Stoke City 2018: Coat(es) of many colours

Does my bum look big in this?

Introduction:

There’s not a huge number of famous people from Stoke, Stanley Matthews and Robbie Williams come to mind, but then most people may be struggling.

Recent events have brought one person to the public’s attention, and that’s Denise Coates, the main shareholder in Bet365, who own 100% of Stoke City Football Club Limited’s shares.

She was paid £220 million in 2017/18, a record for a private company, which will come as little cheer to Stoke City fans as their club was relegated from the Premier League.

The club was one of the first to publish its financial results for 2017/18.

Key figures for year to 31 May 2018: Stoke City Football Club Ltd

Income £127.2 million (down 7%).

Wages £94.2 million (up 11%) .

Operating losses £30.2 million (up 35.1 million)

Player signings £58.4 million

Player sales £27.9 million

Coates family investment £123 million (up £47 million).

Income:

All clubs generate money from three main sources, matchday, broadcasting and commercial. The Premier League is effectively split into the elite, who are regulars in UEFA competitions and have global fanbases who can be ‘monetised, and the remainder of upstarts, wannabes and those just enjoying the ride.

Stoke City are one of the earliest clubs to publish their finances for 2017/18, so the figures in the Premier League tables are from 2016/17 unless the club is labelled 2018.

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Stoke’s total income is where most fans would probably expect it to be, in amongst a group of clubs who are likely to be scrapping for relegation during the season, but not adrift from that particular bunch.

A screenshot of a cell phone Description automatically generated Matchday income from ticket sales rose slightly to £7.7 million. This was partly due to some ground redevelopment that allowed the club to increase capacity at the Britannia Bet365 stadium to over 30,000. .

Broadcasting income fell 7% to £101 million. This was due to Stoke finishing 19th in the table compared to 13th the previous season. Each position in the table is worth about £1.9 million to a club, so giving them plenty to play for even if relegated is avoided with the few matches remaining at the end of the season. The fact that one place higher up a table is worth more to a club such as Stoke than increasing capacity by 1,800 shows how skewed revenue is in favour of broadcast income.

For 2018/19 expect broadcasting income to fall to about £45 million, and if the club are not promoted, £35m and £14m in the two following seasons. The EFL broadcasting deal for clubs presently pays £2.3 million a season in the Championship, and in addition clubs receive £4.5 million from the Premier League deal in what is called ‘solidarity’ payments.

Other income, mainly commercial and retail, fell by 8% to £18.6 million. Those who snipe at Stoke due to their relationship with owners/sponsors Bet365 will point to this sum being inflated. Whilst Stoke are perhaps a wee bit further up the table in this area than one would expect, it’s by a relatively small amount, compared to the more eye-watering deals signed by clubs with friends of their owners less than 50 miles away.

Costs:

The main costs for a club are in relation to players, in the form of wages and transfer fee amortisation.

The wage bill rose by over £9 million to £94 million. This was due to the club making a lot of signings (who failed to deliver) and a payoff for Mark Hughes when he was sacked in January.

As a consequence, the wage/income ratio rose significantly. Stoke paid out £74 in wages for every £100 of income. The rule of thumb in the Premier League is that clubs are usually aiming for a 60% target.

What’s concerning for Stoke is that if this high cost area is carried over to the Championship it could easily exceed 100%, leaving nothing to pay for the other overheads of running the club.

The other player related expense is that of transfer fee amortisation. This is the cost of signing a player spread over the length of his contract. So, when Stoke signed Kevin Wimmer for £18 million on a five-year contract this works out as an annual amortisation charge of £3.6 million a year (£18m/5years).

Stoke’s amortisation charge rose by 14%, reflecting the investment in the squad during the season. This also shows the inflated prices being demanded by selling clubs when dealing with the Premier League.

The advantage of focussing on amortisation instead of just looking at transfer fees is that it removes some of the volatility from making one big signing in a single year and shows the impact of the club’s long-term player signing strategy. It’s clear that Stoke City’s board backed Mark Hughes as the amortisation charge is now double that of three seasons ago.

Compared to other clubs of a similar size, Stoke’s amortisation cost is competitive without being spectacular. This suggests that relegation was down to spending money poorly, rather than not having a decent budget.

Directors pay

Much has been made of parent company Bet365 paying their board £330 million in 2017/18. That level of generosity doesn’t extend to the football club, but the £711,000 trousered by the highest paid executive at the club means that they are still able to buy a pack of oatcakes or two for a while.

Profits and Losses

Profits/losses are income less costs, and the headline figure was a £30.2 million loss last season, or £580,000 a week. This figure is distorted by a couple of factors though.

Following relegation, the club reviewed the squad and concluded that it was significantly overvalued. They therefore wrote off £29.4 million of player transfer fees. This is a one-off event that is unlikely to be repeated in 2018/19 unless the club does a Sunderland and slides through to League One. Stoke fans are likely to be able to point the fingers at those players who turned out to be turkeys.

One reason for doing this in 2017/18 is that by reducing player values in 2017/18 it will enable the club to be able to satisfy FFP rules in the Championship should they stay there for a few seasons.

Also, in 2017/18 Stoke sold players at a profit (Arnautovic being the main one) of £22 million. This is another erratic and unpredictable figure.

Since the end of the season the club has sold players at a profit of a further £14 million, the main one coming to mind being Shaqiri to Liverpool.

Stripping out the above two distortions gives something called EBIT (earnings before interest and tax) profit, which is a more balanced look at what recurring profits would be.

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This is a more alarming than the stated operating losses of £30.2 million. Whilst the club lost a similar amount in 2012/13, since then there have been two increases in EPL broadcasting rights, which boosted Stoke’s TV money from £46 to £100 million. The fact that the club has similar losses in 2018 indicates that a lot of money was wasted last season.

Player trading:

According to the accounts Stoke spent over £58 million in 2017/18 on player signings, a club record. This doesn’t necessarily buy you a lot in the present Premier League market though.

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Compared to their peer group, Stoke’s spending was reasonable but unspectacular. The figures reinforce the comments made by Charlie Adam that too many players weren’t prepared to fight hard enough for Premier League survival.

Since the end of the season the board have backed Gary Rowett, with £52 million being spent on new signings, which is a very high figure by Championship standards.

Funding the club

The Coates family total investment increase in 2017/18 as Bet365 invested a further £47 million in the club via loans. These loans realistically stand little chance of being repaid under present circumstances of the club losing so much money. The good news is that with Bet365 making a gross profit of £2.2 billion in the same period there is little chance of the company asking for its money back.

This takes his total investment to £159 million, in the form of shares and interest free loans.

Realistically, the Coates family will have to subsidise the club by a minimum of £10-20 million a year for the foreseeable future, unless promotion back to the Premier League is achieved. The Championship is a bear pit of a division, with practically every club losing hundreds of thousands every month.

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Conclusion

Stoke City are a textbook example of everything that is right and wrong with the Premier League. A good season is finishing in the top half, get a few signings wrong and you’re in a scrap to avoid the drop.

The good news for Stoke fans is that there’s no sign of the Coates’ affection for the club in the city where he made their fortune waning. The only threat could come if Bet365 were bought out by another company, but there is no sign of that happening.

The Championship is more exciting than the Premier League, if less glamourous, and provided the club remains competitive in the division there’s probably more enjoyment for fans once they get used to the regularity of Saturday followed by Tuesday football, with victories becoming more expectation than hope.

Bristol City 2017/18: Mezzanine

Introduction:

The insanity of life in the Championship chasing a place in ‘The Promised Land’ ((c) Alan Green and all other unimaginative commentators) is highlighted in Bristol City’s latest financial results.

City were 2nd in the table on 26th December 2017 but were slid to mid table by the end of the season, and with that had to disassemble the squad as the vultures came picking off their best players.

Key figures for year to 30 June 18: Bristol City Holdings Ltd

Income £25.2 million (up 19%).

Wages £27.3 million (up 30%) .

Losses before player sales £24.2 million (up 26%)

Player signings £12 million

Player sales £1.8 million

Steve Lansdown investment £137 million (up £19 million).

The club are owned by Pula Sports Limited, a company based in the tax haven of Guernsey. Pula Sports Limited also own Bristol Rugby club and Bristol Flyers basketball team.

Pula are owned by Steve Lansdown, a very successful accountant and businessman, half of Hargreaves Lansdown, the £8 billion plus valued financial services company.

Income:

All clubs generate money from three sources, matchday, broadcasting and commercial. What separates out the Championship from other league is the impact of parachute payments from clubs who were previously members of the Premier League (EPL).

Total income for the season was £25.2 million. To put this in context, the three clubs relegated from the Premier League, Hull, Middlesbrough and Sunderland, each earned over £40 million in parachute payments.

City are one of the earliest clubs to publish their finances for 2017/18, so the figures in the Championship table are from 2016/17 unless labelled 2018.

As far as Championship clubs go, Bristol City are competitive with other clubs not in receipt of parachute payments.

Strip out the parachute payments and City rise to 7th in the income table.

Football clubs generate cash from three main sources, matchday, broadcasting and commercial.

Since 2013/14 City’s income has quadrupled, but this hasn’t been enough to stem the losses.

Matchday income from ticket sales rose a third to £6.6 million. This was due to attendances at Ashton Gate increasing 9% from 19,256 to 20,953, but a good cup run added some lucrative fixtures. .

Broadcasting income rose 14% to 6.8million. This was due to the ‘solidarity payment’ paid by the Premier League to the English Football League increasing from £4.3 million to £4.5 million as well as some of the cup matches being shown live on Sky.

Other income, mainly commercial and retail, rose by an impressive 15%. This is mainly due to the completed development of Ashton Gate, the stadium that City share with Bristol Rugby Club.

Additional facilities allow the club to generate extra money from hospitality, conferences, catering etc, and allows the club to be open for more than the 25-30 days a year when home fixtures take place.

Costs:

The main costs for a club are in relation to players, and come in the form of wages and player amortisation.

