Celtic: Rattlesnakes

Introduction

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.

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.

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