Accrington Stanley: The Milkman of Human Kindness

Accrington Stanley, who are they?

In September 2014 Accrington Stanley were served with a winding up order by the tax authorites.  This was one of a series of financial demands that the club had had to deal with as it lurched from crisis to crisis. It was saved at the last minute by a local businessman…and in May 2018 was promoted to League One as Champions.

We met Accrington’s owner, Andy Holt, the social media scourge of the Premier League, the EFL and Salford City’s Gary Neville at the National Football Museum recently.

He’s kindly not only given us the club accounts in respect of their League Two winning year for 2017/18, but also the budget for the club’s battles in League One this season.

The figures will be subject to the same level of scrutiny as that of any other club, and comments as always will be independent, but a huge thanks to all at Stanley for sharing the information with us.

At a time when there are public protests from fans at many EFL clubs in respect of owner behaviour, lack of transparency and poor governance, here is one club which has an open-door approach to engagement, and this, in our opinion, is good for the club, the fans and anyone who has an affection for the game. Nothing was hidden from us, we were given totals from everything from gate receipts to how much it costs to hire the portable toilets for the season.

Income

Accrington Stanley Road

Like all football clubs, Stanley generate money from three main sources, Matchday, Broadcasting and Commercial. Stanley have broken their figures into far more detail, but for comparative purposes it makes more sense to keep to the standard headings, with the one exception of academy grants.

Many clubs in League One and Two take advantage of corporate law that allows companies below a certain size to only submit limited information to the company registrar, and so avoid public (and fan) scrutiny.

Although the Football Supporters Federation and other groups have lobbied the EFL and the FA for this to be changed, claiming clubs are an essential part of many towns and cities, and so belong to the community rather than individual owners, this appeal has fallen upon deaf ears at the EFL and FA.

At the same time credit should be given to those clubs who are prepared to show the full extent of their finances. Stanley have gone one step further in giving us the full breakdown of numbers.

As can be seen, Stanley, even in a promotion year, are towards the bottom end of the income spectrum. This is a function of being a relatively small town (population 35,000) and a place which doesn’t tend to attract too many affluent football tourists.

As can be seen, matchday income has been slowly rising, mainly on the back of increased attendances, but even so the club has a relatively small hard-core support that it is aiming to increase through closer links with local community, and success in winning League Two in 2018.

The importance of a good cup draw to a club of this size is shown by the 2016/17 figures, when Stanley were drawn away to West Ham in one of the first matches at the London Stadium, which drew a crowd of almost 40,000.

The West Ham game was the equivalent of the club earning an extra £200 per fan based on the number who watched the club over the season. It’s issues such as this on the finances of smaller clubs that are ignored by those who want less participation in the earlier rounds of the League Cup and replays banned from the FA Cup.

Stanley have budgeted for a 20% increase in matchday income for their first season in League One. Gates are presently slightly greater than 2,000 so the budget is broadly in line with expectations.

Broadcast income is split into two elements, there are ‘solidarity payments’ from the Premier League (EPL). These were originally given as an act of benevolence by the EPL, but once clubs became accustomed to receiving the sums then strings were attached, such as the much loathed EPPP scheme.

Solidarity payments in League Two are about £450,000, rising to £680,000 in League One and then there is a big jump to £4.54 million in the Championship.

In addition, clubs receive money from the EFL deal with Sky. This is also skewed towards clubs in the Championship, who receive 80% of the total, with 12% going to League One and 8% for League Two.

There are additional sums received when clubs appear on live broadcasts.

Promotion from League Two therefore means that Stanley can expect to earn about an extra £350,000 of broadcast income this season, although the way that Sky and the EFL have agreed to stream all midweek matches (and weekend ones too on international breaks) may have a negative impact on attendances.

Academy grants work out at about £400,000 a year and are used to help subsidise the youth development setup.

Other income is mainly commercial deals with sponsors. Whilst the Premier League elite are regularly able to announce multimillion-pound deals with a variety of companies from despotic regimes, in the lower leagues clubs tend to strike deal with local businesses.

Stanley therefore have granted naming rights and now play at the Wham Stadium, who are also the shirt sponsors. George Michael fans will however be disappointed to find that Wham stands for What More Limited, the plastic box and household accessory company run by Andy Holt.

Whilst the figure has fallen substantially in 2018, this reflects that the club needed a financial injection in 2017 and WhatMore were able to help out that season.

According to the 2017 accounts WhatMore contributed £440,000 in sponsorship in 2017 and £300,000 the previous season.

Whilst Andy Holt likes to present himself as a grumpy Northerner who is not a football fan and only is involved with the club as a stop gap a few years ago to prevent it going bust, the extent of the sponsorship suggests that he’s fallen in love with the relationship between the club and the community and secretly has become a fan.

The advantage to a club of an owner investing money via sponsorship instead of lending is that should the club ever be sold the incoming owner does not have to pay off these debts.

Overall Accrington have managed to survive in League Two in terms of income generated. The budget for League Two this season appears to be based on cautious assumptions.

The Wham stadium has a capacity of just over 5,000, so suspect that when the likes of Sunderland come to play there will be a big scramble for away tickets.

Costs

That’s another fine mess.

The main costs for a football club are player related, and this is as much an issue for Stanley as it for Barcelona or Liverpool.

Stanley’s total wage bill for 2016/17 for all staff exceeded £2 million for the first time. This will have included promotion bonuses.

The budget for the upcoming season is about 9% higher, but, according to Holt, will be heavily impacted by bonuses again.

Stanley were hauled onto the EFL naughty step last season after an eagle-eyed pen-pushing dullard spotted that the owner was buying Big Macs, fish and chips for the squad on the way home from a successful away owner. Apparently, these ‘bonuses’ had not been agreed in advance in players contracts, which seems to take petty bureaucracy to a new level.

Under EFL Financial Fair Play (FFP) rules, now pompously called Profitability and Sustainability regulations, League Two teams can only spend 50% (60% in League One) of income on player wage costs under SCMP rules. Whilst Stanley’s total wage bill exceeds this sum, remember that the wage total in the accounts includes non-playing staff and bonuses, both of which are excluded from the calculations, so are likely to be within the FFP limits.

Having seen Stanley’s playing wage figure, the club is within the 50% and 60% limits for last season and the current one.

To give some context to the wage bill, the average cost of a single Premier League player works out at about £2.9 million a season compared to the total League Two wage cost of £2.2 million at Accrington.

The vast majority of clubs in League Two take advantage of legal loopholes to avoid showing their wage total, but a comparison to the clubs that do show their figure indicates that Stanley were very much towards the bottom of the bunch in this expense area.

Earlier in the summer Holt and Gary Neville were involved in a Twitter spat in relation to Salford City’s signing of Adam Rooney from Aberdeen, on a reported £4,200 a week. For a non-league club with no broadcast income it seems strange that such wages could be paid without huge losses being made. It would be great if Salford City were as transparent in their financial disclosures, over to you Gary!

Stanley will find it tough to compete on wages in 2018/19. Their budget of £2.35 million this season is means the club will have the lowest wage bill in the division by far. A screenshot of a cell phone screen with text Description generated with very high confidence

The other main player related cost is that of transfer fee amortisation. This arises when a player is signed for a fee, and this sum is then spread over the contract period.

Like many clubs in League Two, Stanley’s recruitment policy has historically relied on free transfers and loanees, although it appears that some clubs in the Premier League are now seeking prohibitive loan fees for their players which is making this recruitment prohibitive.

The budgeted figure of £26,000 for amortisation in 2019 suggests that manager John Coleman has kept with the majority of his squad and any signings will be for small fees.

Profits and losses

Hair was so much better in the 70's.

Profit is income less costs. There are a few different profit figures used when commentators talk about the subject, so it is always wise to check which profit definition is being described.

For a club such as Accrington a one-off event such as a good away cup draw or the sale of a player for a fee can have a sizeable impact on profit.

The above graph shows a profit measure called EBIT (earnings before interest and tax). Before taking into account player sales, the club lost about £7,000 a week in 2017/18, a big change on the previous season.

As has already been seen, wages taking up £83 of every £100 of income last season didn’t leave a lot of money to pay for the other running costs of the club so a loss was always likely.

Promotion to League One isn’t going to reverse that, as the anticipated increase in costs is likely to exceed any higher revenues.

The above shows the importance of youth development and scouting to identify players and sell them on for a profit.

The table above shows how profit looks after taking into account player sales. The losses in 2018 and expected losses in 2019 have been reversed.

In 2017/18 the sales of Matty Pearson to Barnsley & Shay McCartan to Bradford were the main fee earners. This summer Ipswich bought Kayden Jackson from Accrington to replace Martyn Waghorn, for a million pound plus fee, which will reverse the expected day to day losses.

Whilst player sales are often the lifeblood of lower league teams they are also never guaranteed and should be taken as bonus income rather than a regular source, and this seems to be the approach taken by Accrington. Player sales can have a huge impact on the club’s ability to pay wages, not only for playing staff, but also all the people behind the scenes.

Losses in League Two in 2017 appear to total over £16 million, with clubs on average losing about £13,000 a week. Accrington were one of a handful to make a profit, benefitting from the player sales already mentioned, as did Grimsby (sale of Omar Bogle for an estimated £1 million) and Wycombe, who earned about £1.8 million as a sell on fee when former player Jordan Ibe was sold to Bournemouth from Liverpool.

Borrowings

Many clubs survive through borrowing money. Most banks are reluctant to advance large sums to businesses that regularly lose money, and so instead borrow from either owners or companies linked to their owners.

Total debts in League Two were over £70 million, with over half of these relating to two clubs, Luton Town and Colchester United.

Accrington’s borrowings are relatively minor in comparison to those of some of their League Two competitors. The above table does show that running a lower league club involves the owner having to dip their hand in the pocket in one way or another, be it either lending, buying shares in the club, sponsoring or… (in case the EFL lawyers are watching) buying fish and chips after a match for the team if they’ve won an away match.

Summary

Whilst trying to put together League Two figures is a bit like making a jigsaw when you don’t have the picture on the front of the box, Accrington’s achievement last season in getting promoted is hugely impressive given their lowly income levels and accompanying tight wage budget.

Stanley’s wage budget will be the lowest in League One this season, Good management and a close-knit dressing room can overcome that financial deficit on the park. It’s unlikely that the club will stand in the way of any player who receives a more generous offer from another club too, so everyone stands to win in the present position.

It’s also good to see a local business seeing the impact that a club has on the local community. According to Holt about 15,000 people are directly or indirectly impacted by Stanley being part of the EFL, be they fans, suppliers, sponsors or people involved in schemes run by the club.

A football club is the heartbeat of many towns and cities up and down the country, and it’s great to see this ownership model do so well, especially given the number of scamps and scumbags who are owners who just see a football club as a vanity exercise or a means of extending a brand.

Data Set

 

Bournemouth 2016/17 and FFP Fine: Every Breath You Take

Introduction:

Bournemouth have just agreed a fine of £4.75 million with the English Football League in relation to a breach of FFP rules, a couple of years after initially showing an expected fine of £7.615million, so we thought we’d take a more detailed look at how this arose and the state of the Cherries’ finances.

Overview

Income £136.5 million for 11 months to 30 June 2017 (2016 £87.9 million for year to 31 July 2016)

Proportion of income from broadcasting 91% (2016 85%)

Wages £71.5 million (£59.6m)

Profit before player sales £15.2million (loss £6.1m)

Highest paid director £1,226,000 (£1,074,000)

Player signings £9.3 million (£69.8m)

League position 9th (16th)

Income

For reasons best known to themselves, Bournemouth chose to reduce their accounting period to 11 months. Lots of clubs mess around doing similar issues (Manchester City, for example, had 13 months for 2016/17). It makes our job a wee bit harder, but we will try and compare on a twelve month basis when calculating percentages.

Clubs generate income from three main sources, broadcasting, matchday and commercial. Bournemouth, constrained by the 11,000 capacity of their stadium, are more reliant than most clubs on one source.

Broadcasting income:

Bournemouth benefited from a record finish in the Premier League of 9th, compared to 16th the previous season. This earned them an extra £13.3million in prize money to £124.2 million, as the TV riches are partially split on final league position. In 2017/18 they ‘only’ earned £111.2 million as they finished 12th (and appeared on TV less often too).

Bournemouth also benefitted from the first year of a new three-year domestic broadcast deal from BT and Sky, which increased the total money earned by the English Premier League (EPL) by about £700 million.

The big gap between the ‘Big Six’ clubs (although this season joined by Leicester) and the rest is because in addition to the broadcast money from EPL participation, they also earn money from UEFA tournaments. Leicester pocketed £72 million from their progress in the Champions League.

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The combination of a higher league finish, higher overall broadcasting rights and a small stadium meant that Bournemouth became the first team in the history of the Premier League to earn more than 90% of their income from this source, with £90.99 in every £100 coming from broadcasting.

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Matchday Income

Matchday income is number of tickets sold per match x average ticket price. Here Bournemouth are at a disadvantage.

Average attendances for 2016/17 were 11,182, effectively identical to the previous season. Whilst every match was a sellout, the capacity of the Vitality Stadium (Dean Court to you and me) of 11,360 meant the club was always going to struggle to compete against other clubs in this regard.

It will therefore come as no surprise that AFCB had the lowest matchday income of any club in the division.

Matchday income generated £605.6 million for Premier League clubs in 2016/17, but Bournemouth’s share was only 0.85% of the total.

Bournemouth’s matchday income actually fell in 2016/17 by 4.2%, mainly due to the cap on ticket prices for away fans, and less progress in cup competitions.

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Bournemouth generated £456 per fan from matchday income in 2016/17, about mid-table, and this works out as just over £22 per match to watch the team, which is considerably lower than some of the ‘glamour’ clubs in the division who have a far larger proportion of prawn sandwich eating fans.

Commercial income.

Whilst commercial income fell by 10%, this was mainly due to the accounting period being only 11 months long compared to 12 the previous season.

The club have realistically gone as far as they can go from this income source until they move to new premises.

The club have the second lowest level of income from this source, only beating that of the Premier League’s most boring club (from a sponsor perspective), Watford.

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Such is the dominance of broadcast income though, that despite being in the relegation places for matchday and commercial revenues, Bournemouth had the 13th highest overall income in the division. They may even have overtaken West Brom had they produced a twelve month set of accounts.

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A look at the club’s income for 2014/15, the year they were subject to the EFL FFP fine, shows income of only £12.9 million for the season, which was the sixth lowest in the division.

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Costs

The main costs for any football club are player related, and are split between wages and amortisation.

Bournemouth’s wage bill for 2016/17 was £71.5 million for 11 months, which works out as a 22% increase on an annualised basis.

Bournemouth’s wages on an annualised basis are still some of the lowest in the division, which reflects the club’s policy of not being held to ransom by player demands, as evidenced by Matt Ritchie being allowed to leave to go to Championship Newcastle, who offered him a shedload more money.

