How Tottenham built their stadium and still made a Profit

On 3 April 2019, Tottenham played their first-ever match at their new 62,000-seater stadium to an ecstatic crowd and won two-nil against Crystal Palace in an eye-catching London derby. In the same 24 hours, the club’s financial statements were quietly published, announcing a world-record pretax profit of £139 million.

This seemed at odds with the tales of woe relating to the stadium completion, which involved delays due to steel cost overruns, labour shortages that pushed up wage bills, and emergency loans that the club had taken out.

So, was Tottenham smarter than every other club in managing their finances, or were these profits subject to the “dark arts” of accountancy?

Let’s take a closer look at how Tottenham were able to build their stadium and still record a profit in their published financial statements…

EXPLAINED! How Tottenham built their stadium and still made a Profit

1. Increase in income

Profit, simply put, is what remains of income after all expenses have been deducted. Tottenham’s income grew by almost a quarter to £380 million in 2017/18 due to all three income streams – matchday tickets, broadcasting, and commercials rising to record amounts.

Matchday ticket income is based on the number of matches played multiplied by the average attendance per game and the price per ticket. Historically, Tottenham had been constrained by White Hart Lane’s limited capacity of 36,000 fans.

With the move to Wembley for the 2017/18 season, whilst construction was being completed, matchday attendance increased to an average of about 68,000 per game thereby increasing matchday income by 56%.

Another significant boost to matchday income was qualification to the Champions League for the two seasons which obviously increased Tottenham’s number of fixtures.

However, domestic broadcast income fell slightly as a third-place finish in 2017/18 was one below their second-place finish the season before therefore the club earned less prize money as a result. But, progress in the Champions League by qualifying for the knock-out phase was an improvement over the previous season. And, this more than made up for the decrease in domestic income.

Moreover, the move to Wembley meant that the club was able to sell additional lucrative corporate hospitality packages as well as raise income from sponsors which boosted revenue by an additional £109 million.

Consequently, the revenue gap between Tottenham and some of its perceived rivals narrowed. As seen with Arsenal, whose income decreased due to failing to qualify for the Champions League in the same period.

2. Shrewd management of wages and transfers

Interestingly, Tottenham were also able to keep a tight lid on wages. The amount spend on wages barely increased between 2009 and 2016. This was largely due to the benefits of academy products such as Harry Kane and Harry Winks, as well as recruiting well from less glamourous clubs such as the likes of Delle Alli from MK Dons, Danny Rose from Leeds, and Kieran Trippier from Burnley.

These players, whilst handsomely paid, had been made to accept salaries that are relatively modest and below that of players in the other top sides.

In terms of player trading costs, Tottenham were also reluctant to compete in the upper echelons of the transfer market. This was demonstrated by their lack of signings in the summer transfer window of 2018/19. At that point, their net spent for the last decade was averaging £10 million per season.

In the season prior to the official opening of their new stadium, Tottenham recorded a profit of £73 million on transfers alone as Kyle Walker, Kevin Wimmer, and Nabil Bentaleb all departed the club.

3. How Accountants record profit

Whilst those figures convey growth in revenue and ultimately profit, they don’t take into account the cost of the stadium itself. And, here, that’s where accounting rules come into play.

In accounting practice, long-term investments in assets such as properties are expensive but should be treated as assets in the balance sheet and not as expenses in the income statement. That being the case, all costs that were attributable to the new stadium could not be impacted upon profits.

The only cost which could have been included in the income statement was depreciation, which is charged over the stadium’s expected period of use. Because depreciation only starts when the asset is first put into use, the new stadium was a work in progress for Tottenham during the 2017/18 season, therefore, no depreciation costs were included in the accounts.

Even the costs of architects, designers, lawyers, and finance professionals employed by the club on the stadium, were added to costs capitalized on the value of the stadium during construction. As a result, these costs did not have any impact on profit.

As per the footnotes to the accounts, the stadium cost a quoted figure of £1.2 billion all not included in the income statement.

4. Use of debt

Apart from what their Accountants did, Tottenham largely built the stadium on debt. The loan facility was mainly in the form of a bank overdraft of £400 million from HSBC, Goldman Sachs, and the Bank of America.

Furthermore, cost overruns made Tottenham extend the debt facility to £537 million in 2017 and another £100 million in 2018.

Interest costs in relation to the loan were added to the cost of the stadium as per the accounting rules, and again, had no impact on profit.

Even so, banks have a habit of always willing to reschedule loan repayment dates provided the borrower meets regular interest payments. On the basis of the growth in revenue and subsequently profit, Tottenham were more than able to keep the bank manager happy.

The new Tottenham Hotspur Stadium is designed for multiple purposes and hosts other sporting events such as the American National Football League (NFL), major rugby union matches, as well as concerts. This can only boost revenue by at least double what they earned at White Hart Lane.

Did You Know? The Tottenham Hotspur Stadium is the third largest football stadium in England and the only one with a retractable pitch.

Also See - Manchester United’s Decade of Transfer Failure