Rangers and Celtic: Never Let Me Down

Reach out and touch faith

Glasgow’s big two teams have  good starts to both domestic and Europa Cup campaigns so far this season and both have just announced their financial results for 2018/19.

Everyone know that the rivalry between the clubs and especially their fans is intense,  but do the accounts give the likes of @BearNecessities1872 and @PopeAndGlory on Twitter more point scoring opportunities against each other?

Revenue

Revenue for clubs is generated from three sources, matchday, broadcasting and commercial.

Relative to the rest of Scottish football, where many clubs are so small, they are not legally obliged to show income and expenses in their accounts, Celtic and Rangers dominate as would be expected.

All clubs have committed fanbases but this is especially reflected in the big two in ticket sales with Celtic averaging nearly 58,000 every match at home last season and Rangers well over 49,000.

Revenue from matchday is calculated as number of tickets sold per match x average ticket price x number of home matches played.

Due to both clubs nearly selling out every match and fans being resistant to significant ticket price increases matchday revenue growth is only achieved via clubs increasing the number of matches played.

An impressive increase in Rangers matchday income was due to the club reaching the group stage of the Europa League whereas Celtic reached the last 32 of that competition.

Note that the two Glasgow clubs are significantly ahead of the Hearts, who have the third highest matchday income in the Scottish Premiership with just over £5 million.

Due to the level of support from fans that both Glasgow clubs would only be behind the ‘Big Six’ clubs in terms of Premier League matchday income.

Love it or loath it broadcast income is a big discriminator in terms of club earnings.

European cup participation makes a big difference to overall earnings.

Nevertheless, Scottish clubs both benefit and suffer from the complex distribution methods used to distribute money from UEFA.

Not many realise that Because BT pay the largest sum for Champions and Europa League rights in Europe, Scottish and English clubs benefit from this being distributed via what is called the market pool.

Only Scottish clubs relatively poor performance in UEFA competitions in recent years resulted in a low UEFA coefficient (which measures historical success by national teams in the Champions and Europa League) and therefore their share of this pot of money is far lower than that of England, Germany, Italy, Spain etc.

Not that fans will like it but paradoxically Rangers and Celtic both stand to benefit indirectly from all Scottish clubs progressing in Europe as this will increase their UEFA ranking, where being in the top 15 nations could have significant implications in future competitions.

Seeing Celtic’s broadcast income higher than that of Rangers needs further investigation and this was because Celtic made more progress in the domestic cups and in Europe.

Due to another one of UEFA’s pots of cash, which is linked to overall performance over the last decade in Europe, Celtic earned more broadcast revenue.

European participation for Rangers wasn’t the case when they were in the lower leagues of Scottish football for some of the last decade.

Broadcasting income in England is the major driver for the gap between Celtic and Rangers and Premier League clubs, but what is perhaps more alarming for their fans is that they are also behind many teams in the English Championship who are earning parachute payments.

Universally impressive for both clubs is the level of commercial income generated from sponsorship, advertising, kit manufacturing, merchandise and hospitality.

The impact of Steven Gerrard was a driver of Rangers increase in this income stream last season as sponsors are willing to pay more to be associated with such a high-profile individual

Sales from retail activities increased substantially at Ibrox last season but are still not maximising their potential due to an ongoing legal dispute with other parties including Mike Ashley, the Newcastle owner, which has restricted sales and had some fans boycotting products.

In the case of Celtic the club has had the benefit of European competition access including some Champions League participation in recent years to help them improve commercial income.

Numbers from the three revenue sources added together resulted in Celtic generating revenue of over a quarter of a billion pounds more than Rangers over the last six years but both clubs income still dwarfs that of Aberdeen, the club with the next largest income.

Gaps of that size are difficult to eliminate but last year was the narrowest for some time, yet Celtic still had a thirty-million-pound advantage over Rangers and that’s before considering player sales, although a Premiership win and participation in the group stages in the Champions League could change things for Rangers..

Looking at the profit and loss account in more detail showed that Celtic also had ‘other income’ of £8.8 million as compensation from Leicester City for headhunting Brendan Rodgers and his backroom team part way through the season.

Costs

Every club’s main costs are in respect of players via wages and transfer fee amortisation.

In the case of the two big Glasgow clubs their wage bills are far in excess of other Scottish clubs and Celtic’s higher income in turn allows them to pay higher wages than Rangers.


Steven Gerrard’s wages plus those of the players he signed resulted in Rangers wage bill increasing by over a third, whereas a lack of Champions League participation meant that Celtic’s wages falling slightly.

Player transfer fee amortisation is the amount paid spread over the length of the contract.

Estimating transfer fees is difficult as so many transfer fees are ‘undisclosed, but if Rangers signed Conor Goldson from Premier League Brighton for about £1.5 million on a four-year deal this would result in an amortisation cost of £375,000 per annum.

Rangers spending on the squad has increased noticeably since they returned to the top division and this is shown by the rise in their amortisation charge.

Success on the field for Celtic has resulted in a far bigger amortisation charge in recent years partly due to winning eight Premiership titles in a row.

Obviously, the income that such success brings domestically and in European competition has then been invested in player signings.

Notes to the accounts reveal that In addition to amortisation, both Rangers and Celtic reported ‘impairment’ costs of £1.6 million and £2 million respectively in relation to players whom they had signed whose poor performances meant their values were reduced.

A lot of fans will point their fingers at the likely individuals who suffered this ignominy but the clubs themselves are tight lipped on the matter.

Looking at Rangers ‘other costs’ these increased by 70% to over £21 million in 2018/19.

Just part of this is due to extra stewarding and policing in respect of Europa League matches at Ibrox but also an alarming £3.6 million increase in legal costs as Rangers disputes with Mike Ashley’s Sports Direct rumbled on throughout the year.

Player Trading

Every club sells as well as buys players and In recent years Celtic have made impressive profits selling one or two high profile players each year.

Selling Moussa Dembele to Lyon for about £20 million generated a big profit as the player cost the club a fraction of that sum from Fulham.

Upping profits for next season for Celtic will be the sale of Kieran Tierney which took place after the accounting year ended and that will contribute £25 million.

Selling player by Rangers has not been such a contribution to the bottom line, although the prolific Alfredo Morelos is likely to command a high price should he leave the club in the next year or so.

Buying into Steven Gerrard’s vision for the club last season meant Rangers outspent Celtic for the first time in many years in terms of player signings.

Profits and Losses

Yearly profits are total income less costs and whilst Celtic’s fell significantly in 2018/19 they were still substantially ahead of Rangers.

Desperate times can arise If a club is losing money, as the only way to survive is to sell off assets or have funding from lenders or shareholders.

Even though Rangers didn’t sell any players for large fees they generated £2 million from share issues and £8 million from loans in 2018/19 to plug the gap from day to day losses, whereas Celtic needed no such funding.

Summary

Predictably given their respective finances Celtic and Rangers finished in the top two positions in the Premiership in 2018/19.

Exploiting the financial gap between these two clubs and the rest of the division, means that it will be difficult for other Premiership clubs to make a challenge for the top positions in the league, especially with their relative success to date in the Europa League in 2019/20.

Celtic have a noticeable advantage over Rangers in terms of income generation and profitability, partly due to their ability to buy low and sell high in terms of player trading, and this has allowed them to pay higher wages, which is usually, but not always, reflected on the pitch.

Having this advantage gives Celtic a greater, but not guaranteed, chance of success in terms of trophies.

Even so, Rangers is potentially going to continue to lose money unless a more successful player trading policy and a resolution to ongoing legal disputes is achieved.

Most concerning is that in the accounts are the comments from Rangers auditors highlighting the club’s ability to trade as a going concern.

Only investment by Dave King and other investor plugged the gaps in Rangers finances last season and £16.6 million of shareholder loans were effectively written off by being converted into shares, diluting other shareholdings in the process, and King has been subject to criticism by the Takeover Panel for some of his actions.

Due to Rangers finances being precarious if investors are unable or unwilling to cover the losses indefinitely then Rangers would face substantial cost cutting or what Sir Alex Ferguson would call ‘squeaky bum time’.

Every Rangers fan will be asking themselves, given the clubs recent history, whether or not they are willing to take this risk if it stops Celtic winning ten titles in a row?

Bristol City 2018/19: Empty Skies

Call us free by a promise torn, you said I’ll meet you there

Introduction:

Life in the Championship is tough, and Bristol City’s latest financial results are testament to that as playoff hopes were dashed and the club lost a lot of money on a day to day basis.

Every cloud has a silver lining and City’s impressive player recruitment and talent spotting allowed the club to reverse these losses due to player sales that generated £38 million profits.

Even so, the club needed the benevolence of owner Stephen Lansdown to keep its head above water as he continued to pump money into City.

Key figures for year to 31 May 2019: Bristol City Holdings Ltd

Income £30.3 million (up 20%).

Wages £30.6 million (up 12%) .

