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

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

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

There are three companies involved in the running of Burnley

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

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

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

Executive summary of key figures (Burnley FC Holdings Limited)

Income £121.2 million (up 203%)

Broadcasting income £105 million (up 254%)

Wages £61.2 million (up 126%)

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

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

Player sales £1.8 million

Borrowings: None

Income

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Cost

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

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

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

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

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

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

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

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

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

Profits and losses

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

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

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

Player trading

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

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

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

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

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

Debts to and from the club

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

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

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

Summary

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

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

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

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

Data Set

Huddersfield Town: The Model

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

Summary of key figures (Huddersfield Town Association Football Club Limited

Income £15.8 million (up 40%)

Broadcasting income £7.5 million (up 54%)

Wages £16.5 million (up 32%)

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

Player purchases £6.6 million

Player sales £1.3 million

Borrowings £53.1 million (Thanks to Uncle Dean!)

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

Income

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Costs

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

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

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

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

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

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

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

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

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

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

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

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

Profits and losses

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

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

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

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

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

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

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

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

Player trading

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

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

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

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

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

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

Debts to and from the club

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

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

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

Summary

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

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

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

Data Set

Leeds United 2017: Cardboard box? You were lucky…

It may seem an unusual thing to say, but we feel a bit sorry for many Leeds fans. They’ve been shafted more times than Linda Lovelace in Deep Throat and were once so desperate for an owner they even cheered when Ken Bates took over the club.

2016/17 proved to Massimo Cellino’s reign of jaw dropping entertainment at Elland Road, as the colourful (crooked) Italian sold initially 50%, then the whole of the club to fellow Italian Andrea Radrizziani.

Fans were initially excited about the change of control, as Cellino had been tight with the cash (something that most Yorkshire folk would usually approve of) during his time at the club.

Summary of key figures

Income £34.1 million (up 13%)

Broadcasting income £7.6 million (up 45%)

Wages £20.7 million (up 14%)

Loss before player sales £8.8 million (up 26%)

Player purchases £6.8 million

Player sales £9.0 million

Borrowings £25.1 million

Income

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

Leeds generated the highest earnings of the non-parachute payment receiving clubs, but this was not enough to get the club into a playoff position, although Brighton and Huddersfield, both of whom were not in receipt of parachute payments, were promoted, and Sheffield Wednesday made the playoffs.

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

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

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

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

Leeds have shown growth in the all three income areas, but to give some context, their income of £34.1 million is still nearly £8 million less than their final season in the Premier League in 2003/4, when income was £41.9 million.

Matchday income in 2016/17 was up 24%, as the average attendance increased by 6,000 to 27,698 as the club just failed to reach the Championship playoffs. Cellino’s promise of a 25% reduction in season ticket prices for the following season if the club failed to reach the playoffs also contributed to this increase. This could have a knock-on effect on matchday income for 2017/18.

The club have kept prices relatively static for a few years and generated £367 per fan from matchday sales.

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

Broadcast income was up 45% to £7.6 million. The baseline figure for clubs in the Championship is about £6.3 million, plus an additional £100,000 for every home, and £10,000 for every away game that is broadcast live on Sky. Leeds are always popular with Sky as they generate decent viewing figures.

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

Leeds commercial income fell slightly but is still an impressive £16.4 million. This figure is distorted to a degree since 2015, when Massimo Cellino threw one of his hissy fits and took the catering income in house (it had previously been outsourced), which was responsible for nearly all of the increase from 2015 to 2016 in this area.

Costs

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

Leeds wages increased by 14% in 2016/17, as new contracts for existing players plus some fresh signings increased the costs.

Leeds wage bill places it in the bottom third of clubs in the Championship in 2016/17. Whilst it won’t surprise fans that clubs in receipt of parachute payments are paying out big money still in player wages, we suspect a few Yorkshire eyebrows will be raised when they see their club behind the likes of Sheffield Wednesday, Bristol City and Birmingham (although with ‘Triffic’ Harry Redknapp in charge of the latter for a while in 2016/17, perhaps not so surprised by that club paying out more money to players).

For a club in the Championship to be paying wages that are effectively the same as five seasons previously is unusual. Most clubs get sucked into the vortex of trying to attract new players with more money and this becomes self-perpetuating.

Leeds paid out £61 in wages for every £100 in income. This was the second lowest ratio in the Championship, and Reading’s would have been far higher had they not been in receipt of parachute payments. This figure has fallen significantly under Cellino, partly due to the increase in catering income figure but also because he was clearly keen on keeping costs as low as possible with a view to selling the club to a new owner.

Over half the clubs in the Championship pay out more money in wages than they generate in income. This is under the auspices of Financial Fair Play (FFP). It is scary to think what would happen if FFP didn’t exist.

Amortisation is how clubs deal with transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract. Therefore, when Leeds signed Kemar Roofe from Oxford United for £3 million on a four year contract the amortisation charge was £750,000 a year for four years (£3m/4). The amortisation fee in the profit and loss account therefore includes all players who have been signed for a fee (assuming they are still in their initial contract).

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

If the amortisation costs are added to wages, then total player costs for Leeds in 2016/17 were £76 for every £100 of income. This again suggests the club is relatively tight (no doubt Leeds fans will say ‘careful’ rather than ‘tight’ in terms of spending whatever it takes in terms of player investment to get back into the Premier League. There are many clubs who are spending £140 plus on this area.

One cost that Leeds have which is not common to all clubs is rent. The club paid £2.1 million in rent during 2016/17 for Elland Road and other facilities. The club did say that they had repurchased Elland Road on 28 June 2017, but there is no sign of this in the accounts or the strategic review of the year which was signed off by Radrizzani on 2nd March 2018.

http://www.bbc.co.uk/sport/football/40433193

A screenshot of a cell phone Description generated with very high confidence

A further look at the club website reveals that Greenfield Investment Pte Ltd, also owned by Radrizzani, and based in Hong Kong (we think) , are the actual owners of Elland Road, so it’s not quite as transparent as it initially seems. Greenfield are themselves owned by Aser Group pte Ltd in Singapore.

How much rent is being charged by this company to Leeds United Football Club Limited has not been revealed, however a note to the account suggests that rent will fall from over £2.1 million a year to about £760,000, which could mean extra money for the manager to spend on players and wages.

Leeds sources suggest that the rent is for Thorpe Arch rather than Elland Road itself.

Profits and losses

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

The good news is that they managed to sell Lewis Cook to Bournemouth, which brought in a profit of nearly £9 million, which offset the operating losses.

Operating losses are income less the running costs of the club (wages, maintenance, insurance, amortisation etc. and they are before deducting interest costs and player sale profits. In 2016/17 this worked out as £8.8 million, or £169,000 a week. This is slightly higher than the previous season, but still a lot of money to find on a regular basis. These losses are before taking into consideration the one-off cost player write down of £332,000, for someone who was signed for a fee but subsequently turned out to be a bit shite Christian Benteke. We don’t know enough about Leeds to know who the player(s) might be, but Leeds fans will no doubt have a few suggestions.

The previous season Leeds had one-off costs of nearly £4 million in legal and other fees as Cellino fell out with kit suppliers Kappa, previous employees, Sky TV, the Football League and anyone else who didn’t share the enlightened views of the Italian tax evader.

Being in the Championship is tough financially, and this is reflected in Leeds losses over the past few years.

Their total losses for the last five seasons are nearly £56 million, and this excludes one off costs of £6.4 million during that period too.

