English clubs warned as debts soar to record levels

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DEBT-LADEN Premier League clubs have been warned to ensure they can cope if they hit problems on the field as a new report showed record levels owed by English football's top flight.

Deloitte's annual review of football finance reveals the total debt among the 20 Premier League clubs hit 3.1billion in 2007/8 while wage costs also showed a record rise of 227million – 23 per cent – to reach 1.2billion.

The overall debt figure includes 'soft debt' such as the 701million made available as an interest-free loan to Chelsea by owner Roman Abramovich – he has since reduced that to 339.8million with the rest becoming his equity in the club.

Other clubs however are potentially more vulnerable to servicing their debts if they fail to achieve their targets on the pitch.

Alan Switzer, director in the Sports Business Group at Deloitte said: "Debt can be sustainable but football should not be complacent. They should make sure the business model works for them to make sure the level of debt is sustainable.

"The more debt you have, the more vulnerable you can be if you suffer a revenue knock-off such as failing to qualify for the Champions League or in the worst scenario relegation.

"Having a higher debt is not helpful in those situations and you have to make sure you have some flexibility, and that places an onus on having flexibility around player wages."

According to Deloitte, Manchester United's debt stands at 649million and Liverpool's at 299million, both sums stemming from loans taken out by the owners to finance takeovers. Arsenal's 318million includes 250million in long-term bonds taken out to finance their new stadium.

The increase in wage levels may also cause raised eyebrows but they do not appear a major problem as they are slightly less than the rise in income from Premier League TV rights. As a result the wages-to-revenue ratio improved slightly to 62 per cent from 63 per cent the year before.

Manchester United and Arsenal both paid out less than 50 per cent of income in wages, and Liverpool 55 per cent, but Chelsea's ratio was 81 per cent.

The wages-to-revenue ratio is more of a concern in the Championship where the average was 87 per cent with Hull City – who won promotion to the top flight – on 124 per cent and Coventry City on 121 per cent.

Switzer added: "Despite the increase in wages, the Premier League clubs improved their wages to revenue ratio to 62 per cent and generated record operating profits of 185 million.

"However lower revenue growth in forthcoming seasons means clubs will have to focus on improving cost control – both wages and other costs – if profits are to be maintained."

The report's other findings include English clubs regaining their status from the Bundesliga as the most profitable in the world; that Serie A was the fastest-growing league with total revenues increasing by 34 per cent but posting a third year of operating losses; that the Government took 860 million in tax from the 92 league clubs and that will exceed 1 billion annually with the introduction of the 50 per cent rate for earnings over 150,000.

The Premier League

's communications director Dan Johnson said: "Deloitte's report paints a very healthy picture. Across the board, interest levels and revenues are up, which is all the more impressive given what is going on elsewhere in the economy."