Losses before player sales £26.3 million (up 9%)

Player sale profits £38.2 million (2018 £0.3 million)

Player signings £10.2 million (2018 £12 million)

Player sales £39.7 million (2018 £1.8 million)

Steve Lansdown investment £137 million (up £10 million).

Justifying such a huge investment is difficult but City are fortunately owned by Pula Sports Limited, a company based in Guernsey.

Owner of Pula Sports is in turn Steve Lansdown, half of Hargreaves Lansdown, the £8 billion plus valued financial services company.

Income:

How most clubs generate money does vary but for most is split between matchday, broadcasting and commercial sources.

Nowadays some clubs in the Championship also have the benefit of parachute payments following relegation from the Premier League (EPL).

Stoke, Swansea and West Bromwich Albion will all have generated more money from parachute payments in 2018/19 (about £41 million) than City will have made from all their regular income sources.

One thing that is always good about City is that they are always one of the earliest clubs to publish their finances each season, but this does mean that many comparative figures for other clubs are from 2017/18.

Nudging their way into the top ten revenue earners in the Championship is an achievement given that City start so far behind the recipients of parachute payments.

Strip out the parachute payments (and their quasi-equivalent for other clubs in the Championship from the Premier League called solidarity payments) and City rise to 4th in the income table, which suggests that the club’s investment in Ashton Gate recently is paying off.

Football fans pay money through the turnstiles via season ticket purchases, which tend to be relatively constant, and matchday tickets, which are more volatile as clubs dependent upon promotion and cup runs.

Ashton Gate’s attendances were very similar to those of the previous season, at just over 20,000, but City’s impressive League Cup run in 2017/18 was not replicated, reducing income from one off matches.

Very few clubs in the Championship have matchday income increasing every year as clubs’ fortunes vary, and City had a 10% decrease in 2018/19.

Overall City’s matchday income was mid table for the Championship and this is intuitively where you would expect to see them in a division that does generate from some large attendances at other clubs.

Under Steve Lansdown’s ownership recently Ashton Gate has been transformed and this is reflected in the growth in commercial income.

.

Relative to other income sources commercial income is now the biggest earner for City, generating over half of the club’s revenues compared to a quarter in 2013.

Infrastructure spending by City at Ashton Gate and the consequent surge in banqueting, conference hosting and other similar activities has resulted in the club having the second largest commercial income stream in the Championship.

The split of broadcasting income in the Championship is very much a two-tier scenario, with parachute payments distorting numbers significantly.

Every club in the Championship receives broadcast income from both the Premier League and the EFL.

Distribution of broadcast money to clubs such as City comes in the form of solidarity payments (which is an agreed percentage of the Premier League fixed broadcasting pay-outs) which were £4.5 million and their share of the EFL TV deal at £2.9 million.

Income overall therefore for City was a record £30.3 million, five times that of 2013/14, but was it enough to allow the club to make a profit?

Costs:

Success in football is down to players, and player costs are the most significant for a club.

Nowadays players and their agents are fully aware of their value and this means that clubs must pay substantial wages to attract and keep talent.

Every club has two forms of player costs, wages and transfer fee amortisation.

Year on year wages in the Championship have risen in recent years and between 2014 and 2018 they increased by over £284 million, more than the change in revenue during the same period.

A screenshot of a cell phone

Description automatically generated

For City the wage change has been equally alarming as the wages increased by over 12% and the average is now £13,700 a week as the club tried to keep up with the Joneses in the Championship salary league table.

Investing to this extent has resulted in City spending £96 million in wages since returning to the Championship in 2015/16, during which total income has been £91 million leaving nothing to pay any of the other running costs, unless these are bankrolled by Steve Lansdown.

Life in the Championship is hard as clubs paid out £107 in wages for every £100 of income, but City also had similar issues when they were in League One a few years ago.

Most clubs in the Championship are paying wages that are unsustainable in the long run but the relaxation of FFP rules (or Profitability and Sustainability, which is ironic as clubs are neither profitable nor sustainable under the rules) a few years ago has resulted in wage growth being significant.

Investment in players also comes via transfer fee amortisation, which is where the sum paid for the player’s registration is spread over the length of the contract signed.

Signing the excellent Adam Webster from Ipswich at the start of 2018/19 for £3 million on a four-year contract therefore resulted in an amortisation charge of £750,000 (£3m/4) in the profit and loss account for 2018/19.

The total amortisation charge for the last season was £7.9 million, an increase of 16% over the previous season and six times the amount of when City were in League One.

Having been only the second club in the Championship to publish accounts for 2018/19 means that a perfect comparison isn’t possible with other clubs, but City are about mid table in terms of their amortisation cost.

Every business has other operating costs too and City’s increased by over 20% to £15.2 million, perhaps due to the increased expense of running the expanded conferencing and hospitality activities.

Profits (or perhaps more appropriately Losses?)

Losing money in the Championship is pretty much a given and City’s underlying operating losses from day to day activities were £26.3 million last season, or £506,000 a week.

It therefore means that total losses since 2013 exceed £100 million and means either player sale profits or owner investment are required to reduce these losses.

The sales of Reid, Bryan, Flint and Kelly during the year to 31 May 2019, as well as a promotion clause kicking in from Villa in respect of the sale of Kodija resulted in City having player sale profits of £38.2 million in 2018/19.

This level of profit is very high by both City’s own standards and those of the Championship but is also very volatile and can’t be relied upon to take place every season.

Losses following player sales have therefore been reduced to ‘just’ £69 million since, but Steve Lansdown still has effectively had to find £200,000 each and every week for six years.

EFL FFP rules restricts losses to £39 million over three seasons, but the player profit sales from last season mean that City’s losses are an estimated £7 million so the club will have plenty of wiggle room at present.

Manipulating club finances to satisfy FFP is a contentious issue at present with some clubs having unusual transactions with companies controlled by the club owner to boost income, but there is no evidence of such behaviour at City.

Every club can exclude academy, infrastructure, women’s and community scheme costs from FFP calculations, and this has created additional loopholes exploited by those clubs whose owners are used to getting their way.

Player trading:

Reliable figures for individual transfers aren’t available as these days (Transfermarkt numbers are usually just guesses) as most transactions are for ‘undisclosed’ sums but overall City spent just over £10 million on players in 2018/19.

Mid table in the spending charts is where £10 million gets you in the Championship although most of the figures in the table are from 2017/18 and we expect the total of £310 million that season to fall as clubs have reduced spending to comply with FFP.

As already mentioned, City had substantial player sales in 2018/19 which brought in a total of £40 million but many of the sales were on instalment terms and only £18 million of this was received in the form of cash.

In the footnotes to the accounts it shows that City earned a net £3 million after the year end from player trading, which presumably includes the sale of Webster to Brighton for £15-20 million so must include a lot of purchases too.

Funding the club

Director and owner Steve Lansdown’s total investment increased further in 2018/19 as he invested a further £10 million in the club via holding company Pula Sports and a share issue. Pula also guarantee a £50 million bank loan for the club. Lansdown’s total investment is therefore about £130 million in City.

Realistically, Lansdown will have to subsidise the club by a minimum of £10-20 million a year for the foreseeable future, unless promotion to the Premier League is achieved or there are substantial player sales.

Conclusion

Bristol City are a classic example of life in the Championship finances, loss making, reliant on a benevolent owner and occasional player sales and unable to keep wages under control.

If promotion is achieved fans will take the view that all of this is worth it, but until then it’s a hard slog of 46 league matches on a Saturday, Tuesday, Saturday, Tuesday cycle and thanking their lucky stars they have an owner prepared to cover the weekly losses.

Manchester United 2018/19: Waterfall

Now, you’re at the wheel, tell me how, how does it feel? So good to have equalized, to lift up the lids of your eyes

In May 2018 Ed Woodward, Manchester United’s vice-chairman said, “Playing performance doesn’t really have a meaningful impact on what we can do on the commercial side of the business.”

Down at the Stretford End hardcore United fans were unimpressed with the comment at the time and no doubt Woodward is squirming after the club’s moderate start to the 2019/20 season.

Reds fans know United have just announced their accounts for the year ended 30 June 2019, and like events on the pitch last season, they are a mixed bag of results.

Income

A Football club generates income from three main sources, matchday, commercial and broadcasting.

A screenshot of a cell phone

Description automatically generated

The matchday income for Manchester United in 2018/19 was £111 million, impressive by Premier League standards and above that of any other club in that division (whose figures are from 2017/18 as no one else has published results yet). .

However, there has been hardly any growth in matchday revenue since Sir Alex Ferguson retired in 2013 and critics say that Old Trafford is falling behind rivals in terms of modern facilities and comfort.

A screenshot of a cell phone

Description automatically generated

Each club’s matchday income is calculated as the number of home matches played multiplied by the average attendance multiplied by the average ticket price.

Respect is due for United keeping season ticket prices frozen for the eighth year and Old Trafford is sold out every match, so there is little opportunity to increase this income stream unless Old Trafford has its capacity increased.