Wages in total rose by 30% to £27.3 million and have more than doubled since promotion in 2015. The wage/income ratio for City rose to 108%. This means Bristol City paid out £108 in wages for every £100 they generated from revenue, leaving nothing to pay any of the other running costs, unless these are bankrolled by the owner, Steve Lansdown.

This of course leaves effectively nothing to pay for all the other overheads of the club, such as ground maintenance, heat and light, HR, finance and so on.

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In the Championship as a whole, this puts the club slightly lower than the average wage level for 2016/17 of £29.8 million, and a wage/income level of 100% for the division as a whole.

The other player related expense is that of player amortisation. This is the cost of signing a player spread over the length of his contract. So, when City signed Famara Diedhiou for £5 million on a four-year contract this works out as an annual amortisation charge of £1.25 million a year (£5m/4yrs).

City’s amortisation charge rose by 160% to £5.2 million compared to the previous season.

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The advantage of focussing on amortisation instead of just looking at transfer fees is that it removes some of the volatility from making one big signing in a single year and shows the impact of the club’s long-term player signing strategy. It’s clear that Bristol City’s board have backed the manager to ‘go for it’ to an extent over the last two years, as the amortisation charge is now five times the sum of when the club was in League One.

Other costs:

After spending a lot of money in recent years redeveloping Ashton Gate, the club cut back on capital spending in 2017/18. It does appear to have started work though on new training facilities, (classified here as ‘assets under construction’) for which formal planning permission was granted in September 2018.

Directors pay

Bristol City seem to have a fairly tight policy in relation to director pay. It could be that the costs are borne by holding company Pula Sport in Guernsey, but at £109,000 the amount is fairly low compared to other clubs, in an industry where there appears to be no ‘going rate’ as salaries vary between zero and £1.2 million.

Profits (or perhaps more appropriately Losses?)

Profits/losses are income less costs, and were £24.2 million last season, or £465,000 a week. The previous season the losses had been £19.2 million but the sale of Jonathan Kodjia to Aston Villa, for £15 million help offset these. There were no significantly profitable player sales in the year to June 2018.

Over the last six years City have racked up losses before player sales of £94 million, and the highest position during that period was last season’s 11th in the Championship (plus the wonderful League Cup run).

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Player sales have reduced these losses to ‘just’ £77 million, but Steve Lansdown still has effectively had to find a quarter of a million pounds each and every week for six years.

Some of you may by querying how the club has complies with financial fair play (FFP), which restricts losses to £39 million over three seasons, so it must average £13 million a season. Over the last three years City have had losses before tax of £47 million, so on the face of things would be subject to FFP sanction, but help is to hand.

FFP is calculated using a different formula to the accounting losses, and some expenses, such as infrastructure, promotion, women’s and academy football, community schemes and so on are excluded.

Some rough calculations suggest the FFP loss for City was therefore about £35 million over the three seasons, leaving some, but not a lot, of breathing space.

Player trading:

According to the accounts City paid out £12 million in 2017/18 on player additions, just short of the sum paid in the previous season.

This puts City mid-table in terms of the Championship, a division where you probably need to spend £10 million if you want to stand still in terms of maintaining the league position. It is also a division in which striking lucky with loan signings can make all the difference, as was experienced by Huddersfield when they had Mooy and Izzy Brown in 2016/17.

With the club failing to be promoted, it did mean that there were interested parties looking at some of City’s players, and this resulted in net player sales since 30 June of over £13 million as the impressive Flint, Bryan and Reid all departed and Webster, Watkins, Hunt & Eisa arrived.

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Funding the club

Steve Lansdown’s total investment increased further in 2017/18 as he invested a further £19 million in the club via Pula Sports. These loans were then converted into shares, which means relatively little to fans except that shareholders, unlike lenders, cannot ask for their money back.

This takes his total investment to £137 million, in the form of shares and interest free loans.

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

Whilst £53 million of the debt is technically due to banks it is Lansdown’s wealth and the guarantee given by Pula Sports Ltd that is the reason why the money was advanced by lenders in the first place. Under normal circumstances there’s no way a financial institution would lend to a business that loses £10-25m a year.

Conclusion

Bristol City are a textbook example of everything that is right and wrong with the Championship. Investment in the playing squad showed that the team could compete, on a single match basis at least, with clubs from the Premier League.

At the same time that level of investment cannot be funded from being a Championship club in its own right, and having a benevolent owner is essential to compete in the top half of the table.

The investment in the stadium at Ashton Gate will help generate extra income, but this will not make a serious dent in the operational losses, especially with no sign of wages slowing down in the Championship.

The good news for City fans is that there’s no sign of Steve’s affection for the club in the city where he made his fortune, or sport in Bristol, waning.

He’s invested in rugby and other sports in the city and region and is an excellent example of philanthropy (which I used to think meant he was a stamp collector).

He remains the club’s biggest asset in terms of his generosity but also its biggest risk should anything happen to him, and that’s always an issue for any business which is over reliant upon one individual.

Rangers: Automatic for the people

Introduction

8pm on 31st October is when I’m usually wondering if I can eat all the fun size Mars Bars that haven’t been vacuumed up by local youths dressed in Freddy Kreuger or Gary Neville fright masks trick or treating for Halloween.

Instead my email inbox pinged, and something came through about Rangers. Initially I ignored it, couldn’t be important surely, as after all the first team were playing high flying Kilmarnock at the same time.

At half-time, having prised myself away from the match on TV, it appeared that Rangers had published their annual results, a good time to bury bad news perhaps?

Key figures for 2017/18

Income £32.7m (2017 £29.2m) Up 12%

Wages £24.1m (2017 £17.6m) Up 37%

Recurring loss before player sales £9.9m (2017 £3.9m) Down Up 153%

Player signings £9.7m (2017 £10.3m)

Player sales £1.7m (2017 £0.8m)

Income

According to the accounts the club broadly generates its income from three main sources. Matchday, broadcasting and commercial.

Rangers didn’t produce accounts for 2011 and 2012 due to the club being in liquidation and the accountants not being obliged to submit them to the registrar.

Matchday income was up 6%, the main reasons for this were:

  • An early exit from Europe, although this still added an extra home match to the season’s total.
  • Higher average attendances which rose slightly to 49,173.
  • Season ticket prices rose from an average of £314 to £328.

Matchday income contributed 70% of total revenues for the club. Compared to the English Premier League (EPL), this is a far higher proportion than for any club in that competition. Rangers are also far more reliant than Celtic for matchday income as the latter had the benefit of Champions League participation.

Ranger’s matchday income was the second highest within the SPFL which places it is an awkward position. Too far behind Celtic to compete financially, too far ahead of other clubs in the division to be threatened, once it comes to term with the standard of that division, a state that hasn’t been reached yet based on results. The former duopoly in the domestic game has not quite yet been achieved.

If the club had been part of the English Premier League, Rangers’ matchday income figure would have placed it ninth in that division.

Broadcast income rose by 22%, to £4.4 million. Part of the increase was due to a UEFA pay-out for all clubs, although for Rangers it is just £650,000.

In 2018/19 this will rise significantly as the club has qualified for the group stages of the Europa League.

In 2018/19 the total prize money in the Europa League, whilst sneered at in some quarters for being the poor relation in UEFA compared to the Champions League, is £495 million

The SPFL TV deal is worth just £19 million a season split between 13 teams.

Even so, compared to the Premier League, where the side finishing bottom still earned £100 million in TV money, Rangers are paupers compared to those clubs, but kings compared to most of the rest of the SPL.

Rangers also benefited with the payments being made in Euros, as the poond continued to be weak following the decline in the UK economy following Brexit.

Commercial income was up by a third as the club made money from a successful pre-season tour and greater sponsorship and catering.

In the last six years, Rangers have earned overall £290 million less than Celtic. Most of this money has been spent but it gives Celtic a significant advantage of terms of investment in the playing squad and infrastructure, which can help generate greater income from conferencing and catering.

Costs

The main expense for a football club is in relation to players. These consist of two main elements, wages and amortisation. Wages are straightforward enough, amortisation is how the club deals with transfer fees for players bought, by spreading the cost over the contract life. Therefore, when Rangers signed Alfredo Morelos for £900,000 in 2017 on a three-year contract, this works out as an amortisation cost of £300,000 a year for three years. This is subtracted from income when profits are calculated.

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The amortisation charge has increased five-fold in the last two seasons as Rangers have invested in the squad since promotion to the SPFL. The problem they have is that Celtic’s amortisation last season was £8.8 million, highlighting the additional spending power they have.

Wages increased by 37% in 2017/18. This is partially due to the investment in new players, as well as giving new contracts to established players who have performed well in the top tier. The wages bill also probably includes the payoff to Caininha and Murty (Kenny Miller’s will be in next year’s accounts).

The problem Rangers have is that whilst their wages dwarf those of nearly every other club in the division, their fans are only focussed on their local rivals, who paid £250 in wages for every £100 paid out by Rangers.

This gap is likely to drop in 2018/19 as Celtic’s wages are likely to fall as Champions League bonuses will not be paid, and the recruitment of Gerrard and new players will increase Rangers’ costs. Even so there is likely to be a significant difference between the two clubs.

Whilst paying higher sums to players does not guarantee better performance, in the main there is a link between wage totals and final league position. It’s possible but rare for this not to be the case, Leicester City winning the English Premier League in 2016 being an example.

Rangers total wage bill puts it about par with a mid-table Championship club in England, as the club has the 37th biggest total in the UK.

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One group who are not benefitting from the higher wage bill are the directors, for the past three seasons they have not taken payment for their roles at the club.

Because wages increased faster than income, Rangers wage control percentage rose from 60% to 74%. This means for every £100 of income the club paid out £74 in wages, this compares to £58 for Celtic.

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A good target rate for clubs is often claimed to be 60% or lower, which Rangers achieved the previous season but were unable to maintain.