Fortunately for Leeds the club have managed to sell players on a regular basis at a profit of £25 million during this period, but it still leaves a substantial loss.

Under FFP rules, Championship clubs can make a maximum FFP loss of £39 million over three years in the Championship. Leeds have a pre-tax loss of just £10.2 million over the three-year period, helped by profits on player sales of £21.5 million over that period.

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

Assuming that Leeds have not gone crazy in terms of higher wage deals in 2017/18, they should be in a much stronger position than most clubs in the division in the forthcoming transfer windows.

This is because many clubs have spent big and gambled on promotion this season (2017/18) and will have to scale back investment in the next few windows to ensure FFP compliance. There is a caveat here, this will all depend on the extent to which the owner is willing to back the Leeds manager in the transfer market during the next couple of windows.

Player trading

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

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

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

Over the last five years Leeds have bought players for £26.3 million and generated sales of £27.1 million. This is before the sale of Chris Wood to Burnley in summer 2017.

If Leeds are promoted to the Premier League there are additional transfer fees of £6.3 million payable, as well as player bonuses of over £16 million.

Debts to and from the club

Trying to make out the extent of Leeds debts is tricky. The easy bit is player transfers, where the club is owed £7.8 million (likely to be Bournemouth for Cook) and owe other clubs about £3.9 million.

The club is owed a mysterious £2.3 million in the form of ‘other debtors’ that the club is pursuing through the courts. Who this party is we don’t know, although Leeds fans will no doubt be able to point the finger at the party involved, and that finger is mainly being pointed at former owners GFH, who apparently have some contested debts. Whilst the outcome of the dispute is uncertain, one this is guaranteed, the lawyers will make plenty of brass from the dispute.

The club borrowed £16.5 million in the year, mainly from the owner, although £5 million of this was converted into shares. Total borrowings look to be about £25 million of which £14.5 million is to the owner.

Summary

The Cellino regime of chaos ending was a positive for Leeds in 2016/17. New owner Andrea Radrizzani had a huge amount of initial goodwill which has evaporated to a degree as the club has dropped from top of the table to nowhere in the past few months. This, coupled with the new club crest which turned the club into a laughing stock has meant that the upcoming summer is an opportunity to rebuild bridges with the fan base.

The good news is that the club is in an excellent position to invest heavily in the player market due to being significantly under the FFP loss limit. The big question is whether the owner will be prepared to dig deep and spend to bring in the calibre of player required for Leeds to be promotion contenders in 2018/19.

Data Set

Fulham: Tiger Feet

Fulham 2017

Trying to work out the exact state of Fulham’s finances isn’t easy. You would think that the logical place would be Fulham Football Club Limited, but this company doesn’t appear to own Craven Cottage. A bit of ferreting around leads to Fulham Football Leisure Limited, which owns not just the Football Club Limited but also Fulham Stadium Limited (for Craven Cottage) and FL Property Management Limited (for the training ground) and an Irish based Motspur Park Ltd (also for the training ground).

We were just about to analyse these figures when up popped the groovy sounding Cougar Holdco London Ltd, which was created when Fulham Owner Shahid Khan bought the club from Mohamed ‘Fuggin’ Al-Fayed in 2013. It’s therefore this final company that we will concentrate on in the analysis.

Summary of key figures

Fulham were relegated from the Premier League in 2014, so the year ended 30 June 2017 was their third, and penultimate, in which they receive parachute payments.

Income £34.9 million (down 3%)

Broadcasting income £21 million (down 15%)

Wages £37.1 million (up 3%)

Loss before player sales £30.1 million (up 54%)

Player purchases £24.9 million

Player sales £22.5 million

Borrowings £152.8 million

Income

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

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

The main reason for the increase is due to a combination of higher parachute payments, a new TV deal in the Premier League, which drips down to the Championship in what are called ‘Solidarity Payments. Championship clubs earn about £4.3 million a year from solidarity payments, plus their earnings from the Football League TV deal which are worth a minimum of a further £2 million.

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

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

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The table shows how much Fulham benefitted from being in the Premier League until 2014, when it peaked at £91 million.

Matchday income in 2016/17 was up 17%, as the average attendance increased by an average of 1,500 to 19,200 as the club reached the Championship playoffs.

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Fulham are in the top half of the division in terms of matchday income, due to a combination of reasonable crowds and being able to charge London prices. Having said that, matchday income accounts for less than £1 every 5 of Fulham’s overall income.

Broadcast income was down 15% to £21 million. This was due to the nature in which parachute payments are paid to clubs, which are half in years three and four of those in year two. Fulham will receive the same amount of broadcast income this (2017/18) season as last year, but their parachute period then finishes.

From 2018/19 onwards, broadcast income will be about £6.3 million a season, although the club gets an additional £100,000 for every home, and £10,000 for every away game that is broadcast live on Sky.

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

Commercial income increased by a quarter, although that figure is distorted slightly by Fulham receiving nearly £1.3 million in mysteriously named ‘compensation’

Costs

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

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Fulham’s wages fell by about 45% after being relegated from the Premier League and have stayed steady in the Championship since then. It’s likely that they will be broadly static for 2017/18 too but will then have to be reduced as parachute payments will disappear from next season.

Fulham’s wages are the third lowest in the division, behind those of the two clubs relegated from the Premier League in 2016/17. We would expect Newcastle’s wage bill to be close to that of Villa, except with a few more win bonuses.

Fulham paid out £106 in wages for every £100 in income. This means there is nothing left over to pay the overheads of running the club, which effectively are being paid for by the club owners. This ratio has increased since relegation as income has fallen due to the decline in parachute payments.

Fulham are not however alone in the Championship in paying out more money in wages than they generate in income as over half the clubs in the division have the same predicament.

Amortisation is how clubs deal with transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract. Therefore, when Fulham signed Tom Cairney from Blackburn for £4 million on a four year contract the amortisation charge was £1 million a year for four years (£4m/4). The amortisation fee in the profit and loss account therefore includes all players who have been signed for a fee (assuming they are still in their initial contract).

Fulham’s total amortisation charge more than doubled to £13.7 million, reflecting the club’s ambition in signing players in 2016/17 who they hoped would achieve promotion.

If the amortisation costs are added to wages, then total player costs for Fulham in 2016/17 were £145 for every £100 of income. This again suggests the club is spending whatever it takes in terms of player investment to get back into the Premier League.

Profits and losses

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

The good news is that they managed to sell legendary pie eater Ross “Where’s the keys to my front drive” McCormack to Villa for about £12 million and Konstantinos Mitroglou to Benfica for about £6 million, plus the likes of Smith, Pringle and Stekelenburg, bringing in a profit of over £17 million on these deals, which will help the club in terms of FFP compliance.

Operating losses are income less the running costs of the club (wages, maintenance, insurance, amortisation etc. and they are before deducting interest costs and player sale profits. In 2016/17 this worked out as £30.1 million, or £579,000 a week. These losses are before taking into consideration the one-off cost of £7.1 million the club incurred when writing off £7.1 million of stadium development costs and a £1.5 million write down in player values, who were signed for fees but subsequently turned out to be a bit Andy Carroll.

Even when in the Premier League, Fulham have struggled to make a profit without selling players.

Their total losses for the last five seasons are nearly £110 million, and this excludes one off costs during that period too.

Fortunately for Fulham the club have managed to sell players on a regular basis at a profit of £51 million during this period, but it still leaves a substantial loss.

