Aston Villa: Burning Sky

Aston Villa 2016/17 

Introduction: 

Aston Villa Football Club Ltd announced their financial results, which were published in the local newspapers, and fans sighed with relief.

The fears that the club was heading into a Financial Fair Play (FFP) meltdown seemed overstated, as the losses of £7 million quoted in the papers appeared to give wiggle room in terms of the £39 million losses allowed over three years.

However, there’s a problem, and it’s a sizeable one. Aston Villa Football Club Ltd doesn’t cover all of the activities of Villa, and certain costs, most notably player wages, are excluded from the costs. The accounts being reviewed by media sources and fans alike are not the ones used to determine the true extent of Villa’s finances.

To see the true picture, it is necessary to take a look at the snappily named Recon Group UK Limited, (previously Recon Sports Limited, previously Reform Acquisitions Limited), controlled by the forever positive owner Tony Xia, via his investment vehicle, Zheijiang Ruikang (Recon) Investment Co Ltd, based in China.

Recon Group’s profit and loss account showed a more worrying operating loss of £41.1 million (£791,000 a week in old money), and it was only the sale of some players that brought this down to a more palatable loss of £14.5 million.

The previous year the losses were £81.3 million before player sales, although some of the calculations were perhaps best filed away under the heading of ‘creative’.

All is not lost however for Villa, as despite what was a fairly dreadful 13th place finish in the Championship on 2016/17, they are now in the running for promotion back to the, if not promised, land of the big bucks TV deals that is the Premier League.

Profit and Loss account

Profit is the difference between income and costs, so we will start with a look at the former.

Income

Villa’s total income for 2016/17 was £73.8 million, a lot of money, but 32% down on the previous season, and the lowest for a long time.

Only half a dozen clubs who played in the Championship have reported financial data to date, but Villa are presently second behind fellow parachute payment recipients Norwich. We would expect Newcastle to take the top spot whenever Mike Ashley deigns to reveal that club’s details.

The above graph shows the impact that parachute payments have on a club’s income, with Villa receiving £421 for every £100 generated by local rivals Birmingham City, and £253 for every £100 of promoted Brighton.

Clubs generate income from three sources, matchday, broadcast and commercial, so how have Villa suffered as a result of relegation?

Matchday

Villa had about 9,000 empty seats for each home game in the Premier League in 2015/16, and average attendances fell further in the Championship,  albeit to a still creditable 32,000.

Gate receipts were down 14% to £10.7 million, which is about the same amount that Sky are currently paying for each match they broadcast live.

Villa’s matchday income is high by Championship standards, and compares well to provincial clubs in the Premier League, such as Stoke (£7.2 million), but is some way behind clubs that Villa might benchmark itself against, such as Newcastle (£25m) and West Ham (£27m).

Broadcasting

Villa were in some ways lucky to have survived as long as they did in the Premier League before being relegated, as their parachute payments benefitted from the new deal that commenced in 2016/17.

Villa earned £65 million from TV in 2015/16, which was the final season of the previous three-year deal. Parachute payments are however linked to the season in which Sky and BT pay the Premier League, and so Villa (as well as Norwich and Newcastle) had the blow cushioned due to the new £5.1 billion deal commencing in 2016/17.

This meant that TV money fell to ‘only’ £48.1 million last season, still a drop of just over a quarter, but the decrease would have been far greater had the club been relegated a year earlier.

Parachute payments last for three years in the Championship, decreasing year by year. As can be seen, Villa need to return to the Premier League within that timeframe to avoid a big hit when the parachute runs out.

Commercial

This more than halved last season. Sponsors want their logos and billboards to be seen in the globally popular Premier League, and many have relegation clauses built into long term deals that they sign with clubs.

Villa’s income was down to £15 million in 2016/17, which still compares well to the rest of the Championship, but is far lower than the average in the Premier League of £55 million.

Costs

A football club’s main costs are in relation to players, and Villa are no exception in this regard.

The wage bill for 2016/17 was £61.5 million, down from £93 million the previous season in the Premier League, giving a wage to income ratio of 83%, which meant that Villa were paying out £83 in wages for every £100 of income they generated.

In order to get the wage bill down there were significant job losses at Villa, with full time employee numbers falling from 543 to 401, mainly in the commercial and merchandising departments.

In the Championship the previous season the average wage bill was £23 million, compared to £112 million in the Premier League.

Whilst this seems a high figure, the Championship is such an ill-disciplined division that the previous season paid out more in wages than it generated.

That figure of 83% is kept low by parachute payments.

The other cost relating to players is that of player amortisation. This is how the club deals with the transfer fee when a new player is signed. The fee is spread (amortised) over the life of the contract. Therefore when Scott Hogan joined Villa for £15 million on a four and a half year contract, this worked out as an amortisation cost in the profit and loss account of £1.67 million last season (6/54 months x £15 million), which will be £3.33 million in 2017/18 as his fee will be amortised for a full year.

All of the amortisation fees for the whole squad are added together and included in costs. This came to nearly £24 million for 2016/17. This is far higher than the other clubs in the division.

Profit

Profit, schmofit, fans don’t give a hoot about it, and rightly so. We go to matches to forget about dreary dull work related things, but then some pen pushing dullard invented FFP, and now it impacts upon the game and the team we love.

There are lots of types of profit, so we will whizz through them to reveal the good, the bad and the ugly issues in relation to Villa’s accounts.

Bear in mind the FFP loss limit in the Championship is £39 million over 3 seasons starting in 2016/17, so the target is broadly £13 million per season.

Operating profit

This is club’s income less the day to day running costs. In the case of Villa, this was £14.5 million in 2016/17, which is £278,000 a week. This is far better than the previous season, when the figure was a buttock clenching £88.3 million.

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Villa’s operating losses for the last six years total £208 million. Whilst it appears anecdotally there’s not a lot of love for former owner, the splendidly named Randy Lerner, he was underwriting the majority of these losses.

The £14.5 million is broadly in line with the FFP limit for one season, so it looks as if Villa are without too many worries…but

  1. Remember Villa were in receipt of parachute payments, which will drop from £41 million in 2016/17 to £33 million in 2018/19, and then £14 million in 2019/20.
  2. The loss is after taking into account gains on player sales. Villa were active in the transfer market and sold the likes of Gueye, Traore, Gestede, Clark, Ayew, Westwood and Sinclair for a profit of £26.6 million. It’s unlikely that they will be able to generate such profits year in year out.

As can be seen from the above, gains on player sales are difficult to predict and are very erratic, and never guaranteed.

  1. The 2015/16 accounts were distorted by the dark arts of accounting, when the club effectively booked a number of costs early. Without wanting to make making this tedious elegy even more tedious, they wrote down the value of Villa Park and the squad by £82 million. This had the effect of reducing costs in 2016/17 and beyond.

EBIT

If we add back the gain on player sales and adjust for one off distortions such as those above, we get something called Earnings Before Interest and Tax (EBIT). EBIT is seen as a better indicator of profit, as it focuses on sustainable/recurring income and costs.

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Villa’s EBIT losses don’t make for good reading though, and show just how important player sales are to make ends meet.

EBITDA

If we are going to exclude player sales from our calculation of profit, it makes sense to also exclude the cost of players signed in the profit and loss account too. If we add back player amortisation, and also the infrastructure costs of depreciating the stadium and training facilities etc, every year, we get Earnings Before Interest and Tax (EBITDA). Eagle eyed Villa fans may see the club refer to this in its alarmingly brief review of the business in the annual report.

EBITDA is the flavour of the month for many analysts, as it focuses on sustainable profits and excluded non-cash items such as player amortisation too. As such it is seen as the ‘purest’ measure of profit/loss by many who do this nonsense for a living.

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The good news for Villa is that EBITDA losses were down in 2016/17 compared to the previous season. The bad news is that the losses are still significant at £14.4 million.

FFP FFS

All of the above nonsense is fine, but what about FFP? This is calculated in a different manner to the accountants, and some costs deemed to be ‘good’ such as infrastructure, academy and community schemes are excluded.

The accounts don’t show FFP profit, but we’ve spend a bit of time trawling through the small print, and the news is good for Villa.

£’m
Accounting loss pre-tax (14.5)
Infrastructure 2.9
Community developement 2.0
Youth development 5.9
FFP loss (3.7)

It therefore seems that Villa were well within the FFP limit last season, which does give Steve Bruce some wiggle room, at least until parachute payments disappear, or the club is promoted before that happens.

Player activity

One of the accusations levelled at Randy Lerner was that he didn’t spend enough money in the transfer market. A look at Villa’s transfer activity over the last few years shows the following

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The sums spent by Lerner were fairly modest by Premier League standards, but remember we was also underwriting the trading losses we’ve seen above at the same time.

Tony Xia spent a record amount of £88 million last season, the highest by any club in the history of the Championship. Spending money is one thing, spending it wisely is another.

Brighton and Huddersfield were promoted on the back of fairly modest signings, and Villa fans will point to a number of turkeys that joined the club, which contributed to the final league position of 13th.

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More worryingly, those signings come with hefty wage packets for a number of years, so getting rid of players on good contracts can be a challenge, as Birmingham City know with Nicola Zigic, who stank out St. Andrews on £50,000 a week in the Championship for a number of years. Villa would appear to have a similar issue with Ross McCormack, whose main contribution last season, on the back of his £12 million transfer from Fulham, was in keeping the local Deliveroo rider busy with regular orders from Greggs.

Steve Bruce has been unable to replicate the same level of expenditure in 2017/18, as the club is wary of FFP. A nosey into the small print of the accounts shows that the club only spent £2.9 million on players in the current transfer year, and sold others for £22.4 million.

