club, backed by Newham council, but they have also promised to retain the running track to preserve the commitment made as part of the London 2012 bid. That said, the authorities now seem relaxed over the idea of providing upgraded athletics facilities elsewhere, e.g. Crystal Palace. Furthermore, Spurs’ plan could be more commercially viable, especially if the Hammers are relegated.

Ironically, if and when these plans come to pass, Spurs’ business model would then closely resemble that of Arsenal, as they seek to emulate their fierce rivals’ success off the pitch as well as on it. At the moment, the finances are very different with Arsenal’s profits being £50 million higher: their revenue is £100 million higher, but Spurs’ expenses are £70 million lower. Arsenal also make more money from player sales, but pay more in interest for construction loans. However, in the future, you could envisage a scenario where the additional gate receipts from a new stadium would boost Spurs’ revenue, allowing them to loosen their tight wage structure, when the two clubs would be much more similar.

In the short-term, Tottenham’s revenue next season should already increase by around £45 million, comprising £10 million from the new Premier League TV contract, £30 million from the Champions League UEFA central distributions, £4 million from the new shirt sponsorship deal and £6 million gate receipts (4 Champions League matches at £1.5 million, though this depends on other cup matches). However, this extra money will not all go to the bottom line, as the wage bill and player amortisation will increase for new players, while there will be expenses for hosting European matches. That could easily add up to £20 million, but this would still leave a clear £25 million improvement.

"My name is Luka"

It therefore appears as if Spurs will be well placed to meet the impending UEFA Financial Fair Play Regulations. Indeed, the club’s finance director believes that these will “vindicate” their financial prudence, while also supporting their decision to go for a new stadium, as it is “now more important to drive revenues to the next level.” Given that the new rules are all about clubs operating within their means, it clearly makes sense to boost Spurs’ revenue in this way, especially as the stadium development costs are excluded from the break-even calculation.

However, they will still have the major challenge of consistently qualifying for the Champions League. Daniel Levy has insisted that he will not jeopardise the club’s finances by chasing qualification every year, but it’s a delicate balancing act. If they don’t succeed, potentially Spurs could end up with a squad being paid Champions League wages without the revenue to compensate. That would then present them with the eternal dilemma: would they be tempted to spend more money to win their place back? Or would they balance the books by selling players, which would make it more difficult to qualify?

That is why so much rests on the money from a new stadium, which would give them more room to manoeuvre financially and help create a virtuous circle: higher revenue, better players, regular Champions League qualification. Of course, building a new stadium is far from a straightforward task and the club will almost certainly end up with a lot of debt to service, which may well compromise their ability to invest in the first team squad, which has been the cornerstone of their recent strategy. There is also no guarantee that the crowds will turn up, even with that lengthy waiting list for season tickets.

"Daniel Levy - one smart cookie"

Spurs are in pretty good condition at the moment. The core business is clearly very healthy, for which the chairman Daniel Levy deserves a lot of credit, especially as he has one of the most spendthrift football managers around in Harry Redknapp. However, it feels as if the club is standing at a crossroads financially as they are confronted by some critically important investment decisions.

The club’s motto is famously, “To dare is to do”, but do they simply dare to remember? After all, the annual report concludes with a reminder that next year is the 50th anniversary of the last time Spurs won the league. Or will they risk a lot of money and dare to dream?

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