The payroll of the club is the biggest expense it has. There are a couple of things to watch out for. The first is the absolute size of the wage bill, the second is the amount of the money coming in through the door that is being spent on wages.
The wages are clearly out of control. Since 2004 they have gone up by more than 10% per year, as the team performance has plummeted. The 2007-2008 rise was 12%.
Worse is that the club income has dropped in the same period, so the proportion of the income going on wages has leapt too. The general target figure for wages is no more than 50%. This was achieved up to 2004 but is not at an unsustainable 72%.
The perception used to be that clubs had to aim for no more than 50% of their turnover to be spent on wages. Freddie Shepherd was fantastic at achieving this, at least up to 2004. Since then the wages have been allowed to rise 55%, while the club income has only gone up 10%. It can now be argued that the % spent on wages can be higher as the Sky TV money has increased so much, and that this is "free" money that the club can spend without incurring any extra costs.
The big concerns in this area is that the TV deals are renewed at a lower level to those currently being paid. If this happens then the commitments to pay the players will be difficult to meet. Of course the bigger concern would be relegation, with all incomes plummeting and all costs staying pretty much the same. It would be hoped that the player contracts have get out clauses for the club if relegation does happen.