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Summary

Villa went for broke financially in 2016/17, and it didn’t work out very well. They’ve had to cut back significantly during the present season, but do have the benefits of signing some decent players in the past who have discovered the form that made them so expensive in the first place. A return to the Premier League this season is essential, given the significant reduction in parachute payments that the club faces in 2018/19.

Data Set

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Chelsea: Suffer Little Childreni

Introduction: Oh Manchester, so much to answer for…

Chelsea announced their financial results recently, and since then manager Antonio Conte has been muttering about not being able to compete in the football transfer and wages markets with the two big Manchester clubs. Is this true, and what are the state of Chelsea’s finances? Time to take a peek.

On the face of it, being Premier League Champions in 2017, progress through the group stages of the Champions League, semi-finalists in the League Cup and presently in the FA Cup, you would think there would be plenty to cheer about.

Income

Clubs have three sources of income. In 2016/17 Chelsea’s total income rose by 9.8% to £361 million, which is impressive given the club did not have the benefit of qualifying for European competition. As always, the devil is in the detail.

The increase in income of £32 million is behind that of both United (£66 million) and City (£82 million). Even Arsenal managed an increase of £70 million. So, it appears that Chelsea are struggling to keep up with the other ‘big’ clubs (Liverpool have yet to announce their results, and Spurs, who have not won the title in over 50 years, don’t really compete with the clubs already mentioned financially).

If we extend this growth comparisons over five years, Conte’s comments appear to have greater validity.

Clubs generate income from three sources, matchday, broadcast and commercial, so how have Chelsea performed?

Matchday

After four years of static matchday income, due to Stamford Bridge being at capacity every match and no price increases, there was a 9.4% fall in 2016/17. This was due to a lack of European competition, which usually would generate a minimum of three home matches.

At £65m, Chelsea’s matchday income is the third highest in the Premier League, but may have been overtaken by Liverpool (who had £62m in 2016). The gap between Chelsea and the two clubs above them shows the urgent need for a new stadium with increased capacity. If the rumours are true and the stadium will have 28% of seats sold to the prawn sandwich brigade this could catapult Chelsea easily into the £100 million a season club for this type of income.

Broadcasting

Broadcasting income was up 14% and tops £150m for the first time. This is due to the impact of the new domestic TV deal with BT/Sky. Chelsea’s UEFA TV monies were €69 million the previous season when the club was eliminated in the last 16. They should make at least that sum this season, as they earn extra due to being English Champions, although, due to the complicated formula used to determine UEFA payouts, will be hoping that the other English clubs are knocked out of the competition as quickly as possible.

The failure to qualify for Europe in 2016/17 put Chelsea at a £30-40 million disadvantage, enough to cover Alexei Sanchez’s wages and amortisation cost in the profit and loss account for a year.

Commercial

Chelsea’s commercial income grew by a solid 14% to £133 million. This seems good enough, but it pales compared to the peer group mentioned by Conte.

Whilst Chelsea have done well to increase their income by over £50 million in five years, they started off far behind United and City, and have fallen further behind. All clubs struggle to compete with United for sponsor appeal.

Intuitively Chelsea might expect their commercial income to be on a par with that of City. The reason why it is not normally elicits a call to the North London branch of The Samaritans from a man with a French accent, muttering something about ‘financial doping’.

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.

Chelsea managed to extend their sponsorship income in 2016/17 by finding a separate sponsor for their training kit, a trick first spotted by Manchester United a few seasons ago.

The club may have had penalty clauses activated by some sponsors, and will have lost out in terms of perimeter advertising, due to the lack of European football.

Costs

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

Wage costs fell for Chelsea in 2016/17. The club will have had to pay out win bonuses for lifting the Premier League trophy, but against that there will have been no match fees for Champions League fixtures, and some big earners (such as Mourinho J.) were no longer on the payroll.

Wage control in most industries is usually applauded, but football is not most industries. In the rarefied market for elite players, wages usually rise every time there is a new TV deal, as the Alan Sugar ‘prune juice’ impact is applied, Chelsea’s figures are at odds with this viewpoint.

Other clubs have increased their wages over the last five years. Chelsea were on a par with both Manchester United and Arsenal five years ago, but United have spent big, as shown the sums they have paid to the likes of Ibrahomovic, Pogba and Sanchez. United’s wage bill has increased by nearly £80 million over this period compared to just £43 million for Chelsea.

The other cost is that of amortisation, which is how a club expenses players signed in the profit and loss account. When N’Golo Kante signed for Chelsea in summer 2016 from Leicester for £30 million on a five-year contract, this works out as an amortisation cost of £6 million (30/5) per year. Chelsea’s total amortisation charge for the whole squad in 2016/17 was just under £90 million, an increase of 25% on the previous season. It’s high by Premier League standards (the average was £35 million in 2016), but significantly lower than the Manchester clubs.

Adding both wages and amortisation together gives the total football player cost for the season.

United and City are neck and neck, Chelsea are about £75 million a season behind.

One common metric used to look at the effectiveness of player cost control is to compare wages (or wages and amortisation) as a percentage of total income. The lower the percentage,  the more effective the control, and the greater the scope for future investment in players.

The above reveal that Chelsea presently have the poorest wage control of its peer group, and Manchester United, as resented as they are by fans of other clubs, run the tightest ship. If you factor in what United have paid to banks over the years in interest payments though, it’s advantage over the other clubs is eroded.

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.

Chelsea in their press release stated a profit of £15.3 million for 2016/17. This is however after considering gains on player disposals, including that of Oscar. These gains totalled £69.2 million.

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, Chelsea’s EBIT (which is ‘recurring’ profit before interest and tax) was a loss of £53.4 million, slightly higher than £46.2 million the previous season.

Adding back the non-cash expenses in the form of depreciation and amortisation gives an EBITDA profit of £46 million, which is over 30% higher that the previous year’s £35.1m.

Comparing to the peer group, United made an EBITDA profit of £200m, City £105 million and Arsenal £145m, reflecting that Chelsea are weaker than the other elite clubs in this regard.

All the elite clubs are well within FFP limits.

Player activity

Chelsea spent over £100 million on players in 2016/17, including Kante, Luiz, Batshuayi and Alonso. This is a major investment but isn’t keeping up with the noisy Mancunian (or as my mum likes to call them, Manchurian) neighbours at the top of the Premier League, it was even less than Arsenal spent in the same season.

In terms of disposals, Chelsea sold players for £98 million, to give a net spend for 2016/17 of £8m.

Hidden in the footnotes to the Chelsea 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 £3 million and compares to £111 million for Manchester City and £45 million for United at the end of June 2017.

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

Chelsea had a spending spree in Summer 2017, mainly on signing Morata, Bakayoko, Drinkwater, Rudiger and Zappacosta for £212 million, which suggests that Antonio Conte’s comments were perhaps wide of the mark. A number of players left the club too, bringing in £63 million.

Summary

Roman Abramovic these days seems to want to make Chelsea break even financially, but that will be insufficient if he also wants to win trophies such as the Premier and Champions League.

The proposed stadium is essential if Chelsea are going to compete in terms of income against the two Manchester clubs, but its going to be a few years before the constraints of playing at Stamford Bridge are overcome.

Conte’s comments (which are echoed to a degree by Arsene Wenger) do appear valid. Chelsea cannot compete with the two Manchester clubs as they cannot match them in terms of income, which in terms gives the ability to pay wages and sign players…unless Abramovic decides to pursue a more expansive strategy. He’s already sunk over a billion into the club, but it may take almost as much again to fund a new stadium.

Data Set

Millwall financial results 2017: Our House

Introduction:

I like Millwall for many reasons. I was born in Southwark, so they were the nearest club to me as a kid. My Uncle Tom had trials for them in the early 50’s. My Uncle Terry, who taught me how to play football, love the game and hate Crystal Palace, supported them for over 60 years. Add to that the Danny Baker factor (and ignoring that Rod Liddle is a CJTC) and there’s a lot of positives.

2016/17 was a successful year in League One, with the club returning to the Championship via the playoffs, and there was some success in the FA Cup too, reaching the quarter final stage.

Off the pitch things were not so good. Lewisham council’s behaviour in trying to arrange a compulsory purchase order for land occupied by the club led to accusations of skulduggery and whitewash by fans.

https://www.standard.co.uk/sport/football/millwall-shock-as-inquiry-clears-lewisham-council-of-wrongdoing-over-plans-to-seize-den-land-a3703911.html

At present there’s no guarantee about where the club will be playing its fixtures in the medium term if the land is sold to property developers.

Key financial figures for 2016/17:

Income £10.0 million (up 20.5%).

Wages £9.4 million (up 17.3%)

Losses before player sales £5.5 million (down 5.5%)

Player signings £923,000

Player sales £514,000

Debts £18.1 million (no major change)

Millwall’s set up is tricky to follow. Millwall Football Club Limited are owned by Millwall Holdings plc, who are owned by Chestnut Hill Ventures (CHV) LLC, based in the USA.

CHV is controlled by American businessman John Berylson, who sued Steve ‘Shagger’ Norris successfully for libel last year in relation to Millwall related issues, and therefore, for the benefit of any doubt, we think that John Berylson is a very very nice man, who helps little old ladies cross the road, and likes puppies.

Income:

All clubs generate money from three sources, matchday, broadcasting and commercial. Being stuck in League One for the last two seasons has had a detrimental impact on Millwall’s finances.

Matchday income rose by just over 20%, reflecting Millwall’s success in reaching Wembley for the playoff final, as well as a lucrative FA Cup match against Spurs. We would expect matchday income to at least hold steady in 2017/18 due to the number of clubs in the Championship with large away followings.

Relegation from the Championship in 2015 significantly reduced Millwall’s broadcasting income.