Rangers had an additional cost of £3.3 million for 2017/18 in ‘impairment’ costs. This is where the club has signed players in the past who turned out to be pish a bit rubbish, and so the club wrote down their values. Rangers fans will no doubt have a good ideas as to the identity of these flops.

How much Rangers spent in the year on legal fees is unknown, but the club does have a few ongoing cases.

Profits and losses

Profit is income less costs.

There’s no ‘correct’ profit figure, different vested parties will have different viewpoints, so it’s best to look at a few to get an overall picture.

The first is operating profit. It is total income less all day to day operational costs of running the club.

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Rangers’ made an operating loss of £12 million in 2017/18, as higher wages, amortisation and impairment already mentioned increased player related costs.

The problem with operating loss is that it can be distorted, especially by player disposals. It therefore makes sense to also calculate profit before player sales and other one-off items such as redundancy payments and contract disputes.

This is referred to as EBIT (Earnings Before Interest and Tax). This removes the volatility in relation to selling one player in a single season at a huge gain as has already been seen.

Stripping out these figures reduced Rangers’ losses to £9.9 million. Over the last six years Rangers have sold players at a profit of £2.5 million, a relatively small sum which reflects that they were playing in the lower echelons of Scottish football during this period.

Celtic have made a profit of over £100 million during the same period (including the Dembele sale this summer), reflecting that they’ve been able to buy better players at a young age and sell on at a profit after showcasing them in Europe.

One final profit figure adds on player amortisation and depreciation of the stadium and other long-term assets to the EBIT total. This is called EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation).

This is the nearest figure to a ‘cash’ profit total, used by analysts when they are working out how much cash a business is generating or haemorrhaging each year.

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This loss of £4.2 million is in many respects the most disturbing, as if a club is losing cash from trading then the owners (or a bank) will have to stick their hands into pockets to fund these losses.

English Premier League clubs average an EBITDA profit of £61 million, on the back of the TV deals south of the border.

Player Trading

Ranger’s player trading is big by Scottish standards but still trails their rivals. They can outbid most other Scottish clubs, but with the arrival of Steven Gerrard also seem to be looking to pick off players from England who are perhaps not getting a game and fancy playing in front of nearly 50,000 people for home matches.

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The board have backed managers in the last couple of seasons since promotion, whether that money has been spent well is still uncertain, although as always for every success there is a turkey.

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Since June 30th Rangers have also spent a further £6 million on additional players.

Funding

Rangers’ previous financial history means that the club finds it difficult to borrow from banks, and so is dependent upon directors and friendly parties to lend the club money to make up the shortfall from regular operations and player trading.

Over the last six years the board has funded the club by pumping in over £53 million.

At 30 June 2018 the loans element had risen to £21 million.

The net debt (borrowings less cash) total has risen significantly since Rangers promotion to the SPFL. It will have halved following the share issue recently, but has a high chance of returning to an upwards trajectory as the running costs under Steven Gerrard are likely to exceed income, unless relative European success is achieved.

Rangers fans who had hoped that the club had generated over £12 million from a much publicised share issue will be disappointed.

90% of the share issue was used to convert loans to shares, which is swapping one piece of paper for another, rather than generating fresh money for the manager. The club did borrow a further £2million but this will require repaying.

The audit report gives a warning signal about the future.

Rangers need to raise over £7.5 million during the next two seasons to stay afloat. That money could come from (a) loans from owners, (b) a successful run in the Europa Cup, or (c) player sales. The uncertainty makes planning for the future very uncertain.

Conclusion

Rangers are in a tricky situation. Fans have been patient to date but will expect regular silverware at some point. The club is dependent upon a board that is still given to infighting and a lack of unity, apart from when it comes to picking a dispute with outsiders (such as Sports Direct and the Takeover Panel). Chairman Dave King, who seems to have modelled his stewardship of the club using the handbooks of Ken Bates, Mike Ashley & the Oystons at Blackpool, but without the pleasant element of their characters, seems to have a smoke and mirrors approach to the club’s troubles.

How much additional funding is available is uncertain, but unless Rangers repeat their achievement of 2008 in making it to a UEFA cup competition final (a match I attended as live in Manchester, which will stick in the memory for a long time for the sights in the centre of the City at 6am when I went to work), or at least make major progress in the competition, then it would appear that significant further funds will be needed to keep the club trading.

If the owners are willing to continue to provide such funding then all is good, if not then the Gerrard experiment may have a limited shelf life, and the club could be plunged into another financial crisis.

The numbers

Norwich City: In the Country

Introduction

Norwich City Football Club Ltd announced its financial results for the year ended 30 June 2018 recently.

Norwich are the third team in last year’s Championship to produce their results, following Hull and Birmingham. It may be a new EFL rule that clubs whose name ends in ‘City’ are legally obliged to publish their accounts before any others, or it may be coincidence, though with Shaun Harvey in charge anything is possible. Any tables for the division as a whole use figures from 2016/17 for other clubs.

Norwich finished a forgettable 14th in 2017/18, which, given their financial performance, will have been seen as a bit bobbins by fans. Manager Daniel Farke doesn’t seem under too much pressure at present, despite a win ratio that is lower than predecessor Alex Neil.

Summary

Income down 18% to £61.7 million

Wages down 1% to £54.2 million

Recurring trading losses down 9% to £9.5 million

Player purchases down from £19.9 to £15.5 million

Player sales up from £18.4 to £54.8 million

Income

Every club must split its income into at least three categories to comply with EFL League recommendations, matchday, broadcasting and commercial. Norwich go a bit further but what is very evident is the part played by parachute payments in terms of its contribution to total income.

Norwich’s matchday income rose by 7% last season to £9.8 million last season. The club sells out most matches at Carrow Road, and season ticket sales only fell by 2% to 20,557. Average attendances have been a constant 26-27,000 over the last few years.

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Norwich managed to extract more money from fans than the previous season, this is mainly due to better cup progress and ties against more glamourous opposition in the form of Chelsea and Arsenal than the previous season.

Broadcast income for clubs in the Championship varies significantly due to parachute payments. Clubs now receive these for three years (two if relegated in first season following promotion) and this is tapered as 55%, then 45% and finally 20% of the equally shared element of Premier League payments. However, if a club is promoted to the Premier League and then relegated immediately it loses the third parachute payment.

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For clubs who are not in receipt of parachute payments, they receive about £6.5 million in the Championship for broadcasting. About £4.3 million of this comes from ‘solidarity payments’ from the Premier League as a share of the PL TV deal, and the remainder from the EFL’s own deal with Sky.

The EPL, being the sneaky scamps that they are, have changed the formula in relation to how it calculates payments to EFL clubs from 2019/20, which is likely to result in a further decrease.

New TV Distribution Rules: Everyone’s A Winner. – Price of Football

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The reduction of about £30 million this season in broadcast income will make belt tightening and player sales paramount if the club is not promoted.

Parachute payments are a double-edged sword, clubs need to have them as an insurance policy when in the EPL as even with relegation wage clauses many would go into administration if they were unavailable.

The research suggests that they are worth about 6-8 points of an advantage on average to clubs who are receiving them. This has not stopped clubs in recent years being promoted whilst not in receipt of parachute payments though, as fans of Huddersfield, Brighton, Blackpool, Watford and Palace etc. will testify.

‘Other’ income fell by 15% to £13.1 million. The main contributors to this are catering (no idea who might be behind that) and deals with commercial partners.

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The contribution made by this income source again helps make the club competitive in the division.

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Overall Norwich are likely to have had one of the highest income levels in the Championship last season, but the lack of parachute payments in 2018/19 is likely to put then down to the level of the likes of Brighton and Derby in the graph below. A screenshot of a cell phone Description generated with very high confidence

Norwich therefore had £62 million coming into the club last season, which may make some fans wonder what they did with it, leading to an analysis of…

Costs

Player costs

Norwich’s main costs, like those of nearly all clubs, were in relation to players, in two forms, wages and amortisation.

Norwich’s headline wage bill, at £54 million, initially suggests that the club has ignored the impending income crisis arising in 2018/19, but there is more to it than meets the eye.

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Norwich’s wage bill meant that the club paid out £88 in wages for every £100 of income. Included in the wage cost is £12.2 million of ‘charges relating to contracts of certain players whose registration value is impaired and whose contracts have been classified as onerous’.

What this means in English is that the club signed a load of duffers who aren’t worth the money they were being paid. In order to get rid of the players (and Canaries ITK have suggested this could be the likes of Nasmith, Jarvis and Wildshutt) have paid up their contracts as otherwise no one would want to buy them.

The good news for Norwich fans is that the wage bill for 2018/19 will be considerably lower as a result, which will become increasingly important as FFP rules start to bite.

Wage control in the Championship is poor, with clubs on average paying out £100 in wages for every £100 of income. This means there is nothing left over to pay for transfers, rent, ground maintenance and other overheads, resulting in most cases in owners having to fund these costs or the club relying on player sales to break even.

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Norwich’s wage bill last season was not in line with a club finishing 14th and even if the payments to the useless ones are excluded they are still close to the top of the table.

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One group of people who didn’t do too well out of the season were the salaried directors. Norwich used to pay amazing sums to their execs, but this has come down sharply in recent years.

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The previous season Jed Moxey had earned £417,000 for a half year of mediocrity (plus kerching-ing £772,000 as a payoff when asked to vacate his position), but this season the highest paid director ‘only’ earned £108,000.

Player Amortisation and impairment

Amortisation is the accounting nerdiness for how a club deals with player transfers in the profit and loss account. This is achieved by spreading the transfer fee over the life of the contract signed. For example, when Norwich signed Grant Hanley for £3 million on a 4-year contract, this works out as an annual amortisation cost of £750,000 for each year of the contract. The amortisation cost in the profit and loss account represents the total for all players signed for fees in previous seasons.

Norwich’s amortisation cost nearly tripled in 2017/18 fell slightly as some players were sold.

The increase in amortisation charge meant that Norwich’s charge in 2018 was higher than that of promoted Brighton and Huddersfield the previous season.