The club presently have good control over wages, paying out just £52.42 in wages for every £100 of income, which is lower than the Premier League average.

The issue in relation to the EFL fine arose when the club was in the Championship in 2014/15, with a £30.4 million wage bill. This meant that Bournemouth spent £237 in wages for every £100 in income, which on the face of things blew a whole in the club’s FFP compliance.

This was a far higher proportion of income than any other club, although the Championship is a notoriously unruly division, with the wage bill regularly equalling or exceeding total income.

On an actual wage bill basis, AFCB were not at the top of the table, as clubs with parachute payments from the Premier League were able to bear larger contracts.

Bournemouth did however have the largest wage bill for clubs not in receipt of parachute payments, just ahead of Forest (who also had FFP sanctions as a result). Bournemouth did not break out how much of their wage bill that season was in respect of promotion bonuses to staff. This is important for FFP purposes, as promotion costs are excluded.

Looking at other clubs who have gone up in recent years though, we would expect the promotion costs to be in the region of £9 million, which brings Bournemouth’s recurring/sustainable wage bill down to about £21 million. This is still considerably higher than the club’s income, but not excessive by Championship standards.

The executives of Bournemouth have also done well as a result of promotion.

Compared to where they were in League One, the highest paid director at the club has had a 542% pay rise in the last five years…which is nice.

The other player related cost is amortisation. This arises when a club pays a transfer fee, which is then spread over the contract length in the profit and loss account. Therefore when Bournemouth signed Benik Afobe from Wolves in January 2016 for £10 million on a 4½ year contract, this works out as an annual amortisation cost of £2.22 million a year (£10m/4.5).

Bournemouth’s amortisation expense has increased as you would expect since the club moved from League 1 to the Premier League since 2013.

In the context of the Premier League, Bournemouth are where you would expect them to be, even adjusting for their 11 month accounting period. Relative low spenders along with a spine of a team from the lower leagues means they are close to the bottom of the table.

One thing that is mysterious in relation to Bournemouth’s accounts is the heading ‘other costs’. This increased by

This has increased by nearly 50% compared to the previous season in the Premier League, but the club give no clue as to what makes up this figure.

Profits

Profits are income less costs. There are a variety of different means of determining profits, many of which are tainted by the dark arts of accountancy.

The club announced in the strategic report an operating profit of £16.1 million, compared to £5 million the previous season. Operating profit is total income less total costs of running the club except loan interest and tax.

The only problem with such a figure is it contains some items which are either volatile from one year to another (such as gains on player sales) and others which are one-offs (such as FFP fines).

We therefore prefer to use something called normalised EBIT (Earnings Before Interest and Tax) which adjusts for the above items.

This profit measure shows that Bournemouth had their most successful year in the club’s history in 2016/17, mainly on the back of the increased broadcasting revenues. It also highlights the issue that has occupied those who snipe at the club in terms of the losses made in 2014/15 when the club was promoted to the Premier League and the FFP fine arose.

FFP profit is however a law unto itself. In 2014/15 clubs were allowed a maximum FFP loss of £6 million. Some costs are excluded from FFP, such as infrastructure (£2m in 2015), promotion bonuses (estimated £9m), academy (£2m est.) and community schemes (£0.6m est).

If these costs are added back to the operating loss then we arrive at the following estimate of an FFP loss.

Under EFL rules clubs promoted are subject to an FFP fine (as a transfer embargo is not feasible when clubs move to the EPL), which is calculated on a sliding scale as follows:

This gives an FFP fine estimate which is in within a gnat’s testicle difference from the figure shown in the Bournemouth accounts for 2014/15 of £7.615 million.

To give Bournemouth credit the club held its hand up, admitted that it had exceeded the allowable profits and set aside a sum (but did not appear to pay) the sum in the accounts.

Enter two flies in the ointment, both Queen’s Park Rangers (from 2013/14) and Leicester City (2014/15) were also subject to EFL potential fines when promoted. They took a different approach to Bournemouth and instead tried to claim that FFP was illegal and therefore fines unenforceable. Bournemouth therefore awaited how these two clubs were dealt with before handing over the money, and to an extent that seems a fair approach to take.

The fact that they knew the FFP rules whilst members of the Championship appeared to have bypassed the clubs’ respective owners. QPR have a potential fine of about £40 million from the season in which their income was £38 million and wages were £73 million, resulting in a loss of £65 million. Since then their lawyers, esteemed London firm Cockwomble, Wankpuffin and Co, have used every wriggling, prevaricating and filibustering scheme known to man to try to weasel out of paying the sum due.

Our snouts close to the EFL advise that the League became so paranoid about the constant stream of queries, points of order and delaying tactics from Cockwomble, Wankpuffin and Co that whenever QPR was discussed at EFL meetings it was agreed that no notes would be included in the minutes of the meetings to try to reduce the ambulance chasers from finding yet another excuse to push back judgement day. Even though the case went to arbitration in 2017 and QPR lost, there has been an appeal to further drag out the outcome (whilst of course the lawyers have their meters still ticking, and Range Rover Sport brochures are looking decidedly thumbed).

Leicester agreed to a fine of £3.1 million in February this year, after their lawyers Sue, Grabbit and Runne advised the club to reach a settlement. It is probably on the basis of the calculations and appeal used by Leicester that Bournemouth have managed to have their FFP fine reduced from £7.6m to £4.8m.

Our view here at Price of Football towers has been unchanged since FFP was first introduced. It discriminates against smaller clubs (such as Bournemouth) who have less ground capacity than others and also against all clubs that are not in receipt of parachute payments.

FFP also encourages clubs to get creative with their accounting policies (see our blog on Derby County if you fancy the tedious details) as compliant auditors with the spines of jellyfish and legal firms (and yes we know there are good ones too) with the moral compass of Gary Glitter in a flooded cave full of Thai schoolboys see FFP as an opportunity to fill their boots with fees.

As such we think that the rules are a waste of space in the Championship, where EBIT losses in 2016/17 were a staggering £392,000,000…and that is with FFP in place.

Player Trading

Rant over, and back to The Cherries. Bournemouth have been relatively cautious in the transfer market compared to their peers, but still spent record levels by the club’s own standards.

The club did have a spending spree in the first season in the Premier League, but care should be taken when looking at the 2016/17 figures, as by reducing the club’s year end from 31st July to 30th June to “align internal financial reporting dates with the financial year”, which is management-speak for complete and utter bollocks, it also meant that player signed in July 2017, which is a major period in the transfer window, were effectively excluded from the numbers.

In the small print to the accounts it does reveal that the club spent a further £39.8 million on players before the accounts were signed off.

In the year they were promoted, transfer spending of £13.2 million was not excessive in a division that spent a total of £157 million on players that season.

The only slight concern is that a lot of the transfer purchases appear to be on instalments, which might cause problems should the club fall out of the Premier League. At 30 June 2017 the club owed £22.8 million for transfers, and remember this is before they spent money the following month in the window.

Ownership

AFCB’s owner, Maxim Demin, remains a mystery. He’s certainly put his hand in his pocket and loaned the club about £35 million. Demin’s ownership is via a company called A.F.C.B Enterprises in the British Virgin Islands (nothing to do with Virgin boss Richard Branson, or, for thinking about, the country’s most well known non-virgin connected to football, Katie Price).

The club’s other shareholder, US based Peak6 Football Holdings are owed a further £19 million. Both these loans are interest free, unlike those of the battery powered device salesmen at West Ham, who have charged the club over £14 million in interest since they took over the club.

Demin’s motives are unclear, but whilst he continues to support the club, and is keen to allow it to expand via a stadium expansion, fans probably don’t care too much.

Conclusion

Bournemouth generate a lot of resentment, and we think that most of it is fairly harsh. Thunderbird pilot lookalike manager Eddie Howe is fairly inoffensive, if a bit of a media darling, but the claims that the club somehow cheated their way to promotion in 2014/15 are excessive and unwarranted.

They were fairly open about their ambitions, and spent money well, unlike the approach taken by Aston Villa in 2016/17, who laid a trail of £50 notes to anyone who had a Panini Card collection and wanted to wear a claret and blue shirt, spunking a quite ridiculous £88 million on players that season.

Bournemouth were promoted to the Premier League because they played the best football in the division that season. Spending money a bit excessively by FFP purposes certainly helped their recruitment, but it didn’t give them a competitive advantage over many ‘bigger’ clubs in the division and those in receipt of parachute payments, it merely reduced the advantage those clubs had over The Cherries.

The biggest deceipt of FFP is that it makes fans think it is something to do with ‘fairness’ and that compliance with the rules is somehow egalitarian and honourable, but in reality its aim, especially at the higher levels of football, is there to lock in the differential between existing large and small clubs.

 

 

Crystal Palace 2017: Dancing In The Dark

Is that my lawyer? If they make a joke about my hair sue the bastards

Starting with the elephant in the room, we’re Brighton fans here on this blog, so stop reading if you’re a Palace fan and think the aim is to have a pop at your club’s finances.

The Palace accounts cover the year to 30 June 2017, they were due to submitted to Companies House by 31 March 2018 but were a few months late.

Eagles fans (and those of their rivals) have speculated as to why the club has taken such an approach, as all other clubs had submitted their accounts some time ago.

Vast amounts of social media space have been taken up with fans arguing, often with themselves, as to the reasons behind the delay, but our focus is on what has been published, so we’ll leave point scoring and petty one-upmanship to others.

Income

Every club must split its income into at least three categories to comply with Premier League recommendations, matchday, broadcasting and commercial.

Palace’s matchday income fell 11% in 2017 to £10.6 million. This initially appears odd as attendances rose from 24,635 to 25,160.

A quick look at Palace’s matches the previous season suggests that their success in getting to Wembley twice in the FA Cup would have been significantly beneficial to the club’s matchday coffers. Combine this with the cap on away fan ticket prices in 2016/17 at £30 (Palace were charging £32-£40 the previous season) and the fall in revenue becomes more understandable.

Residing probably where their fans would expect to see them in the matchday income table, Palace have more matchday income than many provincial teams due to being able to charge London prices, but less than those with bigger stadia and regular European home games.

In terms of broadcasting income, Palace were major beneficiaries of the new BT Sport/Sky TV deal, with an increase of 50% due to the £8bn three-year deal kicking in for 2016/17. This was combined with the club appearing on TV four times more than the previous season (worth about £1m per appearance) and £2m for prize money in finishing a place higher in the league table too.

Selhurst is a good ground from which to broadcast from due to the noise generated, and whilst it winds up some opposing fans (and some of Palace’s too) it looks good on the box, more than the sterile atmosphere at some big grounds full of corporate backslappers.

How much further Palace can go up the table is open to question as they only had 12 matches live in 2017/18 but this was offset by an 11th place finish worth an extra £6m compared to 2016/17.

How the Premier League divides money up is complex (and about to become more complex after the League chairmen stitched up clubs in the lower league with a new formula which reduces money available to greedy grasping clubs such as Bury, Grimsby and Accrington Stanley). Simply put half of the money is split evenly, a quarter linked to live domestic TV appearances and the rest is based on the final league position, with each place worth an extra £1.9m).

A lot of clubs in the Premier League are very dependent upon broadcast income and Palace are no exception, with nearly £5 in every £6 coming from this source. There are mutterings from fans of many clubs that TV money ruins the game in the top flight, but we would argue that it is a democratising force, allowing the likes of Palace to compete for decent players and pay them accordingly. This makes the Premier League more competitive, something the owners of the big clubs are out to destroy, especially since Leicester broke their little cartel by winning the Premier League.

Successfully being able to outbid most clubs in Europe apart from the Champions League regulars for players has allowed clubs of the stature of Palace to recruit the likes of Cabaye and keep Wilfred Zaha. Even expensive flops such as Benteke aren’t going to drag the club down whilst they remain in the top division.

Commercial income is again where you would expect it to be. Less than the global brands masquerading as local representatives and ahead of clubs that are so spectacularly inoffensively dull that no one wants their products to be associated with them (and yes, we are looking at you Watford there). A rise in commercial income of 28% is impressive although both the shirt sponsor and manufacturer were the same as the previous season the club may have signed deals on the back of the previous season’s FA Cup run (or earned bonuses that kicked in on the back of this).

Ridiculous gaps between the likes of United and most other clubs can only be overcome on the pitch if there are other sources of income, which brings us back to the view that the present split of broadcast income helps level the playing field…and if this is only by a small amount it surely must be welcomed.

An additional source of income for Palace in 2016/17 was £4 million of ‘other income’. In the accounts this is described as ‘compensation for…award in favour of the club by the Premier League Manager’s Arbitration Tribunal. This would appear to the money Palace received when former manager Tony Pulis tried to stiff the club by taking a £2.5m bonus for keeping them up in 2013/14 and then left.

Pulis was however only entitled to the bonus if still at the club at 31 August but quit having asked for it to be paid early and then resigning on 14th August. Palace sued for the bonus to be repaid by Pulis and the case went to tribunal.

Pulis’s reputation as an obnoxious deceptive shitbag that was established by the tribunal sadly has not prevented him from finding other work since then as a manager.

Costs

Wages

Palace’s main costs were in relation to players, and the wage bill rose by 39% to nearly £112 million, nearly six times the amount they paid out when promoted from the Championship in 2013.

Having a wage bill rising at this rate does look alarming, increasing as rapidly as the notches on Katie Price’s bedpost. Normally wages rise substantially when a club is either promoted or there is a new Premier League TV deal commencing. This would explain the jumps in 2014 and 2017, but in between too there have been significant increases in wage costs as the club has invested in new players and keeping some existing ones.

A wage bill of this magnitude puts Palace almost neck and neck with Leicester, who had won the Premier League the previous season and had the benefit of Champions League participation in 2016/17 too. The extra wage cost is on the back of substantial player recruitment for the season, as players on big transfers expect to be rewarded in line with the fee paid.

It’s difficult to see the rationale behind Palace’s wage rise compared to that of many other clubs. The three promoted clubs are self-explanatory, City had to fund Guardiola’s spending spree, Leicester had new contracts having won the Premier League (and had Champions’ League bonuses to pay). Chelsea’s wage bill fell despite winning the Premier League because of lack of Champions’ League participation. Premier League wages overall rose by ‘only’ £135 million (6%) as the clubs promoted had lower totals than those they replaced (Villa, Newcastle and Norwich).

Representing £78.30 of cost for every £100 of income in 2016/17, wages at Palace are proportionately the highest of any Premier League club. This suggests both Pardew & Allardyce we’re backed during the season. It does however limit wriggle room to increase wages in future years unless they generate extra income, hence the proposal to expand Selhurst.

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Because of the boost in staff costs, Palace players have an average weekly wage of over £50,000 a week.