Under FFP rules, Championship clubs can make a maximum FFP loss of £39 million over three years in the Championship. Fulham have a pre-tax loss of £62.1 million over the three-year period, even after considering gains on player sales of £29 million.

Fortunately, some costs, such as infrastructure, academy and community schemes, are excluded from the FFP calculations. Fulham have a category one academy, which costs about £5 million a year to run, so this, combined with other allowable costs, should allow the club to sneak in under the FFP limit for the three years ending June 2017. Once parachute payments end the club will have to do some serious cost cutting, or sell the likes of Cairney and Sessegnon, to avoid a breach of the rules.

Player trading

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

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

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

Over the last five years Fulham have bought players for £101 million and generated sales of £63 million.

The footnotes to the accounts show that the club also spent a net £3.3 million in the 2017/18 transfer window.

Owner Investment

When the Shahid Khan took over Fulham, the club had debts of £21 million. Since then he has paid £44 million for shares and lent the club a further £199 million up to 30 June 2017. Some of these loans have been converted into shares during that period.

Summary

Shahid Khan has invested significantly in Fulham since acquiring the club, but it’s return to the Premier League is uncertain. Whilst many independent observers would be delighted if the club went up this season, just to see the tantrum thrown by Neil Warnock at Cardiff if it happened, failure to do so in 2017/18 would cause a major operational reorganisation to ensure compliance with FFP, and a breakup of the team that has been playing excellently recently.

Data Set

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Blackburn Rovers: Look what you could have won

Key Figures

Rovers became the first Premier League winners to be relegated to the third tier in May 2017, and their annual accounts aren’t going to put a smile on fans’ faces either.

Income £14.9 million (down 32%)

Wages £22.0 million (down 13%)

Loss before player sales £13.7 million (down 17%)

Player purchases £1.3 million

Player sales £11.1 million

Borrowings £112.8 million

The club was acquired by Venkateshwara Hatcheries Pvt Ltd in October 2010, so this analysis concentrates on the club’s finances under their ownership.

Income

2016/17 was the first season Blackburn did not have the benefit of parachute payments.

Not all clubs have announced their results for 2016/17 yet, but most clubs are showing higher income than in the previous season. The average income of the 17 clubs that have reported to date (which excludes some big hitters such as Newcastle and Dirty Leeds) is £31 million.

In 2015/16 the average for a Championship club was £23 million. The main reason for the increase is due to a combination of higher parachute payments, a new TV deal in the Premier League, which drips down to the Championship in what are called ‘Solidarity Payments. Championship clubs earn about £4.3 million a year from solidarity payments, plus their earnings from the Football League TV deal which are worth a minimum of a further £2 million.

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

The table shows how much Rovers benefitted from being in the Premier League in the first couple of seasons under the Venky’s ownership, but also how much the club was reliant on parachute payments for the next four seasons.

Matchday income in 2016/17 was down 6%, as crowds fell by an average of 1,500 to 12,600 as the club slid to relegation.

Rovers are in the bottom quartiles in terms of matchday income and combined with no parachute payments, in the era of FFP this puts them at a disadvantage when competing for players.

Broadcast income was down 50% to £6.7 million. This was due to the Rovers’ four-year receipt of parachute payments finishing the previous season, combined with the club rarely appearing on Sky at Ewood, which is worth £100,000 a match. As a consequence, the club has the second lowest broadcast income total in the division.

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

Things will be far worse in League One, as solidarity payments are only worth about £650,000 in this division.

Commercial income fell only by 3%, which, given Rovers relative lack of appeal to commercial partners, is probably a reasonable effort. What is unclear is how much of this is from the club’s holding company Venky’s London Limited.

The accounts do contain a mysterious note tucked away on page 29 of the accounts, by which time most right-minded people will have lost all interest.

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The note shows that Rovers received £3.7 million from the parent company, if this is included in commercial income then there’s not a lot of money being generated from other commercial relationships.

Overall broadcasting income is still the biggest contributor to Rovers’ coffers, although it is not contributing three quarters of the club’s income as when the club was in the Premier League.

Costs

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

Rovers wages have more than halved since they were in the last in the Premier League, but the rate of decrease is not as fast as the club’s fall in income.

Wages fell by 13% and are quite low by Championship standards, where the average for last season was about £27.1 million. Clubs such as Sheffield Wednesday, Brighton and Forest, all of whom also do not receive parachute payments, paid out significantly higher sums for wages last season.

Whilst Rovers’ wage bill is towards the bottom of the scale in the Championship, they are still paying out a lot of money compared to the club’s income.

The above graph shows how much the club has been paying out in wages compared to income. In 2016/17 Rovers paid out £147 in wages for every £100 of income. This means that the owners, the Venkys, whilst as popular in Lancashire as a fart in a spacesuit, were not only subsidising the wages to players, but also paying for all the other costs incurred by the club too, such as ground maintenance, electricity for the floodlights and insurance etc.

Since acquiring the club Rovers have generated £228 million of income but spent £248 million in wages under the Venky’s.

The Championship is a car crash of a division, and in 2015/6 the wages/income ratio was 101% for the division as a whole.

It will give Rovers fans little solace in the year they were relegated, but at present they stand at the top of the wages control % table for 2016/17.

Brighton, who are second in the table, had £9 million of promotion bonuses in their wage total which distorted the figure, and also had the enjoyment of being promoted last season.

Amortisation is how clubs deal with transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract. Therefore, when Rovers signed Jordan Rhodes for £8 million from Huddersfield on a five year contract the amortisation charge of £1.6 million a year for five years (£8m/5). The amortisation fee in the profit and loss account therefore includes all players who have been signed for a fee (assuming they are still in their initial contract).

Wolves total amortisation charge was £0.7 million, a decrease of 2/3 on the previous season and less than a tenth of the initial years under the Venky’s.

Whilst some will see this as prudent cost cutting, it also suggests that the club have been signing players at the bargain bin level, which means that the chances of selling them at a profit is also diminished.

Losses

Losses are income less costs. The bad news for Rovers is that the club lost a lot of money last season from day to day trading. The good news is that they sold Grant Hanley (to promoted Newcastle) and Shane Duffy (to promoted Brighton) at a combined profit of £10.4 million to offset the day to day losses, which will help the club in terms of FFP compliance.

Operating losses are income less the running costs of the club (wages, maintenance, insurance, amortisation etc. and they are before deducting interest costs. In 2016/17 this worked out as £13.7 million, or £263,000 a week.

In the seven seasons under the Venky’s, two of which were in the Premier League, and four of which the club were in receipt of parachute payments, Rovers have lost £136 million.

The club have managed to sell players on a regular basis at a profit of £38 million during this period, but it still leaves a substantial loss.

Under FFP rules, Championship clubs can make a maximum FFP loss of £39 million over three years in the Championship. Rovers have a pre-tax loss of £25.9 million over the three year period, mainly due to gains on player sales of £30 million, which prevented them breaching FFP.

Fortunately, some costs, such as infrastructure, academy and community schemes, are excluded from the FFP calculations. Rovers have a category one academy, which costs about £5 million a year to run, so this, combined with other allowable costs, should ensure the club has some leeway in terms of meeting the FFP target.

In League One the FFP rules are different, with players wages being not allowed to exceed 60% of income, but the rules are slightly relaxed for relegated clubs.

Player trading

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

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

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

Under the Venky’s Rovers have bought players for £47 million and generated sales of £57 million. Whilst this has been good for FFP purposes, the chances of the production line of players that can be sold for substantial fees continuing is remote, as evidenced by a footnote to the financials for 2016/17.