Historically commercial income is where United have been the smartest kids on the block through their policy of selling rights to commercial partners in different countries for similar products and services.

A concern for the boardroom at Old Trafford is that this total too was relatively static in 2018/19 and perhaps suggests a lack of silverware is taking its toll as sponsors like to associate their products with success.

A screenshot of a cell phone

Description automatically generated

Very few clubs can match United’s global appeal, but the club’s kit deals with adidas and Chevrolet signed a few years ago effectively locked it into long-term totals and other clubs are starting to catch up.

Even though broadcasting income increased by 18% in 2018/19 the numbers hide a more concerning story.

Reporting an increase in broadcast income of £37 million sounds impressive this was all due to a new Champions League TV deal starting in 2018/19.

In winning the Europa League 2016/17 United made £38 million in prize money.

Champions League prize money of £83 million was however made in 18/19 when United made the quarter finals of the Champions League but as UEFA award 80% of prize money for the Champions League and 20% for the Europa League United will face a drop this season. .

Having new ten-year club coefficients come into play in 2018/19 for clubs in the Champions League helped United earned €31 million, more than any other English club from this particular pot on the basis of their historic success over the last decade.

As there was success for other English clubs in UEFA competitions last season combined with United’s 2009/10 Champions League performance slipping out of the ten year equation has however seen Manchester City and Liverpool advance ahead of United in the club coefficient.

Results in the Premier League were moderate leading to a fall from 2nd to 6th and meant that Manchester United’s domestic broadcast earnings fell from £155 million to £148 million.

Despite this United still top the table for total income over their ‘Big Six’ peer group but the lead is eroding.

Keeping ahead of rivals financially is essential if United are going to compete for players and whilst in 2017 United earned £217 million more than Liverpool, the following season this fell to £135 million.

European success for Liverpool and/or Manchester City in the Champions League in 2019/20 could eliminate the gap totally, with Spurs coming up on the rails on the back of the new stadium.

One of the footnotes in United’s press release states the club expect 2020 revenues to be in the £560-580 million range, a fall of up to £70 million.

Costs

Getting costs under control for a club is difficult as the main expenses are player related, in wages and amortisation.

Having to keep up with the competition, United’s wage bill, despite paying fewer win and trophy bonuses than the previous season, increased to £332 million in 2018/19.

Alexis Sanchez’s contract for the full season, along with new contracts for some other players and Champions League participation bonuses being triggered, were the main drivers of the 12% wage bill increase.

The wage bill at United since Sir Alex Ferguson retired in 2013 has increased by 83%, putting the average weekly wage at approximately £160,000 a week.

This means that the wage bill is by some distance the highest in the Premier League but remember that other clubs have not yet reported figures for 2018/19.

Having a high bill is affordable on the back of United’s revenue streams, with wages representing £53 of every £100 of income generated, the highest for a decade.

Even so United fans can be relatively relaxed as this is well below UEFA’s ‘red line’ of 70% when comparing wages to income.

Wages are one way of attracting talent but the other means is through player signings and these are dealt with in the profit and loss account via amortisation.

Having a new signing does not mean that the whole fee is charged as an expense immediately.

Every fee payable is spread over the contract life so when United signed Fred from Shakhtar Donetsk last season for £52 million on a five-year contract, this resulted in an annual amortisation charge of £10.4 million a year.

Every amortisation charge is then added together to give a total charge for the whole squad last season of £129 million, treble the amount of when Sir Alex was last in charge.

Looking at the rapid increase in amortisation costs indicates that Manchester United have spent large sums recruiting players from other clubs and paying them handsomely, but the quality of the recruitment must be called into question.

The two English clubs who participated in the Champions League final last season together had a lower amortisation charge than Manchester United, and remember that Rashford, Lingard and McTominay all are academy recruits with no amortisation cost.

Having sacked Jose Mourinho and his entourage during the season, United had to pay off their contracts at a cost of £19.6 million, which took the total cost of getting rid of managers to £40 million since 2013.

A surprise for some fans is that United boosted their profits with player sales that made the club £26 million as Fellaini, Blind and Johnstone left Old Trafford.

Profits

Net profits are calculated as total income less total costs, but before getting to the bottom line Manchester United had trading profits from their day to day operations of £50 million in 2018/19, an increase compared to the previous season but still lower than in 2013.

Every United fan knows that the Glazers borrowed £790 million in 2005 and at the time lenders were very wary about giving the club money so charged interest rates up to 16.25%.

Developing a reputation for making the interest payments on time was essential for United and the club managed to convince the markets it was generating enough cash from its day to day operations to reschedule the loans at lower rates in recent years.

Whilst the annual interest expense has fallen to just £22 million last season the total cost since 2005 has now reached £809 million, exceeding the sum originally borrowed.

Overall taking into account interest and tax costs Manchester United made a profit of just under £19 million, lower than some other clubs who had the benefits of much larger player sale gains the previous season.

Out of those profits £23 million was then paid from the club in the form of dividends to shareholders, United are the only club in the Premier League who make such payments to the Glazer family and hedge funds who own nearly all the shares in the club.

Player trading

Diago Dalot, Fred, Dan James and Aaron Wan-Bissaka arrived at Old Trafford in the year to 30 June 2019 for a total of £135 million, the latter two of course arrived just before the end of United’s year end.

Whilst United have now spent over £1 billion on new signings since Sir Alex retired, the quality of the signings has been questioned as the likes of Di Maria, Lukaku, Sanchez and Bailly have not justified the fees paid for them.

A glance at the footnotes to the accounts shows United have been busy in the transfer market since 30 June 2019 too, spending £99 million on new players and extending some existing player contracts, mainly on Maguire and De Gea.

Romelu Lukaku’s sale post the accounting year end is shown at £67 million, presumably in relation to Romelu Lukaku. This figure seems much lower than the amount quoted in the media but may be net of agents fees on the deal.

Debts due to other clubs on transfers to £188 million at 30 June 2019, although this figure is another which has risen rapidly since Sir Alex retired.

Summary

So, where does this leave Manchester United? There is no doubt that the Glazers and Ed Woodward are unpopular with a large proportion of fans. The lack of trophies in recent years is now perhaps catching up with the club as it no longer shows the incredible growth in sponsorship deal values that took place once upon a time. So perhaps Ed is wrong and playing performance does really have a meaningful impact on the commercial side of the business, and that might worry the owners and investors as it has done the fans in recent times. Whether that will result in an improvement in United’s fortunes on the pitch if the club is driven by the manager instead of the commercial department is an unknown.

Hull City 2018/19: Doppelganger

Too many Florence Nightingales, not enough Robin Hoods

Assem Allam, the Hull City owner, is not a popular man with the fans of the East Riding Championship club.

Last season the club finished 13th in the Championship which was a reasonable if forgettable position.

Losing 8 games out of the first 12 had left Hull at the bottom of the division in October but things improved on the pitch slowly and at one point Hull were in with a chance of making the playoffs.

A look at the club’s accounts reveals a mixed bag too, although the club deserve some credit for (again) being the first of the 92 to publish results for the previous season.

Many fans believe the Allam’s have put their own interests ahead of the club and stunts such as changing the name of the club’s company to Hull City Tigers Limited have not helped the situation.

Income

We need to split a club’s income into three main areas, matchday, broadcasting and commercial, to get a feel for how a club is performing both historically and compared to others in the division.

Earnings from matchday sales last season fell by nearly 15% to £6.1 million, the lowest for six years.

Average attendances fell below 10,000 as fans voted with their feet in terms of the toxic relationship with the owners, as well as a poor start to the season on the pitch.

Relative to other clubs in the division (from 2017/18 figures) Hull’s matchday income is reasonable but doesn’t give the club much of a base to compete for players.

Selling deals to sponsors and commercial partners is challenging for a club such as Hull due to geographical and historical reasons and being in a city that also has two rugby league teams, which helps explain why such income source has decreased by 85% since the club was in the Premier League in 2016/17.

Leeds and other large clubs in the Championship can sell the size of their fanbases to sponsors, but the likes of Hull have to fight over the scraps, resulting in the likes of my all time favourite shirt sponsor Flamingoland being plastered over the shirt a few seasons ago.

In being a member of the Premier League in 2016/17 Hull have had the benefit of two years of parachute payments to help deal with the legacy of large player contracts and outstanding transfer fees from the top tier.

Next/this season (2019/20) Hull will lose parachute payments which are usually given for three seasons but this is reduced to two if a club is promoted and then relegated in the first season in the top flight, as happened in 2016/17.

Going into the EFL broadcasting deal in 2019/20 will mean that Hull’s broadcast income will fall to about £7 million from £40 million, which will result in a major belt tightening exercise.

Every club in the Championship gets about £2.3 million from the EFL’s own deal with Sky as well as a £4.3 million ‘Solidarity’ fee from the Premier League, and a separate fee for each match that is chosen for live broadcast.