Rich owners of Premier League clubs have managed to restrain wage rises through the introduction of Short Term Cost Control (STCC) rules for 2016/17. STCC is designed to prevent what Alan Sugar described as the ‘Prune Juice’ effect, where additional broadcast income flows straight through the club into wages as unscrupulous working class players demand more money from the poor multi-millionaires, private equity funds and sovereign wealth bodies which represent Premier League clubs’ owners in the present age.

STCC works by limiting player (not that of all employees) wage rises to £7million a season plus any non-broadcast income plus the average profit on player sales over the last three years.

Looking at Palace, they had a wage increase of £31.2 million, which in order to satisfy STCC would look something like this.

It’s not sure if the Pulis money is allowable, but we have bunged it in just in case. As far as Palace are concerned, it effectively means that provided non-player wages increased by less than £3.2 million then they are within the limits.

Employing the likes of Sam Allardyce won’t have been cheap and it is unclear how much it cost the club to sack Alan Pardew, but this is likely to be in the overall wage cost.

One of the directors also had a substantial pay rise.

Only one director appears to be on the payroll, and the likely recipient is Steve Parish. There’s nothing wrong with Parish earning such a sum, he’s been a contributor to the club being promoted and securing a position in the Premier League. The sum earned is broadly in line with the average income for a first team player.

The accounts do appear very defensive in relation to this money though. First there is a note in the directors’ report stating that a bonus the previous season had been foregone and then implied that the bonus and more had been invested in the club.

Directors are entitled to be paid, and with the riches of the Premier League the Palace recipient is not the highest paid in the division (step forward Daniel ‘Steve Austin’ Levy at Spurs) nor the lowest (although Manchester City’s figures are best filed under creative accounting as whilst the club’s accounts show a zero figure, the parent company, which also owns clubs in Australia, the US and South America has total key management pay of over £4 million).

The note also showed the directors’ commitment in terms of the amount of money injected into Palace to fund the player purchases under Allardyce in January 2017.

Then in the footnotes to the accounts further explanation appears showing both the gross and net sum received by this director. The inference being that by earning ‘only’ just over £1.1 million net Parish (assuming it is him) is somehow slumming it.

In addition to the salary earned, Steve Parish controlled companies that sold services to Palace.

VMM Ltd appears to be a property company with one employee, and Smoke & Mirrors Group Ltd by all accounts rents a property in Soho to Palace, which seems a bit odd, as does tripling the rent for 2016/17.

Some things from the directors’ comments seem inconsistent though. As the cash flow statement for 2016/17 shows that the shares issued by the club have been used to pay back loans to former shareholders and loans from directors have been repaid along with interest. The loan from the parent company in the year needs to be reviewed when the parent publishes its accounts.

The mysterious third party proposed investment mentioned in the directors’ report does not seem to be mentioned in the cash flow statement. This could be because it was received in 2017/18, although you expect to see this mentioned in the note to the accounts that summarises post year end transactions.

Player Amortisation

This is how a club deals with player transfers in the profit and loss account by spreading the cost over the contract period. So, when Palace signed Benteke from Liverpool in the summer of 2016 for £27 million on a four-year contract, this results in £6.75 million (£27m/4) being added to costs for four years.

The total amortisation cost for the club for 2016/17 rose 80% to nearly £33 million, reflecting the investment in the playing squad in both transfer windows.

Palace’s figure is a record for them but about mid-table by Premier League standards.

If wage and amortisation costs are combined, then Palace are the only club in the Premier League to have spent more money on total player costs than they generated in income.

Profit

Profit is income less costs, but it contains lots of layers and estimated figures. Palace’s profit and loss account refers to a few different profits, so they need a bit of explanation.

Operating profit is income less all the running costs of the club except loan interest & tax. On the face of things, it looks as if Palace have had a good year in 2016/17, with an improvement of nearly £19 million.

Included in operating profits are some volatile income and costs such as profit on player sold and the income from successfully winning the claim from obnoxious bellend crook Tony Pulis and player write-downs. Palace made profits on player sales of £35m.

If these non-recurring items are removed, we get something called EBIT (earnings before interest and tax) which in theory is a sustainable/recurring profit figure.

Palace’s EBIT profits are less impressive, as the profit becomes a loss reflecting the increase in wages and other operating costs in the year.

The Premier League made EBIT profits of £147 million in 2016/17, but these vary substantially from club to club. Palace had the third highest EBIT loss.

If non-cash costs such as amortisation and depreciation (the same as amortisation except this is how a club expenses other long-term asset such as office equipment and properties over time) then another profit figure called EBITDA (Earnings Before Income Tax, Depreciation and Amortisation) is created. This is liked by professional analysts as it is the nearest thing to a cash profit figure.

The good news for Palace is that they made an EBITDA profit, the bad news is that it was the second lowest in the division. The Premier League made EBITDA profits of £1,183 million, of which £10 million was earned by Palace.

Player Trading

Palace splashed the cash in 2016/17 with over £104 million on player purchases such as Benteke, Townsend, Milivojević & Van Aanholt, making them the fourth highest gross spenders in the division.

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The large spend on players is why the amortisation charge in the profit and loss account is so high. Fans will rightly point out that clubs also sell players and that net spend is a better measure of a club’s investment in talent.

Taking this into account Palace spent over £65 million net in 2016/17 and shows the extent of the achievement in 2013 in being promoted with a negative net spend (Sir Glenn Murray being recruited on a Bosman).

Palace once again come fourth in the Premier League in terms of net spend.

One concern for Palace is that many of the players who were signed have the transfer fees payable in instalments. Consequently, the club owed over £45 million in respect of fees at 30 June 2017, but also themselves were owed £11 million from player sales, to give a net player trading creditor of £34 million.

Palace’s total creditors come to £107 million. This is sustainable whilst they are part of the Premier League, and even if relegation does arise then parachute payments and potential player sales should enable debts to be paid.

In 2017/18 the club spend a further £42 million on players but this time there was far less recovered from sales.

Summary

Palace’s finances are a curate’s egg. Higher income and profits are offset to a degree by an investment in players which had significantly increased wages and player costs.

Fans might question the sustainability of a business model in which more money is expensed in player costs than in generated in income, which is a common occurrence in the Championship, but not the case in the Premier League.

Ultimately Premier League membership is the most critical element of income generation and here the club has been successful, so the directors would argue that the policy has worked.

The very defensive comments in relation to director wages and interest on loans paradoxically brings them into greater scrutiny, but at least the Palace owners aren’t stiffing the club for £14 million in interest, unlike Gold and Sullivan at West Ham.

Some questions remain, such as the source(s) of funding for the stadium expansion, but these are capable of being overcome, provided there are not significant interest costs on any loans.

As for the delay in sending in the accounts, there seems to be little justification.

Morecambe Finances 2017: Bring Me Sunshine

Introduction

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Morecambe had a nervous finish at the end of the 2017/18 season, surviving in the Football League on the final day. Perhaps they should have expected a close shave after being taken over by a Brazilian in 2016.

What was probably cause for a party at the time has then no doubt been replaced by the sombre reality of trying to survive financially after being railroaded by an owner whose relationship with the truth is about the same as Sam Allardyce’s ego is with modesty.

Being a fan of a lower league club is no different to that of a Premier League club, except there are fewer zeroes at the end of player’s wages and less chance of seeing a Japanese tourist with a selfie stick in the club shop.

The Shrimps were promoted to the Football League in 2006/07 and have done well to maintain their league status on meagre resources.

The club has recently produced their financial results for 2016/17, a bit late, partly due we suspect to resolving issues in relation to Diego Lemos, the absent parent who had a habit of forgetting to pay the wages.

Credit should however be given to someone at Morecambe for producing full sets of figures for us to analyse, as too many of their peers take advantage of Company Law loopholes to avoid full disclosures.

We are aware that the Football League (EFL) have been pressed on the issue of clubs only publishing cut down versions of the accounts by the likes of the Football Supporters Federation.

Sadly, the EFL’s standard response is to do nothing and then look surprised when so many clubs attract charlatans, conmen and scumbags at their helm. This takes away from the many brilliant owners of lower league clubs that put body and soul into supporting their local team.

Before writing this elegy to lessons learned we didn’t even know what colour kit Morecambe played in, or the astounding fact that they’ve only had three managers since 1994.

Present incumbent Jim Bentley has just become the longest serving manager of the 92, following the complicated departure of Paul Tilsdale at Exeter City.

Bentley has outlived the club’s recent owners, including the former head of Umbro, Peter McGuigan, Lemos (along with Qatari sidekick Abdulrahman Al Hashemi who lasted two months) via a company called G50 Holdings Ltd.

When Lemos resigned, or kicked out, the truth is murky, the club effectively was then owned by Graham Burnard, a tax consultant, who appeared from nowhere.

https://www.bbc.co.uk/sport/football/41775187

The club now appears to be taken over by a company called Bond Group Investments Ltd, which was set up with the princely sum of two pounds by two blokes called Jason Whittingham, owner of a pawnbroking empire, and Colin Goldring, a London lawyer.

These two only became directors of Morecambe on 14 May 2018. EFL approval of the takeover is required, and surely a pawnbroker and ambulance chaser at the helm means that they will satisfy the ‘Owners and Directors’ test of the EFL?

The club also appears to have taken out a mortgage secured on the Globe Arena, their home ground, with Mayfair Fin UK Ltd, an Essex based lending emporium, whose contact email address is that of…Jason Whittingham, and whose signature on the agreement is…Colin Goldring.

Financial summary

Income £2.70 million (up 9% from £2.47 million)

Wages £1.93 million (down 3% from £1.99 million))

Losses £350,000 (down 41% from £598,000)

Player sales and purchases zero (no change)

Borrowings £1.74 million (down from £3.32 million)

Income

Most clubs split their income between three sources, broadcast, matchday and commercial. Morecambe have added a fourth, hospitality.

Morecambe’s income has been broadly static for the last few years, but the whole club generates about the same amount of money as the average annual wage for a single Premier League footballer.

Broadcast Income

Clubs in the EFL get a share of two forms of broadcast income. The Football League has a £90 million a season deal with Sky, and splits the money 80% to the Championship, 12% to League One and 8% to League Two. Some of the pot is allocated to the Professional Footballer’s Association, and a proportion is set aside for those clubs whose matches are broadcast live. This results in a League 2 team getting a basic payment of about £472,000, plus additional £30,000 for a match televised live at home and £10,000 if they are the away team.

In addition, the Premier League gives money to the EFL in what are called ‘Solidarity Payments’, which are a constant percentage of the Premier League TV deal. These solidarity payments increased from £230,000 to £430,000 in 2016/17 due to the commencement of the new BT/Sky TV deal kicking in.

If Morecambe were relegated to the National League, they would receive some parachute payments for a couple of years in respect of the basic payment money from the EFL deal, but after that they would effectively be generating nothing from this source.

Overall TV money is about a third of the total for Morecambe.

Matchday

Morecambe averaged home crowds of 1,704 in 2016/17, the second lowest in the division, with only the mighty Accrington Stanley attracting fewer fans that season.

Consequently, the club only generated about £848,000 from gate receipts for the season, much lower than that of the large clubs in the division such as Portsmouth (£3.86 million) who have the benefit of larger crowds.

Hospitality

Without knowing too much about the club, it is unclear whether hospitality refers to matchday sales to food and drink fans, presumably the prawn, (or should that be shrimp?) sandwich brigade in the posh seats, or something else. Either way this is a significant source of revenue for the club, bringing in over a quarter of total income.

Hospitality income fell by 10% in the year.

Commercial

Shirt sponsors were sponsored by Omega Holidays, a company owned by the club’s vice chairman. The club continued to have their kits produced by Carbrini and these sources, combined with perimeter and other sources, generated just under £1/4 million in the year, a 4% decline since 2016.

Costs

The main running costs for a club are wages, and Morecambe is no exception to this rule.

The wage bill is slightly lower than five years ago, reflecting the tight control that the club must keep in terms of player contract negotiations. It’s always tricky to determine player wages but using our standard formula we estimate the average weekly wage was about £928.

Morecambe player did have the further worry during 2016/17 of not knowing whether they would be physically paid at the end of each month, as salaries failed to be paid over on more than one occasion as the club takeover meant that no one was willing to foot the bill until they established whether they owned the club. The PFA had to step in and pay its members until the ownership issue was resolved.

The other player related cost for some clubs is that of transfer fee amortisation, which is where the club spreads the fee over the contract life. The two big Manchester clubs have annual amortisation costs of over £120 million a year, whereas Morecambe’s was a big fat zero, as it has been for living memory.

This reflects the hardship of many clubs at the arse end of League Two, in that they cannot afford to sign players for fees, instead relying on Bosman deals, existing squad members renewing contracts and loans.

One director was paid £30,000 for the year, a far cry once again from the million pounds plus average in the Premier League.

The main non-player costs were stadium and machinery depreciation (£85,000) and interest on loans (£97,000).

Profits and losses

Profit is the difference between income and expenses. For a club such as Morecambe it is a case of trying to keep losses to a minimum and hope for either selling a player or two at a profit or the benevolence of directors to balance the books.

The above shows that the club has lost on average £11,000 a week over the last five years. The losses fell in 2016/17 due to the additional TV monies being received.

These losses are underwritten by the club owners. It is unclear how much, if any, of these losses were covered by the unseen Mr Lemos.

Financing the club

If a football club loses money, it must cover these losses somehow. Some clubs can sell players at a profit, but this does not appear to be the case with The Shrimps. The accounts are a bit sketchy here but whilst there’s no evidence of players being sold for a fee for many years, Jack Redshaw did generate money apparently (£200,000?) when sold to Blackpool in 2016.

The club therefore must rely on lenders and investors to make up the shortfall. This can come in the form of issuing shares to investors or borrowing money from them. The main difference is that borrowings may attract interest payments. Whilst shares could in theory result in dividend payments this is highly unlikely in practice.

Morecambe have relied on owner/director loans and in the last four years they have put over £1.7 million into the club. This is the side of football that few show an interest in. It’s often local businessmen/supporters who know that the club provides a focal point for the town who do this, and most of the time they get nothing but abuse for their efforts (there’s no evidence of this in the case of Morecambe though, the fans were delighted that they have new owners who are prepared to do the right thing.

It looks as if the directors have gone further in converting over £2.2 million of loans into shares. This is effectively writing off the loans, as realistically the club has no means to repay them. It does mean that should someone take over the club they will inherit less debt.

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Conclusion

Morecambe fans face an uncertain summer. The ownership issue is unresolved and it will take time to see whether The Shrimps have jumped from the frying pan to the fire.

The club is a textbook example of poor governance and control by the EFL, who have done their best Nero impersonation whilst players and backroom staff went unpaid on regular occasions under Lemos.

For all those fans of other clubs who are moaning about the lack of big money signings, glamourous managerial appointments and carefully choreographed kit launches, spare a thought for those who are nervously awaiting to see if they have owners who can continue to fund the club as a member of the 92.