The note shows that Rovers had no transfer income during the 2017/18 summer window.

Debt

When the Venky’s took over Rovers, the club had debts of £21 million. Since then the debts have increased nearly every year, and now stand at just under £113 million, and would have been far higher had it not been for player sales in the last two seasons.

Summary

Under the Venky’s, Rovers have both been relegated and squandered their parachute payments. From an independent observer’s perspective the decision making of the owners seems baffling. They seem happy to underwrite losses running into hundreds of thousands of pounds per week for no benefit, financial or in terms of brand awareness of their main business in Indian poultry.

At least Rovers time in League One looks like being a brief one, as losses would potentially increase given the lack of TV money their compared to the Championship. If the club is promoted, the financial strategy of the owners is best described as ‘unpredictable’. Will they do a Fosun at Wolves and go for broke to be promoted, or try to get Rovers on an even keel financially?

Data Set

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Wolves 2016/17: Far Far Away

Introduction

Wolves have been sensational in the EFL Championship this season, and this has prompted critics to question the role of superagent Jorge Mendes, and the owners Fosun International, who acquired the club in 2016.

We’ve taken a look at how the club has fared financially in the first year of Fosun’s ownership, and its position in terms of Financial Fair Play (FFP).

The club has just announced losses of over £23 million for 2016/17, but that doesn’t seem to have stopped its spending, so are they breaking the rules?

Income

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Not all clubs have announced their results for 2016/17 yet, but most clubs are showing higher income than in the previous season. The average income of the 16 clubs that have reported to date (which excludes some big hitters such as Newcastle and Leeds) is £32 million.

In 2015/16 the average for a Championship club was £23 million. The main reason for the increase is due to a combination of higher parachute payments, along with a new TV deal in the Premier League, which drips down to the Championship in what are called ‘Solidarity Payments.

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

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The table shows how much Wolves benefitted from being in the Premier League in 2011/12 but also how much the club was reliant on parachute payments for the next four seasons. Those parachute payments expiring in 2015/16 are partially responsible for the significant losses recently released.

Matchday income in 2016/17 was up 22%, as fans bought into the investment by Fosun in the playing squad. Finishing 15th was therefore meant that the club failed to meet expectations of all concerned on the pitch.

Attendances averaged just over 21,500, up about 1,300 on the previous season.

Broadcast income was down 42%. This was due to the Wolves four-year receipt of parachute payments finishing the previous season.

The situation would have been worse but luckily the club was fortunate that the Premier League signed a new TV deal for 2017/18, and a fixed percentage of this is allocated to the EFL in what are called solidarity payments. This was worth about an extra £1 million to all clubs in the Championship, peanuts by Premier League standards, but still very useful to those further down the food chain.

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Wolves’ commercial income was the biggest contributor, which is unusual for a football club. Commercial income was up 15%, how much, if any, of this is due to deals signed with Fosun related companies is unknown.

Some clubs in the Championship generate up to 85% of their income from broadcasting, mainly due to the receipt of parachute payments.

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Costs

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

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Wolves wages almost halved from 2012 to 2014 as the club fell from the Premier League to the League One. Whilst this was tough to take for fans, it did allow the club to jettison some deadwood during that period, such as Jamie O’Hara, who was allegedly being paid a seven figure sum a year whilst playing for the club’s reserves in League One, a situation that troubled him so much he was forced to have affairs with random women whilst his former Miss England Danielle Lloyd was taking the bins out at home.

For the first two seasons back in the Championship Wolves showed restraint in terms of wage spending. The arrival of Fosun and Mendes resulted in wages increasing by 55% last season.

Whilst there are many sniping at Wolves for this increased wage expenditure, the club is only marginally ahead of the average for the division of

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Wages fell by a quarter but are still reasonably high by Championship standards, where the average for last season was about £27.3 million. Clubs such as Sheffield Wednesday, Brighton and Forest, all of whom also do not receive parachute payments, paid out higher sums for wages last season.

Amortisation is how clubs deal with transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract. Therefore, when Wolves signed Ivan Cavaleiro for £7 million from Monaco at the start of the season, but as he signed a five year contract the amortisation charge of £1.4 million a year for five years (£7m/5).

Wolves total amortisation charge was £7.6 million, 160% higher than the previous season, and higher than any other club not in receipt of parachute payments. It was still only a third of the amortisation of Villa though, who spend over £80 million on new players in 2016/17.

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Putting these two costs together highlights how much of a transformation arose in 2016/17. The previous season the club’s combined wages and amortisation cost represented £78 for every £100 of income, in 2016/17 this nearly doubled to £151 for every £100 of income.

With the investment in new players in 2017/18, this ratio is likely to increase further in 2017/18. It does suggest that Wolves are going for broke this season, which may mean that they would have to cut back substantially if promotion is not achieved, although their present lead over the team in third place is looking substantial.

Losses

Losses are income less costs. The bad news for Wolves is that the club lost a lot of money last. The good news is that profits were made in previous years, which will help the club in terms of FFP compliance.

Operating losses are the trading losses of a club, and they exclude interest costs. In 2016/17 this worked out as £22.6 million, which works out as £430,000 a week.

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It is these losses, and the subsequent purchasing of players for whom Mendes is the agent in 2017/18, that has caused so much grumbling from other chairmen in the Championship.

Such grumbles weren’t heard however when Wolves made far larger losses in 2012/13, although this could be that they finished bottom of the Championship that season and stank out the division.

Under FFP rules, Wolves can make a maximum FFP loss of £39 million over three years in the Championship. Wolves have an overall loss of £12.6 million over the three year period, so appear to be significantly within the limit. However, if losses are similar this season to 2017 then the three year total will rise to about £38 million. Add in interest costs on borrowings and the losses are likely to exceed £39 million.

Fortunately, some costs, such as infrastructure, academy and community schemes, are excluded from the FFP calculations. Wolves have a category one academy, which costs about £5 million a year to run, so this, combined with other allowable costs, should ensure the club has some leeway in terms of meeting the FFP target.

Player trading

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

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

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

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After three years of effective restraint, the arrival of new owners Fosun resulted in Wolves spending like drunk lottery winners in 2016/17. The club spent over £32 million on new players in 2016/17. In addition to this, hidden away in the footnotes to the accounts is revealed that the club spent a further £35 million in the present season.

This is likely to substantially increase the wage and amortisation charge, but Wolves will be able to offset against these costs the £7.3 million of profits on player sales, so should be within FFP limits.

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Debt

Fosun lent Wolves £21 million in 2016/17, but unlike the owners at West Ham, who have charged over £14 million in interest charges since acquiring the club, the loans are presently interest free.

It is likely that Fosun have lent further sums during the present season.

In addition to loans from the owners, whilst Wolves have spent a fortune on new players, most of this has been on credit.

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Wolves owed other clubs £23 million for player transfers at the end of the 2017 season, this is likely to be substantially higher at the end of the present season.

Summary

Wolves have been transformed financially following their takeover by Fosun. However, having cash to spend is one thing, and spending it well is another.

Fosun are worth £13 billion, so there is plenty of spare money to spend should they reach the Premier League. What is slightly concerning is the set up of hte group, with Wolves now being owned by a Fosun subsidiary based in the British Virgin Isles.

Last season, whilst there were big money signings, they didn’t have a positive impact on the league position. It looks as is that problem has been remedied for 2017/18.

