Celtic: Rattlesnakes

Introduction

Is that what you call a treble?

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

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

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

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

Key figures for 2017/18

Income £101.6m (2017 £90.6m) Up 12%.

Wages £59.3m (2017 £52.2m) Up 14%.

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

Player signings £16.6 m (2017 £13.8m)

Player sales £16.5m (2017 £4.2m)

Income

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Costs

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

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

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

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

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

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

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

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

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

Eh pal, explain to me what amortisation means again.

Exceptional costs

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

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

Profits and losses

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

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

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

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

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

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

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

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

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

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

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

Player Trading

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

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

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

Debts

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

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

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

Conclusion

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

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

The numbers

Walsall 2018: Heading Out on the Highway

Introduction

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

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

Financial summary

Income: £5,853,000 (down 12%)

Wages: £3,376,000 million (down 0.3%)

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

Wages to income 58% (up from 51%)

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

Borrowings £2,038,000 (down £289,000)

Income

Not breaking the law

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

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

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

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

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

Costs

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

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

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

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

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

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

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

Profits

My Oh My

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

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

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

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

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

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

One of us is in the money.

Player trading

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

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

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

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

Debts

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

Conclusion

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

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

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

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

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

The Numbers

 

Birmingham City 2018: Do What John?

Top Top Finances

Introduction

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

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

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

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

Summary

Income up 12% to £19.6 million

Wages up 78% to £40.1 million

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

Player purchases up to £15.3 million

Income

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

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

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

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

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

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

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

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

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

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

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

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

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

Costs

Player costs

The group said this about costs.

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

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

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

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

Player Amortisation

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

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

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

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

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

Profits and losses

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

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

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

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

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

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

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

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

If non-cash costs such as amortisation and depreciation (depreciation is the same as amortisation except this is how a club charges a cost for other long-term assets such as buildings) are excluded then another profit figure called EBITDA (Earnings Before Income Tax, Depreciation and Amortisation) is created. This is liked by professional analysts as it is the nearest thing to a cash profit figure, and it is more likely to be a positive figure than the likes of EBIT.

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

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

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

FFP losses

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

In the accounts the club has admitted the following

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

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

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

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

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

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

Player Trading

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

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

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

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

Investment

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

The club parent borrowed about £13 million in 2018.

Summary

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

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

Data Set

Manchester United 2018 Finances: Made of Stone

Panic on the streets

Introduction

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

They’re paying Woodward HOW much?

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

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

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

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

Income

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

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

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

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

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

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

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

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

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

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

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

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

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

Expenses

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

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

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

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

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

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

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

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

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

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

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

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

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

Profits

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

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

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

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

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

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

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

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

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

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

Player trading

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

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

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

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

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

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

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

Funding

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

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

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

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

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

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

Summary

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

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

Data Set

 

Hull City 2018: Eye of The Tiger

Introduction

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

In the strategic report the board say the following…

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

Income

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Costs

Player costs

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

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

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

Player Amortisation

This is how a club deals with player transfers in the profit and loss account by spreading the cost over the contract period. For example, when Hull signed Kevin Stewart from Liverpool in the summer of 2017 for £4 million on a three-year deal, this works out as an annual amortisation cost of £1.33 million. The amortisation cost in the profit and loss account represents the total for all players signed for fees in previous seasons.

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

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

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

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

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

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Profit

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Player Trading

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

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

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

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

Investment

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

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

Summary

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

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

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

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

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

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

Data Set

Accrington Stanley: The Milkman of Human Kindness

Accrington Stanley, who are they?

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

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

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

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

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

Income

Accrington Stanley Road

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Costs

That’s another fine mess.

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

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

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

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

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

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

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

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

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

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

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

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

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

Profits and losses

Hair was so much better in the 70's.

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

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

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

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

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

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

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

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

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

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

Borrowings

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

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

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

Summary

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

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

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

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

Data Set

 

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

Introduction:

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

Overview

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

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

Wages £71.5 million (£59.6m)

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

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

Player signings £9.3 million (£69.8m)

League position 9th (16th)

Income

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

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

Broadcasting income:

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

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

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

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

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Matchday Income

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

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

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

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

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

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

Commercial income.

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

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

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

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

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

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Costs

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Profits

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Player Trading

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

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

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

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

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

Ownership

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

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

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

Conclusion

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

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

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

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

 

 

Crystal Palace 2017: Dancing In The Dark

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

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

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

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

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

Income

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Costs

Wages

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

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

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

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

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

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

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

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

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

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

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

One of the directors also had a substantial pay rise.

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

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

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

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

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

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

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

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

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

Player Amortisation

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

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

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

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

Profit

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

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

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

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

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

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

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

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

Player Trading

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

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

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

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

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

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

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

Summary

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

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

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

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

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

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

Morecambe Finances 2017: Bring Me Sunshine

Introduction

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financial summary

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

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

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

Player sales and purchases zero (no change)

Borrowings £1.74 million (down from £3.32 million)

Income

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

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

Broadcast Income

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

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

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

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

Matchday

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

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

Hospitality

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

Hospitality income fell by 10% in the year.

Commercial

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

Costs

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

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

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

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

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

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

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

Profits and losses

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

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

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

Financing the club

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

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

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

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

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Conclusion

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

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

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

Data Set

Newcastle 2017: Lovely Jubbly

Introduction

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

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

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

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

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

Income

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Costs

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

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

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

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

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

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

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

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

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

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Profits

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

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

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

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

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

Player trading

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

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

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

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

Debts

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

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

Conclusion

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

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

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

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

The data