In terms of boradcasting income, EFL clubs generate cash from two sources.

‘Solidarity’ payments from the Premier League (EPL) are from the £5.1 billion domestic TV deal with BT and Sky. This is given as a fixed percentage of the deal, and works out as about £645,000 for each League 1 club. Promotion to the Championship will result in a significant increase to Millwall of £4.3 million for 2017/18.

In addition, the EFL has its own TV deal with Sky, but this generates only £88 million per season to be split between the 72 EFL clubs, skewed towards clubs in the Championship. This will also benefit Millwall in 2017/18.

If matches are broadcast live, Millwall will earn £100,000 for each home game and £10,000 for every away game broadcast live on Sky. In a division featuring clubs such as Leeds, Villa, Sunderland, Wolves, Millwall are unlikely to be a first pick for the broadcasters unless they are playing one of the bigger clubs, who can generate decent TV ratings for Sky.

Millwall will have to compete with clubs who have been relegated from the EPL and receive parachute payments. These dwarf income from other sources.

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Other income, mainly commercial and retail, has been broadly constant over the last five years.

We anticipate that Millwall be towards the bottom of the income table for 2017/18 for Championship clubs, based on the latest figures we have for other clubs in the division.

Costs:

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

Wages rose by 17% to £9.4 million. The only other clubs we have figures for from League One last season to date are Sheffield United (promoted) at £10.0 million and Walsall at £3.4 million.

Relegation to League One in 2015 meant that Millwall had to slash the wage bill and offload players on well paid contracts.

This is because  Financial Fair Play operates as a wage cap in League One. Clubs can only pay out 60% of income in terms of playing staff wages (this cap ignores non-player wages).

It is possible for club owners to contribute here if they invest money into the club in the form of new shares, as these are added to the income figure. So, if a club owner invests £1 million into a League One club the playing staff wage budget can be increased by £600,000

The wage/income ratio for Millwall was the lowest for many years at 94%, or to put it in more simple terms, the club paid out £94 in wages for every £100 they generated from revenue. This of course leaves effectively nothing to pay for all the other overheads of the club, such as ground maintenance, heat and light, HR, finance and so on.

The above table also highlights how difficult was for Millwall the last time they were in the Championship, as the wage/income ratio was over 130%.

The Championship is a car crash of a division, with wages averaging 101% of income for 2015/16, despite so many clubs receiving large sums in the form of parachute payments.

We would expect Millwall’s wage bill to rise substantially in 2017/18, but to be still significantly less than those of clubs such as relegated Norwich, who paid out £55.1 million in 2016/17, and promoted Brighton, with £31.3 million plus a further £9 million in promotion bonuses.

We estimate that average wages in the Championship are about £12,000 a week, compared to £2,500 a week in League One. This means that Millwall were probably one of the big payers last season, but that will be reversed in 2017/18.

Millwall’s best hope for promotion is to strike lucky in terms of player recruitment in terms of signings and loan deals for relatively unknown players. The likes of Huddersfield, Wigan, Burnley and Blackpool over the last decade shows that this is achievable.

The other player related expense is that of player amortisation. This is the cost of signing a player spread over the length of his contract. This is how the club deals with player signings, and spreads the cost of a new player over the life of his contract.

So, if Millwall sign a player for £1 million on a four-year contract this works out as £250,000 amortisation a year for four years.

In League One, there are opportunities to sign players for relatively low sums. This is reflected in the amortisation charge being only £0.2 million in 2016/17. The average figure in the Championship is about £6 million.

The advantage of focussing on amortisation instead of just looking at transfer fees is that it removes some of the volatility from making one big signing in a single year.

We would expect the amortisation charge to continue at these levels at least for 2017/18.

Finance costs:

Millwall has debts of about £18 million, and interest is charged on these. Some of the debts are due to the owners at CHV.

The total interest cost was just over £1 million, or £20,000 a week. CHV charges interest at 12% per annum, but appears to have waived this for 2016/17 (and for many previous years too). The accounting for this is complex, and for the present CHV are keeping the club afloat.

Directors pay

Millwall have a moderate policy in relation to director pay compared to League One clubs, but low for the Championship. £164,000 compared to over £190,000 for both Sheffield United and Walsall. In the Championship seven clubs paid over £200,000, and some over a million.

Losses:

Losses are income less costs, and were £5.3 million last season, (£101,000 a week), before considering player sales, which reduced this figure by half a million.

Over the last five years Millwall have lost money each season. Total losses before player sales were £35.4 million, and the highest position during that period was 19th in the Championship.

Player sales reduced these losses by £1.5 million, but it is still a substantial level of commitment required from owner John Berylson (who remember, is a very, very nice man if his lawyers are reading this) to underwrite these losses.

Losses in the Championship are expected to total over £400 million last season. This is only sustainable if owners continue to fund clubs.

Player trading:

Millwall invested a reasonable amount by League One standards last season in pushing for promotion.

The club spent £923,000 on new signings, and sold others for £514,000. Promoted Sheffield United paid out £3.1 million, but fifteen clubs in League One spent less than £100,000 on player additions.

This season in the Championship Millwall be up against clubs with very large player budgets. Last season the relegated clubs splashed out their parachute payments on new players attempting to bounce back to the EPL with Aston Villa (£76 million) Newcastle (£57 million) and Norwich (£20 million) having varying success.

The Owner

John Berylson’s investment increased further in 2016/17 as he invested a further £3 million in the club via a new share issue.

This takes his total investment to just over £56 million, in the form of shares and loans.

Realistically, Berylson will have to subsidise the club by a minimum of £5 million a year for the foreseeable future, unless promotion to the Premier League is achieved. His biggest battle is going to be with the council, and their behaviour in relation to the New Den. Regardless of the team you support, this is one issue around which all fans should unite in campaigning for the club to stay at their present home.

It looks as if Berylson (very nice man) has put a further £4.3 million into the club in December 2017 too, according to documents lodged at Companies House.

Summary

Millwall are in a tricky position. They have the infrastructure to be successful in League One, but as a community club, the owner does not want to compete with some of the big spenders in the Championship, which is understandable.

Continued membership of the Championship is likely to be an expensive exercise, despite the additional income that generates, mainly due to the struggle to compete with higher wages.

The biggest battle awaits with the council, and it’s one match that is essential the club wins.

Everton Financial Results: We Are Glass

Introduction:

In what could have been a good title for a song title by The Cure, 10:30 on a Friday Night is a very odd time for a club to tease out its financial results. Initially there was a press release, full of positives as one would expect, and enough for the media to put out a column or two.

To find out the full details it was necessary to wait though, and that’s something we don’t like because the story has become old news by the time some of the key numbers have been released (Chelsea have just done the same).

Having said that, it was a memorable season for Everton from a financial perspective, as the benefits of new owner Farhad Moshiri’s investment impacted upon both profitability and balance sheet strength. In addition, the club inched closer to a new stadium, which will be necessary financially (although will be a loss emotionally) if the club is going to break through the glass ceiling and challenge for Champions League places.

Key figures for 2016/17:

Income £171.3 million (up 40.9%).

Wages £104.7 million (up 24.6%)

Losses before player sales £12.3 million (down 28.1%)

Player signings £92.1 million

Player sales £54.7 million

Farhad Moshiri investment £150 million (£45 million since the end of the season).

League position 7th (11th)

Everton had a decent season, qualified for the Europa Cup, but were still 15 points off a Champions League place.

Everton are controlled by Blue Heaven Holdings Limited, a company based in the Isle of Man tax haven.

Bluesky are owned by Farhad Moshiri, born in Iran, his family fled the revolution and came to the UK, where he attended university in London and obtained British citizenship (no doubt being part of the migrant ‘problem’ and stealing our undergraduate places according to the Nigel Farage wing of football fans) before a successful career working for some leading accounting firms.

How he made his fortune is unclear, which didn’t stop the Grauniad having a thinly veiled pop at the nature of his investment and the role played by Alisher Usmanov, the minority shareholder in Arsenal. The inference is that Moshiri is influenced/controlled by Usmanov, but there’s no hard evidence to support that.

He then bought a share in Arsenal, before selling it to acquire 49.9% of Everton in 2016, although his loans via Bluesky make him the effective club owner.

How he made his fortune is unclear, which didn’t stop the Grauniad having a thinly veiled pop at the nature of his investment and the role played by Alisher Usmanov, the minority shareholder in Arsenal.

Moshiri also appears in the Panama Papers, which ultimately means nothing, but again fuels the nudge-nudge wink-wink school of cynic.

https://offshoreleaks.icij.org/nodes/80015954

https://www.theguardian.com/football/blog/2017/jan/25/everton-farhad-moshiri-alisher-usmanov-new-money-ownership

Income:

All clubs generate money from three sources, matchday, broadcasting and commercial. For a club such as Everton, with no Champions League benefits and a competitive ticket pricing policy, they are reliant on broadcasting income to a greater degree than the media concocted ‘Big Six’ (ignoring that Everton have won the top division more recently than Spurs).

After effectively treading water from an income perspective for three years, due to the Premier League (EPL) signing a TV deal of that length with BT Sport and Sky, commencing in 2013/14, Everton benefitted from the new deal that kicked in for 2016/17.

The previous season Everton had 68% of their income from TV, whilst not as much as the likes of (Plucky Little) Bournemouth, it was still substantially higher than the ‘Big Six’.

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2016/17 resulted in a £48 million (58%) increase in TV revenues, most of it simply for being in the EPL, but about £8 million was due to increased prize money for finishing four places higher up the table than the previous season.

Only six clubs have reported their results to date for 2016/17, but there is a noticeable increase in the contribution made by TV monies.