The role of Jorge Mendes is intriguing, although one would wonder why someone who already represents Cristiano Ronaldo and Jose Mourinho needs to spent a lot of time in relation to having a significant involvement with a Championship club, as the snipers claim.

FFP will be an issue, but only if the club fails to be promoted to the Premier League this season. The club is likely to be within the limits for the three seasons ended 2017/18 if our calculations are correct.

Data Set

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QPR: Boys Don’t Cry

Introduction: In Between Days

QPR announced their financial results recently for 2016/17, which revealed that they made a loss of over £6 million before tax. Overhanging this is a potential Financial Fair Play (FFP) of somewhere between £40-50 million, which relates to their promotion in 2013/14 in the Championship, which has kept lawyers for both the club and the Football League (EFL) in riches for the last few years.

QPR’s accounts are possibly the most WTF figures in football, as large sums seem to appear and disappear at the whim of owner Tony Fernandes (isn’t he a Steve Coogan creation? Ed) and his entourage of billionaire chums who also own shares in the club.

Income: Never Enough

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Not all clubs have announced their results for 2016/17 yet, but most clubs are showing higher income than in the previous season. The average income of the 16 clubs that have reported to date (which excludes some big hitters such as Newcastle and Leeds) is £32 million.

In 2015/16 the average for a Championship club was £22.9 million. The main reason for the increase is due to a combination of higher parachute payments, along with a new TV deal in the Premier League, which drips down to the Championship in what are called ‘Solidarity Payments.

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

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The table shows how much Rangers benefitted from being in the Premier League in 2012/13 and 2014/15, but also how much the club is reliant on parachute payments now that they are back in the Championship.

Matchday income was down 5%, which is reasonable considering that Rangers finished 18th, crowds averaged 14,616, up 600 on the previous season.

Broadcast income was up 19%. This was due to the new Premier League TV deal which started in 2017/18. Parachute payments are a fixed percentage of the Premier League equal share payments. Parachute payments will however halve in 2017/18 to about £17.6 million for two seasons. After that date the club will then only be entitled to solidarity payments and a share of the EFL TV deal, which works out about £7 million a year.

QPR presently get about ¾ of their total income from parachute payments, but this will fall, and it’s important that they control costs whilst this is occurring.

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QPR’s commercial income rose 10% to £7.5 million. This was mainly due to new kit manufacturers and shirt sponsors.

Costs: Accuracy

The main costs at a football club are player related, wages and transfer fee amortisation. QPR’s policy since relegation in 2015 is different to when the same thing happened in 2013.

In 2013/14 the approach was to take on the Football League and FFP and pay whatever it took to return to the Premier League.

This time it appears that the club has concentrated on removing some big earners from the wage bill, either by selling players or allowing their contracts to expire.

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Wages fell by a quarter but are still reasonably high by Championship standards, where the average for last season was about £27.3 million.

Amortisation is how clubs deal with transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract. Therefore, when Leroy Fer from Norwich for about £9 million on a three-year deal, this works out at about £3 million as an amortisation cost each year.

QPR have spent over £64 million on signings in the last three seasons, which helps explain why the amortisation charge is over £10 million a year. Even taking into consideration players subsequently sold who were with the club in the Premier League, this cost is sizeable, but should fall as player contracts expire.

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Putting these two costs together highlights how much QPR ‘went for it’ in 2013/14, as for every £100 of income generated, there was a £238 cost in terms of wages and amortisation.

Whilst the club was still spending nearly all its income out in wages in the first season relegated (2015/16), it does appear that there is now some sanity in controlling wages in 2016/17.

Losses: Grinding Halt

Losses are income less costs. The bad news for Rangers is that the club lost money last year for the fifth season in a row. The good news is that the losses were only a fraction of those of previous seasons, and the club nearly broke even.

Operating losses are the trading losses of a club, and they exclude interest costs.

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Under FFP rules, QPR can make a maximum FFP loss of £35 million for each season in the Premier League, and £13 million for each season in the Championship. This gives a total of £61 million, so the club, with operating losses in that period of £54 million, appears to be well within that limit. If interest costs are added in, things because a bit more squeaky bum time. QPR had bank/loan interest of £8.9 million over the period, which takes the total loss to £63 million, just over the limit.

The interest costs seem expensive, as the interest rates being charged are £12.6% on £30 million and a payday loan-like 26.8% on £4 million. This approach conflicts with the owners writing off over £240 million of loans elsewhere.

Fortunately, some costs, such as infrastructure, academy and community schemes, are excluded from the FFP calculations. QPR have a category 2 academy, which insiders estimate cost most clubs at least £1.5 million a year. Add in a million and a half depreciation costs a season for other allowable FFP expenses and QPR’s FFP losses are probably about £54-55 million over the last three years.

For the three years ending 2017/18, QPR can have FFP losses of £39 million. Their good performance in 2016/17 in almost breaking even suggests this should be achieved with relative ease.

Player trading: So What?

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

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

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

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The chart shows what most fans would expect to be the case. In the Premier League clubs spend more on players than they receive from sales, and in the Championship the reverse arises.

What might surprise Rangers fans is that the club has spent so much money (£25 million) in the last two seasons in the Championship on signings, when the general feel is that belts are being tightened.

Debt: Wrong Number

The treatment of debts due to QPR’s owners has been the issue on which the FFP conflict with the EFL has been based.

In 2014 the owners wrote off £60 million of borrowings owed by the club and treated the sum as income. This reduced the losses for 2013/14 from £69 million (which that year would have generated a FFP fine of £40-50 million) to £9 million (which meant no fine).

The owners have subsequently written off further loans of £180 million, but this time the loans were converted into shares, and this has no impact upon profits (or FFP losses).

QPR’s owners have argued that FFP is illegal, and therefore no FFP fine is payable. The EFL argue that FFP is part of their rules, and as such applies to all clubs who choose to play in the league.

The lawyers have grown rich on who is right and who is wrong (and let’s face it, you don’t see too many selling The Big Issue).

The case eventually went to arbitration, and the EFL was successful.

http://www.bbc.co.uk/sport/football/41736013

QPR are not finished though and are refusing to accept the judgement (cue more holiday homes in Barbados for the lawyers).

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If the Football League is successful, then the FFP fine will be paid to charities. Whilst the club would struggle to pay such a large sum, the owners are billionaires, and one would hope they would settle the bill, as it was there decision to ignore FFP initially that caused the dispute.

Summary

QPR have done well in 2016/17 to get their house in order. The final league position reflects the cost cutting at the club, which has continued this year. It looks as if the largesse of the past has been replaced with a more cautious approach to managing the club’s finances. Fans must hope that the owners don’t get bored of being mid table in the Championship and lose all interest in the club.

Until the FFP issue is resolved the club will not look an attractive investment proposition to new potential owners. Crystal Palace have shown that there is space for a small London club to survive and make money in the Premier League, so there will be potential new owners/investors perhaps thinking the same about QPR.

Data Set: Alt.end

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West Ham United 2017 Financial Results: Fool’s Gold

After an emotional farewell to the Boleyn Ground the previous season, West Ham moved to the London Stadium, and fans had high expectations that the club could start to chip away at the glass ceiling of the self-styled ‘Big 6’, who have a disproportionate share of the income, and therefore best players, within the Premier League.

Those hopes failed to materialise. A poor start in the Europa League, where they were knocked out before the group stage by the team that finished 6th in the Romanian League the previous season, was followed by problems with the new stadium in terms of logistics, stewarding and atmosphere. A spat with the council resulted in the capacity of the London Stadium being capped at 57,000.