To add to Norwich’s player costs there was an impairment charge of £9.4 million. This arises when a player is signed for a fee and the club then conclude that he’s overvalued, so write down the transfer fee. The good news here for Norwich is that by accelerating the player write down it reduces amortisation costs in future years.

Adding amortisation, wages and impairment together gives a total player cost of nearly £64 million. This exceeds Norwich’s income for the year, although some of these costs are non-recurring in nature.

Profits and losses

Profit is income less costs, but it contains lots of layers and estimated figures. Norwich, like all clubs, show a variety of profit measures in their accounts so they need a bit of explanation.

Operating profit is income less all the running costs of the club except loan interest. It is a volatile figure as it includes one-off non-recurring costs such as profits on player sales and redundancy packages for managers that make calculating the underlying profit figure difficult.

Norwich had a headline operating profit of £19 million for the year to 30 June 2017/18.

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The £19 million profit looks superb, only exceeded by Hull, also relegated an in receipt of parachute payments, especially in the context of a Championship which made total operating losses in 2016/17 of £260 million, but there’s more to this profit figure than meets the eye.

Stripping out player sale profits and other non-recurring items (redundancies, legal cases, debt write offs etc.) gives a more valid profit measure called EBIT (Earnings Before Interest and Tax).

Norwich has profits on player sales in 2017/18 of £48 million. Whilst fans will think of the sales of Jacob Murphy and cheeky scamp Alex Pritchard during the season, it looks as if Norwich have also included the sales of James Maddison to Leicester and Josh Murphy too. This is because both these deals went through before the club’s year end of 30 June 2018. There’s nothing wrong with such an approach, but if Norwich fans were banking on a big profit on player sales in 2018/19 they’re going to be disappointed.

 

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Norwich’s operating profit of £19m therefore becomes an EBIT loss of £9.5 million, or about £190,000 a week, once the player sales, impairments and accelerated wage figures are stripped out.

Nearly every club in the Championship has significant EBIT losses, which were £392 million in 2017, as many owners gambled on spending big to try to secure promotion to ‘the promised land’ of the Premier League, which Norwich fans will probably admit is in reality celebrating getting a corner in a routine pasting at the Etihad and getting out the cigars when defeating Burnley and Bournemouth.

If non-cash costs such as amortisation and depreciation (depreciation is the same as amortisation except this is how a club charges a cost for other long-term assets such as buildings) are excluded 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, and it is more likely to be a positive figure than the likes of EBIT.

Adding back these costs, Norwich moves back into profit

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In addition, if a club has loans then the loan interest is then deducted to arrive at profit before tax. Norwich’s interest cost in 2018 was about £10,000 a week.

FFP losses

A few clubs (Birmingham, Villa, Sheffield Wednesday, Derby) have been subject to gossip and rumour in relation to breaches of FFP rules in the Championship in recent months, but Norwich have not been amongst them.

Under EFL FFP rules, a club is allowed a maximum loss over 3 seasons of £39 million. However, FFP starts with profit before tax but the losses exclude the following

  • Infrastructure costs such as depreciation
  • Academy costs
  • Women’s football costs
  • Community scheme costs

Norwich have a category 1 academy, which is estimated to cost about £4.5 million a year, so looking at the three years to June 2018 gives a rough FFP profit of £49 million

This is excellent news for Norwich as it means that whilst they will suffer significant income deductions in future years if still in the Championship they should be within FFP limits for a few years.

With clubs such as Norwich abiding by the rules, it’s clear that the EFL will be under pressure to punish those that have taken a cavalier approach to FFP, so there could be points deductions in the Championship soon if rumours are true.

Player Trading

Norwich spent £15.5 million on new players in the year to 30 June 2018, which is reasonably high by Championship standards. The club also had player sales of £54.8 million, although these do include Maddison and Josh Murphy in June 2018.

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

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Norwich have historically aimed to broadly break even in terms of their player trading budget, but it looks as if the sales in 2017/18 were done with the aim of ensuring the club has sufficient cash to survive without parachute payments.

Most big transfers are paid in instalments these days, and Norwich were owed £42 million from other clubs for outstanding payments at 30 June 2018, but only owed £14 million themselves. The receipt of these instalments should ensure the club can survive financially in the short to medium term without any major crises.

Hidden at the back of the accounts is a wee note showing that since 30 June 2018 Norwich has signed players on loan deals, with a total loan fee of £4.2 million, plus a further £9 million, presumably if the club is promoted.

Investment

Club owners can invest three ways, sponsorship, lending or buying shares.

During 2017/18 Norwich went to fans and borrowed £4.8 million to develop the academy, plus the directors threw in £250k themselves. It meant that at the end of the year Norwich had over £16 million in the bank, enough to tide the club over for 2018/19.

Summary

Norwich’s finances for 2017/18 are a bit weird, the club seemed very keen to accelerate both good news (player sales) and bad (player write-downs and contract write offs). Clearly Ed Balls and co are keen to communicate the message that there’s no money spare. This seems a prudent approach, but as we’ve seen in the wider economy, austerity, once started, never seems to end.

Data Summary

 

Celtic: Rattlesnakes

Introduction

Is that what you call a treble?

Celtic announced their 2017/18 results in mid-September 2018, but these came in the form of a detailed press release, rather than the full annual report. Like many things in relation to Celtic, it left a few unanswered questions where perhaps it would have been easier to give a fuller story.

Having failed to make the qualifying rounds of the Champions League, the club face a challenging season where for the first time in many years there could be a credible challenge to their domination of the domestic game.

Ambivalent comments from manager Brendan Rodgers, a Rangers who are getting a lot of attention since the arrival of Steven Gerrard and a decent start from the two main Edinburgh teams seem to have knocked the confidence of the club and its fanbase.

Having achieved the double treble in 2017/18, where does this leave the club financially for the following season, in a sport and city where memories are very short.

Key figures for 2017/18

Income £101.6m (2017 £90.6m) Up 12%.

Wages £59.3m (2017 £52.2m) Up 14%.

Recurring profit before player sales £5.1m (2017 £6.7m) Down 23%

Player signings £16.6 m (2017 £13.8m)

Player sales £16.5m (2017 £4.2m)

Income

According to the accounts the club generates its income from three main sources. Matchday, merchandising and broadcasting.

Matchday income was up 16%%, the main reasons for this were:

  • Champions League and Europa Cup participation meant there were mor games at Parkhead. Attractive opposition in the form of PSG and Bayern Munich meant that premium prices could be charged for these matches.
  • Higher average attendances which rose to over 57,000.

Matchday income contributed 43% of total revenues for the club. Compared to the English Premier League (EPL), this is a far higher proportion than for any club in that competition.

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Celtic’s matchday income was far higher than that of any other club in the SPL, with Rangers being closest at £21.6 million, due to more matches and higher attendances. If the club had been part of the Premier League it’s matchday total would have placed it seventh in that division.

Being in Europe against glamour opposition such as PSG and also playing Rangers domestically allows the club to charge higher prices too,

Broadcast income rose by 10%, to over £40 million, again driven by Champions League qualification. This is crucial for Celtic as the domestic TV deal is relatively meagre. In 2017/18 the total prize money in the Champions League was £1,200 million, compared to £350 million in the Europa League. The SPFL deal is worth just £19 million a season split between the teams.

As can be seen from the above, when Celtic make it to the group stages of the Champions League, as they did in 2012/13, 2013/14, 2016/17 and 2017/18, there is a spike in broadcast income.

Even so, compared to the Premier League, where the side finishing bottom still earned £100 million in TV money, Celtic are paupers compared to those clubs, but kings compared to most of the rest of the SPL.

The payout from participation in UEFA competitions has increased significantly in 2018/19 to enlarge the gap still further.

Celtic also benefited with the payments being made in Euros, as the poond continued to be weak following the decline in the UK economy following Brexit.

Commercial/merchandising income was up 8%, the club launched another three kits with New Balance.

Hibernian are the only other club to publish their results to date for 2017/18, but even so the gap between Celtic and the other clubs is huge.

The failure to qualify for the group stages of the Champions League could narrow the gap between Celtic and Rangers in terms of income for 2018/19 substantially.

Costs

The main expense for a football club is in relation to players. These consist of two main elements, wages and amortisation.

Wages increased by 14% in 2017/18. This could be due to bonuses being paid for winning the domestic treble and participation in the Champions League group stages. After a period of relative stability during the decade Celtic’s wage bill rose significantly in 2016/17 and then by a further £7 million in 2018.

Hibernian are the only other club to report for 2017/18 and their wage bill rose by 17%.

For the first time a Celtic director received pay of more than £1 million, with Peter Lawwell taking home in total £1,167,000. Somewhat bizarrely, for the four previous years the highest paid director had always been paid £999,000, perhaps not wanting to upset fans with the thought of one of the suits trousering more than a million for being to help mastermind the defeat of the likes of Ross County and ICT.

Celtic seem to have their wage levels under control, even with the increased amounts being paid. The wage/income ratio, which in the English Championship was over 100%, was more in line with the EPL, which averages 68%.

Amortisation is the method clubs use to spread the cost of a transfer over the length of the contract signed. For example, when Celtic bought Scott Sinclair for £3m on a four year deal this works out as an amortisation cost of £750,000 a year (£3m/4 years).

The total amortisation figure in the accounts each year relates to the whole squad for which the club have paid a fee.

Even considering the amortisation fee for the year, Celtic’s total spending on players worked out as £67 for every £100 of income in 2017/18.

The amortisation charge arose as a result of Celtic spending £10.6 million on players for the 2017/18 season.

Eh pal, explain to me what amortisation means again.

Exceptional costs

Celtic did have a further £4.1 million of costs in 2017/18 that were called ‘exceptional’. These are expenses that are one off in nature and so not expected to recur every year.