Relative to most clubs in the Championship Hull fared very well in terms of broadcast revenue last season but they will drop to close to the bottom of the table in 2019/20.

In the EFL some club owners feel the deal negotiated by the unpopular Shaun Harvey short-changed them but realistically they will struggle to generate significantly more than the existing arrangement, which is split 80% to the Championship, 12% to League One and 8% to League Two clubs.

Even if the Sky deal, which lasts five years, was scrapped, it’s unlikely that a new broadcaster would be willing to pay much more, as armchair fans tend to focus on the elite Premier League teams and the remainder of that division are simply fortunate that collective sale of rights takes place.

Overall Hull’s income dropped to £48 million in 2018/19 but unless the club is promoted expect it to drop to levels similar to those earlier in the decade of about £17-18 million.

No business should be over-reliant on a single income source but Hull had 83% of their coming from broadcasting last season and will suffer a significant hit when this declines.

Total income for Hull last season exceeded that of the likes of Leeds and Derby (or Frank Lampard’s Derby County, to give them their proper name from last season) which will suspect fans of all three clubs we suspect.

Costs

Having to compete in the Championship is expensive and the main reason for this is due to player costs in both wages and transfer fees.

Unlike in League One and League Two, the EFL do not operate a soft wage cap in the Championship and this means that some clubs live beyond their means in terms of what they pay players.

Rollercoaster wage totals are a feature of Hull’s wage bill over the last decade as the impact of promotion, relegation and bonuses is highlighted in the figures above.

Spending less on wages than for the last six years meant that Hull’s squad contained a mixture of players who were reluctant to take a pay cut to leave alongside untried signings and academy step ups.

Despite the 20% decrease in wages we estimate players at Hull were still on about £600,000 for last season, so sympathy is unlikely to be in great supply for them, although expect this figure to fall significantly in 2019/20.

A lot of clubs in the Championship pay more out in wages than they generate in income but Hull are at the bottom of this table but this may change as parachute payments cease.

Year on year over the last decade Hull have had very good wage control by Championship standards, but they have also had the benefit of promotions and the accompanying parachute payments during the period.

A screenshot of a cell phone

Description automatically generated

No other industry than football would tolerate spending more on wages than income but from a fans’ perspective so long as the club is promoted the end is justified by the means.

Intangible asset (transfer fee) amortisation is the other main expense in relation to players where the transfer fee is spread over the life of the contract.

George Long signed for Hull for about £135,000 on a three year contract, so his annual amortisation cost would be £45,000 (£135,000/3).

Hull’s total amortisation cost for the squad last season was £13 million in relation to a squad which at the start of the season cost £36 million.

The amortisation fee in the profit and loss account considers all the squad players signed for fees and reflects the longer-term investment in transfers.

Some Hull fans might be surprised the amortisation charge increased last season but this reflected that relatively few high cost players were sold.

One additional operating cost that Hull have to pay is rent in relation to the stadium. Under the agreement with the Allam owned Superstadium Management Company Limited Hull appear to have to pay rent that increases by 10% a year. This has resulted in rent increasing nearly doubling from £425,000 to £835,000 since 2014.

Profits/(Losses)

Profits are revenues less costs and Hull just about broke even last season and have made profits in three years out of the last nine, again on the back of Premier League membership.

The only way that clubs can usually reduce these losses is via player sales or owners underwriting them. Hull have had relatively some success in terms of player sales in recent years making profits on player sales of £82 million.

The Allam’s have lent money to Hull but have charged interest on the outstanding loans. Hull have paid out nearly £23 million in loan interest so far this decade although not all of it necessarily relates to the owners.

Player Trading

Last season Hull were relatively quiet in the transfer market by historic standards.

Net transfer income of £2.7 million in 2018/19 was not competitive by Championship standards.

Owner Funding

Club owners can invest money in three ways, loans (which may or may not be interest bearing, share issues or related party transactions such as the stadium sales at Derby, Villa, Sheffield Wednesday and Reading.

Hull repaid the Allam’s about £13 million last season to take the sum down to £50 million, which may or may not be a coincidence of the alleged price the Allams are looking for when selling the club.

Conclusion

Hull financially have done well to break even on a day to day basis last season but that ignores that their main income source is about to dry up.

Unless a speedy resolution to the conflict between the owners and fans takes place the club is going to struggle to compete in the Championship and attendances could fall even further below the present levels.

Some might say the accounts are out extremely early to give the Allams more time to market the club to potential investors before there’s a deterioration in the financial numbers in 2019/20.

Scunthorpe United 2018: The Light Pours Out Of Me

If you think this is do or die try the playoffs

Introduction

Peter Swann, the Scunthorpe United owner, recently claimed “we are probably one of the best-run clubs in the Football League” so it’s time to take a look at the finances of the Lincolnshire team, presently sat at the bottom of League Two.

EFL chairmen may have to decide soon in terms of Bury’s appeal to be reinstated to the league and if so, there will be two rather than one sides relegated to the National League.

The chances of a club in a position similar to that of Scunthorpe voting for reinstatement are remote as it could be the difference between survival or demotion to the National League.

Income

Every football club has three main sources of income, matchday, broadcasting and commercial.

Relying on crowds of just over 4,000 is not going to be sufficient for a club to survive and these have brought in around £1 million per season in recent years.

Some clubs in League One have average attendances three or four times those of Scunthorpe which shows that the club was at a disadvantage in terms of this income source.

We would like to show matchday income for more clubs but sadly many take advantage of a legal loophole for small businesses that allows them to avoid showing many types of income and costs.

A club in the EFL receives two types of broadcast income, solidarity payments from the Premier League (about £900k for a L1 club) and a share of the EFL’s own TV deal with Sky (£500k for a L1 club).

New rules introduced by the Premier League will result in solidarity payments falling as the owners of the elite clubs think they are subsidising smaller clubs too much.

Nervous owners of clubs in League One and Two will also be concerned at the noises coming from some Championship club owners too who want to renegotiate the EFL deal and it’s unlikely these owners will be wanting to give smaller clubs a bigger share of the pie.

How the money is split at present is 80% to Championship, 12% to League One and 8% to League Two so Scunthorpe realistically can expect about £950k this season from broadcasting.

A form of parachute payment is made when clubs are relegated to the National League, where clubs would get 100% of the EFL money in the first season and half of this sum in the second.

Sponsorship, advertising, commercial, hospitality and academy revenue in the admirably detailed Scunthorpe accounts amounted to £1.7 million in 2017/18, more than doubling in the last five years.

A screenshot of a cell phone Description automatically generated

The importance of such income streams is critical to a club the size of Scunthorpe especially with relatively modest attendances so credit should be given to whoever is negotiating sponsor and commercial deals.

Having commercial income as the biggest income contributor, as Scunthorpe have managed recently, does give the club more control issues that the off-field team can’t control, such as broadcast money splits and relegation.

A close up of a logo Description automatically generated

Costs

Regardless of which division it plays in, the main costs for a football club are player related, in the form of wages and transfer fee amortisation.

Every fan wants to see their team have a competitive squad and all the research shows unsurprisingly that there is a positive link between player wages and league position.

Each of the last six years shows that Scunthorpe paid out more in wages than they generated in income, with the total over the period being £19.9 million income and £27.9 million in wages.

Not all clubs publish wage data, which is disappointing but unsurprising given the lack of governance & transparency at the EFL.

In paying just over £3k a week Scunthorpe’s wages are highly competitive with the rest of the division, although noticeably lower than those of clubs recently relegated from the Championship.

Peter Swann has clearly backed managers here in terms of giving them a wage budget that in theory should allow them to recruit players who could help the club challenge for promotion to the Championship.

Paying competitive wages allowed Scunthorpe to make the playoffs in 2017/18 with an impressive fifth place finish.

Losing to Rotherham in the playoffs was a hammer blow and the club struggled the following season.

EFL rules do in theory limit player wages to 60% of income, but if the owner puts money into the club this is also taken into consideration and Peter Swann’s financial commitment allowed Scunthorpe to pay wages that otherwise would have been prohibited.

Scunthorpe’s investment in players has also resulted in the amortisation charge increasing. Amortisation is the transfer fee cost spread over the contract signed by the player. So, if Scunthorpe signed Cameron Burgess from Fulham for (say) £45,000 in 2017 on a three-year deal, this results in an annual amortisation charge of £15,000 (£45,000/3).

One person who has benefitted well at Glanford Park is the highest paid director. Directors were previously unpaid at Scunthorpe but there is now one person who is receiving about £190,000 a year at the club.

Profits/Losses

Profits are income less costs and given that Scunthorpe spend more on wages than they generate in revenue clearly the club is loss making.

Scunthorpe’s losses were magnified in 2017 and 2018 due to a £1.3 million write-down of an asset under construction. What this is isn’t clear from the accounts, but its value fell from just over £1.3 million to just £12,000.

Losses have trebled since 2013/14 as a result of the increased spend on players. Losing nearly £90,000 a week does result in challenges for those running the club. There are a variety of ways to reduce these losses, with player sales being the main ‘football’ approach.

