Watford FC The Way To The Champions League Player Salary Analysis Report PDF

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WATFORD FOOTBALL CLUB

The Way to The Champions League 2019/2020 Football Season -Player Salary Analysis Report-

Dear Mr. President Gino Pozzo;

This Report includes research about the difference between our first team’s salaries and the salaries which have been paid by other Premier League Clubs qualified to the Champions League Group Stages at least in the last 4 years. Apart from that, the report will give you and our club’s honourable board members an insight about how much our club needs to increase the salaries given to our players in order to qualify for the Champions League Group Stage and show what will be our club’s marginal profit or loss in case our club reach to the group stage or fail to qualify for the Champions League.

Sportive and Financial Analysis of Our Club / Other Clubs Sportive Analysis: Our Club finished the Premier League in the 13 th position in the 2015/16 football season, in the 17th position in 2016/17, and in the 14 th position in 2017/18. We are currently in the 8 th position and competing with Wolverhampton to be able to qualify for the play-off stage of the European League. In short, although our club couldn’t move forward to the first ten positions between 2015 and 2018, it can also be regarded as a success to take place between the 13 th and the 17 th positions on the league table and never relegate to the Championship League. Although our first team is currently displaying an outstanding performance and it would most probably qualify for the European League at the end of this season, it is still necessary to invest more money in the first team especially for the player salaries to qualify for the Champions League in the next season.

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Financial Analysis: Although there are many variables affecting our club’s financial structure such as gate receipts, television rights and commercial revenues, media and broadcasting revenues absolutely have the highest part as 85% of all club revenues, so it is very crucial for our club to maintain its PL status and not to relegate to the Championship League. As a comparison between 2016/17 and 2017/18 football seasons, our club announced that although our club revenues rose by £5M from £123M to £128M between 2017 and 2018, our club incurred a loss of £31.6M in the end of the 2017/18 season in contrast to the 2016/17 football season in which our club made £4M profit. The player registrations and increase in player salaries were the main reasons to explain the club’s profitability loss. According to our club’s financial indicators given below, our club’s expenditures on player salaries are £57.9M (lowest ranking), £76.015M (15 th) and £85.809M, respectively, between 2016 and 2018. Our club has paid £85.2M (12 th) as player salaries this year which is quite similar to what our club paid in the previous season. 2

Watford FC 2017 and 2018 Financial Reports 3

Our Club strategy is to slightly increase salary payments each year and always try to keep balance between how much we are paying for the players as salary and what our financial revenues will be in the same year because, otherwise, we know that there will be direct economic consequences which will negatively affect our club’s economical structure to a great extent. For this reason, we have been taking into account all consequences before taking any economical action for our club. Another Clubs’ Salary Expenditure Analysis: To understand whether our club is financially ready for targeting to qualify for the Champions League and struggling with the biggest teams of the Premier League to reach this main objective, we have to examine and know how much money has been spent on player salaries by the PL teams which had successfully qualified for the Champions League in the last 4 seasons. According to UEFA Country Co-Efficient Ranking 2019, the teams completing the Premier League in the first four positions at the end of the league have the right to directly qualify for the Champions League in the next season, so salary expenditures of the teams which finished the Premier League in the first four positions need to be taken as an example for our club.

As it can be seen on the table provided below, the first four positions of the Premier League have been dominated by the six biggest clubs in our league including Manchester City, Manchester United, Chelsea, Arsenal, Liverpool and Tottenham. However, the 2015/16 football season was an exception and it was a fairy-tale season for Leicester City which achieved the championship title by paying its players only £80M as salary which was three times lower than Manchester United which was the highest for player salary expenditures in the related year. PL Teams

Man City Man Utd Chelsea Arsenal Liverpool Tottenham West Ham Leicester Everton Southampton Crystal Palace Bournemout h Watford Newcastle Fulham Burnley Wolves Brighton Huddersfield Cardiff

2015/16 (M £)

2015/16 (Standing)

2016/17 (M £)

2017/18 (M £)

264 263 221 199 208 127 95 113 105 112 81

2016/17 (Standing ) 3 6 1 5 4 2 11 12 7 8 14

259 295 -

2018/1 9 (M £) 287 313 241 234 234 169 153 131 156 128 132

198 232 224 195 208 100 85 80 84 85 81

4 5 10 2 8 3 7 1 11 6 15

60

16

72

8

-

95.5

57.9 (lowest) 75 -

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76 (15th) 112 37 61 28 40 22 29

17

85.8

16 -

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85.2 (12th) 79.2 82.9 77 84.3 81.3 59.4 45.9

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Additional Salary Expenses Need to Be Done: It is explicitly seen on the abovementioned table that the teams which participated in the Champions League in the previous three seasons paid £100M salary (Tottenham in 2015/16 season) as minimum and £264M salary (Manchester City in 2016/17 season)

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as maximum. However, the expenditures on salaries by each of these teams have been constantly rising since the 2015/16 football season. In this year, it seems almost

impossible for any other team to qualify for the Champions League rather than those six biggest teams, and Tottenham has spent the minimum amount of money as player salaries in a total amount of £169M.