This included £511k in relations to signings that proved to be shite less impressive than when the club bought the player, and so had to be written down. There were also payments totalling £3.5 million in respect of staff who had their contracts terminated early, which is likely to include Nadir Ciftci, who was encouraged to leave the club a year early after signing for £1.5 million from Dundee United and scoring four goals during his three seasons at Parkhead.

Profits and losses

Ask an accountant what they mean by profit, and they will start to sweat, loosen their tie, and look nervously around the room.

There are many types of profit that can be calculated, but here at the Price of Football we concentrate on three.

The first is operating profit. It is total income less all day to day operational costs of running the club.

Celtic’s operating profit was a record £18 million in 2017/18, due to the good cost control already mentioned but distorted by the 20% profit sell on when Virgil Van Dijk was sold by Southampton to Liverpool in January 2018.  Rangers had an operating loss of £6.8 million for 2016/17 but broke even in the six months to 31 December 2017.

The problem with operating profit is that it can be distorted, especially by player disposals. We therefore also calculate profit before player sales and other one-off items such as redundancy payments and contract terminations.

This is referred to as EBIT (Earnings Before Interest and Tax) This removes the volatility in relation to selling one player in a single season at a huge gain as has already been seen.

Despite the domestic success and European qualification over recent years, Celtic made an EBIT loss of over £30 million in the last nine seasons.

This shows that the club is dependent upon selling players each year to help make the books balance. Celtic have made a profit of £83 million since the summer of 2009 on player sales and this is likely to have increased substantially further in 2018/19 after the sale of Moussa Dembele for £18 million to Lyon.

The final profit figure adds on player amortisation and depreciation of the stadium and other long-term assets. We call this EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation). This is the nearest figure we have that is a ‘cash’ profit total. This is what is used by analysts when they are trying to calculate a price for a club that is up for sale.

Celtic’s EBITDA profit of £15.9 million in 2017/18 was the same as the previous season and shows how critical it is for the club to have Champions League qualification. This compares to an EBITDA loss of £0.7 million for Rangers for 2016/17.

In the English Premier League EBITDA profits average £61 million, which highlights the gulf between that and the SPL,

Player Trading

Celtic’s player trading reflects their dilemma. By Scottish standards they are a huge club but compared to the Premier League they are small fry financially. Over the last nine years the club has had a net zero spend on signings, and this is likely to turn negative once the Dembele sale is taken into consideration in 2018/19.

Whilst this means the club is likely to vacuum up many trophies domestically it also results in a squad that struggles to make much progress in Europe.

Celtic have made a profit of about £100 million, taking into account Dembele, since the summer of 2009

Debts

Celtic are debt free, having cash of £43million of cash at 30 June 2018, compared to outstanding loans of £11 million. Whilst this will no doubt impress investors and potential buyers of the club, fans may feel that the club should have invested more money in players if it wants to progress in Europe and ensuring that Rangers are kept at arms-length domestically.

Celtic’s investors have neither bought shares in the club nor lent it money over the period of analysis. This may because they feel there has been no need, as Rangers’ well documented struggles have left with bigger issues to deal with and the other clubs in the SPL are so far behind financially that they have not generated anything than token rivalry.

This has allowed Celtic to pay down debts to lenders relatively slowly, but at the same time could be indicative of a club lacking in ambition to compete on a broader sphere, in the shape of European football.

Conclusion

Celtic are in a strong position financially but money in the bank is no guarantee of trophies in the cabinet. The SPL looks more competitive this season than for a long time, and Celtic could be accused of resting on their laurels for a season too long.

Such are the riches of UEFA competition it could only take one season for the huge financial  gap between the two Glasgow clubs to evaporate, and that season could potentially be 2018/19.

The numbers

Walsall 2018: Heading Out on the Highway

Introduction

Walsall have just published their financial results, the first for a League One club for 2017/18, and, just as they have done for the previous five years, they’ve made a profit and kept their status in that division for the eleventh consecutive year.

That seems to be enough to satisfy the ambitions of the club owner, Jeff Bonser, though some fans seem to be fed up with his control of the club, and the way he extracts money from it through owning the stadium.

Financial summary

Income: £5,853,000 (down 12%)

Wages: £3,376,000 million (down 0.3%)

Sustainable operating profit £63,000 (down 89%)

Wages to income 58% (up from 51%)

Player sales £110,000 (purchases of £179,000 in 2016/17)

Borrowings £2,038,000 (down £289,000)

Income

Not breaking the law

Most clubs show three types of income in their accounts, but somewhat frustratingly Walsall only show two, by combining broadcasting and commercial streams.

Matchday income was almost identical to 2016/17 at just under £1.1 million. Average attendances fell by 6.2% and early exits from the cup competitions didn’t help either. The importaince of a good cup run or a draw against a ‘big’ team was highlighted in 2015 and 2016 when the Saddlers made it to the FL Trophy final at Wembley and had a cup draw against Chelsea respectively.

This works out at £229 per fan for the season, a 7,5% increase on the previous season, but probably due to having an extra home cup game compared to 2016/17. If fans think this is far lower than the price they pay for their season ticket, note that the club figures exclude VAT at 20% and are an average of adult and concession prices.

‘Other’ income fell by nearly £800,000 to £4.76 million. The main components of ‘other’ income are broadcasting (estimated at £1.5 million) and commercial sponsors, catering conferencing and so on. The importance of this income source, which can generate cash far more often than the 23-28 home match days each season is highlighted as it brought in more than half of the Saddler’s revenue in 2017/18.

Compared to the income of L1 clubs the previous season, Walsall in 2017/18 were about mid-table in terms of the total generated (Bolton’s figures were distorted as they were in receipt of parachute payments from the Premier League).

Costs

Footballs main costs are in relation to players, and here Walsall continue to keep tight control.

The total wage bill, including pensions and national insurance costs, was 0.3% lower than the previous season, despite the club employing eight more staff., The reason for the slight fall is likely to be linked to a 19th place finish in League One, compared to 14th the previous season, and so player win bonuses would be lower.

The club clearly have a tight wage budget set each year, but the wage to income ratio increased from 53% to 58%, meaning that the club was paying out £58 in wages for every £100 of income that was generated in 2017/18. This compares to an average of 100% for clubs in the Championship.

The increase in staff numbers meant that the average annual salary of someone at Walsall fell by 6% to £24,824. Players and management are clearly likely to be on higher than this average figure, and we estimate they earned about £90,000 (£1,730 per week) which puts the club at the lower end of the division of those clubs who report wage totals (many clubs hide behind a legal loophole and don’t show this figure), and may explain why they have infrequently challenged for promotion to the Championship in recent years.

Director pay at Walsall fell by 9% but was still £175,000

One figure that irks some Walsall fans is the rent paid by the club, as it does not own the Bescot Stadium. For the last couple of seasons Walsall have paid £449,000 a year to Suffolk Life, owner Jeff Bonser for rent for the stadium, training facilities and car park. Whilst the rent was frozen compared to 2017, it had risen significantly in prior years.

It does seem that whilst Walsall are one of the lowest wage payers in the division, they are one of the most generous tenants to their landlord.

Profits

My Oh My

Profits are income less costs. Walsall seem to be able to break even each year, just. This could be manipulated by the directors’ tweaking their pay to ensure the club finishes in the black each season.

There are different profits that can be used when analysing a business, Operating profit is before taking into account interest costs on loans.

Walsall’s operating profit fell by 78% in 2018, mainly due to the decline in income in the year, but the club made a profit, which is not the case for many of its fellow League One clubs.

EBIT (Earnings Before Income & Tax) is the same as operating profit but strips out non-recurring items such as gains on player sales, legal cases writedowns and redundancies.

Walsall’s EBIT was £63,000 in 2018, whereas every other League One club that published an profit and loss account made a loss in 2017, and there is little reason to suspect this will have changed in 2018.

Walsall paid £50,000 in interest costs in 2018, of which £23,000 was on loans from directors. This means that directors made a total of £656,000 from the club in 2017/18 (Rent £459,000, pay £175,000 and interest £22,000).

One of us is in the money.

Player trading

You don’t see Walsall mentioned too often in the transfer gossip columns of the papers or sports broadcasters, and there’s a good reason for that.

In the four years leading up to 2016/17 the club neither sold nor bought a player for a fee. This record was broken when Cypriot striker Andreas Makris was signed for £179,000 (€200,000). Makris’s season proved to one of disappointment, with one goal in 32 games.

After proving to be shite a disappointment Makris’s value was written down in the accounts, and he was sold back to Cyprus in the summer of 2017 and this has shown up in the 2018 accounts as a fee of £110,000.

Walsall did not sign any players for a fee in 2017/18, but they are not alone in League One in relying on Bosman signings and loans.

Debts

The sale of Makris allowed Walsall to repay some of their outstanding loans. In total the club had borrowings of just over £2 million at 30 June 2018, a reduction of £289,000 compared to the previous year. Included within these borrowings is £1,339,000 due to directors and £399,000 to the bank, which is guaranteed by Jeff Bonser.

Conclusion

Walsall, almost uniquely for a League One club, have shown that they can break even season after season by managing their wage budget carefully, and being ultra-cautious in the transfer market.

Promotion to the Championship is worth about an extra £7 million a season in TV money, plus bigger gates against local rivals such as Villa, West Brom and Birmingham City. With the club so close to the playoffs at present going up could be an income windfall.

The danger with promotion is that wage bills also tend to balloon (the average is £22 million per season) and for clubs with resources such as Walsall the stay in the Championship is often brief (Burton, Barnsley and Rotherham can testify to that).

Whilst owner Jeff Bosner has been generous in lending money and guaranteeing the bank loans and overdraft, he is also the biggest beneficiary of the club financially in terms of the varying income sources from Walsall.

From an analysts’ perspective, we do however commend Walsall for producing their results so quickly after the end of the season and not taking advantage of legal loopholes to restrict the amount of information they publish.

The Numbers

 

Birmingham City 2018: Do What John?