Over the past six years Scunthorpe have generated nearly £1.5 million in profits in player sales, which is some way short of the £18.6 million of losses in the same period.

Scunthorpe have therefore had to rely on the club owner to cover the losses. Part of Peter Swann’s investment has been in the form of loans from his company Coolsilk, but these loans have been interest bearing and the club was paying over £4,000 a week in interest as a result in 2017/18.

With the club losing so much money there is little likelihood of it having to pay corporation tax, which are related to profits. In the last three years Scunthorpe have sold their tax losses to Peter Swann’s Coolsilk which has reduced losses by about £4 million over the period.

This is apparently something to do with a tax avoidance (and therefore totally legitimate) scheme called ‘Group Relief’. I did try to Google what this meant but when I typed it into the search engine is took me to a website called Pornhub, which I suspect is nothing to do with tax, but another three-letter word ending in ‘x’.

As a result of the above shenanigans Scunthorpe’s total losses stand at £15 million at 30 June 2018.

Peter Swann has also supported the club financially by buying shares in Scunthorpe. The advantage of this approach is that shares pay dividends rather than interest, and only if the club has an overall profit (which the above total of £15 million losses suggests is unlikely for some time).

Player Trading

Many clubs in the lower leagues have very tight player recruitment budgets and Scunthorpe are no exception. Over the past six years the club has spent £1.3 million buying players and generated nearly £1.7 million from sales.

Spending just £10,000 on players in 2017/18 meant that Scunthorpe were near the bottom of the recruitment table, perhaps a little more investment would have given the club the extra boost to get closer to promotion and kept Graham Alexander in a job.

Borrowings

As a result of the Coolsilk loans Scunthorpe’s debts have nearly quadruped to over £9 million since 2013.

These loans are not huge by League One/Two standards, but as has been seen in the case of both Bolton and Bury all loans come at a risk. (Note in the table below Bradford have not disclosed their loans as the club’s hierarchy are so contemptuous of the fans that they won’t even reveal the figures).

Summary and conclusion

Scunthorpe have lived beyond their means under Peter Swann since he acquired the club. There is nothing wrong with this, but it does increase risk if for whatever reason he can’t (Stewart Day at Bury, Tony Xia at Villa) or won’t (Steve Day at Bury, Ken Anderson at Bolton, Ellis Short at Sunderland) underwrite the losses.

Peter Swann has been generous to the club and should be given credit for that, but unlike many other owners who have lent their clubs money interest free (Coates family at Stoke, Matthew Benham at Brentford, Tony Bloom at Brighton, Dean Hoyle at Huddersfield etc.) has charged interest. The transfer of tax losses makes sense but also leaves a slightly uneasy taste in the mouth as to what is driving the investment.

Back to back playoff appearances are a testament to how a generous owner can elevate a club up the table, but unfortunately Scunthorpe didn’t get over the line.

Does the above analysis suggest that Peter Swann’s support his “we are probably one of the best-run clubs in the Football League” comment? That’s for others to decide rather than us.

Bury: Another brick in the wall

Overview

Guinness Book of Records announces new entrant in ‘World’s Smallest Fan Club’ category

The company has taken advantage of legislation for small businesses to avoid publishing full financial statements. This means that there is no profit and loss account or income/wage details.

No accounts have been published for the year ended 31 May 2018, in breach of company law, making the directors guilty of a criminal offence.

Losses accelerated for the company from 2013 onwards, following the acquisition of the club by Stewart Day.

In the two years when the club did publish fuller sets of accounts, wages exceeded income.

Income details

Bury’s income increased in 2015/6 and 2016/7 when the club was in League One. This is partially due to increased broadcasting revenues which are 50% higher for clubs in League One compared to League Two.

Compared to other League One teams Bury generated low levels of income. Detailed breakdown of income is not given, but clubs in the division earn about £1.4 million a year from broadcasting and the balance is from matchday and commercial sources.

Wages

Bury’s wage bill has only been published twice, but there was a 29% increase in 2015/16 following promotion. In 2014/15 Bury paid £129 in wages for every £100 of income in League Two in 2014/15 and were still paying £100 in wages the following season despite the boost to income following promotion.

Compared to other clubs in the division Bury’s wage bill was moderate. There is a commonly held view that Stewart Day was trying to ‘buy’ promotion via paying unsustainable wages, and this some merit on a proportion of income basis but not on in terms of the total wage bill.

Profits/(Losses)

Bury have been losing about £50,000 a week in the last few years, although figures for the period since 2016/17 are not available.

The deterioration in Bury’s profitability started when Stewart Day acquired the club, with losses exceeding £50,000 a week in the last three years.

Bury had the fourth highest losses in League One in 2016/17.

Stewart Day/Mederco

Investors can either lend money to a business or buy shares. In the case of Stewart Day and Mederco there has been a combination of both. Day has historically said that loans would be converted into shares where necessary and this appears to have been the case. There were of course other loans from lenders with a less benevolent attitude to the club.

Bury’s level of borrowing was modest by League One standards, however the key issue in respect of debt is the ability of the borrower to repay sums due to lenders.

Conclusion

Bury’s financial performance and position deteriorated under Stewart Day. His ambition to make Bury a competitive team at the top of League One with the aim of promotion was based on having the ability to underwrite the losses. Once Day’s other businesses, which were the means by which the losses were covered, went into administration then the excess spending meant the club was no longer viable.

As Day needed to sell the club to relinquish responsibilities for the £50,000 a week losses, he didn’t/couldn’t take too much notice of the background of Steve Dale, to whom he sold the club for £1.

Dale displays characteristics of a sociopathic narcissist, similar traits to those of Ken Anderson at Bolton. Combine those character traits with a history of asset stripping and it was sadly no surprise that Bury’s financial problems multiplied under his ownership to date.

Football Finances: Serpent’s Kiss

Out of 92 football clubs in the Premier League and the EFL, 61 made a net loss in their most recent accounts. The total losses made by those clubs came to £589 million and that’s after some, especially those in the Premier League, receiving the riches of bumper TV and sponsorship deals as well as player sales.

A screenshot of a cell phone

Description automatically generated

Manchester United’s losses are distorted by Trump related tax changes in the US, where the company’s shares are traded, but it’s noticeable that all three clubs relegated that season lost money too.

A screenshot of a cell phone

Description automatically generated

In the Championship loss making is the norm, with the three promoted clubs in 2017/18 being in the top five loss making.

A screenshot of a cell phone

Description automatically generated

Promotion bonuses contribute to those losses, but also suggests that owners are prepared to gamble on trying to buy promotion via big transfer fees and wages. Remember those losses are AFTER the receipt of £250 million of parachute payments and Derby and Sheffield Wednesday selling their stadia to themselves at huge profits to ensure compliance with FFP.

A screenshot of a cell phone

Description automatically generated

In League One there’s still a gambling mentality. There is a £7 million difference in broadcast income between this division and the Championship, so some owners will do the equivalent of twisting on 19 in relation to getting promoted. The Venkys at Blackburn, initially reviled by fans, have been very generous in their financial support, though fans will point out that money has been spent poorly, with a series of ‘advisors’ seemingly more interested in lining their own pockets than recruiting players who will improve things on the pitch.

A screenshot of text

Description automatically generated

Budgets are tight in the bottom two divisions and this does mean that there are a few more clubs who have broken even, but overall this is a loss making division. Notts County’s implosion, partly due to owner Alan Hardy’s social media todger related antics, has meant they still have not published their 2018 accounts.

Recent events at Bury and Bolton, the former expelled from the league and the latter rescued at the eleventh hour, have focussed attention on other clubs who are also struggling to survive. Whilst Bury and Bolton’s troubles more to do with sociopathic asset-stripping owners than inherent financial issues, there are clubs whose balance sheets are showing signs of distress. Here are five examples of the types of stresses impacting upon individual clubs.

Club: Coventry City

Loss for 2017/18: £2,480,000

Reason for concern: Homeless and owners not football fans

Playing this season at Birmingham City’s ground after a dispute between hedge fund owner Sisu Capital and stadium landlords Wasps rugby club. Sisu’s motives for buying Coventry are no clearer than when they acquired the club in 2007 the club has lost £64 million.

A screenshot of a cell phone

Description automatically generated

Sisu have spent a lot of time and money trying to buy the Ricoh Arena where the club started playing matches when in opened in 2005. Sisu and a similar mysterious organisation based in the Cayman Islands called the Arvo master fund have lent the club £37 million but there seems to be little chance of repayment. If either Sisu or Arvo decide to demand their loans back, then the club has no assets from which they can be repaid. Coventry have been successful in developing stars in recent years who now play in the Premier League such as James Maddison and Callum Wilson, but this is a hit and miss way of generating cash. A screenshot of a cell phone

Description automatically generated

Club: Scunthorpe United

Loss for 2017/18: £3,605,000

Reason for concern: Wages far exceeding income

Currently at the bottom of League Two, Scunthorpe United’s finances are as concerning as their form on the pitch.