In terms of finances, the boost from moving to a more modern stadium seems to have been a mirage in some ways, and fans are unhappy, losing their home is one thing, losing it and having no benefits is another.

Income

Clubs have three main sources of income, matchday, broadcast and commercial. In 2016/17 West Ham’s income rose by 29%, so it looks as if Sullivan and the Gold brothers (whom Claudio Ranieri apparently calls Dilly-Dee and Dilly-Do) had masterminded a superb transformation of the club. Over the last five years the club’s income has more than doubled, how much of this achievement is due to the owners, and how much is due to happenstance?

Matchday

Moving from a 35,000 to a 66,000 capacity stadium in theory should have created a big bump in matchday income, but the move only resulted in a 6% increase from £26.9m to £28.6m.

There are a number of possible issues in relation to this surprisingly low increase.

West Ham had a dispute with the landlord and licence holders of the London Stadium, which restricted capacity to ‘just’ 57,000, although this is still substantially higher than the Boleyn Ground.

Season ticket prices were available from £299, and Under-16’s just £99, which looks from afar as if the owners were using a combination of a new TV deal and higher attendances to make watching the club more affordable.

It could also be that the figures for the final season at the Boelyn were inflated by extra income generated in relation to moving from the stadium, as they are substantially higher than 2014/15.

Compared to other clubs in the Premier League who have reported to date, West Ham are stuck in the middle.

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The above shows how many millions are generated by matchday income, and the proportion of total income from that source.

Matchday is worth £1 in every £6 of total income to West Ham.

If the club are serious about competing with the regulars at the top of the division, then they need to work out how to get more money from matchday income.

Liverpool increased their capacity to 54,000 in 2016/17 by extending the main stand, but many of the additional tickets are sold to the prawn sandwich brigade, who are prepared to pay premium prices.

West Ham also have a large number (52,000) of season ticket holders. Add 3,000 away fans, and that only leaves 2,000 tickets available for irregular fans each match.

Like them or loath them, these fans/daytrippers/gloryseekers/football tourists (delete as necessary) generate a lot of money for a club, as they pay higher prices for tickets and are more likely to spend money on merchandise.

Some other clubs, with a more international fanbase, exploit this by restricting the number of season tickets to maximise their return from the football tourist brigade.

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West Ham would have earned more money per fan had they progressed further in the Europa League, but Chelsea also did not have a European campaign, and they earned twice as much per fan.

Some credit (awaits flaming) could be given here to Sullivan/Gold for not taking fans to the cleaners in respect of prices.

Broadcasting

Broadcasting income was up by over a third to £119 million. This was due to the Premier League’s new deal with BT/Sky commencing.

The deal is for three years, so there will be no significant changes in this income source unless West Ham can (a) increase the number of appearances on television (they get £1 million for every additional appearance above ten), (b) Qualify for European competitions, or (c) Achieve more success on the pitch and move higher up the table (each position is worth £2 million more than the one below, so finishing 7th instead of 11th is worth £8 million to a club).

Whilst relegation is a nagging doubt rather than a huge concern at present this season, clubs in the Championship with parachute payments initially earn about £41 million from this source, and those without parachute payments about £7 million.

West Ham presently earn about two-thirds of their income from TV.

Winning the Europa Cup was worth £40 million in TV money last season to Manchester United, West Ham picked up £400,000.

Commercial

West Ham’s commercial income rose by a quarter to £35 million. This is impressive, but also reflects the market in which the club operates.

They don’t have the same international appeal as Manchester United, Liverpool or one or two other London clubs (clearly excluding small outfits such as Palace).

This means that they are competing with the likes of Everton, Newcastle, Southampton etc for the sponsors dollar.

We’ve heard anecdotal stories of sponsors playing clubs off against each other, so that if West Ham are looking for £10 million for a shirt deal, the sponsor will say “Newcastle will do it for £6 million, so drop your asking price or we go elsewhere”.

From the point of view of a generic overseas bookmaker, they don’t particularly care whether their logo is on the front of a Burnley, West Brom or Palace shirt, so long as it gets regular exposure on TV.

It looks as if West Ham have leveraged on the move to the new ground to increase commercial income, and there are potential future gains here too as old deals the.

This issue has implications for financial fair play too, as clubs are limited a £7 million increase in wages each year, plus any money generated by matchday, commercial income and gains on player sales.

The new stadium does give West Ham some scope to increase this income source, but the relationship with the landlord does restrict some of these opportunities.

They should therefore be at the top of their peer group of non ‘Big Six’ clubs (and Spurs are not really part of that elite to be honest), which will give them some additional buying power in the player market.

Costs

The main costs for a club are player wages and player amortisation (transfer fee costs spread over the life of the contract).

So when Andre Ayew signed for West Ham in 2016 for £20 million on a four year contract, this works out as an amortisation cost of £5 million (£20m/4 years) a year.

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West Ham’s wage bill rose by 12% to £95 million in 2017. It’s a significant increase and puts the club ahead of some of its rivals, but is still behind Everton (£105m), Leicester (£112m) and some others that the club probably considers to be in the peer group.

The amortisation charge increased too, and if the two elements of player costs are added together then West Ham have doubled their player running costs over the last five years from £70 million to £140 million.

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There’s a huge gap between this group of clubs and those that have dominated English football in recent years, and it’s difficult to see, especially with the new wage control rules of Financial Fair Play (FFP) how this can be bridged, unless the club qualifies for Europe, and for that you need better players, who want higher wages. This vicious circle prevents anyone breaking through the glass ceiling.

Although player wages are not disclosed, companies must show the pay of the highest paid director. In the case of West Ham this was £868,000, slightly lower than the previous year, but enough to allow the recipient to have the occasional pie and mash.

Whilst the name of the highest paid director is not shown, we suspect she has the initials KB.

One new cost for West Ham this season is the rent of the London Stadium. For reasons best known to themselves the accountants call rent ‘operating leases,’ and this rose by about £2 million in the year, which is in line with the figures quoted in the media.

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As well as the running costs of the club, there are interest costs in respect of borrowings made by the club.

Fans might have thought that the club would have been able to repay all debt following the sale of the Boleyn, and therefore not pay any interest, but they would be wrong.

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The club’s interest cost worked out at £97,000 a week in 2016/17. Whilst this is a lower figure than the previous season, half of it went to shareholders, in the form of loans from Gold and Sullivan.

This does mean that they strictly are correct in claiming never to have taken a penny as a wage from the club, trousering £50-60,000 a week in interest should prevent them from needing to sell The Big Issue just yet.

Gold and Sullivan have charged the club £14,875,000 in interest on loans since 2011/12.

Profit

Profit is an abstract concept, in theory it should simply be income less costs. In practice there are a range of profits quoted, depending on which costs are included.

West Ham in their press release stated they made a record profit of £43 million for 2016/17, which is the profit after tax figure. This is however after considering gains on player disposals, including that of Dmitri Payet, which generated profits of £28.4 million.

In addition, the club showed a profit on the sale of the Boleyn Ground of £8.6 million, and here we enter some choppy financial waters, which will be discussed in depth further in this epistle.

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Whilst we expect to see clubs making a profit on player sales each year due to the way player signings are treated in the accounts, this figure is volatile as it depends on individual player disposals.