Top Top Finances

Introduction

Birmingham City’s parent company Birmingham Sports Holdings Ltd, announced its financial results for the year ended 30 June 2018 recently.

The results do also include the group’s other activities, as it tries to diversify into property management, but these had no impact upon income and a minor impact upon costs in the year.

The results are in Hong Kong dollars, so have been translated into sterling at an estimated rate for the year, when Birmingham finally submit their figures here in the UK there may be slight differences if other exchange rates are used.

Birmingham are the second team in last year’s Championship to produce their results, following Hull City the previous week. Any tables for the division as a whole use figures from 2016/17 for other clubs.

Summary

Income up 12% to £19.6 million

Wages up 78% to £40.1 million

Pre-player losses up from £16.1 to £45.3 million

Player purchases up to £15.3 million

Income

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

Birmingham’s matchday income rose by 9% last season to £4.9 million last season, which was a quarter of the club’s total revenues. This was a continuation of a continual rise over the last few seasons.

The increase in matchday revenue was on the back of attendances rising 12.4% from 18,717 to 21,042 at the now snappily named St Andrew’s Trillion Trophy Stadium. Last season was the first since the club was relegated in 2011 that crowds have averaged more than 20,000.

Whilst attendances were up, the club was unable to generate more money from fans, presumably as season ticket prices were frozen for the fifth season in a row.

Broadcast income for clubs in the Championship varies significantly due to parachute payments. Clubs now receive these for three years (two if relegated in first season following promotion) and this is tapered as 55%, then 45% and finally 20% of the equally shared element of Premier League payments.

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For clubs such as Birmingham who are not in receipt of parachute payments, they receive about £6.5 million in the Championship for broadcasting. About £4.3 million of this comes from ‘solidarity payments’ from the Premier League as a share of the PL TV deal, and the remainder from the EFL’s own deal with Sky.

Birmingham’s parachute payments finished in 2015, the main reason why they have increased since 2016 is down to the more lucrative Premier League TV deal which kicked in in 2017, which increased solidarity payments, as well as being more popular with Sky, as each home match is worth an extra £100,000 if broadcast live.

Parachute payments are a double-edged sword, clubs need to have them as an insurance policy when in the EPL as even with relegation wage clauses many would go into administration if they were unavailable. The research suggests that they are worth about 6-8 points of an advantage on average to clubs who are receiving them. This has not stopped clubs in recent years being promoted whilst not in receipt of parachute payments though, as fans of Huddersfield, Brighton, Blackpool, Watford and Palace etc. will testify.

Commercial income increased by 15% to £7.1 million. This could be part of the ‘Harry effect’ as the love him or loathe him Redknapp is as ‘face’ (albeit one where all the good looks were clearly on the mother’s side judging by his son Jamie) which is well known and so sponsors might want to associate with. The other potential cause for the rise in commercial income is the role of owners Trillion Trophy, who may have used their contacts to arrange partnership deals with Hong Kong based sponsors.

Commercial income should rise further in 2018/19 due to the naming rights given to the stadium by the owners, although there may be raised eyebrows at the EFL if the sum paid is above normal market rates, and any excess will be disallowed for FFP purposes.

Overall Birmingham’s income rose by 12%, which is a much bigger rise than nearly all Blues’ fans have had in 2018. The big discriminator in the Championship is parachute payments, which create a two speed division in term of income and costs.

Birmingham’s overall revenue puts the club about 15th/16th in the division as a whole for last year, assuming there are no other major changes. This makes it difficult to compete if wanting to compete for a playoff place, unless you are very lucky or take a cavalier approach to FFP.

This is only good from a profit perspective if costs have risen by less than 12%, which leads us to…

Costs

Player costs

The group said this about costs.

Birmingham’s main costs, like those of nearly all clubs, were in relation to players, in two forms, wages and amortisation. Birmingham seem to have gambled on making signings for both fees and on Bosman deals in which the club went for broke in terms of offering players terms that would not be matched elsewhere. For example, David Stockdale, voted goalkeeper of the year in the PFA awards in 2017, turned down a new contract with Brighton, promoted to the Premier League, and instead opted for a three-year deal with Birmingham. It’s highly unlikely he would reject the chance to play in the PL unless he was given a very good deal at St Andrew’s.

The group paid £204 in wages for every £100 of income, as wages rose by 78% to over £40 million. Some of the wage rise could be put down to the holding company taking on staff in Hong Kong for the property deals, but this is highly unlikely to involve many people or pay them huge sums. Birmingham’s wage bill had already risen by 50% in 2017 as another managerial catastrophe in the shape of Gianfranco Zola turned into a disaster.

Some of the wages could be due to the non-football part of the group, but no details are given, and the statement in the accounts states that the rise was due to players and coaching staff.

The Championship is a clown car of a division when it comes to wage control, but even by the lunatic standards of Birmingham’s peers, the attitude by senior management to player costs was similar to that of leaving Boris Johnson in charge of a brothel (or more frighteningly, the UK economy…either way everyone would be shafted).

Player Amortisation

Amortisation is the accounting nerdiness for how a club deals with player transfers in the profit and loss account. This is achieved by spreading the transfer fee over the life of the contract signed. For example, when Blues signed Jota from Brentford in the summer of 2017 for £6 million on a four-year deal, this works out as an annual amortisation cost of £1.5 million. The amortisation cost in the profit and loss account represents the total for all players signed for fees in previous seasons.

Birmingham’s amortisation cost nearly tripled in 2017/18 due to the club moving from a period of austerity to signing the likes of Jota, Roberts, Colin, Dean and Gardner for seven figure fees.

The increase in amortisation charge meant that Birmingham’s charge in 2018 was higher than that of promoted Brighton and Huddersfield the previous season.

Adding amortisation and depreciation together gives us total player cost of nearly £48 million, which was higher than that of relegated Hull, who had the benefit of parachute payments to cushion the blow. This resulted in Blues having a total player cost of £243 for every £100 of income, and that’s before paying for heat, light, insurance, medical costs and so on.

Again this heavy investment in players has resulted in Birmingham having the highest such cost in the division.

Profits and losses

Profit is income less costs, but it contains lots of layers and estimated figures. Birmingham, like all clubs, show a variety of profit measures in their accounts (although in Birmingham’s case they are mainly losses), so they need a bit of explanation.

Operating profit is income less all the running costs of the club except loan interest. It is an unreliable profit measure in that it includes volatile one-off non-recurring costs such as gains on player sales and redundancy packages for managers that make calculating the underlying profitability of the club difficult.

The scary news for Blues’ fans is that the holding company made an operating loss of £825,000 a week in 2017/18, a total of £43 million, which is more than two and a half times the loss made in 2017.

Total operating losses in the Championship in 2016/17 were £260 million, but even so Birmingham’s figures are at the extreme end of the scale. As recently as 2015 they were making a profit.

Whilst Birmingham’s losses in 2018 were close to those of Newcastle and Brighton the previous season, both those clubs were promoted and paid out bonuses of about £10 million each.

Stripping out player sale profits and other non-recurring items (redundancies, legal cases, debt write offs etc.) gives a more valid profit measure called EBIT (Earnings Before Interest and Tax).

For Birmingham the position deteriorated further to over £45 million as the club had gains on player sales of over £2 million from selling Ryan Shotton and Kerim Frei. This is even higher than local rivals Villa lost in 2017 under the head scratching ownership of Tony Xia.

Nearly every club in the Championship has significant EBIT losses, which were £392 million in 2017, as many owners gambled on spending big to try to secure promotion to ‘the promised land’ of the Premier League, which in reality celebrating defeats at the Etihad when Manchester City score less than three goals against you and getting giddy when beating the likes of Cardiff and Huddersfield.

If non-cash costs such as amortisation and depreciation (depreciation is the same as amortisation except this is how a club charges a cost for other long-term assets such as buildings) are excluded 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, and it is more likely to be a positive figure than the likes of EBIT.

Despite adding back these costs, Birmingham has an EBITDA loss of over £36 million. This shows that the club was haemorraghing about £700,000 a week in cash from its day to day trading.

Birmingham had EBITDA losses that exceeded those of any club in the Championship in 2017.

In addition, if a club has loans then the loan interest is then deducted to arrive at profit before tax. Birmingham’s interest cost in 2018 was about £1.6 million as the parent company borrowed more and more money to pay the wages.

FFP losses

The summer has been one of rumour and counter-rumour in relation to Birmingham’s FFP situation.

In the accounts the club has admitted the following

Under EFL FFP rules, a club is allowed a maximum loss over 3 seasons of £39 million. However, FFP starts with profit before tax but the losses exclude the following

  • Infrastructure costs such as depreciation
  • Academy costs
  • Women’s football costs
  • Community scheme costs

Birmingham have a category 2 academy, which is estimated to cost about £1.5 million a year, so looking at the three years to June 2018 gives a rough FFP loss of over £57 million

This cavalier approach to FFP in 2018 resulted initially in Birmingham being given a ‘soft’ transfer embargo, in which the club was not supposed to sign players for a fee, and any free transfer signings were restricted to an annual salary of ‘only’ £600,000 a year. This embargo was not publicised to in theory allow the club to recruit players without everyone knowing the extent of the club’s financial problems…although in practice, football, being the open gossip factory that it is, was circulating rumours all summer that something was amiss at the club.

If the figures above are accurate (and they do contain lots of guesstimates) then it is clear why other clubs in the Championship who have followed the soft embargo rules (likely to be Sheffield Wednesday and Villa, possibly Derby too) were so hacked off with Birmingham when they signed Kristian Pedersen for £2.4 million.

This is the reason why Birmingham are under a threat of a points deduction, as the EFL have unlimited punitive powers and want to make an example of someone as other clubs have abided by the rules.

Player Trading

Hull spent £15.3 million on new players in the year to 30 June 2018, after years of having a policy of a negative net transfer spend.

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

Accusations will be made pointing the finger at Harry Redknapp for the large spending on players, but there should be someone within the club hierarchy who sets a budget limit, and this seems to have been absent at Birmingham.