In recent years the club has paid out substantially more in wages than it has generated in income.

With wages exceeding income there is nothing left to pay for the day to day running costs and so the club has incurred losses averaging £50,000 a week over the last six years.

A screenshot of a cell phone

Description automatically generated

Scunthorpe’s owner Peter Swann has underwritten these losses to date but the clubs outstanding borrowings have ballooned. Should relegation occur then there would be a substantial fall in income as it would lose solidarity payments from the Premier League as well as the EFL broadcasting monies halving as the club only receives parachute payments for a short period.

Club: Macclesfield Town

Loss for 2017/18: £250,000

Reason for concern: Winding up order

Sol Campbell performed a minor miracle last season in helping Macclesfield avoid relegation to the National League from League Two, but the club’s financial problems are more pressing. The club failed to pay wages more than once occasions in 2018/19. It is now facing a winding up order due on 11 September due to former players suing The Silkmen for unpaid wages. This dispute is now settled but HMRC have taken over the winding up order as Macc lurch from pillar to post.

Macclesfield’s losses might seem relatively low at an average of £4,000 a week in recent years compared to the millions elsewhere, but the club is a classic case of any losses are too much if you can’t afford to cover them.

Club: Charlton

Loss in 2017/18: £10,450,000

Reason for concern: Owner threats

Charlton’s Belgian owner Roland Duchatelet has been trying to sell the club for some time, but to date no one has come near his asking price. Duchatelet has even demanded that the EFL itself buy the club from him as his relationship with fans has deteriorated since be bought Charlton in January 2014.

A screenshot of a cell phone

Description automatically generated

Charlton lost money both before and since Duchatelet’s arrival at The Valley, but the extent of the losses has been significant, with only the sales of Lookman, Gudmunnson & Pope in 2016/17 allowing the club to break even. Under Lee Bowyer Charlton have made an excellent start to the present season and will be hoping for promotion and access to the riches of the Premier League, but with debts exceeding £60 million there could be problems if the owner gets fed up and tries to recoup his investment, which is the stumbling block with prospective buyers at present.

The owner has invested significantly in the player wages, but if Charlton fail to make progress from the Championship how long he will continue to underwrite the losses is uncertain.

Club: Morecambe

Losses in 2017/18: £452,000

Reason for concern: Losing money despite lowest wage bill in English football

Many football fans would struggle to name any Morecambe player, the colour of their home shirt or the name of their stadium. The club had the lowest wage bill in League Two in 2018 of those clubs who reported such details (many clubs use legal loopholes to reduce their transparency in this regard).

A screenshot of a cell phone

Description automatically generated

Even with a wage bill so low it has failed to pay them on time at least four times in recent years, the last time being November 2018.

The average wage paid by The Shrimps is less than £1,000 a week, but with crowds averaging only 2,000 per home match they still lose money on a regular basis.

Clubs such as Morecambe are reliant on the goodwill of owners and with new owners in place and Jim Bentley being the longest serving manager in all four divisions, they hopefully can put such issues behind them.

A screenshot of a cell phone

Description automatically generated

A screenshot of a cell phone

Description automatically generated

Whilst we’ve chosen five clubs the list could be easily have been added to by that number again. The likes of Oldham, Reading, Oxford and Southend have also were late with wage payments last season and whilst this is a feature they share with Bury and Bolton hopefully they will not end up getting so close to ceasing to exist at those two historic clubs.

Bury: Minutes to Midnight

Summer 1976 and I’m gathered around a bed with my mum and my eleven-year-old sister, watching my dad, full of tubes, breath slower and slower.

The priest has just given him the last rites, the consultant has just explained he’s done all he can, my mum is weeping, I’m holding my sister’s hand.

Even then I was obsessed with numbers and I’m staring at the heart rate monitor, watching it count down and hoping for a miracle*.

Very sad you might say, but why the melodrama, and what the Dickens has this got to do with Bury football club?

Emotional blackmail this isn’t though, Bury fans are watching their own life support machine run down as the EFL have set a final, final, final, final deadline of 5pm on Friday in terms of the club’s existence.

Down at Gigg Lane fans have been consuming rumours, counter-rumours and website pronouncements as owner Steve Dale has blamed everyone (apart from himself) for the potential demise of the club.

A look at the club’s accounts in recent years shows that Bury have been living beyond their means for some time, but that doesn’t give the full explanation as to why they, and not one of perhaps a dozen or more clubs in the lower leagues, are facing extinction.

Losses in recent years accelerated following previous owner Stewart Day’s ambition being based on his other businesses being successful and underwriting Bury’s day to day losses.

Except those other businesses weren’t successful and Day’s Mederco, which, depending on your viewpoint was either a daydreamer’s folly or a Ponzi scheme, went into administration with Bury owing Mederco nearly £4.3 million according to the most recent published accounts dated 31 May 2017.

In the most recent administrator’s report Mederco’s debt from Bury had ballooned to £7.1 million and may have allowed Steve Dale to force through the Creditors Voluntary Arrangement (CVA) that allows him to still run the club on a day to day basis.

Strictly Bury’s biggest creditor per the CVA is due to a company called RCR Holdings, which was formed on 16 July 2019, but apparently was owed £7.1 million by Bury on 18 July 2019, when the CVA proposal was forced through.

A minimum of 75% of all creditors in terms of the value of the sums due must vote in favour for a CVA for it to be accepted, and with RCR Holdings debt being so large it meant that 84% of all creditors were in favour.

Who is in charge of RCR is a mystery, the director is listed as Kris Richards an identical creditor claim of £7.1 million from Steve Dale has been conveniently ignored by Steven Wiseglass, the person in charge of the CVA, RCR paid £70,000 for the £7.1 million debt.

A screenshot of a cell phone Description automatically generated

An adjustment is made in terms of approving a CVA if a connected party to the business ownership is a creditor to them, and if these debts are excluded there still must be at least 50% of creditors in favour of the CVA.

Not voting for the CVA was HMRC, due over £1 million by Bury, who had been petitioning for the club to be wound up due to Steve Dale’s refusal to pay PAYE and NI contributions, as well as failing to pay the wages of players and staff on a regular basis since February.

Kind words are few and far between for Dale, who bought Bury for £1 in December 2018 and has had a string of former companies dissolved in recent years, leading to accusations of being an asset stripper.

Perhaps the most damning indictment of Dale comes from his running of the company Terrapin Limited where workers went unpaid and Steve Dale washed his hands of any responsibility.

https://www.miltonkeynes.co.uk/news/limbo-for-terrapin-workers-left-without-pay-after-company-goes-into-administration-1-4446369

https://www.contractoruk.com/forums/business-contracts/62042-problems-recruitment-solutions-contract-rec-solutions-recsol-altrincham-5.html

Under Dale’s reign at Bury two new companies were created in the first few days as Bury FC Leisure Limited and Bury FC Heritage Limited.

Fearing bailiffs acting on behalf of creditor taking Bury’s assets is the reason that Dale has given for the creation of these companies, who apparently have had some of the football club’s assets transferred to them.

Football clubs aren’t attractive to regular banks as they rarely make profits, which perhaps explains why Bury took out a loan from Broad oak Finance Limited recently

A screenshot of a cell phone Description automatically generated

In addition, The Guardian’s football finance sleuth David Conn uncovered the club had borrowed money whilst Stuart Day was in charge and interest was clocking up at 138% a year.

https://www.theguardian.com/football/2019/may/29/bury-financial-crisis-loan-former-owner-stewart-day-winding-up-petition-debt

A screenshot of text Description automatically generated

No one seems to have much knowledge of Capital Bridging Finance Solutions although a look at its accounts reveals that it owns a property development subsidiary company…and now has a loan secured on Gigg Lane.

Where does this leave Bury? The club was poorly run by Stewart Day originally, with wages exceeding income as he tried to buy success for the club.

Steve Dale inherited a mess, but unlike Andy Holt at Accrington and Mark and Nicola at Tranmere, took the club backwards rather than forwards.

His beratement of the EFL, staff at the club, fans and others who have queried his decisions has alienated the whole of the fanbase and anyone who had goodwill towards him.

The EFL, whose reputation plummeted during the leadership of Shaun Harvey, is under resourced and unable to do much apart from implore Steve Dale to show he has the means to fund the club, which to date he claims to have done but this is at odds with the EFL’s reading of the situation.

Using a disgraced insolvency practitioner to conduct Bury’s CVA has not helped Dale’s cause either. Steven Wiseglass has twice been found guilty of misconduct in recent years by his governing bodies, who usually are reluctant to discipline their members. This allows critics to claim that the insolvency practitioner is in Steve Dale’s pocket, although there is no hard evidence to support this viewpoint.

