Football and economics in the Premier League: lessons from Stoke City’s decade in the top flight

It’s the hope that kills you …

On 5 May 2018, exactly 10 years and a day after securing promotion to the Premier League for the first time, Stoke City’s run in the top division of English football came to an end. For those of us who lived through the relegation season of 1984/85 and the 23 seasons afterwards, the last decade has provided experiences we would not have dared to dream of: an FA Cup Final, a League Cup semi-final, a European campaign, a 6-1 defeat of Liverpool and then a crazy seven week period of victories over Manchester City, Manchester United and Chelsea without conceding a goal, and a 4-3 win at Everton. My personal favourite remains the 1-0 win with 10 men over Manchester City in the first season, never have the team, supporters, and the city of Stoke-on-Trent been so united.

… but credit where credit is due …

As the club’s manager Paul Lambert said in his last pre-match press conference of the season, the club is hurting and emotions are raw. Nevertheless when the dust settles, I hope everyone connected to the club will recognise how great an achievement a decade in the top flight is. Only five clubs outside of the “Big Six” and Everton (the club with the most seasons in the top tier of English football in history), have had longer runs in the Premier League after promotion, the last being Fulham after success in the 2000/2001 season. It has become much harder over time to stay for a long period in the top division because the economics of football continue to change with Stoke City’s decade a window on life at the top.

According to the excellent football blogger Swiss Ramble’s analysis, Stoke City in 2016/17 had:

1. The 14th highest revenue in the Premier League;
2. The 13th highest attendances; and
3. The 13th/14th highest wages.

In this context, a decade in the top flight with three 9th place finishes show that this is a club that punched above its weight on the pitch. The credit for this must go to the club’s owners who really committed resources to the club’s cause. In 2016/17, Stoke City’s wages were the fourth highest to turnover in the division, a sign of the desire to try as hard as possible to be competitive. However, it is the wages to turnover ratio of 91% in 2013 that shows how far the club pushed their financial resources. This ratio was gradually managed down as the more generous television deal started in 2015/16, but the cash amount of wages has continued to rise and has more than doubled over the decade. In part to support this spend, the club has received over ￡100 million of owner loans which attract no interest payments and commercial income.

This financial commitment was made while looking after supporters and running the club effectively. Season ticket prices were frozen throughout the decade and Stoke City were the first Premier League club to offer free coach travel to away games. The freeze on ticket prices meant the club had the fourth lowest match day income in 2016/17 but it compensated for this with success on the commercial side, generating the 11th highest income in this area, way ahead of what attendances would suggest would be likely.

… as the club tried a variety of strategies …

Stoke City’s decade in the Premier League was characterised by a range of business strategies as the club sought to balance on-field success with financial realities.  In its first five seasons in the Premier League, the club invested heavily to build up its playing base with transfer spend of ￡109.7 million, averaging ￡21.7 million a season, building up a core squad of experienced Premier League players. In the next two years only ￡12.8 million was spent as Mark Hughes took over as manager and switched the focus to signing European players. Bojan, Marco Arnautovic and Eric Pieters were among the players signed for fees below ￡5 million with free transfers and loans also used to strengthen the squad and support a change to a more sophisticated playing style. The approach appeared to work as two ninth place finishes were achieved. By the 2015/16 season, the club had four ex-Barca players, Bojan, Muniesa, Afellay and Moha in the ranks and fans started to refer to the team as “Stokealona”.

In part, after a loss of ￡31 million in 2013,  the club had needed to get wages under control and this probably influenced their transfer policy through 2014 and 2015 but as the new television deal for 2016/17 was announced, the scramble for players hotted up across the division. Stoke embarked on a spending spree of ￡85.9 million in the next two seasons, breaking their transfer record at least three times as Shaqiri, Imbula, Joselu, Joe Allen, Saido Berahino and Ramadan arrived in the Potteries. It may be possible for short periods to avoid the excesses of the transfer market but competition amongst teams makes bargains hard to find.

… on and off the pitch …

One of the consequences of Stoke City’s desire to play a more attractive brand of football meant it had to broaden its horizons in recruitment, searching for higher quality technical players. This meant having to take more risks in player recruitment, bringing in players with little or no experience of the Premier League, players who were inevitably less well known to the management of the team.

And these players cost ever higher amounts. As far as transfer fees are concerned, the Premier League is its own worst enemy. With the record breaking 2016-19 television deal of ￡5.1 billion, a 70% increase on the previous deal, clubs were awash with cash and this impacted the transfer market around the world. Jose Mourinho pointed out “English prices” meant the Premier League clubs were paying more for talent than clubs in other countries. Clubs could compete in any market, indeed Karl-Heinz Rummenigge, Chairman of Bayern Munich, questioned the appropriateness of Shaqiri previously of Bayern, Champions League winners, moving to Stoke City and. Finding value became even more difficult as all the Premier League clubs were chasing the same players.