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Matchday income from ticket sales fell 20% to £14.1million, despite an increase in average attendances by over 1,000 to over 39,000. This was due to Everton reducing some ticket prices, especially for younger fans.

This is both a decent thing to do from an economic point of view, but also makes sense in allowing more young fans to see the club and increase the likelihood of them coming to see Everton if the move to the Bramley Moore dock stadium, where the club hope to have more than 61,000 seats available. This is dependent upon the move taking place, as costs seem to be rising all the time.

As a result, Everton’s average income per matchday fan dropped from £462 to £359. This also reflects that the club’s present facilities are not geared towards attracting large numbers of corporate fans, who pay premium prices to watch the game. Whilst there’s no love lost by regulars of any club towards the prawn sandwich brigade, the chinless wonders who occupy those seats can contribute towards the budget for players and other facilities.

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A problem for Everton is the new stadium is not expected to be available until 2022. Generating about £50 million a season less than local rivals Liverpool from matchdays does put the club at a significant disadvantage if wanting to break into the Champions League contenders.

https://www.theguardian.com/football/2017/dec/31/everton-new-stadium-costs-escalate-2022-target-bramley-moore-dock

Commercial income increased by £5.3 million (24.5%). On the face of things this looks impressive, but all is perhaps not as it seems. The club signed a deal to sponsor the training ground name, which generates an impressive £6 million. This deal was signed with USM Holdings, controlled by Alisher Usmanov.

Under normal circumstances this would have Arsene Wenger’s handlers reaching for his straightjacket and the padded cell, as he would be dragged away muttering incoherently about ‘financial doping’ as he has done in the past in relation to Manchester City’s eyebrow raising commercial and naming rights deals with Etihad Airways.

It would be cynical to suggest that Wenger seems less concerned when the unusual naming rights deal comes from a major shareholder in his own club Arsenal…

Costs:

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

Wages in total rose by a quarter to £104.7 million. Only a third of clubs have reported their details to date for 2016/17, but it does seem that Everton did invest in the squad in terms of their payments to players for the season. What is noticeable is that in 2015/16 Everton’s wage bill was only 2% higher than that of Stoke, in 2016/17 this gap had increased to 23%.

This suggests that Moshiri’s commitment had found its way to the player budget, but the extra income generated ensured that that wages as a proportion of revenues actually fell to 61%. This compares to a Premier League average of 67% in 2015/16.

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The wages increase might explain the USM sponsorship deal too. Under Premier League rules, clubs can only increase their wage bill by £7 million plus any increases in non-broadcast income plus the average gains from player sales over the last three years.

This is known as the Short-Term Cost Control (STCC) rule. (Anyone wanting to read it is welcome to look at page 116 of the Premier League 2017/18 Handbook, but I’m sure you’d rather pick your feet to be honest, it’s more enjoyable).

The aim of STCC is to prevent all the increases in TV monies going straight through to the pockets of players and agents. Instead the increase in this revenue stream will go to either fans in the form of lower ticket prices (kudos here to Everton) and/or club owners (because multi-millionaires need extra cash too).

For Everton, with a wage bill increase of £20.7 million, the STCC rules are satisfied as follows.

£’m
Annual increase allowed 7.0
Increase in sponsorship income 5.3
Decrease in matchday income (3.5)
Averaged three year gain on player sales 21.0
Total 29.8

Everton were therefore well within the rules for 2016/17, due to both the USM sponsorship and the sale of John Stones to Manchester City.

The other player related expense is that of player amortisation. This is the cost of signing a player spread over the length of his contract. Everton’s biggest signing in 2016/17 was Bolasie from small London club Crystal Palace for £25 million on a five-year contract. This works out as an amortisation charge of £5 million per year for five years.

In our view amortisation is a better measure of player investment than net player spend, as it smooths out individual transfers over a longer period of time, and shows the trend in terms of player investment.

The downside of focussing on player amortisation is that it ignores the impact of academy players and Bosman deals on the strength of the squad (but so does net player spend TBH) as these involve zero cost and therefore zero amortisation.

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Following a previously seen trend in relation to Everton, the club broadly plateaued between 2014-16, but the new TV deal and owner investment allowed the club to commit more to player signings and therefore amortisation in 2017.

We would expect this figure to accelerate significantly in 2017/18 due to the £150 million spend on new players during summer 2017.

Directors pay

One beneficiary of the extra monies at the club is that of the highest paid director. The club does not name the individual (there is no legal requirement to do so), but our money is that Chief Executive Robert Elstone is the likely person. His salary increased from £400,000 to £588,000.

That’s clearly a significant pay rise, but in 2015/16 the average pay for an EPL chief executive was £1.4 million, so he is relatively underpaid for the job he does (and it has to be said he’s a thoroughly nice chap too).

Profits and losses:

Losses are income less costs, and were £12.3 million last season, or £236,000 a week, before taking into consideration player sales, mainly that of John Stones, of £54.7 million.

We tend to look at what is called EBIT (Earnings Before Interest and Tax) as a main profit metric, as this removes the volatility of player sales and one off expenses (for example, Everton paid out £11.3 million in 2016 to Roberto Martinez and his team when the manager was sacked, this expense is excluded from EBIT as it is non-recurring in nature).

Everton have made EBIT losses of £35.5 million over the last five years, which explains why they have sold players to balance the books. Total gains on player sales during the same period were £107 million.

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There’s a case for saying that EBIT profits are too harsh, as it excluded player sales but included player acquisition costs in the form of amortisation.

It’s therefore also useful to consider EBITDA (EBIT with player amortisation and the depreciation of long term assets such as property and equipment) in addition to EBIT. This shows a healthier position for the club, which made an EBITDA profit every year.

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Player trading:

2016/17 was a record year for Everton (although will be surpassed by 2017/18). The club purchased players for £92.1 million, and had sales of £54.7 million, to give a net spend of £37.4 million. Although the gross figures are higher than in previous years, the net spend is in line with that of recent years.

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Everton seem to make a number of signings which are performance related. At the start of the 2017/18 season they were committed to additional payments for players, usually linked to appearances, trophies/Champions League qualification, international caps, loyalty bonuses and so on. This could cost the club £50 million if all the conditions are achieved, and we suspect that the fans would be more delighted than the finance department if those payments had to be made.

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Even after selling Lukaku to Manchester United, Everton did spend a net £60.6 million on the squad in summer 2017. On top of this Wayne Rooney arrived on a free transfer, so expect a major increase in the wage bill in 2017/18.

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The Owner:

Farhad Moshiri’s total investment is a mix of shares and quasi-loans. He paid £87.5 million for his 49.9% investment in 2016, but this money was to existing shareholders rather than the club itself.

His main action has been to pay off the bank loans of around £55 million, and replace them with an interest free advance of £105 million. During the summer of 2017, after the club’s year end, he advanced a further £45 million to fund player signings.

The early repayment of the bank loans was both good and bad news for Everton. The club had being paying out interest costs of £100,000 a week prior to Moshiri taking over, and this saving can therefore be invested in the playing squad. The banks did however charge a penalty fee £6.6 million for early repayment of the loans, revealing themselves to be a bunch of cockjuggling thundercunts harsh negotiators.

The club also took out a loan with a Chinese bank after the year end. Whether this is dipping the toe into the water in terms of financing the new stadium is yet to be seen.

Following Moshiri cleaning out the debts we estimate that the club is now worth £375 million, using our version of the Markham Multivariate Model. Given that the club was valued at £175 million when the takeover took place less than two years ago, plus £115 million in quasi-loans from Moshiri, it is a decent return on his original investment.

Summary

Everton are trying to be upwardly mobile as a result of new club ownership. To be realistically competitive for a Champions League place on a regular basis is unrealistic if the club continues to be based at Goodison, where the restrictions in terms of capacity and corporate income streams are an ongoing constraint.

By the time the Bramley Moor dock stadium is opened (and we’re assuming 2022 as the earliest date) Manchester United, Manchester City, Arsenal, Spurs, West Ham, (and possibly Liverpool and Chelsea) will have 60,000 plus capacity stadia too, and all will be aiming for those top four spots too. Having a large capacity stadium is no guarantee of success, just look at some of the clubs in the Championship.

Everton’s wage bill is currently less than half of the largest clubs, and it’s difficult to see how that gap will be eliminated in the short to medium term.

The Numbers

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Bristol City: Unfinished sympathy

Introduction:

Bristol City showed the challenge that exists for clubs trying to survive, let alone compete, in the Championship after racking up a recurring loss of £19.2 million before player sales last season. This is for a club that finished 17th in the division. The previous season similar losses were £14.4 million for finishing one place lower in the division.

The continued development of Ashton Gate should give City a better base on which to generate income.

The Championship remains the most frightening division in European football in terms of the financial gamble that exists there, as club owners decide whether to fund a promotion push with the potential £100 million a season that brings in terms of Premier League TV monies.

City are one of the earliest teams to report their results for 2016/17, but we maintain our estimate of sustainable pre-player disposal losses for the Championship exceeding £400 million for the season (compared to £361 million in 2015/16).

Key figures for 2016/17:

Income £21.2 million (up 49.3%).

Wages £20.9 million (up 19.9%) .

Losses before player sales £19.2 million (up 33.3%)

Player signings £13.6 million

Player sales £16.7 million

Steve Lansdown investment £118 million (up £14.9 million).

City had a wobbly season, early contention for the playoffs evaporated and they ended up needing good results in the last month to avoid relegation.

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

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

Income:

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

Total income for the season was £21.2 million. To put this in context, the three clubs relegated from the Premier League, Aston Villa, Newcastle and Norwich, each earned over £40 million in parachute payments.

