Wage costs of £133m exceeded a turnover of £125m last year, which in the vast majority of businesses would be unsustainable. But City are owned by wealthy Sheikh Mansour of Abu Dhabi, who wants to see the club competing at the very top.
He has spent more than £300m on players since buying City - who have not won a trophy for 34 years - from the former Thai prime minister Thaksin Shinawatra in 2008.
"Two years ago I was fortunate enough to become part of the Manchester City story and I remain grateful for the warmth of the welcome that you have given me," Sheikh Mansour bin Zayed Al Nahyan said in a
letter posted on the club's official website.
"The ownership of a club like Manchester City, with such a rich heritage and diverse community of stakeholders, carries a unique set of obligations to the fans, staff and broader Manchester community.
CITY'S SPENDING (June '09-May '10)
£17m: Roque Santa Cruz
£12m: Gareth Barry
£25.5m: Carlos Tevez
£25m: Emmanuel Adebayor
£16m: Kolo Toure
£22m: Joleon Lescott
£7m: Adam Johnson
Frees: Stuart Taylor, Sylvinho, Patrick Vieira
"This is something I do not take lightly.
"Therefore the challenge I set my board and executive leadership team is to develop City so that it is one of the most successful clubs both on and off the pitch, but to do so without losing any of the characteristics that make it so special."
The highest financial Premier League loss was Chelsea's in 2004-2005, with the London club losing £141m at the end of the first full year following the takeover by Russian oligarch Roman Abramovich.
Though City's wage bill rose from £83m to £133m following Sheikh Mansour's first full year of ownership, the club has appointed a further 106 non-playing staff during the period in question.
Arsenal manager Arsene Wenger, who sold Kolo Toure and Emmanuel Adebayor to City in 2009, says it should be the aim of every club to live within their means.
"I am convinced that, in every single club, the biggest pride is to achieve the maximum with the resources you have available and that is what we try to achieve," said Wenger.
"You know my position. I have not seen the [City] numbers because I was in a training session, because I find that more interesting but as you said before, with the financial fair play that will come in, it will be the same level of resources for all the big clubs."
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