As noted above, after two quiet seasons, Stoke City spent heavily in 2015/16, 2016/17 and 2017/18. However, not all of the deals were successful, far from it as the challenge of needing more technical players meant the club moved further outside of its comfort zone and increasingly bought players who may well have seen Stoke City as a stepping stone not a destination. In the final months of the 2017/18 season with the club battling for survival, not one of centre back Kevin Wimmer, nor midfielder Gianni Imbula nor striker Saido Berahino, each one the club’s record signing in their position, made the match day squad. The same was also true of Jese, the highest profile loan signing in the club’s history. Money is vital to Premier League success but it is no guarantee and this is what makes life so tough for the clubs outside the elite. Stoke City found themselves regularly breaking their transfer record but with greater degrees of risk.

… but the economics are tough …

The economics of the Premier League are challenging,  especially the impact of financial fair play and more specifically, short-term cost control (SCC) as it is known, which has been in place since 2013/14. Under SCC, Premier League clubs are restricted on the increase of their wage bill to ￡7 million a season currently, up from ￡4 million a season from 2013/14 to 2015/16, unless their commercial revenue, excluding that from television, increases. A key feature though is that promoted clubs can increase their revenue immediately up to ￡67 million before the rules apply to them.

It is these restrictions on wages that increasingly drive the economics of the competition with the following effects:

• Boosted the chances of promoted clubs avoiding relegation by reducing the benefits of incumbency in the division. Television revenue for a promoted club increases by around ￡90 million at a minimum and therefore it is possible to boost wages immediately. It is worth noting that all 3 promoted clubs survived in 2017/18.
• Made it difficult for the majority of clubs to compete with the “Big 6” who have significantly more scope to generate higher commercial revenues given their profiles and reach. The gap between the elite and the rest of the division has increased in terms of results, goal difference and possession in recent years as resources become ever unequal.
• Effectively limits the number of new players clubs already in the Premier League can sign add as it is wages not transfer fees that are the constraint. Television revenue has increased much more than ￡7 million a year under the current deal and so transfer fees have gone up as a result of clubs battling for the same key players with large amounts of cash at their disposal. However, an expensive signing comes with a high wage cost and clubs can only increase wages by a fixed amount. Without doubt, Stoke City’s quality per pound paid for players has declined over time.
• Long standing Premier League teams may be more handicapped than newcomers by wage control. This is because they have existing squads from which it may be difficult to move high earners who have fallen out of favour as other clubs will be reluctant to match the wages as this will squeeze their available scope to sign other players. If players cannot be moved on, then the incumbent clubs risk a downward spiral as they become stuck with more players who are not contributing.
• In addition, clubs that do well risk losing their star players as the limits on wages mean clubs with lower wage bills cannot allocate a greater share of their wages to the top players and hence they cannot compete with richer clubs. Stoke City certainly experienced this with the transfers of key players, Stephen N’Zonzi and Marco Arnautovic.

Against this background, it is no surprise that the three relegated clubs in 2017/18 are the three outside of the top six and Everton with the longest stays in the Premier League – there is less and less benefit of incumbency under the current model. Next season, West Ham United and Southampton will be the longest serving outside of the seven identified and both will be starting their seventh successive season.

… and impact the game on the field …

My personal view is the bunching between 13 or 14 teams that has been created and the gap to the top six has impacted the nature of the football. There is a cautious feel to many games as every team outside the elite recognises it is in a relegation battle and games against the “Big Six” are damage limitation exercises with possession stats often overwhelmingly in favour of the stronger team. Games between peers become very cautious in many cases. Stoke City versus Watford this year was a game when, according to The Guardian report, the ball was only in play for 42 minutes and every Watford outfield player received treatment from their physio on the pitch. It will be important for the Premier League to monitor how the economics impact the competition to ensure no loss of the unique appeal that exists.

… so a time to regroup is needed.

The Premier League is an elite competition and the last decade as a supporter has been an incredible experience. It is stressful at times for fans, but much more so for owners and the on and off field management as they seek to reconcile financial and footballing objectives in a sustainable way. Stoke City’s decade demonstrates the use of a variety of strategies to achieve the balance but ultimately the economics will get you. Survival year on year is becoming harder and harder as the rich get richer and the rest become more equal.

Hard though relegation is to take, a break from the spotlight may be a good thing for Stoke City, allowing them to regroup. The thoughtful approach of the last decade hopefully means the club will not suffer the fate of previously promoted clubs who have fallen further and they will return stronger. I am looking forward to the first Delilah in the Championship.

@MarkGregoryEY

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