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Whilst we don’t have figures for most of the clubs for 2016/17, as City are one of the first to announce their results, the table below, based on 2015/16 data, gives a rough indication of just how difficult it is to compete for those clubs without parachute payments.

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

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Matchday income from ticket sales rose 28% to £5 million. This was due to attendances at Ashton Gate increasing 26% from 15,292 to 19,256.

Broadcasting income rose 42% to 6.8million. This was due to the ‘solidarity payment’ paid by the Premier League to the English Football League increasing from £2.3 million to £4.3 million as a result of a new domestic TV deal for 2016/19 secured by Sky and BT Sport.

In addition, the club gets a share of the EFL TV deal with Sky, and is estimated to earn £100,000 for each home game and £10,000 for every away game broadcast live on Sky.

Other income, mainly commercial and retail, rose by an impressive 71%. This is mainly due to the completed development of Ashton Gate, the stadium that City share with Bristol Rugby Club. Having more modern facilities allows the club to generate extra money from hospitality, hosting conferences, restaurants etc, and allows the club to be open for more than the 25-30 days a year in which football matches are taking place.

Even with these significant increases in income City cannot hope to compete with those clubs in receipt of parachute payments, and so will be in the bottom half of earners in the Championship for the foreseeable future, unless attendances rise to the 25,000 plus level, which will only come if there is a sustained promotion campaign.

Costs:

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

Wages in total rose by 20% to £20.9 million. This is quite a frightening figure in many regards, as if a club in the bottom third of the division has to increase wages by 20% to tread water, it bodes poorly for the sustainability of teams in this division unless they are bankrolled by owners.

The wage/income ratio for City was the lowest for a number of years at 99%. This still means that wages were 99% of income, or to put it in more simple terms, Bristol City paid out £99 in wages for every £100 they generated from revenue. This of course leaves effectively nothing to pay for all the other overheads of the club, such as ground maintenance, heat and light, HR, finance and so on.

In the Championship as a whole, this puts the club slightly lower than the average wage level for 2015/16 of £23.1 million, and a wage/income level of 101% for the division as a whole.

Whilst the increase in wages was substantial, it is still significantly less than those of relegated Norwich, who paid out £55.1 million in 2016/17, and promoted Brighton, with £31.3 million plus a further £9 million in promotion bonuses.

The other player related expense is that of player amortisation. This is the cost of signing a player spread over the length of his contract. In the directors’ report City said that the club was heavily reliant on loan players for the season, most noticeably Tammy Abraham from Chelsea, who scored 23 goals in 2016/17.

Despite the use of the loan system, City also spent £13.6 million on signings during the season. The biggest signing was probably Lee Tomlin for about £3 million on a three year contract. This works out as £1 million of amortisation per year.

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

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The advantage of focussing on amortisation instead of just looking at transfer fees is that it removes some of the volatility from making one big signing in a single year.

We would expect the amortisation charge to continue at these levels at least for 2017/18. Despite selling tubby convicted felon Lee Tomlin to Cardiff in the summer of 2017, City still spent a net £9.5 million on players during the transfer window.

Other costs:

The club has significant other costs operating from the redeveloped Ashton Gate. Total expenditure on the stadium in 2016/17 was £11 million, bringing the total for the last few years to approximately £45 million.

The stadium and other property costs are being written off over 50 years, but to this is added the costs of depreciating shorter life assets such as office equipment. This gives an overall depreciation charge of £2.5 million, significantly up from £0.6 million the previous season, when the stadium improvements were not still a work in progress. This means that the deprecation charge was higher than for clubs with other stadia (Norwich’s was £1.9 million, for example).

Directors pay

Bristol City seem to have a fairly tight policy in relation to director pay. It could be that the costs are borne by holding company Pula Sports in Guernsey, but at £115,000 the amount is fairly low compared to other clubs, with seven clubs paying over £200,000. The Brighton CEO was paid £1.2 million in 2016/17 as the club was promoted.

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Losses:

Losses are income less costs, and were £19.2 million last season, or £370,000 a week,before taking into account the sale of Jonathan Kodjia to Aston Villa, for £15 million. This sale was the main driving force behind gains on player disposals of £13.6 million.

Over the last five years City have racked up losses before player sales of £70 million, and the highest positon during that period was last season’s 17th in the Championship.

Player sales have reduced these losses by over £16.7 million, but it is still a substantial level of commitment required from owner Steve Lansdown to underwrite these losses.

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Some of you may by querying how the club has complies with financial fair play (FFP), which restricts losses to £39 million over three seasons, so it must average £13 million a season.

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

Whilst City don’t detail all of these costs, they appear to be easily FFP compliant last season. We’ve asked around some of our chums in football, and have calculated the following FFP loss for 2016/17.

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The sale of Kodjia ensured that the FFP losses were not an issue for the club, and this effectively means that they can incur losses of £39 million over two rather than three seasons and stay compliant.

Player trading:

As previously mentiond, according to the accounts CIty paid out £13.6 million in 2016/17 on player additions.

£13.6 million is a record sum for City, more than triple the amount of the previous season. There is a noticeable discrepancy between this figure and the amount of cash spent on players of £8.9 million. This suggests that a number of signings were made on credit.

it’s a reasonably high figure for a Championship club, but not if compared to the amounts spent last season by clubs relegated from the Premier League in Aston Villa (£76 million) Newcastle (£57 million) and Norwich (£20 million), and promoted Brighton (£19 million).

Similarly, although Kodjia was sold to Villa for £15 million, the amount of cash received from player sales was £6.6 million. Again this is due to the deal being based on instalments rather than a single cash sum. This is borne out by looking at City’s debtors footnote, which reveals that the club is now owed over £10 million from other clubs, comparted to just £250,000 at the end of the previous season.

Spending during the 2017 summer window has resulted in the club transfer record being broken with the signing of Famara Diedhiou from Angers for £6 million.

The Owner

Steve Lansdown’s total investment increased further in 2016/17 as he invested a further £15 million in the club via a new share issue.

This takes his total investment to just over £118 million, in the form of shares and interest free loans.

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Realistically, Lansdown will have to subsidise the club by a minimum of £10 million a year for the foreseeable future, unless promotion to the Premier League is achieved. The investment in the stadium at Ashton Gate will help to generate extra income, but this will not make a serious dent in the operational losses, especially with no sign of wage growth slowing down in the Championship.

The good news for City fans is that there’s no sign of his affection for the club in the city where he made his fortune, or sport in Bristol, waning, despite him moving to Guernsey for tax reasons. He remains the club’s biggest asset, but also it’s biggest risk should anything happen to him and he can no longer underwrite the losses.

Lansdown appears to have adopted the Brighton model of improving the infrastructure first to lay down the foundations of being able to compete in the Championship, and then using this as the basis for a promotion push.

More nights such as the recent defeat of Manchester United in the League Cup are likely to continue to cement Lansdown’s love affair with the city and the club.

The numbers

Brighton and Hove Albion. Please, please, please, let me get what I want

Brighton and Hove Albion: Please, please, please, let me get what I want.

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Introduction: Bigmouth strikes again

Let’s get the elephant out of the room. We’re both Brighton fans here at the Price of Football, so excuse us a little indulgence in relation to this following report. It won’t impact upon our objectivity though, and we won’t bore you with tales of how the club nearly went out of business after being left homeless in 1997.

This report will focus on the cost of Brighton being promoted to the Premier League in the six years since they’ve moved to the Amex stadium in 2011.

Key figures for 2016/17: Panic

Income £29.2m (up 18.3%).

Wages £31.3m* (up 11.0%) *excludes £9.1million bonus paid to staff upon promotion, would be a 42.9% increase if bonus included.

Losses before player sales £38.9 million (up 50.1%)

Player signings £19.0 million

Player sales £ 0.3 million

Tony Bloom investment £280 million

The Albion just missed out on promotion at the end of 2015/16, first on goal difference to Middlesbrough, and then via the playoffs following a match at Hillsborough in which four players limped off injured in the first hour.

Chairman and professional poker player Tony Bloom was therefore faced with a dilemma at the start of 2016/17. Sell some of their players who were being courted by other teams (Dale Stephens and newly promoted Burnley, Lewis Dunk and small Premier League outfit Crystal Palace, Antony Knockaert and just relegated Newcastle), or stick with them and go all in for one final promotion push.

He knew the latter would be a gamble, as if the club didn’t achieve promotion in 2016/17 it would have had to scale back its investment in the playing squad the following season to comply with financial fair play (FFP).

Bloom’s experience of when to go ‘all in’ worked, he backed Chris Hughton by turning down offers, investing in the squad, and was rewarded with promotion.

Income: Frankly, Mr Shankly

Total income for the season was £29.2 million. To put this in context, the three clubs relegated from the Premier League, Aston Villa, Newcastle and Norwich, each earned about £50 million in parachute payments. The sum is also four times the amount the Albion were generating when playing at the Withdean stadium prior to the move to the Amex in 2011.

Whilst we don’t have figures for most of the clubs for 2016/17, as the Albion are one of the first to announce their results, the table below, based on 2015/16 data, gives a rough indication of just how difficult it is to compete for those clubs without parachute payments.

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

Matchday income from ticket sales rose 14% to £10.7 million. This was due to attendances at the Amex increasing to 27,966 from 25,583.

Broadcasting income rose 48% to 8.1million. This was due to the ‘solidarity payment’ paid by the Premier League to the English Football League increasing from £2.3 million to £4.3 million as a result of a new domestic TV deal for 2016/19 secured by Sky and BT Sport. In addition, the club is estimated to earn £100,000 for each home game and £10,000 for every away game broadcast live on Sky. With the Albion being in the two top all season, they were regulars on television too.

Other income, mainly commercial and retail, rose by a modest 7%.