Excluding player disposals, West Ham’s EBIT profit (which is profit excluding one-off transactions such as the Boleyn transaction and player sales, before interest and tax) was £11.4 million, much lower than the quoted figure, but still an improvement on the previous year’s EBIT loss of £3 million.

The move to the new stadium may have helped here a little, but the main driver has been the extra £33 million of TV money.

Adding back the non-cash expenses in the form of depreciation and amortisation gives an EBITDA profit of £58 million, which is 77% higher that the previous year’s £33m. It is this profit figure that many analysts use when valuing businesses, and here West Ham have done reasonably well.

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Player activity

West Ham spent a record £80 million on players in 2016/17, including Ayew, Snodgrass and Lanzini. Whilst this exceeds the club’s previous transfer activity, there is still a gap between the club and those they seek to compete with.

If you take away player sales from the purchases, then West Ham’s net spend was £40 million, roughly in line with the previous season.

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Hidden in the footnotes to the accounts are a couple of interesting figures (interesting only to those who are still reading this tedious summary we suspect). The first is contingent liabilities.

This is the sum the club must pay to players and former clubs if certain achievements (appearances, trophies, international caps etc.) are met. This was £2.3 million and compares to £111 million for Manchester City and £45 million for United at the end of June 2017.

This suggests that West Ham have a different approach to the two Manchester clubs when signing players, aiming for a set fee with little based on future performance.

Borrowings

Many owners lend money to their clubs, if you look at the likes of Middlebrough, Newcastle (with the hated Mike Ashley), Brighton, Huddersfield, Stoke and so on, they all have owner lenders.

What these clubs also have in common is that the owners don’t charge interest on these loans.

Messrs Gold and Sullivan have lent the club £45 million, but have charged interest at 6% interest. The club then paid the owners £10 million in partial payment of the interest that had clocked up in August 2017.

This is perfectly legal, if somewhat at odds with the philanthropic approach taken by many other club owners.

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The sale of the Boleyn Ground

It’s very confusing working out exactly what has happened in terms of the financial treatment of the club’s old stadium. If we’ve not bored the pants off your already, stop reading now, as it’s about to get even more tedious.

The club booked a profit of £8.6 million on the sale, but the history of the ground in the accounts is best described as erratic.

In 2012 the Boleyn was measured at a fair market value of £71.2 million. Admittedly this was for the stadium as well as the land surrounding it.

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The following year the club decided to change the way it measured the Boleyn in the accounts, on the grounds that it was moving to the London Stadium.

This meant that the value of the stadium fell by about £40 million.

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By the time the club had vacated the Boleyn in June 2016 the accounting value was about £30 million. However, this bears no resemblance to a market value. If the club booked a profit of just under £9 million then the sale price appears to be about £39-40 million.

According to the club, it sold the Boleyn to a property development company called Galliards, and inferred that they had turned down higher offers, but that Galliards would preserve some of the history of the club.

However, there appears to be a third party involved called Boleyn Phoenix Limited.

Boleyn Phoenix Limited was incorporated in January 2014 and is listed as a property development company. It has two shareholders, Galliard Holdings Limited and Mount Pleasant Developments Limited.

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Boleyn Phonex was mentioned by Newham Council in relation to the redevelopment of the Boleyn Ground. The comments were not very positive.

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Boleyn Phoenix Ltd had no sales in the first few years of trading, but in the year ended 31 March 2017 sprung into life and showed a profit of over £16.7 million. A screenshot of a cell phone Description generated with very high confidence

Having made a huge profit, presumably on a deal for a property costing about £40 million and selling it for nearly £60 million. Boleyn Phoenix rewarded its shareholders by paying them a dividend of nearly £16 million.

Could this property have been the Boleyn Ground itself? It could be a coincidence.

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Therefore Galliard Holdings would have received a dividend of nearly £8 million, as would Mount Pleasant Developments Limited.

Mount Pleasant Developments Limited have one shareholder, Vince Goldstein.

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Now clearly there could be many Vincent Goldstein’s around, but a quick bit of Googling brings one to the fore in terms of property development.

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This particular gentleman (who may or may not be the shareholder in Mount Pleasant Developments) is connected to the Rock Group and is the cousin of the former Vice-Chairman of Spurs, Paul Kemsley, who some may know from ITVBe’s magnificent The Real Housewives of Beverley Hills, where his wife, Dorit Kemsley, is one of the stars.

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According to West Ham the Boleyn was sold to the Galliard Group, which could perhaps have been Boleyn Phoenix. The Boleyn Ground was then rapidly sold to Barratt Homes.

The Land Registry says that the price paid for the Boleyn Ground by Barratt was £40 million, which begs the question, how did Boleyn Phoenix make a profit of nearly £20 million?

There’s no evidence of any wrongdoing, it’s just a bit…odd.

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Summary

West Ham’s accounts provide as many questions as answers. There’s a lot of bad blood at present between the club owners and some elements of the fan base. More transparency in relation to the club and its transactions would possibly help resolve some of the differences.

The hope that the move to the London Stadium doesn’t seem to have pushed the club onto the next level of success in the Premier League, and this is why some fans are wondering was it worth losing their spiritual and cultural home that was the Boleyn Ground.

As Alice said to the rabbit ‘Curiouser and curiouser’.

Data Set

Sheffield Wednesday: Play to win

Sheffield Wednesday announced their results for 2016/17, which revealed that they made a loss of nearly £21 million in the season, as the club invested heavily in a promotion push, which faltered in the playoffs against Huddersfield.

Since then there’s been a debate on social media in relation to the present level of financial distress experienced by the club, with some suggesting that administration is feasible, so we’ve taken a look.

Income

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Not all clubs have announced their results for 2016/17 yet. In the previous season the average for a Championship club was £22.9 million, we expect this to be higher in 2017/18.

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

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The good news for Wednesday is that matchday income rose by 10% in 2017. Attendances averaged 26,831, an increase of over 4,000 in the previous season, when the club made the playoff finals.

This means that Wednesday are at the top end of clubs in the division for this income source, slightly behind Villa and Brighton, but more than double the amounts earned by smaller clubs in the division.

Despite an indifferent season on the pitch for 2017/18, the club is still averaging over 26,000 in 2017/18.

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The bad news is that matchday income is dwarfed by parachute payments given to clubs who have been recently demoted from the Premier League. Whilst it brought in over 40% of Wednesday’s income, Norwich, Newcastle and Villa each earned over £40 million in parachute payments, which gave them an advantage in the transfer/player markets.

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Broadcast income was down 7%. This was partly due to Wednesday only getting as far as the playoff semi-final, compared to the previous season when they made it to Wembley, which was worth a couple of million to the club. The decrease was cushioned partially by a new Premier League (PL) TV deal that came into existence in 2016/17, and under the terms of a deal with the Football League (EFL) the money given to EFL clubs is a guaranteed percentage of PL TV revenues.

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Wednesday’s commercial income rose 17% to £6.6 million. This has provoked some bitching from fans of other clubs, who have queried the nature of some of the commercial deals, as some were struck with the club owners’ the Chansiri family.

The value of these transactions, at £1.2 million, does not seem particularly excessive, especially when compared to the likes of Leicester City, who in 2013/14 mysteriously tripled their commercial income after the involvement (ironically) of former Sheffield Wednesday Chairman Sir Dave Richards in obtaining some new sponsorship deals in the Far East.

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Leicester have just agreed to pay a £3.1 million fine in relation to their 2013/14 accounts, which had the EFL’s W-T-F-Ometer clicking in the red zone for the past few years.

