Profitability In English Football Clubs

Profitability In English Football Clubs

Profitability is one of the major goals of every English football club. While their activities on the pitch
determine where they are placed in the hierarchy of successful clubs, their activities off it, if not
managed well, can lead to their downfall. So profitability is important in just just English football clubs
but also in other football clubs around the globe.

In this article, we’ll be taking a look at what profitability is, how it is measured in English football clubs
and some examples of cases of profitability among some selected English football clubs.

Understanding Profitability in English Football Clubs

Profitability is a system of measurement that a company uses in measuring its profit in relation to its
size, and to determine its success or failure. It gives the management and stakeholders an insight into
the position of a company in a market, and its potential to grow or decline.

In the case of English football clubs, profitability has to do with the extent to which they make profit,
from player sales to ticket sales, merchandise sales, sponsorships, media and broadcasting rights, to
mention a few.

Measuring profitability in English football clubs

When it comes to measuring the profitability of English football clubs, there are a lot of factors that
come into play. They include:

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i. Net profit margin

The net profit margin of a company is determined by subtracting its expenses from its revenue. For
instance, if a company generates a total revenue of $5 million and it spends $3 million on expenses, its
net profit margin will be $2 million.

The profitability of an English football club can be measured by its net profit margin. Once it substracts
expenses like money spent on purchasing players, players and staff wages, maintenance of stadium,
training complex and medical facilities, advertisements, etc., from the total revenue it generates, it can
now determine from what is left if it makes profit or is at a loss.

ii. Gross profit margin

This is an important measurement of profitability in English football clubs especially when it involves the
sales of physical products like players and merchandise. Gross profit margin can be determined by
subtracting the cost of goods sold from sales revenue and dividing the result by the sales revenue.

In the case of a football club, the sales revenue refers to the money made from selling a player while
cost of goods sold is what that player cost the club at the time of their purchase. A higher percentage of
gross profit margin means the club made more profit compared to what the player cost them and lower
percentage of gross profit margin means the club didn’t make enough profit compared to the player cost
them.

iii. Return on investment

When measuring profitability, return on investment can help club owners to determine if the monetary
benefit that comes with starting a project is worth the expenses that come with that project. If the
money that will be spent on that project is less than what the club will earn from it, then it is not
profitable.

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When it comes to determining profitability, return on investment as a measure is ideal in the sense that
it helps club owners to see the future and easily identify projects that are worth investing in, and the
ones that are not. In the long run, it helps to keep the club’s financial health and performance intact.

iv. Profit per client

Unlike gross profit margin that involves the sales of physical products, profit per client has to do with
profits clients bring to the club. Clients in this case can be investors, stakeholders, sponsors or even
advertisers.
When measuring profitability, football clubs do not only look at clients who pay big fees but clients who
would incur less expenses. Working with clients who would incur less expenses, regardless of the
amount of money they pay, make the club’s revenue-to-expenses ratio better.

v. Break-even analysis

Break-even analysis measures the point where a football club’s revenue equals their expenses. Usually
measured in dollars or unit sold, this analysis is used to calculate the amount of revenue needed by the
club to cover both its expenses and its break-even point.
Break-even point is calculated by adding the club’s fixed and variable expenses and substracting the
result from its total sales.

One major advantage of break-even, analysis is that it gives football clubs an insight as to how they
might behave in a sales slump. This helps them to plan ahead and take the necessary measures to
remain profitable.

Cases of profitability among English football clubs

Now that we’ve touched the concept of profitability and how it can be measured, here are some
examples of cases of profitability among English football clubs, for a better understanding of the
concept:

i. Chelsea

In the 2020/2021 Premier League season, Chelsea generated a total revenue of £437 million, with £155
million gotten from commercials, £274 million from media and broadcasting rights, and £8 million from
matchday ticket sales.

Although an increase in players’ wages saw them spend an extra £49 million in that season, they made a
huge profit overall.

ii. Tottenham Hotspur

Tottenham Hotspur generated a total revenue of £360 million in the 2020/2021 Premier League season.
£151 million of those were from commercials, £207 million were from media and broadcasting rights,
and £2 million were from matchday ticket sales.

Despite the amount of revenue generated, that football season wasn’t profitable to Tottenham Hotspur.
On the pitch, they were eliminated in the round of 16 of the the Europa League, lost in the Carabao cup
final and finished in seventh position in the Premier League. Off the pitch, the club made expenses on
players’wages, increasing it from £181 million to £205 million, which affected their net profit margin.

iii. Liverpool

Liverpool generated a total revenue of £487 million in the 2020/2021 season with £211 million gotten
from commercials, £269 million from media and broadcasting rights and £7 million from matchday ticket
sales.

Overall all, the club made profit that season. It was able to reach the quarter finals and finished third in
the Premier League. Off the pitch, it was able to reduce players’ wages £11 million.

Conclusion

In conclusion, profitability has to do with the extent to which a football club makes profit. While most
English football clubs are able to generate revenue from matchday ticket sales, commercials,

sponsorships, media and broadcasting rights, among others, they also have to make expenses covering
areas like players and staff wages, maintenance of infrastructures, transfers, etc. In all, profitability
among them depends largely on how they are able to manage the amount of revenue they generate and
the expenses they make.