Data Set

Newcastle 2017: Lovely Jubbly

Introduction

Mike Ashley, Newcastle’s colourful owner, has finally submitted the club’s accounts for the year ended 30 June 2017 for public scrutiny.

In first announcing a selected set of information from the accounts on the club’s website Ashley has laid himself open to accusations of trying to massage the message from the club’s season in the Championship.

Kind words are in short supply in Tyneside for Ashley, who bought the club in May 2007 and has overseen two relegations during that period.

Easy to criticise, and hard to love, but is Ashley as bad as some make out, given that he has lent the club over £140 million interest free, and invested a similar sum in buying share in the club too?

A look at the accounts suggests that the bleak picture painted by the press announcement last weekend perhaps overegged the pudding in terms of just how big a gamble the club took last season in incurring record losses of over £90 million.

Income

Starting at the top of the income statement, Newcastle had total revenue of £85.7 million, a record for a club in the Championship, but nearly a third less than the previous season in the Premier League.

Having a lot of money is one thing, and Newcastle have earned exactly £900 million under Ashley’s ownership, but putting it to good use is another, and Toon fans will question a lot of the decisions made in how that money has been utilised.

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Looking at the breakdown of the income total, the biggest contributor is broadcast income from the Premier League in the form of parachute payments.

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Earning Newcastle £40.9 million in 2016/17, parachute payments, which worked out at 55% of the Premier League’s ‘Basic Award’ (the part of the broadcast deal that is split evenly between clubs, aim to cushion the blow of relegation when clubs have players on Premier League contracts which otherwise would be difficult to fulfil in the Championship (or, in the case of Sunderland, League One).

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Year by year parachute payments fall, from 55% of the basic award in the first year outside the Premier League, to 45% in year two and 20% in year three.

Income from broadcasting in the Championship for non-parachute payment clubs is a basic of about £6.5 million a year, plus £100,000 for every home match shown live on Sky.

Some of the Championship broadcasting income (about £2.3 million per year in the Championship) comes from ‘solidarity payments’ from the Premier League, which is an annual handout to the 72 clubs in the Football League.

A huge gap therefore exists between those clubs in the Championship earning parachute payments and those that do not.

Fans of parachute payments point out that it allows clubs to negotiate long term contracts with decent players who might otherwise go elsewhere if there are large wage reductions clauses in their contracts.

Allowing clubs three years (or two if they are promoted and immediately relegated, such as happened to Middlesbrough in 2016/17) means that there doesn’t need to be a fire sale of player of the calibre of JonJo Shelvey if a club goes down.

This allows a club relegated to regroup and familiarise itself with the financial constraints of the Championship and reduce the risk of going into administration.

Critics of the parachute payment system claim that it gives clubs relegated from the Premier League an unfair advantage over their rivals.

Only one club in receipt of parachute payments in 2016/17 was promoted though, and that club was Newcastle, Norwich finished 8th and Villa 13th, despite also receiving nearly £41 million from the Premier League.

Commercial income for Newcastle in 2016/17 was £14.8 million, down from £28 million the previous season.

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Knockers of Ashley will point out he uses St James Park as an advertising vehicle for his Sports Direct cheap and cheerful sports emporium, and he should be generating more commercial income than any other club in the division.

Newcastle fans take the view that they should be earning far more commercial money given the history, heritage and size of the club, but it already is fairly competitive with many in the Premier League whose matches are broadcast around the world each week and who generate vastly bigger viewing figures than those teams in the Championship.

Earnings from matchday sales were maintained due to Newcastle fans turning up every week and average attendances at St James Park were an amazing 51,108, beaten by only five teams in the Premier League.

You must give respect to Newcastle fans for turning up in numbers as matchday income at St James’ Park was twice that of any club in the Championship as crowds averaged 51,000.

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Costs

Wages are a club’s biggest expense, and Newcastle spent a record amount of £112.2 million in 2016/17, up 50% from the previous season in the Premier League, but this headline sum includes some one-off costs.

A sizeable chunk of the wage bill (£9.9 million) was paid for promotion bonuses and a further £22 million was for players who were not considered part of the first team and so had their contracts paid up or went on loan with NUFC picking up some or all the wage bill.

Nevertheless, even if these figures are excluded the wage bill would have been over £80 million, compared to the average Championship figure of £29.8 million.

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Kowtowing to Mike Ashley as Newcastle United Ltd.’s only director is Lee Charnley, who earned ‘only’ £150,000 for his services in the year and waived his right to a bonus.

Every club needs a front man and Charnley acts as the interface between unhappy Toon fans and the Ashley.

Rightly or wrongly, Charnley is seen in as bad a light as Ashley on Tyneside but his pay is far lower than that of other football executives, with the average in the Premier League being £1,008,000 a year and some other CEO’s in the Championship earned seven figures too.

The other major cost is transfer fee amortisation. This is how clubs deal with the sums paid for player transfers. This is achieved by spreading the cost over the contract life. So when Matt Ritchie was signed in the summer of 2016 from Bournemouth for £11million on a five year contract, this works out as an amortisation charge of £2.2 million (11/5) a year.

The total amortisation cost incurred by Newcastle was £35.8 million, far higher than that of any other club in the division. This also reflects ‘impairment charges’ which is when the club writes down player values in the accounts when they are a bit rubbish. The sum involved within the amortisation figure is not shown, but I’m sure Toon fans can name the players and the manager(s) who signed them.

Amortisation is not however a cash cost, so there’s a case for treating it cautiously when looking at the figures.

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Profits

Profits are income less costs, and here the club has been disingenuous by promoting in the press release a £91 million loss figure. However, this is before considering gains on player sales of over £42 million and includes the non-recurring costs from promotion bonuses and the contract write ups.

If you strip out the one-off costs and income and exclude amortisation claiming it is a non-cash expense, we get to something called EBITDA (Earnings Before Interest Tax Depreciation and Amortisation). This is the profit most focussed on by analysts, at it is a sustainable cash equivalent of profit.

This gives a figure of £19.8 million, still sizeable but far less than the sum being touted by the club to the media when the results were announced.

Newcastle made substantial EBITDA profits in previous years so were able to absorb this loss reasonably easily.

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There is no chance of Newcastle being subject to Financial Fair Play sanctions from the Football League as promotion bonuses are excluded and gains on player sales included when calculating FFP losses.

Player trading

Mike Ashley’s reluctance to spend money in the transfer market is legendary. In the period since he bought the club he has spent £308 million on players (less than what Mourinho and Guardiola each spent in their first 15 months in charge) and raked in sales income of £244 million.

This gives a net spend of just £65 million over the period.

Last season in the Championship Newcastle bought players for £41 million in the shape of Ritchie, Gayle, Yedlin and Clarke, but managed to rake in £70 million from selling Sissoko Wijnauldum and Townsend.

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Compared to the rest of the division Newcastle certainly spend big, but it was less than half the sums paid by Villa, who finished far down the table.

Debts

Mike Ashley lent the club a further £15 million during the year, taking his total interest free loans to £144 million. The club also had an overdraft at 30 June 2017, presumably used to pay the promotion bonuses, but this overdraft would have been wiped out when the Premier League broadcast income for 2017/18, which eventually totalled £123 million started to flow to the club.

In addition to the loans Ashley has invested a further £134 million in shares in the club, taking his total investment to £278 million. Rumour is he is trying to sell if for £400 million, but this price looks optimistic for a business that realistically has a 1 in 4 chance of losing its main source of income (PL TV money) at the start of each year.

Conclusion

Newcastle under Mike Ashely did take a gamble in investing in players in 2016/17 to engineer a return to the Premier League, but not as much as the club has claimed.

The motive of this spending is however unclear, we estimate the value of NUFC as a Championship club to be £80-100 million, but as a Premier League club it is £270-£800 million.  Ashley could therefore be seen to be protecting the value of his investment in the club by funding the promotion push, and once back in the Premier League returning to his more stingy spending style.

Astute management from Benitez combined with canny signings on players who have a good resale value during the season helped them bounce back.

What happens next with Mike Ashley at the helm is unknown, he is the football Fog on the Tyne and it won’t lift until he leaves.

The data

Sunderland: Short Changed

As Sunderland’s new owner Stewart Donald picks up the reigns of the club and former head honcho Ellis Short walks away with the debts of £161 milion (and £40m in instalments from Donald) , the figures for their final season in the Premier League contain some grim reading although are rescued to a degree by the sale of Jordan Pickford in June 2017.

Summary of key figures (Sunderland Limited)

Income £126.4 million (up 17%)

Broadcasting income £95.6 million (up 34%)

Wages £84.4 million (up 1%)

Loss before player sales £38.9 million (up 30%)

Player purchases £47.5 million (£30.7 million in 2016)

Player sales £43.1 million (£11.7 million in 2016)

Borrowings: £161.7 million (£137.3 million in 2016)

Income

The Black Cats have been in the Premier League (PL) since 2007, and Ellis Short took control of the club a year later.

Their income has broadly been linked to new PL broadcasting deals, which are negotiated every three years.

The impact of the new TV deals that commenced in 2011, 2014 and 2017 have been the biggest drivers of extra income for the club.

The problem for a club such as Sunderland is trying to find other ways of generating income when there is so much focus on the self-styled ‘Big Six’ (United, City, Liverpool, Chelsea, Arsenal and Spurs).

During their ten years in the Premier League, Sunderland earned £866 million, their fans will wonder how well that money has been spent.

Nineteen clubs who were in the Premier League last season have reported their results to date. Only small London club Crystal Palace, whose owner also controls a company called ‘Smoke and Mirrors Limited’ are now outstanding in sending in their results to Companies House, although they have sent them to the Premier League as the figures have to be scrutinised by the end of the calendar year.

All Premier League clubs are reporting higher income for 2016/17 than in the previous season. The average income of the 19 clubs that have reported to date is £233 million, up 28% from £182 million the previous season. The average in the Championship is just £28.6 million.

The median income, (remember that from your GCSE Maths class?) perhaps more relevant to a non-Big Six club, is £171 million.

Sunderland are in a bunch of nine clubs who are in the £117-138 million income bracket.

The main reason for the increase in overall income in the Premier League for 2016/17 was the new Sky/BT domestic TV deal, worth £5.1 billion over three seasons.

Overall the Big Six already have 56% of the total income of the Premier League clubs but want more.

Like all clubs Sunderland broadly their income from three sources, matchday, broadcasting and commercial/sponsorship.

Matchday Income

Matchday income fell by 15% to £9 million. Whilst stated attendances fell only 4% to an impressive sounding 41,287, anecdotal evidence was that many fans, especially those with season tickets, did not go to many matches, such was the dismal performances on the pitch.

Sunderland’s matchday income per fan fell by over 10% to just £217. This works out at just £11.41 per match and is one of the lowest in the division. For Sunderland fans querying the figure remember this is the average price so included children and other concessions and is also net of VAT at 20%.

Part of the reason why the figure is so low is that Sunderland is not an affluent city and does not attract large numbers of football tourists who are willing to pay large sums to attend matches (and spend a lot on merchandise).

Being knocked out of the FA Cup in the third round didn’t help matchday income either.

The lack of decent football had a more significant impact on the prawn sandwich brigade, as it’s very difficult to sell boxes and hospitality packages at high prices to watch poor football.

Under Ellis Short, Sunderland’s matchday income fell by over a third during the nine years he oversaw the club. He can’t be accused of fleecing the fans, as  overall in the Premier League, matchday income counts for £1 in every £7, but for Sunderland it is only £1 in every £14.

The large capacity of the Stadium of Light meant that Sunderland did have greater matchday income than nearly half the clubs in the Premier League last season, but their total pales into significance compared to the big boys.

Care should also be taken when looking at individual figures, as different clubs calculate numbers in different ways. Some clubs include merchandise sales as part of matchday, whereas others stick it into the commercial heading.

Overall the Big Six hoover up 75% of matchday income of the Premier League, as they have larger stadia in the main and also are able to attract daytrippers and tourists to watch their matches, at premium prices.

Broadcast Income

Broadcast income for Premier League clubs is linked to deals signed by the PL on behalf of all 20 clubs in the League.

Sunderland suffered in 2016/17 from finishing bottom of the table compared to a squeaky bum 17th the previous season. This was more than compensated though by the new domestic BT/Sky broadcasting deal, which was worth 70% more than the previous one that expired in 2015/16.

Premier League TV money is divided into 5 pots, as follows:

For domestic rights there are three pots.

  • 50% of the money is split evenly between all 20 clubs (called the ‘Basic Award’)
  • 25% is split based on the number of times a club appears live on TV, with each club being guaranteed ten matches, and an extra £1 million for each additional appearance
  • 25% is based on final league position, with the bottom team receiving £1.9 million, and every place above that being worth an additional £1.9 million. Therefore, by finishing four places higher in 2016/17 than the previous season Sunderland earned an additional £7.6 million, which is more than they earned through matchday income.

Overseas TV rights are presently split equally between all 20 clubs, but a bunfight is likely to take place this summer as the ‘Big Six’ claim they are main reason why overseas broadcasters pay so much for PL rights. The Big Six’s argument conveniently ignores that they earn additional broadcasting rights from appearing in European competitions.

If the Big Six are to be successful, they will need 14 votes at the meeting of club owners in the summer. Expect to see tantrums and threats of joining/creating a European Super League should they not get their way. They are of course more than welcome to close the door should they leave.

The PL’s central advertising/commercial contracts are also split evenly between all 20 clubs.

Despite stinking out the Premier League in 2016/17, Sunderland’s broadcast income increased by a third to nearly £96 million. In the three previous season the figure was broadly static, reflecting the Sky/BT deal that was in operation during that period.

It comes as no surprise that Sunderland were close to the bottom of the table in terms of broadcast income for the season, given that they only received £1.9 million in prize money for finishing 20th in the PL.

The relatively democratic division of broadcast income is highlighted in the above table. For every £1 of TV income received by Sunderland, the top earning team (ere Manchester City) earned £213. When it comes to matchday income that figure rises to £580 earned by Manchester United for every £100 by Sunderland, and commercial is £999 by United for every £100 by Sunderland.

As the club was relegated in 2016/17 attention now turns to the PL’s snappily named rule D.25, more commonly called parachute payments.

Sunderland therefore will have received for 2017/18 55% of the basic award (£35.3 million in 2016/17) and overseas broadcasting money (£39.1 million in 2016/17), which works out at £41 million.

For the forthcoming season in League One, this will drop to £33.5 million, and then there will be a final payment of £14.9 million in 2019/20.

After that the club’s broadcast earnings will be governed by the EFL broadcast deal, which is worth about £2.3 million a season for clubs in the Championship, £345,000 in League One and £230,000 in League Two.

In addition, clubs in the EFL receive solidarity payments from the PL. Here a proportion of the PL’s broadcast deal is passed down to the 72, and this is worth about £4.3 million for a Championship club.