At 30 June 2018 Birmingham owed other clubs £8 million for outstanding transfers and another £5.7 million is payable if certain conditions are satisfied (such as promotion to the Premier League).

Investment

Club owners can invest three ways, sponsorship, lending or buying shares. The renaming of the stadium in the summer of 2018 suggests Trillion is trying to reduce FFP losses by using this route, although the EFL will be doing their best to ensure only a ‘market’ rate is allocated to when calculating the allowable loss.

The club parent borrowed about £13 million in 2018.

Summary

Birmingham gambled on Harry Redknapp weaving some magic in 2017/18 and that the consequences of non-promotion wouldn’t apply to them. This might have been because they saw the EFL taking a soft line with QPR, Bournemouth and Leicester for FFP abuses in recent years.

Whether the EFL do have teeth is still to be seen, but there will be many other clubs watching with close interest.

Data Set

Manchester United 2018 Finances: Made of Stone

Panic on the streets

Introduction

Tuesday 25th September 2018 may not go down as a great day in Manchester United’s history, as the club lost in the Carabao Cup to Derby County and there was a very public spat between Jose Mourinho and Paul Pogba, but off the field the club announced record revenues for the year ended 30 June 2018.

They’re paying Woodward HOW much?

How this was achieved is more to do with the abilities of the marketing department which continues to set a standard that most other clubs can only envy.

Earnings this high are likely to ensure that United are once again top or close to the top of the Football Money League when other clubs announce their results, although this is of little consolation to fans who saw their team go without a trophy in 2017/18.

Goals rather than profits excite fans, although the financial results show that United are still setting the standard that others aspire to in terms of generating money.

Losing a match in the Carabao Cup is likely to have little impact on United’s financial fortunes, as the competition generates only £100,000 prize money for the competition winners, compared to £1.8 million for the FA Cup and £38.6 million for the Premier League.

Income

All clubs divide their income into three main streams, matchday, broadcasting and commercial.

Zooming in on the figures show that United’s matchday income fell by £1.8 million last year.

Extracting the matchday income is straightforward, as it is the average ticket price multiplied by the number of matches played at home.

Reducing the number of games at Old Trafford in 2017/18 was the main driver of the fall in income as United’s early exit in the Champions League to Sevilla resulted in five fewer home matches.

Since acquiring the club, the Glazers, whilst criticised for many of their early pricing activities by fans, have frozen matchday prices for most of the last decade and this is reflected in matchday income being relatively constant.

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As a member of the Premier League, United, like all clubs, agree to centrally negotiated broadcasting deals which are usually for three-year periods which commenced in 2014 and 2017.

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Reds fans are used to rarely seeing their team play at 3pm on a Saturday, and this is because United are very popular with TV audiences, appearing more times last season than Champions Manchester City due to their ability to deliver high ratings.

Each incremental final season position in the Premier League is worth an extra £2 million to a club, so United finishing 4th compared to 2nd in 2017 generated £4 million on top of the benefits of being in the Champions League compared to the Europa Cup.

The area in which United have excelled over the last decade has been commercial income as the club’s marketing department has struck global and regional deals with everyone from tractor manufacturers to Indonesian isotonic drink partners.

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Whilst commercial income has plateaued in the last three years, mainly due to the new big deals with adidas and Chevrolet both being long term, United have announced a sleeve sponsor deal for 2018/19 with American toilet and generator manufacturer Kohler which is likely to be worth many millions.

Adding all three income sources together took United to overall revenues of £590 million, a substantial way ahead of the only other club to have announced results for 2017/18, Manchester City.

The income gap between the two Manchester clubs has narrowed in 2018, but over the last decade United have generated over £1.1 billion more than City and far more than any other club in the Premier League.

Superior levels of income are however no guarantee of success in terms of trophies, a lot depends on how well a club spends its income.

Expenses

For most clubs the main expenses are going to be player related, in the form of wages and transfer fee amortisation.

United’s wage bill increased by 12% in 2017/18, despite paying no bonuses for winning trophies, the increase was due to new contracts for existing staff such as Jessie Lingard and Jose Mourinho as well as signing Alexis Sanchez in January for a contract estimated to cost the club £20-25 million a year.

City’s wage bill, which a few years ago was out of control as the club tried to attract players by paying above market rates, now show more modest rises since 2013 as the owners focus on FFP compliance and a breakeven model in terms of profitability.

Keeping players happy and recruiting new ones is always a challenge whilst not exceeding the wage budget but what United do have in their favour is good control of wages as a proportion of income.

Only a club with owners who were prepared to underwrite huge losses could have coped with City’s wage bill a few years ago, as wages peaked at £114 for every £100 of income in 2011 whereas United have always had one of the lowest wage control financial metrics since the Premier League started.

Funding transfers is another big outlay for clubs, and this is shown in the profit and loss account via the amortisation charge, which is the fee paid spread over the contract life.

For example, United paid Everton £75 million for Romelu Lukaku in July 2017 on a five-year contract, which works out as an annual amortisation cost of £15 million (£75m/5).

Every transfer fee is amortised, and the total is shown as an overall expense in the profit and loss account, United’s amortisation figure rose by 11% to £138 million.

Despite the amortisation figure rising substantially since Sir Alex Ferguson’s retirement in 2013 United have failed to win the Premier League or Champions League, which adds further weight to those who take the view that Ferguson was able to maximise results without breaking the bank.

Overall costs rose by 9% compared to just a 1.5% increase in income, which hit profits. Included in costs was £896,000 paid to United’s auditors, PriceWaterHouseCoopers (PWC) for the audit and ‘tax compliance services’. Ed Woodward is a former employee of…PWC.

Because the Glazers acquired United by borrowing huge sums of money, the club has historically paid large amounts of interest on loans. The good news for United is that these interest costs are falling as time progresses but have still sucked a large amount of money away from the playing budget over the years.

Over the last decade United’s net interest cost has been £447 million. In the early years of Glazer ownership, the club was seen to be risky borrower, and so ended up paying interest rates of up to 16.25%. As things improved, in part due to Alex Ferguson’s caution in the transfer budget the interest cost has fallen, but the club has now paid an estimated £785 million to banks since the takeover arose in 2005.

Other clubs, funded by their owners, such as Chelsea, Manchester City and Stoke City, have paid no interest on the sums advanced.

Profits

There are a variety of profit measures to consider when looking at a business, the good news for United is that the club has performed well regardless of the assessment method compared to most other clubs, but 2018 was poor compared to the previous year at Old Trafford.

Operating profit is simply income less day to day running costs excluding interest. This fell by 45% in 2018, as the increase in player costs exceeded the rise in income. United’s record operating profit was in 2009 when they sold Cristiano Ronaldo for a then world record fee and banked a huge profit on the transaction.

Compared to their local rivals, United have made £618 million of operating profits whereas City have lost £474 million.

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Some figures in the profit and loss account are erratic and so distort profits. These include gains on player sales, redundancy costs, legal settlements and so on. If these are stripped out we get EBIT (Earnings Before Interest and Tax), which reflects a more sustainable view of United as a business.

EBIT profits fell by nearly 60% to £28 million in 2017/18, again reflecting the club’s big investment in player costs that was not matched by income increases, along with the price of an early exit from the Champions League, which was worth $102 million in prize money to winners Real Madrid last season. The low EBIT figure in 2015 in the table shows the impact of not qualifying for the Champions League to United that season.

Stripping out the non-cash costs of transfer fee amortisation and depreciation gives EBITDA (Earnings Before Interest Tax Depreciation and Amortisation). United like to quote this figure in press releases as it excludes some key costs (interest to banks and player amortisation) and so tends to be a high number. Other analysts like EBITDA because they claim it is a cash proxy of profits as non-cash costs are ignored.

EBITDA fell by 12% to £177 million but was still the third largest in the club’s history.

United’s fiscal muscle is very much shown in the EBITDA figures, generating £1.3 billion of such profits in the last decade, a billion more than Manchester City.

The final profit figure to consider is profit before tax. This shows the impact of the Glazer’s borrowing so much money to finance their acquisition of the club. United’s profit before tax was £26 million, equivalent to Sanchez’s wages for the season. United have made £171 million in profits before tax over the decade, compared to City’s loss of £544 million in the same period.

Profits belong to the club owners, who have the choice of either reinvesting back into the club’s future or withdrawing in the form of a dividend. The Glazer’s are the biggest shareholders in United and they and other shareholders took £22 million of the profits for the year for themselves.

Player trading

United spent £163 million on new players in 2017/18, recruiting Lukaku, Matic, Lindelof and Sanchez, although the latter was part of a swap deal with Arsenal for Henrik Mkhitaryan.

This takes the club’s spending over the last decade to just over £1 billion. The problem for United, is that the transfer market is competitive and crowded, and City have spent £460 million more than them in the same period.

Many fans talk about ‘net spend’ when it comes to player trading, and here United are in an unusual position as unlike many other clubs they do not need to sell to buy.

Having said that their player sales in recent years have not been particularly lucrative, reflecting some acquisitions, such as Depay, Di Maria, Zaha and Babe who have failed to impress in a United shirt.

Since selling Cristiano Ronaldo in 2009, United have only made £86 million profits from player sales in the subsequent nine years. City have more than that in the last three years and Liverpool exceeded this sum from the sale of Coutinho last season.

What United do seem to have done is adopt a policy of signing players on credit rather than paying cash for them.

Since the Sir Alex days, the sums owed by the club have increased rapidly, from £11 million at the start of the decade to £258 million by June 2018. This may explain why the United board were so reluctant to allow Mourinho to sign more players in the 2018 summer transfer window, as so much was still owed for previous recruits.

Funding

Clubs can be funded from borrowing from a bank and/or owner investment in shares. Under the Glazers United borrowed over £1/2 billion from banks to buy the club from the previous owners.

Debt has both good and bad qualities, it is tax efficient and can multiply the original investment from owners but comes at a cost of the interest being paid and can lead to bankruptcy if payments are not made.