Promotion to the Premier League will have a major impact on those figures. Benchmarking against Stoke City, the only club of a similar size who have published their 2016/17 figures to date, we would anticipate matchday income to rise by about 10%, commercial/other income to double, and broadcasting income to be somewhere between £95-£120 million in 2017/18, depending upon how often the club appears on TV, and the final league position.

To get a rough idea of the increments involved, if a club appears on live TV more than ten times they get about £1 million for each additional appearance, and there is prize money for finishing in every position in the Premier League that increases by just under £2 million for each place up the table, so the difference between finishing 11th and 16th is therefore about £10 million.

Costs: Stop me if you think you’ve heard this one before

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

Wages in total rose by 43% to £40.3 million. Included in this figure is a £9.1 million promotion bonus paid to all 288 staff members, both playing and operational, by Tony Bloom. Excluding the bonus wages would have risen by a more modest, but still challenging 10.6%.

This means that wages (excluding bonuses) were 107% of income, or to put it in more simple terms, Brighton paid out £107 in wages for every £100 they generated from revenue.

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In the Championship as a whole, this puts the club at slightly more than average wage payers, compared to 101% for the division as a whole.

Whilst the increase in wages was substantial, it is still significantly less than those of relegated Norwich, who paid out £55.1 million in 2016/17.

This may explain why Alex Pritchard, who had apparently had agreed to sign for Brighton in summer 2016 for a then record fee of up to £8 million, mysteriously made a last-minute decision to sign for Norwich as he headed back up the motorway to his then host club Spurs.

Pritchard then took on the role of pantomime villain for the 2016/17 season in the eyes of many Brighton fans, for making exactly the same decision they would have made themselves under the circumstances.

The wages paid also perhaps put paid to the claims made by former manager Gus Poyet, who said the club had ‘hit the ceiling’ in terms of wages in 2013.

In recent years it has been an expensive business in terms of wages for clubs to fund promotion. Neither Newcastle nor Huddersfield have as yet published their accounts for 2016/17, so not possible to compare the Albion to the other promoted teams.

The other player related expense is that of player amortisation. This is the cost of signing a player spread over the length of his contract. Brighton broke their transfer record in summer 2016 in signing Shane Duffy from Blackburn, for a fee rumoured to be £3.5 million, on a four-year contract. This gives an annual amortisation charge of £875,000 (£3.5m/4).

The advantage of focussing on amortisation instead of just looking at transfer fees is that it removes some of the volatility from making one big signing in a single year.

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Albion’s amortisation increased significantly in 2011/12 with the then record signings on Will Hoskins, Will Buckley and Craig Mackail-Smith as the club was promoted and moved to the new stadium.

In then plateaued for the next three years before Tony Bloom backed Chris Hughton and sanctioned a modest increase in 2015/16, then making an extra commitment in the summer 2016 window.

Other costs: Well I wonder

The club has significant other costs operating from the Amex stadium. Land and buildings have a balance sheet value of £134 million. This includes £2.5 million spent during the year, which is probably in respect of property close to the training facilities at Lancing.

The stadium and other property costs are being written off over 50 years, but to this is added the costs of depreciating shorter life assets such as office equipment. This gives an overall depreciation charge of £4.4 million, down 10% on the previous year, but still higher than many other clubs in older stadia, constructed at a much lower cost. (Norwich’s was less than half that of the Albion, at £1.9 million, for example).

The Albion have a unique cost in terms of transport. Because of the sustainable transport policy that was a condition of planning permission being granted, the club has to contribute significantly to the local train and bus companies to provide free transport to and from home games. This cost is unknown but is estimated to be in the region of £2.5 million.

Director Pay: Barberism begins at home

One expense that will perhaps result in comment is the remuneration of chief executive Paul Barber, who joined the club over five years ago.

Barber’s pay more than doubled to over £1.2 million. Part of this was performance and bonus related, part of it was to prevent other clubs headhunting him. It was publicised in The Times that PB was on Liverpool’s radar when they were looking to replace Ian Ayre, their chief executive. Ayre’s package at Liverpool was…£1.2 million

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We’ve had some dealings with PB here at the Price of Football, and our view is he’s worth every penny. There can be few chief executives of what is now a £140 million a year business who will reply to every email they receive, and engage in fan debate to the degree that Barber has done during his time at the club.

Ultimately if Tony Bloom thinks Paul Barber is worth the money then that’s more than good enough for us. We don’t always agree with the decisions made, but then I don’t always agree with decisions made by my wife either, and still manage to think she’s wonderful.

For some reason PB generates a hysterical reaction from the Mavis Reilly element of the fanbase, who use any excuse to give him stick. We find such behaviour bewildering.

Losses: Hand in glove

Losses are income less costs, and were £38.9 million last season. This was an increase of £13 million from 2015/16. The losses were underwritten by Tony Bloom, to the tune to £107,000 a day.

Since moving to the Amex the Albion have racked up total losses of £118 million in trying to achieve promotion to the Premier League.

Some of you may by querying how the club has complies with financial fair play (FFP), which restricts losses to £39 million over three seasons, so it must average £13 million a season.

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

Whilst the Albion don’t detail all of these costs, they have stated that they were FFP compliant in 2016/17. We’ve asked around some of our chums in football, and have calculated the following FFP loss for 2016/17.

The above suggests that the Albion were probably at their limit in terms of complying with the FFP rules in 2016/17, and would probably have had to make some player sales in 2017/18 in order to ensure they satisfied the three year figure of £39 million.

FFP in the Premier League is more relaxed, and of more concern to the club will be satisfying the wage control limits of STCC (Short term cost control) that only allow a Premier League club to increase the wage bill by £7 million a season, plus any rises in non-broadcast income

Player trading: Never had no one ever

According to the accounts the Albion paid out £19 million in 2016/17 on player additions.

On the face of it these seems much higher than the sums being quoted in the press, as the main signings were Shane Duffy (quoted at the time as going for a then record £3.5 million), Glenn Murray (£3 million), and Oliver Norwood, (£2m), although the club, as one would perhaps expect from a business owned by a professional poker player, keep their cards close to their chest and don’t disclose actual numbers.

We suspect the discrepancy is because many signings came with conditions in which extra fees kicked in should the Albion be promoted, and these payouts therefore became due at the end of 2016/17.

£19 million is a record sum for the Albion, more than double of any previous season, it’s a reasonably high figure for a Championship club, but not if compared to the amounts spent last season by clubs relegated from the Premier League in Aston Villa (£76 million) Newcastle (£57 million) and Norwich (£20 million).

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The club did appear to retrench in 2013 and 2014, partly due to tighter FFP rules, but as these were relaxed in 2015/16 spending has been modest, but perhaps more importantly, of mainly high quality. Previous years signings in the likes of Knockaert, Stephens, Murphy, Baldock, Hemed, Stockdale and so on can all be considered to be bargains.

Spending during the 2017 summer window has resulted in the club transfer record being broken three times. Most Premier League clubs do disclose in the accounts the amount spent (sometimes gross, sometimes net) in the window, in what is called the ‘post balance sheet events’ note, and we’re disappointed (actually probably just nosey) in that the Albion have not followed suit here.

The club have also spent £15.7 million in respect of buying land for development next to the training ground in Lancing. Once this is converted into retail and housing stock this could be a very useful additional source of income for the club. The hotel once proposed for the Amex site seems to presently be on the back burner.

The Owner: Handsome Devil

Tony Bloom’s total investment increased further in 2016/17 as he lent the club £28.2 million in the year. He underwrote the losses incurred, which was the equivalent of subsidising every ticket sold at the Amex in the Championship by £60 per match.

This takes his total investment to just over £280 million, in the form of shares and interest free loans. In addition to Bloom’s loans, the club also had racked up an overdraft of over £16 million by the end of May 2017, probably to pay out the staff bonuses as a result of promotion.

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Some fans are muttering about him selling out at a profit to a mythical Chinese or Middle Eastern investor. There’s no evidence to support this as (a) he’s a local lad (who just so happened to be a billionaire through his mathematical genius mind) who clearly loves the club, and travels to matches by train with the fans, and (b) he wouldn’t get his money back, as the club is worth less than the sum he invested.

Premier League status should allow him to stop having to subsidise the club as the extra monies of the Premier League should enable the club to break even (Stoke, for example, a club of similar size, made a profit of just £3 million in 2016/17).

Bloom remains the club’s biggest asset, as his devotion and decision making have proven to date have been exemplary. That also makes him the biggest risk, as if anything were to happen to him then the status of the club’s loans, for example, is unknown.

As a fan, all I can say is thank you Tony Bloom for bringing me some of the most memorable days of my life, and long many you continue to be in charge.

Walsall: Mama Weer All Crazee Now

Football, it’s all about money, footballers are a bunch of greedy tossers, all clubs lose a fortune and are bankrolled by overseas millionaires, the game is going to destroy itself etc.

But here’s a different club. It lives within its means, makes a profit every year, and that’s without selling a single player for a fee, and has 128 staff who between them earn just over half of what Manchester United pay Jesse Lingard.  Perhaps it could make you fall in love with the game again?

The club is Walsall, in the Black Country, nice little stadium, shame about the lack of decent pubs nearby, but other than that the epitome of a stable lower league outfit who have spent the last ten years in League One. (I now await revelations from angry Saddlers fans who spill the dirt on their club).

As a Brighton fan, I have mixed reactions about Walsall, watching my team lose 2-1 in an insipid Capital One Cup game at the start of 2015/16 season. and seeing the mighty Chris O’Grady’s last kick for the club as he put a penalty for the Albion into Row Z before being immediately substituted and running off the pitch faster than he’d moved during the match.