Commercial Income

Commercial income in the Premier League is a case of the haves and the have nots. Here the Big Six mop are to an extent able to name their price, as it is a seller’s market and the likes of Liverpool exploit their global appeal by signing deals for individual products and end up having an official…err…timing partner with watch manufacturer Holler.

For clubs such as Sunderland the outlook is different. Here the buyers can play the likes of The Black Cats, Bournemouth, Everton, Stoke etc. off against each other when negotiating shirt and commercial deals, so the prices are far lower. In addition, smaller clubs have limited overseas appeal as football tourists and other plastic fans only tend to ‘support’ the major clubs. There are relatively few fans in Malaysia and Lagos who support the non-Big Six clubs.

Sunderland split out their hospitality/conference income out in the accounts, unlike most clubs.

Sunderland’s catering income fell by 30% in 2016/17, mainly due to some season ticket holders becoming so disillusioned that they did not turn up to matches, and the club struggling to sell hospitality packages in respect of a team that only won three games at home all season. Commercial income fell too, Dafabet continued their shirt sponsorship, worth about £5 million, but the club struggled with other deals.

Cost

The main costs at a football club are player related, wages and transfer fee amortisation.

Wages

During the Ellis Short era, Sunderland paid out £600 million in wages in nine seasons. Both he and Sunderland’s fans must be scratching their heads over just how well that money has been spent, although fans will still probably have nightmares at the memories of the likes of Santiago Vergini, Jozy Altidore and Danny Graham taking home large sums each week.

“You can fool all of the people some of the time”

Wages increased during the Short era in all but one season. Although the total wage bill only increased by 1% in 2016/17, Sunderland have a financial year end of 31 July. This means that for some players relegations clauses would have kicked in on 1 July as at that date the club is officially no longer a member of the Premier League.

Sunderland’s accounts therefore suggest the average wage was (we estimate) about £40,500 a week, although that includes one month at the lower rate in the Championship.

“They’re averaging £40k a week and I’m on £70k, try not to laugh Jack, try not to laugh in case anyone sees you”.

Their total wage bill is broadly where you would expect it to be for a club that has been a constant feature of the Premier League for the last decade, above that of promoted clubs and below that of clubs with bigger stadia and resources.

The riches of the Premier League TV deal meant that Sunderland only paid out £67 in wages for every £100 of income. If the club is relegated to the Championship the outlook is different. In the last season for which there are full records clubs paid out an average of £101 for every £100 in wages, which leaves nothing to pay for the other other running costs…including player signings.

One reason why Sunderland’s wages to income ratio has fallen is due to a variant of Financial Fair Play (FFP) called Short Term Cost Control (STCC). This restricts wage growth to £7 million a season plus any money the club generates itself from matchday and commercial sales. For a club such as Sunderland this gives a significant challenge, especially with matchday and commercial income declining.

Ellis Short has always been a hands-off owner and has tended to delegate the day to day running of the club to a chief executive. This person has been very well paid, although the competence of the decision making must surely be questioned given the many crises the club has encountered during that period.

Running a company that is effectively only open for business 20-25 times a year should allow the chief exec to concentrate on operational issues, but Sunderland seem to have had too many embarrassing moments that call into question the culture of the club, which should be set at boardroom level and filter down via the manager and coaching staff.

Chief executive Martin Bain is presumably the lucky recipient of the £1.24 million package for the highest paid director of the club for 2016/17, although it is suspected he will be packing his bags (with a large payoff) should the club sale proceed shortly.

Sunderland have had three big payoffs under Ellis Short for directors who left the club rapidly and were given ‘compensation for loss of office’. In 2011 someone (probably CEO Steve Walton) received a £573,000 payoff, the following year it was an eye watering £1,996,000 (probably to Niall Quinn) and in 2016 Margaret Byrne, who oversaw the Adam Johnson incident was rewarded to the tune of £850,000.

Player amortisation

Transfer amortisation is the method used to expense transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract. Therefore, when Sunderland signed Didier Ndong for £13.6 million from Lorient on a 5-year contract, the amortisation charge works out as £2.72 million a year (£13.6/5).

The total amortisation expense in the profit and loss account of £29.4 million for 2016/17 is the sum of all the players who have been signed by Sunderland and for whom there has been a transfer fee.

Sunderland’s amortisation total of £29.4 million is marginally lower than the previous season, but over the last few years has been reasonably consistent. The advantage of looking at amortisation instead of player signings and sales for an individual season is that it removes the fluctuations that can arise on a short-term basis.

Whilst they are not operating in the stratospheric levels of the Big Six, Sunderland had a reasonably high amortisation cost in 2016/17 compared to the other 14 clubs who are in the relegation shakedown at the start of each season.

This would appear to suggest that Sunderland’s managers have been backed in the transfer market by the owner, but whoever oversees recruitment has wasted the budget.

If wages and amortisation costs are added together, then they took up 90% of Sunderland’s income in 2016/17, and this was the lowest figure for this ratio during Short’s ownership period.

Over his nine years in charge of the club in the Premier League, it had total income of £803 million, but had wage and amortisation costs of £833 million, which means that Ellis Short was responsible for all the remaining costs of running the club.

The first signs of how relegation is affecting local people who work for the club is shown in terms of staff numbers, as these fell by 10% in 2016/17. It is highly likely that this decline will accelerate in 2018 as the club was once again relegated, and this is the real tragedy in relation to the club. Footballers are transient in nature and moving from club to club is an occupational hazard, but for the people employed behind the scenes, they tend to be often supporters whose job at the club pays their day to day bills.

Sunderland also had a couple of one off costs in 2016/17. They were forced to pay £9.7 million in a disputed court case with Inter over the signing of unwanted Ricky Alvarez, who was signed on loan with a clause that Sunderland had to buy him in 2016 if they avoided relegation. The club duly did this, but didn’t offer Alvarez a new contract, so he disappeared to Sampdoria, and Sunderland effectively had to pay £1.2 million per game for his eight- match career at the Stadium of Light for his transfer fee, plus his wages.

Following relegation, Sunderland then valued the players in the squad using their best estimate of market values. They then wrote off over £14 million from the accounting values of the players, which is a huge sum given the way that players are accounted for in the books.

The club have not given the names and amounts by which they have written down individual players, but Mackem fans will no doubt have a long list of the guilty parties.

Loan Interest

Sunderland have considerable debts. Ellis Short’s loans are thankfully interest free. The club also has a £70 million loan from American lender SBC. This loan attracted an 8.5% interest rate, which meant that an interest charge of £6.5 million clocked up on the loan in the year, and along with other borrowing costs, the club was charged £130,000 a week in interest over the season.

Profits and losses

Profits are income less costs. Sunderland made losses before player sales in 2016/17 of £38.9 million, which works out as £750,000 a week. Even if the one-off costs discussed above are eliminated, the loss falls to a still substantial £14.8 million.

Under Ellis Short Sunderland lost a total of £248 million before player sales, and this is the richest division in the world.

EBIT (Earnings before interest and tax) remove volatile one-off transactions such as legal issues on disputes, player sale profits and payoffs.

In the Premier League Sunderland had the fifth highest EBIT loss.

Profits on player sales are calculated in a complicated manner. Rather than compare the sale and purchase price for the player, instead the sale fee is compared to the accounting value of the player, which is the cost less any amortisation charges. Sunderland sold Jordan Pickford came through the youth team, and so the whole fee is treated as a profit.

This allowed Sunderland to show a profit of over £33 million on player sales for the year to 31 July 2017. This is however lower than many of the clubs around them who made an EBIT loss. Chelsea, for example, sold Oscar to China for about £60 million, and showed a total profit on player sales of £69 million.

If profits on player sales are added in, Sunderland’s losses fall to £6 million. They are however the only club to make a loss after player sales in the whole of the Premier League.

Sunderland showed a profit of are the only club in the Premier League last season to make a loss before player sales last season, which again is an indictment of how poorly the club has been managed.

After a long period of time in which nearly all clubs were loss making, partially due to Alan Sugar’s ‘prune juice’ effect, where any increases in TV income went straight through the club into player wages, the Premier League is now far more lucrative.

Under Financial Fair Play (FFP) rules, Premier League clubs can make a maximum FFP loss of £105 million over three years. In the Championship it is £39 million over three years.

So, for the season that has just ended Sunderland will be allowed an FFP loss of two years in the Premier League plus one in the Championship, which gives a figure of £83 million. Some costs, such as infrastructure, academy and community schemes, are ignored for FFP purposes, so the club should be relatively safe in respect of FFP compliance.

Player trading

Accounting for player trading is troublesome. We’ve already shown that when a player is signed, his transfer fee is spread over the life of the contract. However, when the player is sold, the profit, which is based on the player’s accounting rather than market value, is shown immediately in the profit and loss account.

This creates erratic and volatile figures in the profit and loss account, which is why these are separated out from the rest of the financial results.

If we instead focus on the actual purchase and sales, Sunderland have the following figures:

The above table shows that over the nine years under Ellis Short’s ownership Sunderland have bought players for £329 million and generated sales of £169 million, a net cost over the period of £160 million over the period.

At the start of 2016/17 the squad had cost a total of over £109 million, so money had been invested in the players, but it included an awful lot of duffers.

Sunderland’s spending in 2016/17 was competitive by the standards of clubs who are not part of the PL elite. It reinforces the view that signing rubbish players, rather than not backing the manager in the market, was the driving force behind the club’s relegation to the Championship.

Debts to and from the club

Whilst Sunderland sold Pickford in June 2017, it appears that Everton paid a fair amount of the fee in cash, as amounts due from other clubs were only £11.4 million.

Of greater concern is the fact that the club owed other clubs £45.2 million for player transfers. This may be insignificant compared to the likes of Manchester United who owe over £180 million, but United do have huge income streams and don’t have league games at Fleetwood and Plymouth next season.

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Since Short took over, the club has borrowed £250 million from both him and SBC.
Some of these borrowings have been converted into shares, but at 3

Since Short took over, the club has borrowed £250 million from both him and SBC.

Some of these borrowings have been converted into shares, but at 31 July 2017 Short was owed £93 million via his Jersey based company Drumaville, and a further £70 million is due to SBC.

These loans are secured, which officially means that should repayment be sought (and the SBC loan is officially due for repayment in August 2019) the lenders could force the sale of the Stadium of Light and training facilities.

When the takeover of the club by Stewart Donald’s consortium was announced, Ellis Short inferred he was leaving Sunderland debt free, effectively writing off his loan and taking on the responsibility for the one from SBC.

What is uncertain in respect of the takeover is whether the consortium is paying anything for the shares, and if there are sums due to Short should the club return to the Premier League soon.

Summary

Ellis Short’s tenure as Sunderland owner is a textbook example of someone who thought the Premier League was an opportunity to make a lot of money and getting it spectacularly wrong.

He has effectively written out a cheque for half a million pounds every week for ten years to keep the club afloat, and during that period has seen a series of executives and managers come and go at the club.

Whilst he can afford to lose this sum, it’s still an unpleasant experience for anyone to walk away from such a spectacular financial mess.

The reaction of Sunderland fans seems to be measured. They appreciate Short’s benevolence but are angry at the quality of decisions made by a series of well remunerated professional business managers in charge of club operations.

The irony is, having measured the club value using the industry standard Markham Multivariate Model, Sunderland as a Premier League club was worth about £215 million if managed correctly, but as a Championship, and now a League One club, it is effectively worthless, as the losses each week and lack of TV income is too much of a burden.

The new owners are taking on either a black cat…or a white elephant.

Data Set

West Bromwich Albion: Dazed and Confused.

It’s of little consolation to West Brom fans as their club is facing relegation, but the club’s holding company have just published their financial results for 2016/17 revealing record profits. A few months later though it was the night of the long knives in the boardroom and the club’s boardroom big cheeses were shown the door.

Summary of key figures (West Bromwich Albion Holdings Limited)

Income £137.9 million (up 40%)

Broadcasting income £118.7 million (up 51%)

Wages £79.1 million (up 7%)

Profit before player sales £26.7 million (Loss of £5.2 million in 2016)

Player purchases £37.4 million (£28.2 million in 2016)

Player sales £19.8 million (£6.3 million in 2016)

Borrowings: None

Income

The Baggies have been in the Premier League (PL) since 2010/11, and their income has broadly been linked to new PL broadcasting deals, which are negotiated every three years.

The impact of the new TV deals that commenced in 2014 and 2017 have been the biggest drivers of extra income for the club. The problem the club has is that it is constricted by a 27,000-seater stadium and not being one of the ‘Big Six’ in terms of commercial appeal. Such is the success of the PL in selling broadcasting rights that West Brom are in the top 30 revenue generating clubs in the world in 2016/17.

Eighteen clubs who were in the Premier League last season have reported their results to date. Only car crash Sunderland, probably too busy setting the club coach’s sat nav to Accrington, and Crystal Palace, whose owner also controls a company called ‘Smoke and Mirrors Limited’ have failed to do so.

All Premier League clubs are reporting higher income for 2016/17 than in the previous season. The average income of the 18 clubs that have reported to date is £239 million, up 31% from £182 million the previous season. The average in the Championship is just £28.6 million.

West Brom are in a bunch of eight clubs who are in the £117-138 million income bracket.

The main reason for the increase in overall income in the Premier League for 2016/17 was the new Sky/BT domestic TV deal, worth £5.1 billion over three seasons.

The Premier League divide money into five pots. Three of the pots cover the domestic TV deal, and they are split 50% evenly, 25% based on the number of TV appearances (every club is guaranteed a minimum of ten of these) and 25% based on final league position. Each place up the table is worth just under £2 million.

Overseas broadcasting income and centrally agreed commercial deals are split evenly between the twenty clubs. This arrangement is likely to come under fire in the summer as the ‘Bix Six’ want to grab a bigger slice of this pie for themselves. Their argument is that overseas TV fans would rather watch one of their clubs than that of a team such as West Brom, and so they ‘deserve’ more money.

Whilst this argument is true in terms of the number of viewers, it ignores the fact that the ‘Other 14’ can compete against most clubs in Europe apart from the elite for players (all 20 EPL clubs are in the top 35 richest in Europe) and thus can put up a decent performance against the Big Six.

This partly explains why West Brom won at Old Trafford, Burnley won at Stamford Bridge, Swansea beat Liverpool and many clubs have turned over Arsenal.

Like all clubs West Brom earn their income from three sources, matchday, broadcasting and commercial/sponsorship.

Matchday Income

Matchday income fell by 12% to £6.8 million. This was due to average attendances falling 3% to 23,876 and non-existent cup runs.

Overall in the Premier League, matchday income counts for £1 in every £7, but for West Brom it is only £1 in every £20.

West Brom had the second lowest matchday income total in the division, but still managed to survive in the Premier League for many seasons. This suggests that in the Premier League it is case of spending money wisely, rather than just spending it quickly, that counts.

