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.

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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.

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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.

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