The Premier League is the pinnacle of the English football pyramid, and for teams that can climb to that summit, it offers the chance to play against some of the biggest teams in world football.

The financial rewards for reaching the top division are frequently hailed by analysts and pundits, often referred to as one of the most lucrative prizes in all of world club football.

But for all this talk of riches, we here at "Numbers Behind the Net" want to know…

 "Does promotion to the Premier League actually pay?"

In this first series, we've chosen 5 teams that have achieved promotion in the last 10 years and stayed up for at least five seasons to see what actually happens to their finances when they reach the promised land.

So what’s our approach?

We've trawled through Companies House, analysing 10 years of financial statements for each club and distilled their financial performance down to 3 key metrics:

• Revenue

• Profitability (specifically operating profit)

• Cashflows

(2013-2022 is the time-frame as that is the most recent set of financials available for all teams - the downside of a 9 month window for companies to submit!)

So, if you want to see just how lucrative reaching the top really is, keep on reading as we delve straight into things with Brighton

LEAGUE RECAP

Before we get into the financials of Brighton and Hove Albion, let's quickly recap what's happened on the pitch over this timeframe (financial statements are only available to the end of 2022, so that's as far as we can go).

At the end of the 2012/13 season, the Seagulls were fighting at the top of the Championship but falling to a series of playoff heartbreaks. However, the appointment of Chris Hughton would pay dividends as Brighton finally delivered the Premier League dream in April 2017.

The good times would continue with Brighton retaining their Premier League status & after bringing in Graham Potter to improve the quality on the pitch, Brighton would finish these 10 years with their highest-ever league position

A successful 10 years for the Seagulls, and conveniently for us, five seasons in the Championship and five years in the Premier League. Nice and easy for us to compare.

REVENUE

Let's start with the sexy headline number everybody wants to see.

In those Championship years, revenue lurks around £25m but did increase to £29m in that promotion year

And after ? Huge increases - over £130m each year, peaking at almost £175m in 2022. Looks like a clear distinction to me.

5 years in the Premier League has generated 740 million vs just 125 in the Championship years. That's almost 6 times as much!

So, what is driving this massive increase?

Let's compare the years before and after promotion. In 2017, match-day revenues made up the most significant chunk.

But the following year in the Premier League, see how broadcast revenue jumps to 110 million. There are upticks in the other areas, but it's no surprise that the direct money from Premier League TV rights is the financial prize for promotion.

But what about the bottom line...profitability?

PROFITABILITY

Let's take the same chart and now look at operating profit.

Brighton is, in fact, loss-making in all those years in the Championship; the year they got promoted was worst of all, with almost £40m in operating losses! Part of that is from £9.1m in one-off "promotion costs", mainly for bonuses arising from reaching top flight.

So before even a ball is kicked in the Premier League, Brighton's costs have gone up.

Maybe it is clearer by league position? In fact, the 2 worst losses have been in the Premier League.

The operating losses for 5 years in the Premier League are only marginally better than the 5 years before in the Championship.

So what’s going on here??

These are the steps from revenue to operating profit.

To understand what's happening, we need to rattle through these costs one by one. Don't worry too much about any of the accounting terms. Stick with us, and we'll get to the bottom of this in under 3 minutes.

And if any of this is too dry for you, skip to the Cash section, where things get simpler. Right, let’s get straight into things.

STAFF COSTS

This includes wages & related costs of all Brighton & Hove Albion employees- players, management and executives, ground staff - anyone on the payroll. However, it does not include transfer fees (that comes later on).

If we lay staff costs on top of revenue, we see that in the Championship, these alone eat up most, if not all, of the revenue generated.

And what about the Premier League? The costs jump significantly, reaching £115m by 2022 as Brighton invests in the team. But on a % basis, the Premier League years look healthier - over those 5 years, staff costs make up 68% of revenue vs 104% in the Championship. We're starting to see the price of chasing the Premier League dream.

Now, we can subtract that from the revenue, and it's clear the Premier League is still the place to be.

OPERATING EXPENSES

Next up - operating expenses.  This includes everything from the costs of powering the floodlights, stocking the kiosks with pies and filling the club shop with all those replica kits.