Ticket prices seem to have fallen since West Brom’s last season in the Premier League, with matchday income averaging £283.51, about 9% lower than in 2016. This works out at £14.92 per match, which may surprise some Baggies fans, but remember this is the average of adults, seniors and kids, and is also net of VAT.

The reduction in prices may be a combination of fewer hospitality packages being sold as the club was pragmatic if unexciting under Tony Pulis, and the capping of away fan prices in the Premier League.

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Broadcast Income

Broadcast income for Premier League clubs is linked to deals signed by the PL. West Brom benefitted in 2016/17 from finishing 10th in the table compared to 14th the previous season, but more importantly from the new domestic BT/Sky deal.

Premier League TV money is divided into 5 pots, splits as follows:

For domestic rights there are three pots.

  • 50% of the money is split evenly between all 20 clubs (called the ‘Basic Award’)
  • 25% is split based on the number of times a club appears live on TV, with each club being guaranteed ten matches, and an extra £1 million for each additional appearance
  • 25% is based on final league position, with the bottom team receiving £1.9 million, and every place above that being worth an additional £1.9 million. Therefore, by finishing four places higher in 2016/17 than the previous season West Brom earned an additional £7.6 million, which is more than they earned through matchday income.

Overseas TV rights are presently split equally between all 20 clubs, but a bunfight is likely to take place this summer as the ‘Big Six’ (Manchester United and City, Liverpool, Arsenal , Chelsea and Spurs), already far richer than the other clubs, want more of this money as they claim they are main reason why overseas broadcasters pay so much for PL rights. The Big Six’s argument conveniently ignores that they earn additional broadcasting rights from appearing in European competitions.

If the Big Six are to be successful, they will need 14 votes at the meeting of club owners in the summer. Expect to see tantrums and threats of joining/creating a European Super League should they not get their way.

The PL’s central advertising/commercial contracts are also split evenly between all 20 clubs.

The present domestic deal lasts until 2018/19, so it is likely that West Brom’s broadcast income peaked last season. If the club is relegated then the PL’s snappily named rule D.25, more commonly called parachute payments, applies.

West Brom would therefore receive 55% of the basic award (£35.3 million in 2016/17) and overseas broadcasting money (£39.1 million in 2016/17) next season, which works out at £41 million.

Commercial Income

Commercial income in the Premier League is a case of the haves and the have nots. Here the Big Six mop are to an extent able to name their price, as it is a seller’s market and the likes of Manchester United have a strategy of signing deals in individual countries for individual products, such as an official tractor partner in Japan.

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For clubs such as West Brom the outlook is different. Here the buyers can play the likes of The Baggies, Bournemouth, Everton, Stoke etc. off against each other when negotiating shirt and commercial deals, so the prices are far lower. In addition, smaller clubs have limited overseas appeal as football tourists and plastic fans only tend to ‘support’ the major clubs. Accordingly, Manchester United make £22.10 from their commercial activities for every £1 generated by West Brom.

A screenshot of a cell phone Description generated with very high confidence West Brom’s commercial income increased by nearly 6% in 2016/17, mainly due to a new shirt sponsorship deal with generic Chinese online casino operator UK-K8.com.

Cost

The main costs at a football club are player related, wages and transfer fee amortisation.

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West Brom’s wages have grown steadily over the last give years, and the average wage is (we estimate) about £38,000 a week. Their total wage bill is broadly where you would expect it to be for a club that has been a constant feature of the Premier League for the last decade, above that of promoted clubs and below that of clubs with bigger stadia and resources.

The riches of the Premier League TV deal meant that West Brom only paid out £57 in wages for every £100 of income. If the club is relegated to the Championship the outlook is different. In the last season for which there are full records clubs paid out an average of £101 for every £100 in wages, which leaves nothing to pay for the other other running costs…including player signings.

One reason why West Brom’s wages to income ratio has fallen is due to a variant of Financial Fair Play (FFP) called Short Term Cost Control (STCC). This restricts wage growth to £7 million a season plus any money the club generates itself from matchday and commercial sales. For a club such as West Brom this gives a significant challenge.

Under the new ownership of the club, the highest paid director has taken a significant reduction in pay. Under the former regime this person, presumably the CEO, was earning over a million pounds per year. This fell to ‘only’ £181,000 in 2016/17.

In February 2018 the club however sacked the CEO and the chairman. The following month the new CEO, Mark Jenkins, claimed to be ‘shocked’ at the state of the club’s finances, especially in relation to wages.

Amortisation (skip this bit unless you want a quick and dirty accounting lecture) is how clubs deal with transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract. Therefore, when West Brom signed Jay Rodriquez for £12 million from Southampton on a 4-year deal, the amortisation charge works out as £3 million a year (£12/4). The amortisation fee in the profit and loss account includes all players who have been signed for a fee (assuming they are still in their initial contract).

West Brom’s amortisation total of £17 million is 30% higher than the previous season, and over five times the figure of 2013. It shows that the club decided in 2014/15 to invest more significantly in players, signing the likes of Ideye, Livermore, Chester, Rondon and Chadli for £10million plus fees.

However, compared to the rest of the division, West Brom are relative paupers. Their amortisation charge for 2016/17 was by far the lowest in the Premier League.

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The danger of such an approach is that by trying to survive in the Premier League by spending less on players may be successful in the short term, it is likely to drag the club down over a longer period. The West Brom hierarchy may point out that they finished a creditable 10th in 2016/17 and thought they could repeat the success with a lack of investment in players but the club is playing with fire taking such an approach.

Profits and losses

Profits are income less costs. West Brom made record profits before player sales in 2016/17 of £26.7million

This was mainly due to the club only spending £5 million of the extra £40 million TV money on wages. The previous season, when West Brom finished 14th in the Premier League, the club loss £100,000 a week.

After a long period of time in which nearly all clubs were loss making, partially due to Alan Sugar’s ‘prune juice’ effect, where any increases in TV income went straight through the club into player wages, the Premier League is now far more lucrative.

West Brom had the sixth highest profit in the Premier League using this measure, but it does perhaps suggest once again that the club was setting itself up for a fall by not investing in players.

If you strip out the impact of player amortisation and depreciation (the cost of the stadium and training facilities spread over several years, then another profit measure, called EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) arises. This is popular with analysts looking at businesses as it is the nearest thing they can find to a sustainable cash equivalent of profit.

Once again West Brom did well here, comfortably mid table.

Under Financial Fair Play (FFP) rules, Premier League clubs can make a maximum FFP loss of £105 million over three years. West Brom clearly have little to fear in this regard. In the Championship the club will be allowed to have lost £83 million in the three years to 2018/19 if they are relegated.

Player trading

Accounting for player trading is a financial quagmire. We’ve already shown that when a player is signed, his transfer fee is spread over the life of the contract. When the player is sold, the profit, which is based on the player’s accounting rather than market value, is shown immediately in the profit and loss account.

This creates erratic and volatile figures in the profit and loss account, so these are best separated out from the rest of the financial results.

If we instead focus on the actual purchase and sales, West Brom have the following figures:

The above table shows that over the last five years West Brom have bought players for £96.3 million and generated sales of £44.2 million, a net cost of £52.1 million over the period.

West Brom’s spending in 2016/17 was a record sum for the club, but pales into insignificance in relation to the big Manchester and London clubs. By being the fourth lowest spender on signings in the division and regularly being towards the bottom of the table in this regard for many years it means that the club cannot afford too many poor signings if they are to stay in the Premier League.

The club then spent a further £41 million in 2017/18, but this has not been enough to prevent a dismal season, under first of all Tony Pulis, the man who was accused of fraudulent behaviour at his previous club Crystal Palace https://www.telegraph.co.uk/football/2016/11/28/tony-pulis-accused-fraudulent-behaviour-high-court-judgment/ and was accused of trying to blackmail the owner of Gillingham when he was manager there. https://www.theguardian.com/football/2001/apr/27/newsstory.sport1

Pulis was replaced by Alan Pardew, whose name is an anagram of Warped Anal.

Under Pardew West Brom only had one victory, against a very poor Brighton, in eighteen games in charge.

Debts to and from the club

West Brom didn’t sell many players before the 2017/18 window, and so were only owed £13.4 million by other clubs for players at 30 June 2017.

The club did owe other clubs nearly £23.4 million for player transfers, but this is chicken feed compared to the likes of Manchester United who owe over £180 million.

Perhaps more importantly the club is debt free, with no borrowings from either banks or the club owners. The owners have not put any money into the club though for many years, but the club still had nearly £40 million in the bank at 30 June 2017.

Summary

West Brom have shown that a club can survive for many years in the Premier League on a relatively modest wage bill.

They have had a strategy, which to be fair has worked for many years, of spending less on transfers than their peer group. It now, unless Darren Moore can pull off the greatest escape of all time, as if this approach has finally caught up with them. At the start of each season they have been in the dozen or so clubs who ‘could’ get relegated for some time, and this looks like being the season when gravity finally wins.

Data Set

Burnley: Your name’s not down, you’re not coming in

As The Notsensibles are one of our favourite bands, it’s time to take a look at the financies of Burnley as the club celebrated their most successful season to date in the Premier League in 2016/17 by finishing six points above the drop and have since used this as a springboard to be presently challenging for a European place.

The club, along with manager Sean Dyche and the players, don’t get the credit they deserve for winning matches and playing decent football, with too many critics lazily linking Dyche’s nightclub bouncer dress code, Dalek like voice to a club with the ethos of a slightly upmarket Wimbledon of the Crazy Gang era.

There are three companies involved in the running of Burnley

(a) The Burnley Football and Athletic Company, formed in 1897, runs the club’s day to day operations.

(b) Longside Properties Limited, which appears to own Turf Moor and rent it to the football club.

(c) Burnley FC Holdings Limited, which owns 100% of the shares of both the above companies, and which forms the basis for this analysis.

Executive summary of key figures (Burnley FC Holdings Limited)

Income £121.2 million (up 203%)

Broadcasting income £105 million (up 254%)

Wages £61.2 million (up 126%)

Profit before player sales £26.0 million (Loss of £3.6 million in 2016)

Player purchases £42.8 million (£21.9 million in 2016)

Player sales £1.8 million

Borrowings: None

Income

Burnley have bounced between the top two divisions in recent years, with three promotions and two relegations since 2009, and this is reflected in their volatile income levels.

Burnley have been beneficiaries of either Premier League membership or parachute payments since 2010, and the sharp spikes in income in 2010, 2015 and 2017 represent the years in which they have been in the top flight.

Although it tripled in 2016/17, Burnley’s overall income was the second lowest of Premier League teams last season. Talk to a Lancastrian, and they will tell you it’s not about how much money you earn, but spending it wisely that matters, and The Clarets have wasted little and added strength to their team after surviving last season.

Eighteen clubs who were in the Premier League last season have reported their results to date. Only car crash Sunderland, probably too busy setting the club coach’s sat nav to Accrington, and small London outfit Crystal Palace have failed to do so.

All Premier League clubs are reporting higher income for 2016/17 than in the previous season. The average income of the 18 clubs that have reported to date is £239 million, up 31% from £182 million the previous season. The average in the Championship is just £28.6 million.

Burnley therefore earned half of the average income in the division, such is the way that money is skewed towards the ‘Big Six’ in the Premier League of Manchester United and City, Liverpool, Arsenal and Spurs (even though the latter haven’t won the title for nearly 60 years).

The main reason for the increase in overall income in the Premier League for 2016/17 was the new Sky/BT domestic TV deal, worth £5.1 billion over three seasons.

The Premier League divide money into five pots. Three of the pots cover the domestic TV deal, and they are split 50% evenly, 25% based on the number of TV appearances (every club is guaranteed a minimum of ten of these) and 25% based on final league position. Each place up the table is worth just under £2 million.

Overseas broadcasting income and centrally agreed commercial deals are split evenly between the twenty clubs. This arrangement is likely to come under fire in the summer as the ‘Bix Six’ want to grab a bigger slice of this pie for themselves. Their argument is that overseas TV fans would rather watch one of their clubs than that of a team such as Burnley, and so they ‘deserve’ more money.

Whilst this argument is true in terms of the number of viewers, it ignores the fact that the ‘Other 14’ can compete against most clubs in Europe apart from the elite for players (all 20 EPL clubs are in the top 35 richest in Europe) and thus can put up a decent performance against the Big Six.

This partly explains why Burnley won at Chelsea, Huddersfield beat Manchester United, Swansea beat Liverpool and many clubs have turned over Arsenal.

Like all clubs Burnley earn their income from three sources, matchday, broadcasting and commercial/sponsorship.

Matchday income increased by 17% to £5.8 million. This appears to be due to higher attendances (a 23% increase to 20,558) rather than increased ticket prices.

Matchday income was enough to pay Alexei Sanchez’s wages for three months and represents only represents 5% of the club’s total income.

Burnley had the second lowest matchday income total in the division, but still managed to be survive and thene thrive. This shows that size doesn’t necessarily matter, it’s what you do with it that counts (something I’ve been trying to persuade my slightly disappointed wife of for years).

Ticket prices seem to have fallen since Burnley’s last season in the Premier League, with matchday income averaging £284.27, about 10% lower than in 2015. This works out at £14.96 per match, which may surprise some Clarets, but remember this is the average of adults, seniors and kids, and is also net of VAT.

Broadcast income is the one most sensitive the division in which a club plays. Even though Burnley had the benefit of parachute payments in 2015/16, broadcast income still rocketed from £30 million to £105 million.

The present domestic deal lasts until 2018/19, so don’t expect to see Burnley increase their broadcast income until the following season, unless they significantly improve their final league position (likely, and finishing 7th will bring in an extra £18 million compared to finishing 16th) or qualifying for Europe, which is presently possible. Manchester United made £40 million from winning the Europa League in 2017.

Commercial income nearly doubled to £10.4 million, mainly due to the club signing a new shirt sponsorship deal with Dafabet worth £2.5 million a year.

Cost

The main costs at a football club are player related, wages and transfer fee amortisation.

Burnley’s wage expenditure last season is noticeably different to when they were promoted in 2013/14. To a certain extent Burnley budgeted for relegation in 2014/15, and duly went down. They were then in a very strong position to pay relatively high wages in the Championship in 2015/16, and were able to retain key squad members and recruit the likes of Joey Barton to help the club go up as champions.

This time Burnley substantially increased the wage bill, and it was enough to ensure the club stayed up.

Even though the wage bill more than doubled, Burnley had the lowest wage bill in the Premier League in 2016/17.

Burnley players are however unlikely to be seen selling copies of The Big Issue to make ends meet, even as the lowest payers in the division, wages average £29,422 a week.

The riches of the Premier League TV deal meant that Burnley only paid out £51 in wages for every £100 of income. The club’s strategy for 2015 is also highlighted here when it was only £37 in wages. In the Championship over half the clubs pay out more in wages than they generate in income, leaving club owners to pay the rest of the bills.