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Therefore, the amount spent by Tottenham (£169M salary) in this year might be taken as the most important variable to understand how much money our club must spend more to qualify for the Champions League next year. There is still £84M salary difference between Tottenham and our club. Our Club’s Current and Future Revenues (Champions League) Our Club’s primary source of income has been mainly separated into three categories; Premier League revenues, match day revenues, and commercial revenues such as partnership/sponsorship agreements, shirt sales, etc. Our club will be earning additional significant amount of money as Champions League revenues in case the club qualifies to the Champions League group stage in the end. The benefit of

qualifying to the Champions League group stage will not be limited to just receiving group stage entry revenue, but it will also have a direct influence on our club’s match day and commercial revenues briefly explained above.

Prior to learning what will be the consequences of being able to qualify for the Champions League group stage, we should analyse our revenue sources and compare other teams which qualified for the Champions League in the previous three seasons.

 Premier League Revenues: Premier League revenues consist of TV money shares, facility fees, domestic TV income, oversees TV income, and central commercialization payments. The Premier League Organization has been distributing almost in a total amount of £2.4B covering the abovementioned revenue sources to twenty Clubs competing in the Premier League in the relevant year. While the team achieving the championship in the end of the season is earning almost £150M, the team standing at the bottom is earning almost £90-95M. For example, our club has generated a revenue in a total amount of £102.704,2M and £106.254,1M respectively in 2016/17 and 2017/18 football seasons. However, in the same seasons, the teams which completed the league in the first four positions and were eligible to attend the Champions League have been awarded with £145-150M by the Premier League Organization. Therefore, if our Club happens to complete the league in the first four positions, that would mean that our club will be qualifying for the Champions League and receive a share of £145-150M which is almost £40M more than what we have earned in the last two seasons from the Premier League revenues distributed by the league organization.

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 Champions League Revenues for the Group Stage: According to the announcement made by the UEFA, as in the group stage, the distribution of revenue to the clubs is decided as follows; -

€488M for 32 teams and €15.25M for each as starting fee €2.7M per win and €900,000 per draw as group stage performance bonuses

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Champions League TV revenues from market pool which is €292M

Therefore, our club will be earning minimum €15.25M in case our club is eligible to participate in the group stage of the Champions League, even if we don’t have any success during the group stage and are not able to qualify for the next stage which is the knockout round between the last 16 teams. The Champions League group stage revenues will not be limited to the starting fee because we will be financially awarded by the UEFA pursuant to how many points we will get during the group stage matches. Additionally, our club will benefit from the Champions League TV revenues which most probably would be between €15-20M as compared with the Premier League teams’ Champions League TV shares which ranged between €12.7M and €40.3M in the 2017/18 season as provided below.

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 Matchday and Commercial Revenues

The smallest part of our revenues is match day and commercial revenues and our club still has a difficulty to generate an important amount of revenue from these two income sources. There had been only a slight increase in our matchday revenues between 2017 and 2018 as from £7.583M to £7.959M, and this situation was similar to the commercial revenues which enhanced from £9.303M to £10.619M between 2017 and 2018. Matchday and commercial revenues have to be increased by pursuing a successful strategy as immediate as possible, and the club must keep a balance between broadcasting and other revenues including matchday and commercial revenues.

Assessment of Different Options After Investing More Money on Player Salaries Following the increase in our club’s player salaries regarding the calculation made on the fifth page as minimum £84M must be paid more on player salaries, there will be two possibilities for our club: to be successful to qualify for the Champions League group stage or fail to qualify which would be a worse situation for us to face with. Financial consequences like marginal profit/loss and potential risks will change in each separate case. 1. Not to Qualify for the Champions League Group Stage It is obvious that we will be taking so much risk if we decide to take radical financial action and then make our club salary expenditure doubled from £85M to £169M. The common question is that what will be done in case our club cannot achieve success to finish the Premier League in the first four positions and fails to qualify for the Champions League. At the end of 2019/20 Football Season, our club will suffer a loss of £84M which is paid as an additional player salary and most importantly, we wouldn’t make any profit from this investment. For the Premier League revenues, it is difficult to predict because this source of revenue might be changed according to the position the club will complete the season