A screenshot of a cell phone Description automatically generatedA screenshot of a cell phone Description automatically generated

The representative of RCR Holdings at the CVA meeting, has also been before the beak in relation to prior behaviour and has appeared with Tommy Robinson in the past. Again there is nothing wrong in employing whoever you choose to represent you, but given the high profile nature of Bury’s current position it opens people to criticism.

A screenshot of text Description automatically generated

Back to 1976 and my old man miraculously survived that summer. He had no interest in football, but knowing I was mad on the subject the last thing we did together as dad and lad was to go to a match at the Goldstone Ground. I still cherish that day, and for many families football provides a bond and memories that cover generations.

Steve Dale also has no interest in football but has the power to allow similar memories and bonds to take place between families friends and generations for the regulars of Gigg Lane.

For the sake of those good people and the sake of our national game, do the right thing Steve and let the club live.

Selling your stadium to yourself: It’s not cricket

Introduction

Sale and leaseback is the latest buzz phrase in the world of football finance, as Derby County, Aston Villa and Sheffield Wednesday have used this mechanism to avoid points deductions in the EFL Championship.

How does it work, is it legitimate and what the benefits to the clubs involved (and their owners) in terms of FFP ‘compliance’ will be covered in this article?

What is sale and leaseback?

Accountants have used sale and leaseback for a long time to help companies raise money and it is usually a transaction arranged with a bank or other lender effectively mortgaging an existing property owned by a business.

Under present accounting rules when a company sells a property it can book a profit, calculated as the difference between the sale proceeds and the book (not market) value of the asset.

New owners of the stadium (which in the case of both Derby and Villa (and probably Wednesday too) is a new company set up by club owner) pays an agreed amount for the stadium then agrees a rental agreement with the ‘tenant’ (i.e. the football club).

How the price in relation to the sale of the stadium is agreed has provoked some raised eyebrows from other Championship club chairmen as there is a suspicion this has been inflated to maximise the profit on the disposal.

Applying the rules

As the ultimate ownership of the stadium is unchanged then what is effectively happening is that Mel Morris (in the case of Derby), Wes Eadons and Nassef Sawiris (at Villa) and Dejphon Chansiri (at Wednesday) have simply shifted large amounts of money from one of their bank accounts to another, but their respective clubs have had a FFP boost as a result.

Referring to the Derby accounts for the three years ending 30 June 2018 shows the club had an accumulated loss before tax of £23.7 million, seemingly well within the Profitability and Sustainability limit of £39 million.

Viewing the accounts of parent company SevCo5112 Ltd revealed that the loss of £1.1 million in 2018 was partly due to the sale of Pride Park at a price of £81.1 million, which generated a profit of £39.9 million as a result.

Every Derby fan will claim that the transaction was within the rules and based on the pre-tax figures in the accounts the three-year loss was ‘just’ £23.7 million.

Yet these losses can be reduced further by clubs spending money on ‘good’ activities, such as infrastructure, academy, women’s football and community schemes as these are excluded from FFP calculations.

If these costs are included then Derby would have had a P&S loss of £11.1 million, well within the allowable limit.

Should the profit on the sale of the stadium have been disallowed (as per the original FFP rules) then the loss would have been £39.1 million higher at £50.2 million and a probable eight-point deduction in 2018/19 meaning Middlesbrough, rather than Derby, would have made the playoffs.

Aston Villa had a much lower ‘sale’ price of Villa Park, which initially seems odd given that the stadium site is much larger, but this allowed the club to state that it complied with FFP for 2018/19, although based on our calculations there would probably have been only a three point deduction and Villa would still have made the playoff.

Compliance is very much the watchword in relation to P&S rules and the use of such creative accounting is surely more to do with the appallingly lax set of rules created by the EFL rather than clubs cheating, as has been accused by fans of other clubs.

Over at Hillsborough the stadium was ‘sold’ for £60 million and a £38.1 million profit booked although this is further confused by Land Registry still showing in July 2019 that it still belonged to the club even though the accounts in which the sale is shown are for 2017/18.

Have they done anything wrong?

Middlesbrough owner Steve Gibson has been the most vocal critic of the sale and leaseback transactions and has threatened legal action but whilst the actions of the Derby et al aren’t cricket we don’t think they have broken any rules.

Potential legal action by Gibson is therefore unlikely to succeed, although it will make for another tense meeting of club chairmen when they have their next EFL meet up.

Less clear is whether Gibson’s suspicion that the sale price of the stadia ‘sold’ has been at an inflated price.

Each club who has made such a sale has presumably used a firm of surveyors to determine the value although critics will point out that given the club chairmen are effectively paying the surveyors’ fees there will be a conflict of interest.

Those of you who watch daytime TV will have seen the likes of Dion Dublin take about a yield on properties which are bought to let, and this principle could be applied in relation to the three clubs involved.

Every company that has a rental agreement should in theory show the rents due in future years in the footnotes to the accounts.

Buried away in the Derby footnotes on page 33 is a note showing that Derby’s rent for the following year was increasing by about £1.05 million and the club appears to be committed to paying a total extra rent of £23 million in future years, far less than the £80 million sale proceeds.

Entering those numbers into our big calculator gives the new owner of Pride Park a 1.3% yield, which is unlikely to be given a thumbs up from Dion Dublin and co.

Looking at the accounts for Sheffield Wednesday gives equal confusion as the club does not appear to have any rental cost for Hillsborough in future years despite selling the ground for £60 million and so the new owner could have a zero yield.

Leasing football grounds, it must be stressed, is perfectly legitimate (Manchester City have such an arrangement with the local council for the Etihad, West Ham similar with the London stadium).

Conclusion

Each Championship club that has taken such an approach in the last couple of years has benefitted in terms of their ability to compete on the pitch as a result of these transactions and this has caused resentment from other club owners who have not used such mechanisms.

No one seemed to notice the change to the P&S Rules initially in 2016 and this is where the crux of the problem lies, as someone should take responsibility and explain whether the change was simply a cock up or a deliberate dilution of P&S.

Don’t expect anyone at the EFL to hold their hands up though, given the record of the organisation claiming to be ‘only a competition organiser’ whenever the flak starts flying.

Under the old EFL FFP rules profits on sales of tangible fixed assets, such as stadia, were specifically excluded from the calculations, which would have had a huge impact upon the ability of the clubs involved to trade. Derby, for example, spent over £15 million in 2017/18 on new players and a further £18.5 million in 2018/19, albeit with sales of players bringing in £16 million over that period too. Sheffield Wednesday were able to spend £168 on wages in 2017/18 for every £100 of income and Villa kept the superb Jack Grealish at Villa Park on the back of a lucrative new contract and were rewarded with promotion to the Premier League.

The new P&S rules make no reference to profits on asset sales and therefore they are legitimately included in the calculations. Why the change was allowed to go through has never been explained, although we have heard on the grapevine that the EFL simply cut and pasted the Premier League P&S rules (which have always allowed asset sales) without looking at the small print for any changes, unlike the accountants and lawyers at Derby.

The overall lesson learnt, as some are finding out with the present FaceApp photo ageing application, is that if you don’t read the small print someone else will, and they can make you look fairly stupid as a result, as the EFL is probably privately conceding at present.

Our view from day one of FFP is that it’s an artificial construct that has earned large sums for accountants and lawyers (the EFL’s legal costs for the QPR ruling are estimated to be £3 million and presumably QPR’s silks didn’t do it for free either) and looking at Bolton, Bury, Notts County, Oldham, Macclesfield etc hasn’t achieved much in the way of financial restraint.

Sheffield Wednesday 2017/18: When the sun goes down

If I stay I can eat my weight in tuna every year? It’s tempting.

Championship football may be the most unpredictable and exciting in the country, but it comes at a price, and Sheffield Wednesday’s very delayed 2017/18 accounts are no exception.

Huge losses are run up in the division as chairmen leave common sense behind and twist on 18 in the hope of achieving promotion to ‘the promised land’ of 8pm kickoff on a Monday night at home to Watford.

Accountants can now be as valuable as strikers if they can come up with schemes that Baldrick from Blackadder would call ‘cunning’ and help clubs avoid the laughably called Profitability and Sustainability (P&S) points deductions of up to 12 points.

No club apart from Birmingham City has suffered a points deduction to date though but have Sheffield Wednesday pushed the rules to the limit in their accounts covering 14 months to 31 July 2018?

Income

Sheffield Wednesday should ideally show three types of income in their accounts, matchday, broadcast and commercial, but for reasons best known to owner Dejphon Chansiri they combine the first two, so some assumptions have been made.

Income from matchday sales decreased by 4% on the back of Wednesday having a forgettable season and finishing 15th compared to 4th in 2016/17 and average attendances dropped by 1,400 per home match.

Relative to other clubs in the division Wednesday have reasonably good attendances and had the fourth highest matchday income in 2017/18, although they did have 14 months instead of 12 when they were generating this sum, much of it out of season.

Income from broadcasting is mainly generated by solidarity payments from the Premier League (about £4.3 million) and the EFL deal with Sky (about £2.3 million plus appearance fees of £100-140,000 per home match).