United’s borrowings have increased since 2014 but this is as much to do with the club taking out two loans in US dollars (one for $425 million and the other for $225 million) and sterling falling in value post Brexit as much as anything else.

Critics of United supremo Ed Woodward will query why the club has over £240 million of cash sitting in a bank account earning next to no interest, which perhaps would be better used to pay down the loans, where the interest rate being paid is higher.

A look at the loans appears to indicate that the money is not repayable to the banks until 2027 and 2025. Critics of Woodward point out that he’s an ex-banker and is more concerned with earning fees for his old chums in finance than doing what is best for United.

If United’s EBITDA profit falls below £65 million then they may have to pay interest penalties, but there appears to be little chance of that happening at present.

Summary

United are in a strong financial position. Woodward’s recent comment that “playing performance doesn’t really have a meaningful impact on what we can do on the commercial side of the business” won’t have gone down with the United faithful.

This is further evidenced by United’s board’s refusal to accede to Mourinho’s summer transfer requests suggesting that they don’t particular care, or need to care, what the fans think, and whether you’re a Red or ABU, that isn’t good for football.

Data Set

 

Hull City 2018: Eye of The Tiger

Introduction

Hull City Tigers Limited were the first club to submit their accounts to the government registrar for the 2017/18 season and reported a £24 million profit before tax in the business review. Both the above look good, but things happen for a reason, and there’s more to the early publication and impressive profit than perhaps meets the eye.

In the strategic report the board say the following…

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Hull finished 18th last season, yet scored 70 goals, which was only surpassed by three teams, and conceded 70 too, which was only surpassed by four. They currently lie 21st after nine games, and the former Scunthorpe United physio has not managed to improve their fortunes.

Income

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

Hull’s matchday income fell by 35% last season to £5.1 million, which was 9% of the club’s total income.

This was mainly due to a fall in attendances from 18,062 to 12,447. Attendances were the lowest for many years, reflecting poor performance on the pitch along with a deteriorating relationship between owner Assem Allam and a section of the fanbase.

A final position of 18th, following relegation the previous season from the Premier League was far below expectations.

Since Allam acquired the club attendances have been up and down like a newlywed’s knickers, broadly in line with the division in which the club has been playing, this makes it difficult to work out the size of the club’s ‘core’ fanbase.

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The attendance figure is confusing, as the stated attendances given out during the season averaged 15,622. The 3,000+ difference could be due to the number of non-shows from fans, mainly season ticket holders, unhappy about the running of the club. Since the Allam’s acquired Hull

Compared to the rest of the division the previous season, Hull’s matchday income was mid table.

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Broadcast income for clubs in the Championship varies significantly due to parachute payments. Hull received over £41 million from the Premier League, out of total broadcast income of £45.6 million. This sum will fall by about £10 million in 2018/19, and unless the club is promoted back to the Premier League will then decline to about £6.5 million in the Championship (or should the worst occur, £700,000 in League One).

Hull generated over 80% of their income from TV monies, this is broadly in line with figures since Allam bought the club but could change dramatically next season.

Hull have been in the Premier League or in receipt of parachute payments throughout the decade, resulting in TV income contributing £305 million out of the £401 million the club have earned as income during the Allam era.

Parachute payments are a double-edged sword, clubs need to have them as an insurance policy when in the EPL as even with relegation wage clauses many would go into administration if they were unavailable. The research suggests that they are worth about 6-8 points of an advantage on average to clubs who are receiving them. This has not stopped clubs in recent years being promoted whilst not in receipt of parachute payments though, as fans of Huddersfield, Brighton, Blackpool, Watford and Palace etc. will testify.

Commercial income fell by over 60%, reflecting the difficulty the commercial department has when selling packages to sponsors when the opponents are the likes of Burton and Reading compared to Manchester United and Liverpool.

The poisonous relationship between the board and the fanbase was also a contributory factor as sponsors are reluctant to have their brand associated with a business that is unpopular.

It’s very difficult to plan for any business when income levels are erratic, and Hull’s recent bouncing between divisions alongside an owner who seems to have fallen out of love with the club has restricted the ability of the management team to create a strategy for stability.

Costs

Player costs

Hull’s main costs, like those of nearly all clubs, were in relation to players, in two forms, wages and amortisation. Initially Hull appear to have excellent wage control compared to the rest of the division, as they managed to halve staff costs compared to the previous season due to a combination of relegation clauses and player sales.

The club paid out only £55 in wages for every £100 of income, broadly the same as the previous season. The downside to this was that this meant recruiting players who weren’t able to compete for a top six place.

In the Championship in 2016/17 practically every pound in income was paid out in wages. Hull have the lowest wage to income ratio in the division in 2018/18, which will be of little comfort to fans, whilst keeping Allam and the bank manager happy.

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. For example, when Hull signed Kevin Stewart from Liverpool in the summer of 2017 for £4 million on a three-year deal, this works out as an annual amortisation cost of £1.33 million. The amortisation cost in the profit and loss account represents the total for all players signed for fees in previous seasons.

Hull’s amortisation cost fell by over 60% in 2017/18 due to the club selling players signed for the Premier League season being moved on. A close up of a map Description generated with very high confidence

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Even with the decrease in 2017/18 Hull’s amortisation figure would have been in the top half dozen compared to the Championship the previous season.

Adding amortisation and depreciation together gives us total player cost of just over £43 million, which is 77% of income.

This again compares well financially to the other teams in the division but does nothing for the fans who were watching the team week in week out last season at the arse end of the table.

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One cost that is a bit unusual is that of property rent. Since the Allam’s took control of the club this has increased every year (apart from 2014) by 10% a year. It would be interesting to find out who is the landlord, and for how many further years there is this step increase in rent costs, which have almost doubled since 2011.

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Profit

Profit is income less costs, but it contains lots of layers and estimated figures. Hull, like all clubs, show a variety of profit measures in their accounts, so they need a bit of explanation.

Operating profit is income less all the running costs of the club except loan interest. It is a ‘dirty’ profit measure in that it includes one-off non-recurring costs that are a bit bobbins when trying to work out long term sustainable profitability.

The good news for Hull is that during the period of the Allam ownership the club has made operating profits on nearly £26 million. How much of this is due to the skill of the owners is questionable.

Total operating losses in the Championship in 2016/17 were £260 million, so Hull’s finances appear to be far healthier than those of their competitors. If these profits were invested wisely in the playing squad then the club should have been in a strong position to compete this season, but this does not appear to be the case.

A bit driver of Hull’s financial success here is profits from player sales. The likes of Clucas and Maguire have been major income sources for the club. Over the last four years Hull have made £83 million in profits from player sales, without these the club would have made a loss.

Stripping out player sale profits and other non-recurring items (redundancies, legal cases, debt write offs etc.) gives a more valid profit measure called EBIT (Earnings Before Interest and Tax).

For Hull this was a loss of over £100,000 a week in 2017/18, despite the benefits of parachute payments.

Hull’s EBIT profits mirror the club’s seasons in the Premier League, which were profitable, and the Championship, which were loss making.

Nearly every club in the Championship has significant EBIT losses, which were £392 million in 2017, as many owners gambled on spending big to try to secure promotion to ‘the promised land’ of the Premier League, which in reality is a series of severe spankings by big clubs interspersed with celebrating like a loon when beating the likes of Swansea and Bournemouth.

If non-cash costs such as amortisation and depreciation (depreciation is 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.

We have calculated Hull’s EBITDA profit at £7.5 million (although Hull put on their accounts that it is £8.2 million), which shows that the club is generating cash from its day to day activities, although as said before, this is mainly driven by parachute payments.

Hull have made total EBITDA profits of £83 million under the Allam regime.

Once trading costs have been paid, many clubs also have to pay interest on their borrowings. Hull historically have had a mixture of bank loans and those from Allamhouse Ltd, the holding company owned by Assam Allam.

The interest cost in 2018 was about £50,000 a week and has totalled £21 million since Allam took over. It is not possible to work out how much, if any, of this interest has been paid to AllamHouse. In most sets of accounts there is usually a footnote called ‘related party transactions, which details transactions with owners, but this does not appear in the Hull City accounts.

Player Trading

Hull spent £16.9 million on new players in the year to 30 June 2018, which may come as a surprise to fans.

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

The Allam’s initially did invest in the squad, but it’s noticeable that in the last three years sales have exceeded purchases, this may be connected to their alleged gradual loss of interest in the club.

Clubs selling players in the Championship is a common issue though as trading losses have to be minimised.

Investment

Club owners can invest three ways, sponsorship, lending or buying shares. The club has not issued any shares since being taken over but has borrowed a total of £111 million from both the owners and banks. The bank loans have now been paid, off, leaving outstanding loans of £63 million to Allamhouse.

The bank loan of £21 million was repaid during the last year. This will make the sale of the club easier as there are fewer secured creditors to deal with .

Summary

Hull’s finances as a club receiving parachute payments look very solid and far better than almost any other club in the Championship. The goose that lays those particular golden eggs is about to stop though, and the club’s income is likely to fall by at least £10 million this season and a further £30 million in 2019/20.

For this reason it is probably best for all concerned that the club is sold to owners who can have a constructive relationship with fans and agree a reasonable set of expectations.

Continuing to call the club Hull City Tigers Limited, after failing to get the FA to rubberstampt a name change to the club is both petty and provocative.

The first thing any new owner should do if wanting to win hearts and minds is to change the company name back to Hull City AFC (or similar) Limited.

The biggest problem in relation to Hull is agreeing a sale price. The Allam’s have put money in, although their motives and commitment are confusing.

As a Premier League club Hull City was probably worth about £170 million according to our calculations. As a Championship Club on gates of 12,000 a true value is probably around £35 million. The Allams will probably want to recoup at least the £63 million that is owing to them (plus whatever they paid for the shares) and bridging this gap will be very difficult as the club simply isn’t worth the higher sum.

Data Set

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.

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