Hull City 2017: Marooned in Flamingoland

Introduction
They came, they saw, they went back to the Championship. If ever a club in recent years deserves the ‘Yo-Yo’ label, it is Hull City. In the ten seasons commencing 2007-8 the club has been promoted and relegated three times.

Hull were promoted via the playoffs in May 2016, but spent the summer in limbo, with a clear conflict between the owner Assem Allam and manager Steve Bruce, presumably over recruitment.

Mike Phelan took over as caretaker, and on the back of a victories in the first two matches the club made the decision to appoint him as manager on a full-time basis.

It’s doubtful whether any other £100 million a year business would make decisions on the fly in such a manner. Somewhat predictably, Hull’s season went into a nosedive, and they had one win in the next 18 matches, leading to Phelan being sacked.
Hull spent £32 million in the transfer market, mainly on cast offs from other Premier League clubs (Ryan Mason, Will Keane, James Weir), loanees and unheard of foreign signings.

Hull’s relatively conservative transfer policy has resulted in some more established Premier League clubs questioning the distribution of broadcasting revenues and parachute payments to relegated clubs.

Whilst Hull didn’t lose many of the players during the summer window, by the time January arrived the vultures were picking over the relatively few bones left, with top scorer Robert Snodgrass and Jake Livermore jumped ship for West Ham and West Brom respectively in £10 million plus deals.

New manager Marco Silva managed to improve results compared to Phelan, taking the club out of the relegation zone, but defeats to already relegated Sunderland, and fellow strugglers small London club Crystal Palace, sent Hull down.

Silva left for Watford, and Hull’s manager became the splendidly named Leonid Slutsky, who we think used to play Spock in the original Star Trek.
Income


Hull’s figures in recent years highlight the impact that promotion to the Premier League can make. In 2012/13 the club’s total income was £17 million, of which £5.9 million was their final parachute payment after being relegated from the Premier League in 2010.

Income for 2016/17 was nearly £117 million, due to the popularity of the Premier League with broadcasters. A new three-year TV deal with Sky and BT commencing in 2016/17 along with recently boosted overseas rights. Hull’s TV income, despite relegation, was £94 million, or 80% of total revenue. All clubs in the Premier League benefited by on average £35 million due to the new deal.

Because Hull were relegated immediately after being promoted in 2016/17, they will only receive parachute payments for two seasons.

Gate receipts were marginally up in 2016/17, 10% to £7.9 million, but other match day income, presumably corporate boxes and perhaps perimeter advertising (clubs are notoriously vague as to what appears in individual headings) quadrupled from £2 to £8 million.

‘Other’ income, which includes commercial and retail, benefited from Hull’s promotion too. The sad thing in relation to this is that Hull ditched our favourite shirt sponsors, Flamingoland, home of the Mumbo Jumbo extreme ride, for a generic betting organisation.

Costs

As always the biggest outlay for a professional club is in relation to players. Hull’s wage bill more than doubled to £61 million, partly due to signings, but also due to pay rises for the existing squad.

Hull are only the third Premier League club to publish their results, so it’s not possible to directly compare with their peers, but it would have been bottom three compared to the Premier League the previous season.

Given the increase in income due to the TV deal mentioned above, we would expect wages to rise for most clubs. Premier League club owners have tried to restrict all of this money ended up in players’ wage packets via the pompously named Short Term Cost Control (STCC rules), which restrict the increased amount spent on wages to £7 million PLUS any extra non-TV money earned by the club.

Whilst wanting to appear noble, the aim of STCC is to increase the profits for the owners of clubs, by restricting the amount that goes to players.

The other main player cost is player registration amortisation. Whilst this is a non-cash expense, it is linked to the amount Hull have paid in respect of transfers, spread over the contract life period. At £32.6 million, it is a sizeable sum, but will fall in 2017/18 as Hull have offloaded some players.
Combining the two player costs shows that Hull have struggled in the Championship to deal with the demands of the division.

On the plus side in 2013 and 2016, when Hull were in the Championship and total player costs exceeded income, the club was promoted both times. These figures therefore include promotion bonuses (£10.4m in 2016, not disclosed in 2013).

One other cost that is noticeable in Hull’s books is the interest expense. The vast majority of Hull’s loans are due to the owner and/or Allamhouse Ltd, a company owned by the owner.


The interest rate on the loans, calculated very crudely by us, is not particularly high, and likely to be much lower than that charged by a bank.

Profits
Profit represents total income less the costs of running the club. The profits after tax belong to the owners, and can either be reinvested into the club or paid out in the form of dividends (very rare though, except for Manchester United) .

Hull are a perfect example of why English clubs in the Premier League are attractive to owners. In that division they make a lot of profit for owners, as well as being high profile outfits that are seen globally by TV viewers.

There are a variety of profits that tend to be analysed.
Profit before tax is as it says on the tin.

Operating profit is income less all costs except tax and finance costs.

EBIT is the same as operating profit, adjusted for non-recurring items such as gains on player sales (which, whilst arising each year, tend to be volatile and unpredictable) and legal claims.

EBITDA is the same as EBIT but has the non-cash expenses of depreciation and amortisation added back. This is a proxy for the sustainable ‘cash’ profit made by the club.

Hull’s figures show the price to be paid for playing in the Championship, as well as the rewards of the Premier League. Promotion in 2016 resulted in a boost of over £55 million to Hull’s profit before tax, with the other metrics improving too. Over the five year period of the analysis the club made a profit of just over £10 million. Nothing too excessive, but still enough for a good Saturday night out in Hull city centre.
Conclusion
Hull banked a lot of money in 2016/17 from their one season in the Premier League. As well as selling their crown jewels in the January 2017 window, the remaining good players in the shape of Harry Maguire, Tom Huddleston, Sam Clucas and Andrew Robertson departed in summer 2017. This could be part of a strategy to streamline the wage bill.

Their replacements have not fared well, and Hull are presently hovering near the relegation zone in the increasingly cut throat Championship. The only positive from this is that is Hull continue to perform poorly we could see a return of Flamingoland as the shirt sponsor.

One area of possible concern is the relationship between the club and its owner. Since failing to get the football authorities to change the club name to Hull City Tigers,  Assem Allam has been throwing his toys out of the pram with a series of Trump like inflammatory statements.

In the last year, Hull have increased, then decreased, the number of shares that they have in issue. Whether this was due to a potential sale or part sale of the club is uncertain, but Hull are best filed under ‘watch this space’ in terms of ownership for the foreseeable future.

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