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and how much demand will be towards our club’s matches. For example, if the club completes the league between 6-10 positions and our matches are broadcasted more than last season’s thanks to the expenditures made on player transfers and salaries, it is most probable that our club’s Premier League revenue will be £120-125M which means an almost £20M additional revenue as compared to the last season. Otherwise, there will not be significant change in the club’s Premier League revenues if the club completes the season at a place similar to the previous years. The Club will be explicitly missing out its chance to obtain Champions League revenues in a total amount of €35-45M including entry fee and group stage performance bonuses in a total amount of €20-25M and also the Champions League TV share which is around €15-20M. Matchday and commercial revenues will not be positively affected, so it is unexpected to experience any significant change in matchday or commercial revenues rather than slight ones. Shortly, if our club increases its first team salaries by £84M and is not able to qualify for the Champions League group stage afterwards; it would be questionable how to explain this situation to our shareholders, how to keep our club financially alive and 10

first and foremost, how to cover the loss of £84M in the end of 2019/20 season. Our club will be economically experiencing the hardest time in its history. 2. Qualifying for the Champions League Group Stage After investing minimum £84M more on our player salaries and strengthening our first team with newly transferred players, our club’s source of revenues will be automatically diversified in case we finish the Premier League in the first four positions and successfully qualify for the Champions League group stage in the end of 2019/2010 season. The potential economic consequences are given below:  As explained in detail in the part of our club’s revenues, the club’s Premier League revenues will be rising by almost £40M from £105M to £145M as a consequence of changing our position on PL standing as finishing the PL in the 4 th position at least which is 10 places above the position in which our club completed the 2017/18 season.  Additional revenues will be gained by Champions League revenues as follows: -

€15.25M as group stage entry fee. €2.7M per win and €900,000 per draw as group stage performance bonuses.

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Approximately €15-20M as TV revenue shares in accordance with other PL teams which attended CL last three seasons.

 Apart from the club’s Premier League and Champions League revenues, our commercial revenues will be highly affected in a positive way after entering the Champions League group stage because there is a positive correlation between the club’s success and profit made by commercial revenues. How much additional commercial revenue will be generated is explicitly uncertain and it is not possible to make an accurate calculation. However, there will be some commercial changes in our club. -

The club’s prestige and reputation in the football industry will be extremely rising and this will have a direct impact on commercial benefits. For example, increase in the recognition level of the club will enable us to open to new markets such as China.

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The club’s sponsors/partners will be influenced by the club’s success and they will be making new offers to extend their current commercial contracts with the club.

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The club’s shirt sales will grow more than ever before.

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Shareholders of the club will decide to invest more money in our club.

Consequently, our club’s eligibility to attend the Champions League will make a significant economic contribution to the Club as receiving almost £40M more from the Premier League Organization, €30-40M from the Champions League and an unpredictable amount of money from the increase in commercial revenues as explained above. Therefore, our club will be earning much more than the amount it has invested in its player salaries. Recommendation & Conclusion It is obvious that while the action of investing more in player salaries might be a way of achieving success by participating in the Champions League group stage first time in the club’s history, it will bring many risks and uncertainties at the same time. There are two possibilities for our club, to qualify for the Champions League or fail to do so, and there is a huge gap between the economic consequences of these two different possibilities. If we succeed in qualifying for the Champions League in the first season following an outstanding investment in the player salaries, this

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spectacular success story will be heard by everyone and our club will be able to cover this expense by receiving the Champions League revenues and its effect on other revenues. However, despite making an increase in our team salaries, nobody can guarantee that we would take one of the first four position in the PL standings in the end of the season and it would be very tough to compete with the PL’s six biggest teams. It will bring terrible financial consequences to our club if we fail to qualify. Apart from these, if our club uses all its financial resources in player salaries, other investments of the club will be influenced negatively and there will not be any opportunity to invest any money in other fields. Furthermore, it is also quite questionable how we could spend this huge amount of money for our team; if this happens, UEFA will most probably open a Financial Fair Play investigation and our club will be accused of allegedly violating the FFP rules. Considering all the reasons explained above, as well as the possibility of failure to qualify, uncertainties about how much increase will be seen in our commercial revenues and the FFP risk all prevent us to make radical changes in our player salaries. It will not be a rational decision for us to invest more than £84M in player salaries at once. So I recommend you implement a long term strategy which will take

for about 3-5 years to qualify for the Champions League and consistently increase your investments in player salaries equally in each year.

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References:

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Conn, D. (2019). Premier League finances: the full club-by-club breakdown and verdict. [online] the Guardian. Available at: https://www.theguardian.com/football/2017/jun/01/premier-league-financesclub-by-club [Accessed 13 Mar. 2019].

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talkSPORT. (2019). The money each Premier League club earned from TV and their final position. [online] Available at: https://talksport.com/football/376346/how-much-money-each-premier-leagueclub-earned-tv-and-their-final-position-180518283150/ [Accessed 13 Mar. 2019].

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UEFA.com. (2019). 2018/19 UEFA club competitions revenue...