If a club has been relegated from the Premier League in the last 2-3 years though it also receives parachute payments of £14-41 million.

Not receiving parachute payments puts the remaining Championship clubs at a significant disadvantage, although the Premier League argues such a system helps reduce the possibility of relegated clubs going out of business.

There are a few Championship owners who think they are short-changed with the present EFL TV deal but realistically they will struggle to generate significantly more than the existing arrangement, which is split 80% to the Championship, 12% to League One and 8% to League Two clubs.

Even if the Sky deal, which lasts five years, was scrapped, it’s unlikely that a new broadcaster would be willing to pay much more, as armchair fans tend to focus on the elite Premier League teams and the remainder of that division are simply fortunate that collective sale of rights takes place.

Revenue from commercial deals and sponsors was up 17% for Wednesday in 2017/18 to £7.1 million, although most of this was due to the additional two months of trading.

For clubs in the Championship it is a cut throat market trying to persuade sponsors to sign deals, but Wednesday have an advantage to a degree in that their shirts bear the owner’s name and there are other deals with Elev8 drink and sportswear and a local taxi company that appears to have no taxis, both of which are owned by the club owner which generated about £1.2 million.

Even taking into account the above issues Wednesday are at best mid table in terms of commercial income, reflecting the club being in the doldrums for so long in terms of national and global profile.

Relative to the period prior to Chansiri’s involvement with Wednesday, the club is now earning about £10 million a year more, but this is chicken feed compared to those in the Premier League or receiving parachute payments.

Costs

Every fan knows that the biggest costs for a football club relates to players and the Owls’ accounts illustrate this clearly.

Sheffield Wednesday’s wage bill increased by over a half to £42 million in 2017/18 as the owner backed the manager in the transfer market and also the full year cost of new contracts for the likes of Forestieri.

Wages in the Championship average £15,000 a week, and Wednesday are in the top half of this table at £20,300.

A screenshot of a cell phone

Description automatically generated

Increased rewards for promotion to the Premier League have resulted in Championship clubs paying higher and higher amounts in trying to get there.

The average wage paid by Wednesday has increased by 418% over the last decade, but most noticeably is how wages have nearly tripled in the last three years under Chansiri.

High player remuneration in the last three years has meant that Wednesday were paying £168 in wages for every £100 of income meaning the club is automatically making sizeable losses before any of the day to day running costs are incurred.

Getting wages under control was in theory one of the aims of Financial Fair Play, now called Profitability and Sustainability (P&S) rules but this would appear to have failed in the Championship as wages are now the highest ever compared to income.

A screenshot of a cell phone

Description automatically generated A screenshot of a cell phone

Description automatically generated

Only in football would spending more money on wages than generated through revenue be applauded by many, but from a fans’ perspective so long as the club is promoted the end is justified by the means.

Amortisation is the other main expense in relation to players where the transfer fee is spread over the life of the contract such as Wednesday signing Jordan Rhodes for £8 million on a three-year contract this works out as £2.67 million amortisation a year.

The amortisation fee in the profit and loss account takes into account all the squad players signed for fees and reflects the longer term investment in transfers.

A close up of a map

Description automatically generated

Sheffield Wednesday have spent substantial sums in the transfer market since Chansiri by their previous standards and this is reflected in the amortisation charge increasing by a factor of ten.

Profits/(Losses)

Profits are revenues less costs and the consequences of Wednesday’s recent splurge on player spending has meant that day to day losses increased rapidly and have averaged £420,000 a week under Chansiri.

A screenshot of a cell phone

Description automatically generated

Even though Wednesday’s losses last season were the largest in their history, they were still exceeded by seven other clubs in the Championship in 2017/18.

A close up of text on a white background

Description automatically generated

The only way that clubs can usually reduce these losses is via player sales or owners underwriting them. Wednesday have had relatively little success in terms of player sales in recent years though.

A screenshot of a cell phone

Description automatically generated

This unwillingness or inability to sell players for large fees isn’t unique to Wednesday, but some other clubs have been able to generate huge sums which are used to ensure P&S compliance.

A screenshot of a cell phone

Description automatically generated

Wednesday therefore took extreme measures to reduce the losses in selling Hillsborough. The agreed fee appears to be £60 million, as the stadium had a value in the accounts of £22m and so booked the difference of £38m as profit.

This transaction has been contentious in a number of ways. Under the old version of FFP profits on asset sales used to be disallowed and so there was no incentive for clubs to make disposals.

However, when the rules were brought into line with the Premier League in 2016, Shaun Harvey, the Mr Bean of football regulators, and co ignored a change which allowed asset sales to be included.

Derby County’s accountants were the first to spot this anomaly and ‘sold’ Pride Park for £80 million in their 2017/18 accounts to another company owned by chairman Mel Morris-Obe, helping to reduce a trading loss of £47 million. Aston Villa have done similar with Villa Park in the present season, which allowed them to keep Jack Grealish and be promoted on the back of his sublime skills, whilst transferring the stadium from the left to the right hands of the new owners after running up operating losses of £95 million in the first two years following relegation.

Wednesday have done the same, but the way they’ve gone about the sale of the ground has won them no favours. The ‘sale’ of the stadium is to a related party of Chansiri, was revealed in the footnotes to the accounts, but he clearly thinks that the fans have no right to know about such significant transactions.

There’s no indication as to the date of the sale or to which of Chansiri’s other companies the sale has been made. In the debtors note to the accounts there is a disclosure that indicates the sale proceeds are being spread over eight years.

If this is the case then presumably Wednesday should be able to charge interest on the outstanding payments. The price of £60 million has been queried in some circles, but presumably it has been assessed by an independent surveyor (appointed and paid for by Chansiri) and ticked off by the independent auditors (also appointed and paid for by Chansiri).

With the sale of the stadium it looks as if Wednesday would have made a P&S loss of just over £19 million in the three year assessment period. If the old FFP rules had still applied then the loss would have been £57 million and a likely 12 point penalty would have applied.

Player Trading

Under the previous regime Wednesday were cautious in the transfer market but Chansiri has allowed managers to recruit in order to try to achieve promotion.

A net spend of £10.7 million in 2017/18 was certainly competitive for last season but not excessive by Championship standards.

Owner Funding

Club owners can invest money in three ways, loans (which may or may not be interest bearing, share issues or related party transactions such as the stadium sale.

Since arriving at Hillsborough Chansiri has lent the club £65 million, and in September 2018 put in another £21 million via a new share issue.

Conclusion

Football should be about goal, chances, signings, red cards and abusing Mike Dean. If there are to be financial rules and regulations they should be robust and transparent.

The EFL’s P&S rules have proven to be weak and allowed rich owners to use expensive and creative accountants to devise schemes that achieve ‘compliance’ but having nothing to do with either Profitability or Sustainability.

In doing so the game is reduced to a rich man’s plaything and theres a lot of evidence that rich men think that rules don’t apply to them, as they can be ignored, bought or circumnavigated.

It’s no surprise that the three clubs who have applied the stadium sale and leaseback loophole are .owned by very wealthy people who consider themselves to be above the principles that FFP was supposed to be about, of preventing clubs ‘buying’ promotion or success by injecting as much money as was required to achieve their objectives. 

Villa were promoted to the Premier League on the back of such  behaviour, Derby made the playoff finals, suggesting that the concepts of sporting integrity that many hold dear are sneered at by the billionaires, multi-millionaires, weasel accountants and lawyers in their slick haircuts and sharp suits who wriggle their way through the small print and champion loopholes rather than football skill and prowess. 

Wednesday have ended up with a soft transfer embargo due to Chansiri’s stubbornness in refusing to send in the accounts to the EFL by the due deadline. This has resulted in the club being unable to deal in the transfer market as easily as the manager would like. 

The fans are left in the dark, they are lucky in a way to have an owner who is willing to empty his pockets (or rather those of his successful family) into Wednesday but at the same time his lack of football knowledge means he’s open to be taken advantage of by those who see the game purely as a commission making vehicle and a lot of money ( admittedly his) is wasted in the process. 

If such benevolence results in promotion then no one cares, but if not then there’s little to cheer about if you’re an Owl, as you’re the person who invests emotionally every week in the club, when you renew your season ticket and when you travel 400 miles on a Tuesday night for an abysmal away performance out of loyalty and love for your club. 

Ultimately it’s his club to do with as he sees fit, but having a soft transfer embargo as a result of some of his actions offsets the generosity he’s shown to players and managers over the last few years. It’s a shame because as an away fan a trip to Wednesday is a great day out. 

So long as the money keeps coming in then fans can be happy as they have someone willing to fund transfers and wages. Speak to fans of Liverpool under Hicks and Gillett,  Blackpool under the Oystons, Villa under Tony Xia,  Birmingham under Carson Yeung, Bolton under Ken Anderson and Bury under the last two owners (as well as many others who I’ve not mentioned) and the issues of club governance and owner motives do give cause for concern.