League revenue is surging, boosted by a lucrative media contract and attendance increases, but player contracts are spiraling out of control, threatening to cripple the sport.
A description of Major League Baseball, or maybe the National Hockey League? Perhaps, but those conditions also describe the English Premier League, according to a new Deloitte Touche Tohmatsu study.
Proving that sky-high player salaries are not just a U.S. phenomenon, the Deloitte study warns that the Premier League, one of European soccer's most exclusive divisions, could have unsettling days ahead if salaries are not controlled.
Five years ago, 17 of the 22 teams were profitable, but today only half of the 20 are in the black, said a Deloitte official. Most clubs remain profitable on an operating basis, but when other costs are factored in, net income slips into the red.
"Wages have always been [soccer's] greatest challenge," said Gerry Boon, chairman of Deloitte's football industry team, based in Manchester, England. "They remain so. The wage increases paid to stars will continue. That is a dynamic clubs will have to manage."
In its six years of existence, Premier League clubs generated $3.5 billion in revenue — yet recorded an $18 million loss over those years, Boon said.
While revenue rose 23 percent last year to $918 million, player salaries rose 36 percent to $478 million, the report said, and now consume half of league revenue. The previous year, salaries had risen 31 percent to $352 million.
The Premier League recently inked a lucrative new television contract with BSkyB, which is controlled by News Corp.'s (NYSE: NWS) Rupert Murdoch. This connection was a large reason why English regulatory authorities turned down Murdoch's effort to buy Manchester United, the top team in the Premier League.
The Deloitte report, titled "Annual Review of Football Finance: Profitability of Clubs," can be viewed at www.deloitte. co.uk/sectors/footballreview/profitability/body_text.html.