Starting where we left off, these costs remain more consistent in the Championship and are much lower than the staff costs. Post-promotion, these costs increase in the Premiership, and there's a further jump during Covid. However, from the data available, it is difficult to determine which increases are due to promotion and which are due to other reasons.

If we take those away, we end up with our EBITDA (earnings before interest, tax, depreciation & amortisation) - a standard metric used to assess a company's financials and from an EBITDA perspective, promotion appears to be paying off.

STADIUM + FACILITIES

Third, stadium and facilities costs. These are costs associated with the club investing in long-term assets such as improvements to the stadium, training facilities & equipment (technically referred to as tangible fixed assets). These costs are much smaller and aren't significantly impacted by promotion, so let's move on to the more exciting one...

TRANSFER FEES

Finally, we have the costs & sometimes profit associated with Brighton's transfer activity, specifically the buying & selling of player registrations

Net costs in purple, Net income in green

The numbers get a lot bigger in the Premiership years as the Seagulls establish themselves in the top flight - this again takes another huge chunk out of operating profit. However, in some years, the net effect is additional profit (shown in green).

And with that net income in 2022, Brighton's transfer investment strategy may be beginning to pay off (more on that later).

With that we've done it - we've gone from revenue to operating profit...or loss in many cases.

It shows that the 1-2 punch of Brighton's increased wages & transfer fees eats up a lot of the extra revenue received from playing in the Premier League.

Is there a silver lining? Well, if we go back to the side-by-side view of revenue, when we arrive at the operating losses, the operating margin in the Championship was negative (81%). For every 1 pound of revenue, the club lost 81 pence! In the Premier League, that has at least improved to 13%, but the story at the bottom line may not be as pretty as that at the top.

There was a lot to get through with that; let's move on to cash.

CASH

Yes, we can ignore all accounting complexities and focus on pounds in & pounds out.

The cashflows of Brighton can be broken down into 4 categories:

• Cash from operations

• Transfer fees

• Stadium + facilities

• Financing & tax

When assessing the impact of promotion to the Premier League, we're focused on just the top 2. And if we add them together, that will be our metric to compare the 2 divisions.

CASH FROM OPERATIONS

Cash from operations is generated from those EBITDA items we went through in profit.

Other than one year in the Championship, Brighton's operations led to cash flowing out of the club, but in the Premier League, that flips completely to cash coming in (driven by those extra revenues).

This is confirmed if we look by league position & stacked side-by-side; it's clear as day. Happy days for the Seagulls!

TRANSFER FEES

It's the opposite, with the Seagulls having significant net spending on transfers in the Premier League. Over the 5 years, that works out to a net position of 230m spent on players, vs just 18m in the Championship years.

CASH FROM OPERATIONS + TRANSFER FEES

Add the two together, and what do we end up with?

Wow... after 5 years in the Premier League, Brighton has had more cash go out of the club than the 5 years before promotion, despite having 6 times the revenue coming in.

Doesn't sound like the most lucrative prize in all of club football. But is all hope lost?

WHAT’S HAPPENED SINCE?

Of course not; we know that following the 21/22 season, Brighton has achieved their best-ever finish of 6th and secured European football for the first time.

We also know there has been considerable transfer activity with some eye-watering sales, including a British transfer record.

In fact, in the financial statements, Brighton states that post-year-end, they had generated a net £85m in transfer fees by the end of March 2023 and a further £21m for compensation for Graham Potter and the team leaving for Chelsea.

Both these things are going to massively improve the financial health of the Seagulls. But it's clear that if you want to invest in the team to establish yourself as a Premier League club, more than the extra TV money is needed. We'll illustrate this with one final chart showing how Brighton's owner, Tony Bloom, has supported the club financially throughout the Premier League.

In 2013, Mr Bloom had contributed £160m in Brighton & Hove Albion as equity and a loan to the club. By the time promotion had been achieved, that amount had grown to £280m. Despite over £700m of revenue earned through the Premier League campaigns, by 2022, total funding had spiralled to almost £500m!

It will be fascinating to see how Brighton's investment strategy evolves over the next few seasons and whether they will be able to continue their upward trajectory.

But are Brighton the exception or the rule? Do all clubs promoted to the Premier League face the same problems? Well, join us next week for Part 2 of "Premier League Promotion: Does it Pay?" as we look at Burnley Football Club. See you next week!