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

 

Manchester City and Etihad Airways: Economy plus?

History

The 2007/8 Premier League season could not finish fast enough for Manchester City. The final match under Sven-Göran Eriksson was a nine-goal thriller at Middlesbrough, where unfortunately City conceded eight of them.

The club’s reputation at the time was that of the Keystone Cops of English football, a bunch of mavericks in blue where the wheels were always on the brink of falling off.

In those days their hated local rivals at Old Trafford looked upon City with mocking contempt rather than as an enemy, saving their true loathing for Liverpool and Leeds United.

Behind the scenes things were even worse. Whilst City fans were excited at the start of 2007/08 at the prospect of new Thai owner Thaksin Shiniwatra’s promises of big spending and success, an investment in the likes of Rolando Bianchi, Felipe Caicedo and Elano didn’t prove to be successful, and the money from the new owner came from unreliable sources.

City borrowed £46 million in the one year of Shiniwatra’s ownership. Whilst borrowing money has some benefits, these loans came at a price, as City’s interest costs more than doubled to £10.7 million.

The acquisition of the club by Sheik Mansour in September 2008 saved City in more ways than one, as by this stage Shiniwatra had more pressing issues to deal with in the form of corruption charges from his homeland, and he disappeared from the scene with few regrets from City fans.

Mansour transformed City, with an initial scattergun spending policy on marquee signings such as Robinho and an audacious attempt to sign Kaka. At this time transfer fees and wages were an irrelevance to the owners.

This impacted upon City’s financial performance, which moved from a profit of £17 million in 2006 to a loss of £190 million in 2011.

These losses were sustainable because Sheik Mansour was willing to underwrite the losses through a combination of interest free loans and shares. Had FFP rules been in existence at the time then the investment would not have been possible. This allowed the Abu Dhabi owners to pump nearly £1.2 billion of cash into the club.

The threat to the Elite

The owner’s huge investment startled the existing elite of European football, who now saw City as a potential threat to their cartel at the top table of UEFA competitions.

These established clubs put pressure on Michel Platini, the UEFA president, to introduce some method of reducing the rise of ‘new money’ clubs such as Chelsea, City and PSG.

After much internal haggling and huge amounts of money being spent on accounting and legal fees by UEFA, Financial Fair Play rules relating to non-payment of transfer fees were introduced in 2011-12, and then extended in the 2013/14 season in the form of a breakeven model.

The rules are now so complex that the latest version takes up 116 pages of legal and accounting pontification and windbaggery.

UEFA claim that FFP can be summarised in one sentence “Financial fair play is about improving the overall financial health of European club football”.

We would describe that one sentence in one word, and that word is ‘Bollocks’. Businesses go bankrupt due to a lack of cash, not profit, which is an arbitrary accounting concept open to sleight of hand, estimates and manipulation.

The initial rules restricted clubs’ losses to €45 million over three years ending in that period, and then €30 million from 2015/16.

How does it work?

A breakeven model calculates losses as income less expenses. Clubs have three main sources of income, matchday, broadcasting and commercial.

It’s difficult (but not impossible) to manipulate matchday income, which is the number of tickets sold multiplied by the ticket price, and the same is true for broadcast income, which is negotiated and distributed centrally by individual leagues and UEFA itself.

Commercial income is different as represents deals signed by clubs and their business partners. The prices for these deals are open to negotiation.

In the years prior to the Abu Dhabi takeover City’s commercial income was far less than their rivals from Old Trafford, whose ability to negotiate deals on the back of the popularity and success brought by Sir Alex Ferguson was ruthlessly exploited by United’s American owners.

This is where eyebrows have been raised in relation to Manchester City. Etihad Airways, the national airline of Abu Dhabi, replaced Thomas Cook as shirt sponsor in 2009. This had an immediate impact on City’s commercial revenues, which increased by 126%.

In 2011 the Etihad deal was expanded to include naming rights for what had been previously known as the City of Manchester stadium, (less affectionately called the Council stadium by United fans, due to City renting it from the local government authority) which became the Etihad stadium, along with surrounding training facilities called the Etihad campus.

The agreement was for ten years, at an estimated value of £400 million, which included shirt sponsorship as well as the naming rights.

At the time the largest fee for naming rights was £2.8 million a year by Arsenal for the Etihad. Other clubs had tried and failed to secure high value sums from sponsors. Newcastle United had to accept two dozen pairs of Donnay socks and a signed Dennis Wise photograph as St James’ Park was briefly renamed the Sports Direct Arena, the main company controlled by owner Mike Ashley.

The accusation levelled at City is that the Etihad deal has been used to reduce the club’s losses and help it in satisfying FFP rules.

Because of the Etihad deal City’s commercial income initially matched that of United but has subsequently fallen behind as their rivals have managed to partner themselves with everyone from Japanese Tractor partner Yanmar to mattress partner Milly, although the latter may prove useful as Jose Mourinho’s tactics send United’s global fanbase to sleep.

City’s partnership with Etihad does however mean they have the second highest amount of commercial income in the Premier League, and the fifth largest of any football team globally.

 

Such was the extent of the Etihad deal that there were accusations of ‘financial doping’ from the likes of Arsene Wenger.

UEFA had tried to minimise the impact of deals signed by clubs with organisations connected to the owners through ‘related party transaction’ rules. A related party is one that is controlled by the club owner or a close relative.