Amortisation (skip this bit unless you want a quick and dirty accounting lecture) is how clubs deal with transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract. Therefore, when Burnley signed Robbie Brady for £13 million from Norwich on a 3½ year deal, the amortisation charge works out as £3.7 million a year (£13/3.5). The amortisation fee in the profit and loss account includes all players who have been signed for a fee (assuming they are still in their initial contract).

Burnley’s amortisation total of £22 million is double that of the previous year, but also tellingly four times that of the club’s last Premier League season. This again suggests the club was using their 2014/15 season in that division as an ‘air shot’, effectively budgeting for relegation and anything other than that was a bonus.

Burnley’s total amortisation in 2016/17 but still one of the lowest in the division. This is partially due to the club’s recruitment of hardworking players such as Ashley Barnes for £300,000, who according to the bellend element of his former club Brighton, was only Sunday league standard.

Profits and losses

Profits are income less costs. Burnley made a lot of profit in 2016/17. This was lower than their previous season in the Premier League due to, as we have already seen, the Clarets in 2014/15 paying relatively low wages and spending little in the transfer market.

Operating profits are income less the running costs of the club (wages, maintenance, insurance, amortisation etc. and they are before deducting interest and promotion costs and player sale profits. In 2016/17 this worked out as £26 million, or £500,000 a week. The previous season the club lost £3.6 million, and this was before paying out over £13 million in promotion bonuses.

Under Financial Fair Play (FFP) rules, Premier League clubs can make a maximum FFP loss of £105 million over three years. Burnley clearly have little to fear in this regard.

Player trading

The accountants treat player trading in a weird way in the financials. We’ve already shown that when a player is signed, his transfer fee is spread over the life of the contract. When the player is sold, the profit is shown immediately, and it based on the player’s accounting value, not the original transfer fee.

This creates erratic and volatile figures in the profit and loss account.

If we instead focus on the actual purchase and sales, the following arises

The above table shows that over the last five years Burnley have bought players for £82.5 million and generated sales of £22.3 million, a net cost of £60.2 million over the period.

Burnley’s spending in 2016/17 was a record sum for the club, but pales into insignificance in relation to the big Manchester and London clubs.

Debts to and from the club

Burnley didn’t sell many players before the 2017/18 window, and so were only owed £1.7 million by other clubs for players at 30 June 2017.

The club did owe other clubs nearly £16 million for player transfers, but this is chicken feed compared to the likes of Manchester United who owe over £180 million.

Perhaps more importantly the club is debt free, with no borrowings from either banks or the club owners.

Summary

Burnley have shown that a club can match some of the bigger spenders in the division in terms of wages and player transfers, and still stay in the Premier League.

The way they have pushed on this season, through hard work and superb defending, gives hope to others within the ‘Other 14’. They are guaranteed another season in the top division and about £125 million in TV income this season, which Sean Dyche can use in the summer transfer market.

Unfashionable yes, underrated certainly, but they are in the top half of the division on merit, and with a potential European campaign to look forward to next season.

Based on the financials for 2016/17, the club is worth a total of about £350 million using the Markham Multivariate Model. This figure looks a little top heavy, but even so it shows the attraction of the Premier League to investors who might want to risk their money in a club that looks after the pennies and can still win plenty of matches.

Data Set

Huddersfield Town: The Model

Must confess to having a huge soft spot for Yorkshire’s leading football club, Huddersfield Town. The locals are friendly, one of their fans runs the funniest football website on t’internet in http://www.htfc-world.com/ , they sell any remaining pies and burgers for £1 at the end of matches to fans, the club is owned by a local lad who clearly loves his club (and isn’t a Billy Bigbollocks), they are not managed by Neil Warnock AND they were promoted last season on merit, relatively under the radar. Did they achieve promotion last season on a shoestring or is that a Yorkshire myth? Let’s look…

Summary of key figures (Huddersfield Town Association Football Club Limited

Income £15.8 million (up 40%)

Broadcasting income £7.5 million (up 54%)

Wages £16.5 million (up 32%)

Loss before player sales £9.0 million (up 7%)

Player purchases £6.6 million

Player sales £1.3 million

Borrowings £53.1 million (Thanks to Uncle Dean!)

Final Position: Promoted via the playoffs to the Premier League.

Income

In the Championship there is effectively two divisions, effectively split between those clubs that do and do not receive parachute payments.

Huddersfield’s overall income was in the bottom quarter of Championship teams in 2016/17. Talk to a Yorkshireman, and they will tell you it’s not about spending money, but spending it wisely that matters, and the Terriers are a textbook example of how to do just that.

The above tables shows the income of all Championship clubs apart from  Newcastle (surely Mike Ashley has nothing to hide?) for 2016/17.

Additionally Barnsley are a pain in the butt as they used a legal loophole to avoid showing their profit and loss account (although they did make a profit of over £10 million last season, mainly due to the sell on clause when John Stones was sold by Everton to Manchester City).

Most clubs are showing higher income than in the previous season. The average income of the 22 clubs that have reported to date is £28.6 million. This compares to an average of £22.9 million the previous season.

Huddersfield therefore were promoted despite earning just over half of the average income for a club in the division, which is an incredible achievement.

The main reason for the increase in overall income in the Championship is due to a combination of higher parachute payments, a new TV deal in the Premier League, which drips down to the Championship in what are called ‘Solidarity Payments and having ‘big’ clubs in the shape of Newcastle and Villa relegated from the Premier League.

Championship clubs earn about £4.3 million a year from solidarity payments, plus their earnings from the Football League TV deal which are worth a minimum of a further £2 million. Championship clubs also pick up £100,000 for each home game broadcast on Sky, and £10,000 for each away game.

The English Football League (EFL) negotiated a flat percentage of all future TV deals with the Premier League (PL) a couple of years ago. This at the time seemed to be a great deal, but subsequently the PL sold its domestic rights for 10% less in 2019-22 than the current three-year arrangement generates.

Like all clubs Huddersfield earn their income from three sources, matchday, broadcasting and commercial/sponsorship.

Huddersfield therefore had the fourth lowest (probably the fifth if the miserable sods at Barnsley had the decency to show the figures) matchday income total in the division, but still managed to be promoted. Which shows that size doesn’t’ necessarily matter, it’s what you do with it that counts (something I’ve been trying to persuade my slightly disappointed wife to buy into for years).

Despite a playoff match at home and a Wembley appearance, there was no change to Town’s matchday income for the season. This was due to a combination of low ticket prices which contributed to average attendances rising to over 20,000, and the club keeping with the tradition of giving their share of the Wembley receipts to the losing playoff team, in this case the division’s dullest club Reading. This also explains why Reading’s matchday income increased by 86% in 2016/17.

The decision by chairman Dean Hoyle to cut ticket prices meant that the club only generated £155 per fan for the season, or £6.73 per match.

Hoyle’s benevolence contrasts with clubs such as Spurs, who next season will be charging a minimum price for a season ticket of £799 and an average price of about £1051 to watch the club at the ‘new’ White Hart Lane.

Town’s broadcast income was up 41% to £7.9 million. The baseline figure for clubs in the Championship is about £6.3 million, plus an additional £100,000 for every home, and £10,000 for every away game that is broadcast live on Sky. A combination of some local derby games, making the playoffs and attractive football meant that Huddersfield were popular with Sky in 2016/17

The impact of parachute payments for the top six clubs in the chart is very evident. Recently relegated Norwich earned £6.80 from broadcasting for every pound earned by Huddersfield.

Huddersfield’s commercial income rose by an impressive 57% to £5.2 million. The combination of higher matchday attendances and the club’s high league position helped when negotiating deals with commercial partners.

Costs

The main costs at a football club are player related, wages and transfer fee amortisation (accounting nerd alert!).

After years of relative caution, wages increased by over 30% in 2016/17. This was due to a combination of better players on better contracts, as well as having to pay win bonuses more regularly than in prior years.

The club’s basic wage bill was one of the lowest in the division.

On top of the wage bill shown above, the club also paid out £11.9 million in ‘promotion costs’ at the end of the season. Most of this cost will be bonuses (thoroughly deserved in our view) to David Wagner and his squad for the trememdous achievement in reaching the ‘promised land’ ( © All Lazy Journalists and Radio Five Live professional twat Alan Green).

Whilst Town’s basic wage bill is low by Championship standards (the average was £26.4 million in 2016/17), they still managed to pay out £104 in wages for every £100 of income during the season, and have had wages bills that exceeded income for many years.

If we factor in promotion bonuses too, then the club paid out £180 in wages for every £100 of income in 2016/17, a price all Town fans will no doubt will say was worth paying (especially as it was Dean Hoyle who paid it, the club paid out £899 in wages (including promotion bonuses) for every £100 of matchday income, or to put it another way, for every £1 in wages, the fans paid 11 pence directly).

Amortisation (skip this bit unless you want a quick and dirty accounting lecture) is how clubs deal with transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract.

Therefore, when Huddersfield signed Christopher Schindler, the German defender with the speech impediment in 2016 for a then record £1.8 million on a three year contract the amortisation charge was £600,000 a year for three years (£1.8m/3). Whilst not a huge fee by divisional standards he did help lift Town to the Premier League (you’re fired…Ed).

The amortisation fee in the profit and loss account includes all players who have been signed for a fee (assuming they are still in their initial contract).

Huddersfield’s total amortisation charge rise significantly in 2016/17 but was still one of the lowest in the division. This is partially due to the club’s excellent recruitment of loan players in the shape of Aaron Mooy and Izzy Brown, further evidence of being sensible with money instead of just spunking it away spending it for the sake of it, such as in the case of Aston Villa who spent over £80 million on players in 2016/17 and had a subsequent amortisation charge of nearly £24 million.

If the amortisation costs are added to wages, then total player costs (including bonuses) for Huddersfield in 2016/17 were £196 for every £100 of income. This shows that the cost of promotion is ridiculously high (it cost fellow promoted club Brighton £160 in player costs for every £100 of income) to get into the Premier League.

The other major cost for Town is that of the stadium. This is linked to the number of games paid and fans attending. In 2016/17 this was £875,000. The club are tenants until at least 2043, which is nearly a quarter to nine in old money.

Profits and losses

Profits (or more commonly for non-Premier League football clubs losses) are income less costs. The bad news for Huddersfield is that the club lost a lot of money last season from day to day trading.

The good news is that they were promoted, so who cares?

Operating losses are income less the running costs of the club (wages, maintenance, insurance, amortisation etc. and they are before deducting interest and promotion costs and player sale profits. In 2016/17 this worked out as £9 million, or £172,000 a week. This is 7% more than the previous season.

Selling players helps to cushion these losses, but there is no guarantee that this will take place on a regular basis.

The above chart shows that Town did well in 2013 in selling Jordan ‘Where’s the nearest branch of Greggs’ Rhodes to Blackburn in 2013 and Jacob Butterfield to Derby in 2016.

Under FFP rules, Championship clubs can make a maximum FFP loss of £39 million over three years in the Championship. Huddersfield have a pre-tax loss of just £28 million over the three-year period.

Additionally, some costs, such as promotion bonuses, infrastructure, academy and community schemes, are excluded from the FFP calculations. Huddersfield had a category two academy, which costs about £1.5 million a year to run according to our sources, so this, combined with other allowable costs and player sales, means that Huddersfield were well within the FFP limit for the three years ending June 2017.

Under Premier League FFP rules a club can lose £105 million over three years and still be within the limits. The good news for Town is it looks increasingly that they’ll be in the Premier League for at least two of those seasons.

Player trading

The accountants treat player trading in a weird way in the financials. We’ve already shown that when a player is signed, his transfer fee is spread over the life of the contract. When the player is sold, the profit is shown immediately, and it based on the player’s accounting value, not the original transfer fee.

This creates erratic and volatile figures in the profit and loss account.

If we instead focus on the actual purchase and sales, the following arises

The above table shows that over the last five years Huddersfield have bought players for £15.7 million and generated sales of £19.8 million, a net income of £4.1 million over the period.

This allows Town fans to say one word to those who claim that you have to buy your way out of the Championship with player signings and high wages, and that one word is ‘bollocks’.

When you look at spending in the Championship in 2016/17, total spending was £356 million, and some clubs spent ten times as much as Town and did bog all apart from provide chuckles in relation to Ross McCormack, Aston Villa’s £12 million signing from Fulham, missing training because the fat fuck couldn’t be arsed his security gates wouldn’t work at his swanky new home in the Midlands.

Debts to and from the club

Town don’t show how much is owed in respect of player transfers, which is a shame. The club are owed £6.3 million, of which £2.5 million is for deferred tax (don’t ask), so there’s not a lot left for sums owing in relation to players.

Short terms creditors increased from £48 million to £75 million. The majority of this is owed to Dean Hoyle, who has lent the club nearly £53 million interest free, which qualifies him for ‘very nice man’ status in West Yorkshire, which is about as high as praise ever gets.

In addition, there’s a sum of £16 million for ‘other creditors’ which we suspect is in respect of player transfers such as Tom Ince. Huddersfield were quick out of the blocks in the summer 2017 and owed money for signings very early in the transfer window.

Summary

Huddersfield have shown that a club can beat the big spenders in the division in terms of players transfers and wages. In doing so they give hope to others in a similar position compared to the wealthy in the Championship. The promise of £100 million a year in broadcast income causes some club owners to lose touch with reality in terms of trying to buy their way to the (ahem) Promised Land.

At the same time, they have been subsidised by the owner in recent years as the income generated hasn’t been enough to even pay the wages over the last five seasons, which highlights the impossible task of trying to achieve promotion whilst breaking even

Their biggest strength is also their biggest weakness. Dean Hoyle has put over £50 million into the club, and whilst Town won’t need his further support whilst in the Premier League, if they ever returned to the lower divisions we suspect they would struggle financially once parachute payments ran out. Provided nothing happens to DH there’s no problem, but if any Town fans see him about to cross the road, get out of the car and stop traffic until he’s reached the other side, you don’t want anything happening to him.

Data Set

Derby County: Respectable?

If we have one pet hate here at the Price of Football it’s clubs who announce their results on the club website via a press release, but don’t publish them. Such behaviour usually is accompanied by a greatest hits tour of many impressive increases in some key financial figures, but not all the information is disclosed. The local newspaper writes up the press release in good faith, and the fans swallow the narrative as dictated by the club.

The club relies on everyone then losing interest in the finances (and rightly so, we don’t love our clubs because of their balance sheets after all) and later the accounts are sent to Companies House, but no one shows any interest is them, apart from saddo blog writers.

A textbook example of this is what has happened at Derby County in their financial year ended 30 June 2017.

Their press release showed the results of the club for the year but failed to include that about 100 employees appear to have been transferred to different companies, so the comments on the wage bill, whilst being legally correct, were at best disingenuous, and certainly misleading if you were trying to compare like to like.