Income

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

Walsall’s income was almost unchanged at £6.6 million in 2016/17, although a £493,000 increase in commercial/broadcast offset a £425,000 (28%) fall in matchday income. The latter was partially due to a playoff finish and reasonable runs in cup competitions benefitted the club in 2015/16 when they played Chelsea in the League Cup and made it to the fourth round of the FA Cup.

A new BT/Sky TV deal for the Premier League resulted in an increase in solidarity payments that trickle down to League One clubs from £360,000 to £645,000.

Over the last five years Walsall’s income has been growing steadily, mainly due to non-matchday sources.

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Costs

Footballs main costs are in relation to players, and here Walsall seem to have a lid on their ambitions.

The total wage bill for 2016/17 was £3.12 million, or just over £60,000 a week, before adding in pension and national insurance costs. This works out as an average of £470 a week for the staff. Even so this represents a 36% increase in the wages paid in 2012/13 of £2.29 million, where the average Walsall employee was on £390 a week.

The club clearly have a tight wage budget set each year, and this is why the wage to income ratio fluctuates in a narrow range around 50%. This compares to an average of 101% for clubs in the Championship.

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The employees who have perhaps done most well from the club are the directors, whose pay has increased from £106,000 to £192,000 over the five years of our analysis.

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The club appears to rent its stadium and training ground. The rent fluctuates from year to year, and went up from £400k to £449k in 2017. This appears somewhat strange, as the club appears to both own and rent the Bescot.

Talking to some fans on Twitter, it appears that the club owns the stadium, but the land it occupies is rented. Apparently the land is owned by Chairman Jeff Bonser’s pension fund.

This has been investigated by the excellent David Conn in The Grauniad.

https://www.theguardian.com/football/david-conn-inside-sport-blog/2011/mar/30/walsall-stadium-sale

The club is therefore committed to paying about another £5m in rent for land at the stadium until the next review.

It therefore appears that the board are generating money from the club directly and indirectly in three areas, fees (£192k), rent (£440k) and interest on loans (not too clear but at least £6k).

This doesn’t mean that Posner and his colleagues are in the Monty Burns category of evil company owners, but neither are the likely to be nudging the likes of local philanthropists at other clubs such as Steve Gibson (Boro), Peter Coates (Stoke) and Tony Bloom (Brighton) off their crowns either.

Profits

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

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Player trading

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

It initially appears that during  the four years leading up to 2016/17 the club neither sold nor bought a player for a fee.

This record was broken during the last season, when Cypriot striker Andreas Makris was signed for a supposed record fee of £270,000 (€300,000). This was funded by Walsall’s success the previous season.

This fee is at odds with the accounts though, which reveal that the actual amount paid was £179,000 (€200,000). Makris’s season proved to one of disappointment, with one goal in 32 games. After proving to be shite a disappointment Makris’s value was written down in the accounts, and he was sold back to Cyprus in the summer of 2017. Whilst the fee wasn’t disclosed, it looks, from a bit of number triangulation, the fee was about £110,000.

In relation to the sale of players, the issue is muddied by the way the club appears to have dealt with the issue. Normally, when a club makes a disposal, it is shown separately on the profit and loss account, as the club is not in the actual business of selling players.

Sheffield United do this in their accounts, as do practically all others.

What Walsall appear to have done is fold in the profit on player sales within their ‘football and commercial income’ heading. That’s at best reducing transparency, we think it’s a shabby way to deal with the subject, and inconsistent with what we believe is best business practice.

Conclusion

Walsall have shown that a club can break even, by managing their wage budget carefully, and being cautious in the transfer market (ten clubs in League One did not sign players for fees in 2015/16 for example).

Had they been promoted to the Championship in 2015/16 after finishing third and making the playoffs, they would have had a season in the sun, playing the likes of local rivals Villa, Birmingham and Wolves. Having done so once, and seen the likes of Shrewsbury have a good season to date in League One, it’s difficult to see the Saddlers change their business model for the foreseeable future.

The club does have debts of around £2 million from the directors, but these are serviceable. Part of these loans are interest free.

From an analysts’ perspective, it’s also a breath of fresh air to see a club being so transparent and putting out its full results in the public domain for fans to see. Clubs are a part of the community, and the community have a moral right to know about how the club is financed.

However what should be three cheers is reduced to two.

The methods used to extract money from the club by some who are responsible for its long term welfare, and the way that some figures (such as player disposals) are not disclosed.

This is harsh on those who travel the length and breadth of the country watching the team play every week.

Fans invest more than money into their clubs, and have a degree of moral and emotional right to know the extent to which the club has benefited from player trading.

The Numbers

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Celtic: Inbetween Days

Introduction

Celtic’s accounts for 2016/17 arrived in our inbox 24 hours before the club lost its 69 game domestic unbeaten run.

We recently reported on the financial situation of Rangers, who were promoted to the Scottish Premiership (SPL) in 2016/7.

http://priceoffootball.com/glasgow-rangers-201617-orange-crush/

They highlight the paradox of being in their current position, too rich compared to their peers to make Scottish football competitive (although Hearts fans may now query that), but too poor to be able to challenge in the Champions League, leading to their fans searching through Google Maps as they try to find how easy it is to get to St Petersburg on public transport for the forthcoming Europa League match against Zenit.

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Key figures for 2016/17

Income £90.6m (2016 £52.0m)

Wages £52.2m (2016 £36.9m)

Profit before player sales £3.7m (compared to £13.6m loss in 2016)

Player signings £13.8 m (2016 £8.8m)

Player sales £4.2m (2016 £14.0m)

Income

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

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Matchday income was up 50%, the main reasons for this were:

  • Champions League qualification and attractive ties against Munchengladbach, Barcelona and Manchester City.
  • Higher season ticket sales as fans wanted to ensure they saw their team play against Rangers in the Scottish Premiership for the first time in years.
  • Preseason tournament against Leicester, Barcelona and Inter Milan.

Matchday income contributed 41.5% of total revenues for the club. Compared to the English Premier League (EPL), this is a far higher proportion than for any club in that competition.

Celtic’s matchday income would place them seventh if they had been in the EPL, which shows the contribution made by fans to the club.

Broadcast income more than doubled, again driven by a Champions League qualification. The payout was €31.7 million, compared to only €5.8 million the previous year, when the club only qualified for the Europa League.

Celtic also benefited with the payouts being made in Euros, as the pound fell in value at the UK’s economy was downgraded as a result of the Brexit vote. This added a further 15% to the sterling value of the sum received by Celtic.

Other/merchandising income was up 30%, as the club launched three new kits during the season.

Compared to rivals Rangers, who have the second highest level of income in Scotland, Celtic’s income was substantially higher in all three main areas. The figures also show that the Scottish Premiership’s TV deal with Sky is paltry compared to the riches available in the Champions League.

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Having three times as much income as the next largest club makes it very difficult for anyone to compete with Celtic when it comes to paying out the costs of running a club.

Costs

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

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Wages rose by over 40% because Brendon Rogers signed the likes of Scott Sinclair, Kolo Toure, Cristian Gamboa and Eboue Kouassi, all of whom were on lucrative contracts by Scottish standards. Players would also have been paid bonuses for featuring in the Champions League.

At £52.2million, Celtic’s wages were three times those of Rangers (£17.6m). The next highest in Scotland was Aberdeen at £6.8m.

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

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

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Player amortisation represents the transfer fee cost being spread over the life of the contract signed by the player. So. if Scott Sinclair signed for £3million on a four year deal, this would result in an amortisation charge of £750,000 a year.

The amortisation charge arose as a result of Celtic spending £13.8 million on players for the 2016/17 season. Over the last five years Celtic have spent a total of £49.8 million on new players, which will get you one very good full back in the Premier League.

This contrasts with Rangers spending £10.3 million in their first season back in the SPL, although that was in marked contrast to the £4 million they spent in total over the four preceding years.

Celtic did have a further £1.5 million of costs in 2016/17 that were called ‘exceptional’. These are expenses that are one off in nature and so not expected to recur every year.

This included £287k in relations to signings that proved to be shite less impressive than when the club bought the player, and so had to be written down. There were also payments to former employees and over £1 million.

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Profits and losses

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

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

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

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Celtic’s operating profit rose by a factor of ten to £7.5 million in 2016/17, driven by the increased income mentioned above. Rangers had an operating loss of £6.8 million during the same period.

The problem with operating profit is that it can be distorted, especially by player disposals. We therefore also calculate profit before player sales and other one off items. We refer to this as EBIT (Earnings Before Interest and Tax) This removes the volatility in relation to selling one player in a single season at a huge gain (such as Van Dijk), and having no such sale the following year.

Despite the domestic success and European qualification over recent years, Celtic made an EBIT loss of over £31 million in the last five seasons.

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This shows that the club is dependent upon selling players each year to help make the books balance.

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Gary Hooper and Victor Wanyama contributed most of the gain in 2014, and Virgil Van Dijk that for 2016. These gains are used to offset the EBIT losses. Celtic have had a negative net transfer spend of £600,000 over the last five years as a result of these sales.

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

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Celtic’s EBITDA profit of £12.9 million, compared to a loss of £6.9 million the previous season shows how critical it is for the club to have Champions League qualification. This compares to an EBITDA loss of £0.7 million for Rangers.

Debts

Celtic are debt free, having cash of £24.5 million of cash at 30 June 2017, compared to outstanding loans of £13.5 million. This should be good for Rodgers if he is looking to strengthen the squad in the January transfer window. He did spend over £6 million on signings in the summer 2017 window. Rangers, by comparison, had a net receipt of £240,000 during the same window, as they sold more players than they signed.