Costs

The main costs at a football club are player related, wages and transfer fee amortisation. Wednesday invested significantly in both of these in 2017/18.

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Wages increased by 52% in 2016/17, to £29.1 million. This was due to signing some Premier League players on loan, such as Jordan Rhodes and Callum McManaman the free transfer acquisition of Steven Fletcher, on an alleged £30,000 a week, and new a new contract for top scorer Forestieri.

Amortisation is how clubs deal with transfer fees in the profit and loss account. When a player signs his contract cost is spread over the life of the contract. Therefore, when Adam Reach signed from Middlesbrough for about £5 million on a three year deal, this works out at about £1.67 million as an amortisation cost each year.

Wednesday spent over £24 million on players in 2015/16 and 2016/17, so the amortisation charge jumped accordingly.

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Putting these two costs together highlights how much Wednesday ‘went for it’ in 2016/17, as for every £100 of income generated, there was a £152 cost in terms of wages and amortisation.

The problem that this gives Wednesday is that many of the players involved will be on multi-year contracts, and therefore it will be a challenge to reduce such costs.

Overall, Wednesday spent £1.91 for every £1 of income in 2016/17, split as follows:

Losses

Losses are income less costs. Last season this was £20.7 million, up from £9.7 million the previous season. This leads to two key questions (a) are such losses sustainable, and (b) what are the Financial Fair Play (FFP) consequences.

The owner of Wednesday, Dejphon Chansiri family, is estimated to be worth at least £700 million, so the money is there, assuming he wants to keep spending it.

In terms of FFP, the present incarnation (called Profitability and Sustainability) limits clubs to a loss of £39 million over three seasons.

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Looking at Wednesday’s recent accounts, the club has lost money every year, but the total for the last three years comes to £34.3 million. Some costs, such as infrastructure, academy and community schemes, are excluded from the FFP calculations. A conservative estimate of these would be about £8 million, so Wednesday’s FFP losses are probably about £26 million over the last three years.

If this is the case, whilst Wednesday don’t have a huge amount of wiggle room for 2017/18, the club should satisfy FFP this season. The manager will however be unable to spend a huge amount in the transfer market in summer 2018.

Player trading

Wednesday, as already mentioned, have spent significant sums by their standards in the last two seasons.

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There’s no doubt Chansiri has backed managers in the transfer market, and that has contributed towards two appearances in the playoffs. The lack of success in the current season is of greater concern, and there will be less opportunity to sign players in the forthcoming transfer window unless they are funded by player disposals.

It looks as if player contracts contain substantial bonuses should the club be promoted, with player bonuses of £7.5 million and payments to former owners of over £1 million. Compared to the £100 million of TV money, this is relatively insignificant.

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Debt

Chansiri has put substantial sums into the club, and at the end of the financial year was owed about £38 million in loans on top of £45 million invested in shares. His benevolence appears at present to be unconditional, so Wednesday fans should not worry about the owner wanting to sell up or stop supporting the club financially.

Summary

Wednesday are in a slightly awkward position, having spent heavily in the last couple of seasons on player recruitment and not being rewarded by promotion.

At the same time, rumours of their impending financial implosion appear to be vastly overstated.

Data Set

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Preston: Maybe Someday

 

Clubs in the Championship lost £366 million in 2015/16, and that figure could easily be exceeded in 2016/17, as many clubs gambled on big signings and big wages to try to make the £100 million a year broadcasting income of the Premier League.

Preston haven’t taken such a route, but they have still managed to finish 11th in the Championship in the last two seasons, without troubling either the playoff chasers, or those in the relegation scrap.

That has come at a cost, as the club lost £67,000 a week last season, but that is chickenfeed compared to the losses of some other Championship clubs.

Income

Football club income is broadly split into three areas, matchday, broadcasting and commercial.

Less that half the clubs in the Championship have reported their results to date, but the gap between those who receive parachute payments and clubs such as PNE who don’t, is significant.

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PNE’s income was a fifth of the sum received by Norwich and Villa (and will be the same in relation to Newcastle when they publish their results), so to finish mid-table was a creditable achievement.

PNE have increased their income over the last few years as a result of promotion to the Championship and benefitted from the new Premier League TV deal too. This ripples through to the Championship in what are called ‘solidarity’ payments. These are worth about £6.5 million a year to Championship clubs.

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Matchday income is mainly ticket sales. Preston’s crowds averaged 12,600 in 2016/17, about 400 lower than the previous season. This puts them in the bottom half of attendances in the division. Preston’s matchday income is about a quarter of the total.

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The big difference in the division is broadcast income. In the Championship it is a case of the have’s and the have nots, due to parachute payments. Clubs who are not in receipt of these earn about £6.5-7 million in solidarity payments from the Premier League, less than half the sum earned by the lowest paid parachute recipient.

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Costs

The main costs for a club, especially in the Championship, are wages. During 2015/16 clubs paid out on average £101 in wages for every £100 of income. There’s been a slight improvement in 2016/17 to date, with the figure dropping to £93 (mainly due to parachute payments boosting income, rather than wages decreasing).

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For Preston, it appears that any increase in income each season is paid out in wages. Every time money earned goes up, there is an immediate increase in the money going out of the club. Alan Sugar describes this as the ‘prune juice effect’, although I cannot remember the last time that anyone ever ate any prunes.

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Even when Preston were in League One, they paid out all their income in wages. This leaves relatively little room to sign players and pay the day to day overheads of running the club.

Player amortisation costs are the cost of transfer fees divided by the length of the contracts signed by players. So if PNE sign a player for £1 million on a four year contract, the amortisation cost is £250k a year for four years.

Fortunately, the club’s losses are underwritten by the owner, Trevor Hemmings.

Losses

Profits (or in the case of most non-Premier League football clubs losses) are the difference between income and expenses.

Clubs in the Championship lose money because so many owners are willing to gamble on promotion by investing in players and wages.

PNE don’t seem to have taken such an extreme approach, but to be competitive they have made losses every year.

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Trevor Hemmings seems happy for PNE to lose about £70-80,000 a week. This has been the level of losses over the last five years, which have totalled £19.5 million. The club has sold some players at a profit over that period, such as Joe Garner, but in the main the club has been relatively quiet in terms of big money signings in and out.

Player Trading

PNE spent big by their own standards in 2016/17, buying players for just over £2 million, compared to an average of £300,000 in the previous four seasons. By Championship standards PNE’s activities were very modest. They didn’t need to sell players to satisfy Financial Fair Play, and there were not a long line of suitors for their stars. Consequently the club was rarely mentioned on the back pages of the national newspapers.

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The above table shows the amount spent by clubs on new players (Gross signings) and the amount after taking into account player sales too (Net signings).

PNE seem to be happy to be towards the bottom of the table, and hope for a good season, perhaps unearth a gem or two, and some successful loan signings, to then challenge in a similar manner to the likes of Burnley, Blackpool, Wigan, Huddersfield and small London outfit Crystal Palace have done in recent years. If it works, then the club could earn a lot of money.

Summary

PNE have shown it is possible to survive with relative ease in the Championship without spending huge sums of money. At the same time they have achieved that by spending every penny they earn on player wages, and relying on an owner to cover the remaining costs of running the club.

They have significant debts due to the owner of about £30 million, but it’s unlikely that there will be a request to repay these sums.

It’s a model that could turn out to be successful, with PNE presently just three points off a playoff place, and if they do get that far the rest is a lottery, with a big prize for the winning ticket.

Data Set

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