What the press release failed to mention was the activities of Derby’s parent company, the snappily named SevCo 5112, which now controls the club’s academy, catering and communications activities via newly created companies.

It’s a bit like me telling the wife I’ve been out for an evening for the lads for a few pints and a curry but omitting to mention the £500 of gambling losses at a local casino and the two lost hours in a cocaine and hooker related orgy.

To make murky matters even murkier, SevCo’s accounts only cover 10 months in 2016/17, instead of a full year. Perfectly legal, and no doubt there’s a logical reason for this to be done, but it muddies the waters further.

Summary of key figures (Derby County Football Club Ltd)

Income £28.7 million (up 29%)

Broadcasting income £7.9 million (up 41%)

Wages £34.6 million (up 4%)…or should it be an annualised £39.8 million, up 12% (Sevco 5112)?

Loss before player sales £23.3 million (down 15%)

Player purchases £21.2 million

Player sales £23.2 million

Borrowings £143.7 million (SevCo)

Income

In the Championship the amount of total income is effectively split between those clubs that do and do not receive parachute payments.

Derby’s overall income was the third highest for a non-parachute payment receiving club. but this was not enough to get the club into a playoff position, although Brighton and Huddersfield, both of whom were not in receipt of parachute payments, were promoted, and Sheffield Wednesday made the playoffs.

Only Newcastle (surely Mike Ashley has nothing to hide?) and recently sold Barnsley have yet to announce their results for 2016/17. Most clubs are showing higher income than in the previous season. The average income of the 22 clubs that have reported to date is £28.6 million. This compares to an average of £22.9 million the previous season.

The main reason for the increase in overall income is due to a combination of higher parachute payments, a new TV deal in the Premier League, which drips down to the Championship in what are called ‘Solidarity Payments. Championship clubs earn about £4.3 million a year from solidarity payments, plus their earnings from the Football League TV deal which are worth a minimum of a further £2 million. Championship clubs also pick up £100,000 for each home game broadcast on Sky, and £10,000 for each away game.

The English Football League (EFL) negotiated a flat percentage of all future TV deals with the Premier League (PL) a couple of years ago. This at the time seemed to be a great deal, but subsequently the PL sold its domestic rights for 10% less in 2019-22 than the current three-year arrangement generates.

Like all clubs Derby earn their income from three sources, matchday, broadcasting and commercial/sponsorship.

Derby have shown growth in the all three income areas, but to give some context, their total income of £29 million is still nearly £20 million less than their final season in the Premier League in 2003/4, when income was £48.6 million.

Matchday income in 2016/17 was up 4.5%. Initially the club stated that average attendances for 2016/17 were an impressive 29,085, just, 2% lower than the previous season when the club were knocked out in the playoffs.

A recent press release contradicts the initial attendance figures, and the average figure for 2016/17 is restated at 27,885. Presumably the club either increased ticket prices in 2016/17 or had more hospitality tickets sold.

The club’s attendances have been healthy for the last few years, but it appears that they have increased ticket prices during that period. If the attendance figures are to be believed the club made £311 per fan from matchday receipts, not a rip-off figure, but it has increased by over a third in the last five years.

Derby therefore had the seventh largest matchday income total in the division, although we anticipate this falling to eigth when Newcashley United finally publish their results.

Broadcast income was up 41% to £7.9 million. The baseline figure for clubs in the Championship is about £6.3 million, plus an additional £100,000 for every home, and £10,000 for every away game that is broadcast live on Sky. Derby are always popular with Sky as they generate decent viewing figures.

The impact of parachute payments for the top six clubs in the chart is very evident. Recently relegated Norwich earned £7.50 from broadcasting for every £1 earned by non-parachute payment clubs.

Derby’s commercial income rose by an impressive 44% to £12.4 million. This heading covers a multitude of activities, which to be fair to club they have laid out in the accounts well.

Some figures do cause eyebrows to raise. Merchandising is the same as the previous season, sponsorship increased by £2 million apparently due to a joint venture with a company called Delaware North Companies UK Limited who operate hospitality for the club, and another company called Stadia DCFC Limited to ‘monetise sponsorship, social media and non EFL TV rights’.

What seems strange is if these new companies were set up, why is the football club taking credit for the revenue from these sources?

Costs

The main costs at a football club are player related, wages and transfer fee amortisation. Here things get confusing.

According to the football club accounts, wages increased by a relatively modest 4% to £34.6 million in 2016/17. Immediately after the wage note is a table that summarises the number of employees.

On the face of it the club has either made redundant, or has had resignations from, 99 employees in 2016/17. Most noticeably is the reduction in players and apprentices, until a trawl through Companies House reveals the existence of a company called Derby County Academy Limited, created in May 2016. The contracts of the apprentices and youth coaches etc. have been transferred to this new company. Perfectly legal, but it makes a mockery of the club’s press announcement that wages rose by 3.4% if so many former employees are now working for another company in the group.

Derby County Academy Limited take advantage of a legal loophole to avoid showing that company’s income, wage bill and employment totals, so we therefore scrutinised the accounts of parent company SevCo 5112.

It therefore seems that SevCo 5112, which owns the Academy, Sponsorship and Stadium companies as well as Derby County Football Club Limited has expanded operations, and that’s great, job creation is to be applauded.

SevCo 5112’s wage bill decreased in 2016/17, but the accounts only cover a ten-month period. If the wage total is extrapolated for a year it works out

SevCo 5112’s wage bill decreased in 2016/17, but the accounts only cover a ten-month period. If the wage total is extrapolated for a year it works out as £39.8 million, which is an increase of 12%. There’s nothing wrong with this, you would expect wages to increase if there are more people employed after all. It’s the lack of transparency from the club’s press release that concerns us when it stated…

What the club have said is true in relation to Derby County Football Club Limited, but it is also incomplete. If the club is incomplete in relation to this issue, it begs the question are there other key activities and transactions that it would rather not disclose in the press release, which instead focussed on the far more entertaining and salacious tale of the club suing a former executive, who in turn is counterclaiming against the club.

It’s therefore tricky to get a true handle on what has happened in terms of wages at Derby. If we use the SevCo totals, then the following trend arises.

Wages at the overall operation therefore seem to have trebled over the last five years. This shows a commitment to investing in players who will be of the calibre to help the club achieve promotion.

SevCo 5112 paid out £137 in wages for every £100 in income, which is effectively why Mel Morris says the wage bill in unsustainable. Derby are not along though in paying out wages that would not be tolerated in other lines of business, over half the clubs in the Championship pay out more money in wages than they generate in income. This is under the auspices of Financial Fair Play (FFP). It is scary to think what would happen if FFP didn’t exist.

Amortisation is how clubs deal with transfer fees in the profit and loss account. For most clubs when a player signs for a club the transfer fee is spread over the life of the contract. Therefore, when Derby signed Matej Vydra from Watford for a record £8 million on a four year contract the amortisation charge would normally be  £2 million a year for four years (£8m/4). The amortisation fee in the profit and loss account therefore includes all players who have been signed for a fee (assuming they are still in their initial contract).

Derby’s total amortisation charge has risen steadily in recent years, reflecting the brakes slowly being removed from the transfer budget. They are in the top half of the division in relation to this cost, but some way behind clubs with parachute payments.

If the amortisation costs are added to wages, then total player costs for Derby in 2016/17 were £152 for every £100 of income. This again suggests the club is relatively ambitious in terms of spending whatever it takes in terms of player investment to get back into the Premier League.

We then however come to ‘The Derby Way’ ((c) Mel Morris). Derby’s amortisation charge is based on (cost-residual value)/contract length. It looks as if Derby have managed to reduce their amortisation charges each year by allocating what is called a ‘residual value’ to players. This is an estimate of their  market worth of players when they are no longer required.

The problem with this (and here we enter accounting nerd territory) is that this appears to go against the accounting rules, which state that the residual value should be zero unless certain conditions apply.

Unless Derby can show that they have commitment by third parties (i.e. other clubs) to buy players a year or two in advance then clause (a) does not apply.

Football players do not seem to fall into the realm of being in an active market either because they are not homogenous (i.e. identical) as Tom Ince is different to Bradley Johnson ,  and there are not willing buyers and sellers at any time so Derby appear to be in breach of the rules.

Should anyone care about this? Well…by applying residual values it allows Derby to effectively increase or decrease the annual amortisation charge, and this could have an impact on FFP compliance.

Derby’s amortisation charge as a proportion of player costs is lower than that of any club in the Championship. If they have a lower cost here…then they have a higher profit figure.

Over a long period of time figures even themselves out, but by adopting such a policy, which appears to be in breach of accounting rules too, Derby have the ability to increase or decrease losses in individual years to satisfy FFP…that doesn’t mean they have done it though!

Profits and losses

Profits (or more commonly for non-Premier League football clubs losses) are income less costs. The bad news for Derby is that the club lost a lot of money last season from day to day trading.

The good news is that they managed to sell Hendrick, Ince and Hughes, which brought in a profit of nearly £16.2 million, which offset the operating losses.

Operating losses are income less the running costs of the club (wages, maintenance, insurance, amortisation etc. and they are before deducting interest costs and player sale profits. In 2016/17 this worked out as £23.3 million, or £448,000 a week. This is £4.5 million lower than the previous season but remember this excluded the wage bill for the 99 employees whose contracts appear to have been transferred to other companies. are now still a lot of money to find on a regular basis.

If we look at SevCo’s profit and loss account for the ten months to June 2017, this shows an operating loss of £27.7 million, which works out as £630,000 a week. If this was extended to twelve months, it would work out at £32.7 million

Their total operating losses for the last five seasons of Derby/SevCo are over £87 million, and this excludes one off costs of £6.4 million during that period too.

Fortunately for Derby the sales of Ince, Hughes and Hendrick cushioned the financial blow to an extent (although Derby fans would probably rather have kept their best players).

The sale of Tom Ince raises another eyebrow. The sale was announced on 4 July 2017, but Derby’s profit and loss account ended on 30 June 2017.

https://www.derbytelegraph.co.uk/sport/football/transfer-news/highest-transfer-fees-received-derby-168528

The sale of Will Hughes took place on 21 June, which suggests the club was keen to dispose of both players to reduce their stated losses.

Derby have struggled to sell players on a regular basis at a profit historically, which suggest poor recruitment, but 2016/17 was a huge improvement.

If the club fail to be promoted this season via the playoffs (and we hope they are successful, on the grounds that they are not managed by Neil Warnock), expect to see interest in Vydra after his spectacular goal scoring record in 2017/18.

Under FFP rules, Championship clubs can make a maximum FFP loss of £39 million over three years in the Championship. Derby have a pre-tax loss of just £33 million over the three-year period, helped by profits on player sales and £12 of income from some accounting sleight of hand in 2016 that we expect will be disallowed for FFP purposes.

Additionally, some costs, such as infrastructure, academy and community schemes, are excluded from the FFP calculations. Derby have a category one academy, which costs about £5-6 million a year to run according to our sources, so this, combined with other allowable costs and player sales, means that Derby are within the FFP limit for the three years ending June 2017.

Player trading

The accountants treat player trading in a weird way in the financials. We’ve already shown that when a player is signed, his transfer fee is spread over the life of the contract. When the player is sold, the profit is shown immediately, and it based on the player’s accounting value, not the original transfer fee.

This creates erratic and volatile figures in the profit and loss account.

If we instead focus on the actual purchase and sales, the following arises

Over the last five years Derby have bought players for £65.1 million and generated sales of £26.3 million.

If Derby are promoted to the Premier League there are additional transfer fees and player bonuses of £16.6 million.

Debts to and from the club

The best way to look at Derby’s debts is to focus on the accounts of SevCo 5112 Ltd in conjunction with those of the football club.

The easy bit is player transfers, where the club is owed £20.4 million for players sold (likely to be for the players we have mentioned before) and owe other clubs about £17.2 million.

The football club is owed £13.7 million from ‘group undertakings’. Our suspicion is that Derby County Football Club Limited is still paying the wages and costs of the new companies that have been set up when employees were transferred to these new entities. This is because the likes of the academy generate no/little income themselves to pay the bills (we’d like to be able to prove this, but the academy company also takes advantage of a legal loophole to avoid showing its profit and loss account).

SevCo 5112 owed Mel Morris over £95 million at 30 June 2017, and he’s subsequently given them a further £21 million to keep them afloat since that date. This appears to be interest free, which is good to see. Gold and Sullivan at West Ham charge interest of 4-6% on their loans.

SevCo have other loans of about £45 million on top of Mel Morris’s generosity.

SevCo has received £161 million since 2015 from investors in the form of loans and shares.

Group Structure

If anyone is still reading this, things are about to get a bit messy in terms of the corporate structure of the club in recent years.

In the beginning there was God (also known as Brian Clough to Rams fans) and all of Derby County’s finances could logically be found in the accounts of Derby County Football Club Limited. This company was founded in 1896, and every year produced its results, which showed the finances of the club completely.

In 2008 the club was purchased by American based General Sports and Investment, who ran Derby through a company called Gellaw 101 Limited, which in turn was owned by Global Derby (UK) Limited. This had relatively little impact on the accounts of Derby County Football Club Limited as the other companies effectively didn’t trade.

Global Derby (UK)

Getlaw 101 Ltd

Derby County Football Club Ltd

Derby County Football Club Limited was then purchased by Mel Morris in September 2015 via the delightfully named Sevco 5112 Limited. The accounts for 2015/16 for Derby County Football Club seemed in line with the previous season in terms of all the figures.

However, and this is where things get a real pain, some new companies were set up by SevCo 5112 Ltd, which is perfectly reasonably, as similar things happen at other clubs, and included the likes of:

Club DCFC Limited (events and catering)

Stadia DCFC Limited (sports and broadcasting)

The Derby County FC Academy Ltd (academy)

It looks as if these new companies have costs in the form of employees and running expenses, but generate little income themselves, as this seems to go through the books of Derby County Football Club Limited. Perfectly legal, but it all comes out in the wash when looking at the accounts of SevCo 5112 Limited. It’s just a shame that this is ignored in the press release and by the local media, who perhaps (a) couldn’t care loss as they are Rams fans who just want to see the club promoted and/or (b) don’t want to upset the club by sticking their noses in as fear being denied access for interviews, as happened at Middlesbrough this season.

The Gazette refuses press passes for Middlesbrough FC home matches as stand-off over club’s ‘ban’ on two of its reporters continues

Summary

Derby have invested heavily in players in the past couple of seasons and have a decent chance of promotion via the playoffs. Mel Morris has backed managers in the transfer market, but by his own admission this cannot continue indefinitely.

The attempt to control the narrative by not releasing the full accounts for the club and the holding company in the press release does the club’s reputation no favours. People can only make informed decisions and judgement when given full information.

Data Set

Note: The wages for 2017 are for SevCo 5112 annualised.