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Conclusion

Celtic are in a strong position financially. Qualification for the Champions League in 2017/18 guaranteed the club another £30 million in broadcasting income. Whilst, as expected in a group featuring PSG and Bayern, they did not qualify for the knock-out stage, they are now in the Europa League, albeit with a tough first draw against Zenit.

The financial gap between them and Rangers is substantial, which gives them a playing advantage too. Whilst Celtic fans don’t care, how good the lack of competition is for Scottish football, especially if it is trying to negotiate new TV and commercial deals, is uncertain.

The numbers

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Sheffield United: Crushed by the wheels of industry

Introduction

We’ve always considered Sheffield United to be a big club. Whether that’s due to Tony Currie being a favourite player when I was a kid, Brian Deane scoring the first ever Premier League goal, or Sean Bean’s very public support of the club, we’ve always been well supported, with a decent stadium, so one would expect them to be in the top two divisions.

It’s therefore a surprise to see that it took the Blades six years to return to the Championship, since being relegated in 2011.

Key figures for 2016/17

Income £11.4m (up 7.5%).

Wages £10.0m (down 11.5%)

Losses before player sales £7.7m (down 18.1%)

Player signings £3.1 million

Player sales £2.8 million

Income

United have certainly been one of the biggest teams in League One for the last six years. Although they were unable to keep with those clubs who dropped into that division who were receiving parachute payments during that period (Wolves and Wigan come to mind), they had income higher than most other clubs during that period.

In League One the majority of income for a club comes from matchday income, as the EFL TV deal with Sky, and parachute payments, are skewed towards clubs in the Championship.

Attendances were slightly up at an impressive 21,892 (compared to 19,803 in 2015/16), but made little difference to matchday income, as the previous season included a lucrative FA Cup match at Old Trafford.

Broadcast income was slightly up, partially due to EFL clubs receiving a proportion of the new Premier League TV deal with BT and Sky.

Promotion to the Premier League will increase broadcast income to about £6.6 million in 2017/18.

Costs

The main cost for clubs at all levels is wages. United managed to keep a lid on their wages in 2016/17, paying out £10 million, down from £11.4 million. This is still high by League 1 standards (the median is about £4 million).

United have backed their managers during their time in League One in terms of a player budget. Wages have matched or exceeded income three times during that period.

The club had to cut back on wages significantly in 2013 to ensure compliance with FFP rules in League One.

The other main cost is player amortisation. This is accounting talk for the way that clubs deal with player transfers. The fee paid is spread over the life of the contract signed by the player. So a £1 million signing on a four year contract will give an amortisation charge of £250,000 a year.

In addition to this the club showed an impairment of £614,000 during 2016/17. An impairment arises when a club signs a player for a fee, and then realises he is rubbish (or has a career ending injury) and has to write his value down in the accounts. Who this player was for 2016/17 has not been disclosed in the accounts.

A £3.1 million spend on signings in 2016/17, high by League One signings (ten clubs in the division paid no transfer fees), combined with the inspirational management of Blades fan Chris Wilder, meant that the club was promoted with over 100 points.

The club has traded well with their existing playing staff, making significant profits from selling players every season, with the likes of Jamie Murphy, Kyle Walker, Harry Maguire being sold, and generating over £13 million over the six years in League One.

Hidden away at the back of the accounts is a little disclosure that will benefit the club substantially in 2017/18. It shows that United earned over £7 million as a result of sell on fees in respect of former players. Again, no details are given, but the smart money is on a 10% fee for the sales of Kyle Walker to Manchester City and Harry Maguire to Leicester.

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Losses

Losses are total income less costs. United’s losses, before taking into account player sales, were £7.7 million in 2016/17, or about £150,000 a week. Total similar losses during the League One years were £31.2 million, although player sales reduced this by £12.5 million.

The club did make a profit of over £30 million in 2013/14, but this is more to do with the dark arts of accounting than actual trading. This arose when another member of the group wrote off a £30 million loan.

Summary

United have returned to where many would consider their natural place is in the football hierarchy, but it has taken time and a lot of money to achieve promotion.

Being competitive in the Championship is expensive (we estimate losses to exceed £300 million for clubs in 2016/17).

The ownership of the club is a little muddy. The McCabe family, who had owned the club for a long time, sold a 50% share of the parent company Blades Leisure Limited to a Saudi investor via a company called UTB LLC, registered in the West Indies in 2013. Hopes of a Manchester City style splashing of the cash from Middle East ownership have never materialised though. This may change perhaps in the Championship, with the allure of Premier League exposure being so close.

In recent months there has been musical chairs in the boardroom, with directors leaving and then returning. It would appear that the McCabe family, who have bankrolled the losses for many years, are still in effective control.

 

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The Numbers

Grimsby Town: Seven Seas

Introduction

Remember ITV Digital? The board of directors of Grimsby Town certainly do. They are still blaming the demise of the company for the financial woes of the club 15 years after the Monkey advertised channel went kaput in…err…March 2002.

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For those of you unfamiliar with the company. ITV Digital went bust after signing a £105 million per season TV deal for live broadcast of Football League matches.

To give some context, the current Sky deal for the Football League is worth about £60 million.

Whoever signed the contract on behalf of the Football League was clearly put on the naughty step, as it ended up losing about £180 million when ITV Digital went into administration. Grimsby, like many small provincial clubs, were hit hard by the event, as TV rights generated about 60% of the club’s income in 2002. The club was relegated in 2003, and that was the last time the club was in the top two divisions.

Since then it’s been a struggle for the club in terms of both league position and finances. But how much of this misfortune can be put at the door of ITV Digital?

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That’s a shame, as we like Grimsby here at the Price of Football. Not only can you get a great fish and chips pre match, there is also the experience of the final game at the end of the 2002/3 season, between Grimsby and Brighton, which took place on a Sunday afternoon.

Both sides had to win to have a chance of avoiding relegation, and to get to the match on time we ended up spending our first (and possibly last) Saturday night in Cleethorpes.

A great time was had by all, shapes were thrown on the dancefloor of some memorable nightclubs. The highlight however was being offered by a local lady of indeterminate age and morality a chance of a romantic encounter behind a skip after buying her a drink, on the grounds that she’d ‘never had a Cockney’.

What she would have offered for if a bag of chips had been offered as well was sadly never clarified.

The offer was declined, partly because of fear (she claimed to have four children by three different fathers, all of whom were apparently in prison), and partly because we feared her genital cleanliness was as impressive as her knowledge of geography.

The financial consequences.

The ITV Digital demise certainly cost Grimsby money, in 2002 it accounted for 70% of total income that season.

However, the club would have suffered financially too if the club had been relegated. This is because the TV deal was very much skewed towards clubs in the Championship.

Worse was to happen in 2009/10, when the club was relegated to the National Conference, which was not covered by the EFL TV deal. This explains why income took another dive in 2011, as the club took its time to come to terms with a new life.

Latest results

Grimsby eventually returned to the EFL in 2016/17, and have just published their first set of financial results since being once again part of the 92.

The first thing to say about Grimsby is a positive one. The club has not hidden behind Companies Act legislation and produced abbreviated accounts, which do not show key metrics such as income, wages and profits.

Here at the Price of Football we are hugely disappointed that so many clubs (8 in League One and 17 in League Two) are not transparent and show the full picture of their finances to fans, who are the spiritual and emotional, if not necessarily the financial, owners. The Football Association could do something here, but their silence on this governance issue is damning.

Impact of promotion

Promotion has been good for Grimsby, with income rising by 24% and average attendances up 21% to 5,259, the sixth best in the division. The rise in attendances only made a £30k increase in matchday revenue, mainly because the figures for the previous season were boosted by Grimsby getting promoted via the playoffs at Wembley, which was a big payday for the club.

Wages also took a hit since the administration. The club does seem to have had some bad years where wages were as high or higher than income, but have taken back control ((c) All Brexit Voters) of wage levels in recent years. Whilst wages rose by 30% in the first season back in League 2, this was more than covered by the benefits of return to the EFL.

Player signings

Grimsby have never been a wealthy club, known for big signings, and this is reflected in the sums paid for players since 2002.

2016/17 resulted in Grimsby having their highest player outlay since before ITV Digital went bust. On the plus side, the club also sold the splendidly named Omar Bogle to Wigan. Whilst Grimsby have not disclosed the fee, a bit of accounting fun and games suggests that total player sales for the year generated £1,066,000.

It does appear that some Grimsby fans are unhappy with the ownership of the club. The largest shareholder is John Fenty, a local businessman and Conservative councillor, who has we think about 42% of the shares.

Owner investment

Like many provincial clubs, Grimsby are dependent upon the owners for financial support.

From what we can see, the total invested in the club by the board is as follows:

It certainly appears that the board (presumably Fenty) has put money into the club, especially after relegation to the Conference/National League. How wisely the money has been spent is best dealt with by those with local knowledge. Many seem to think that Fenty’s decision making is on a par with my ability to do ballroom dancing whilst blindfolded.

There doesn’t, however, appear to be much of a correlation between the fall of ITV Digital and the owners writing out cheques to cover losses. Grimsby made an operating loss of just £111,000 between 2002 and 2017, although is should be emphasised that this period was bookended by £1 million profits in both 2002 (as the club had received some money from ITV Digital) and 2017 (due to the sale of Omar Bogle).

Where the club goes from here is open to conjecture. Attendances are down 15%, as second season syndrome kicks in. In Russell Slade they have an experienced EFL manager, and currently sit just three points off a playoff position.

Promotion to League 1 is worth about £400,000 a season extra in TV income. Whether Grimsby could then survive in the bear pit of the Championship, where we are estimating total losses to exceed £300 million, is debatable, but the likes of Burton, who were the team who relegated Grimsby into non-league football, have shown it can be done.