In addition, UEFA have set up a Club Financial Control Body (‘CFCB’), the Supermen and Superwomen of financial investigations, effectively a group of accountants so powerful they wear their underpants over their trousers, to ensure that clubs do not overstate the value of commercial deals.

City tried to set up their deal with Etihad in such a way that it complied with the FFP rules, but such were their losses were put on the FFP naughty step in 2014, with the following penalties

  • A £49 million fine, part of which was conditional on improving the club’s business model. City duly received a rebate of two thirds of this sum.
  • An agreement to not increase the wage bill (excluding bonuses) for two seasons
  • A squad reduction for UEFA competitions from 25 to 21 players
  • A reduction in the amount spent on player signings, limited to a net £49 million spend.

City managed to comply with the sanctions and kept their wage bill, which had been £36 million before Shiniwatra in 2007 and zoomed to £233 million by 2014, in check until UEFA were satisfied that the breakeven target was being achieved. This coincided with Pep Guardiola’s arrival and gave City more wiggle room.

PSG were given a similar fine, in what was seen as a victory for the existing elite of European clubs.

Clubs can however dispute any rulings by the CFCB, and this is likely to trigger a long and expensive legal action, where the winners will be the accountants and lawyers.

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In 2015, under pressure from, you guess, a series of lawsuits from unhappy club owners, UEFA relaxed the FFP rules, allowing clubs to negotiate a voluntary deal althgouh this does involve an eventual breakeven target

Summary

The City and Etihad partnership was borne to an extent out of necessity on the part of the club, to satisfy UEFA FFP rules. If the value of the deal initially was excessive given the global position and reputation of City in 2011, then today, with the club having won the Premier League three times since Sheik Mansour acquired the club, the £400 million deal, which has been renegotiated since its original signing, is probably about right, and some even claim it is below the market rate, for Pep Guardiola’s team in the current market.

 

Newcastle: Opportunity Knocked

Introduction

Regular reference is made about the ‘Big Six’ clubs in the Premier League and the disproportionate amount of wealth, transfer spend and media exposure that they generate.

These clubs (Manchester United and City, Spurs, Arsenal, Liverpool and Chelsea) seem to have created a glass ceiling which is almost impenetrable to break (with the notable exception of Leicester in 2015/16 as they jostle for Champions League (CL) positions, having taken 60 out of 62 places in the CL since 2004/5.

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One of my chums on Twitter, called @TheGingerPirlo_ , asked about Newcastle United, a club who had been successful in the early 2000’s, and an assessment of Mike Ashley’s reign of terror, misery ownership on Tyneside compared to what has happened at Spurs during the same period. Should Newcastle have been one of today’s ‘Big Six’ instead of Spurs?

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The guv’nor of football finance, Kieron O’Connor at the Swiss Ramble, has already given his always brilliant assessment of the two clubs’ monetary performance and position on Twitter, but here’s further analysis for those who want any additional information.

Ashley acquired control of NUFC on 15 June 2007, after initially acquiring 41% of the club the previous month.

On that momentous day Rihanna (and Jay Zed) were number one in the pop charts with Umbrella, Tony Blair was prime minister and still reasonably popular, Sid the Sexist in Viz was a virgin and Michael Owen was Newcastle’s record transfer signing…some things haven’t changed since then.

Spurs’ record signing at the time was Dimitar Berbatov, a signing that has since been exceeded 18 times.

Finances pre Ashley

In the eleven years prior to Ashley taking over Newcastle, the club’s league position compared to that of Spurs was as follows.

Newcastle’s average league position was 8th, compared to that of Spurs’ 10th, and the Toon had had four top four finishes during that time period, whereas Spurs highest finish was 5th. Newcastle finished above Spurs on seven occasions during the period in question.

Since Ashley took over, the situation has reversed.

Newcastle have finished below Spurs in each of the 11 seasons since Ashley took over, with an average position of 14th, compared to 5th for Spurs.

When Ashley acquired Newcastle, the key financial figures for both clubs for the previous year was as follows:

Income

Spurs overall had revenue of £103 million compared to £87 million for Newcastle. The main reason for this was that Spurs had a higher league finish coupled with decent cup runs (UEFA Cup QF, League Cup SF, FA Cup QF) as well as the attraction to commercial partners of being based in London. Newcastle’s additional capacity at St James’ Park meant that they had an advantage in terms of matchday income. The retirement of Alan Shearer and a major injury to Michael Owen meant that Newcastle had a relatively poor season on the pitch.

Costs

The main operating costs for a club relate to players in terms of wages and player amortisation (transfer fees spread over the contract term, so Berbatov signing for Spurs for £11 million on a four-year contract works out as an amortisation fee of £2.75 million a year).

This may cause Newcastle fans to drop their bacon sandwiches (this is of course less likely to be an issue for Spurs fans) but in 2006/7 their club’s wage bill was 43% higher than Spurs at £62.5 million. There was little difference in the amortisation charge.

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Spurs therefore only spent £42 in wages for every £100 of income, whereas for Newcastle it was £72.

Spurs had a successful time in the transfer market and made a profit on player sales of £18.7 million, mainly due to the sale of Michael Carrick to Manchester United, whereas Newcastle lost £1.9 million.

Newcastle also had a number of additional expenses that year. The sacking of Glenn Roeder cost £1.1 million in compensation, the takeover by Ashley led to a number of directors leaving the club, which added a further £2.2 million to expenses, and £2.9 million in relation to some aborted takeover bids and financing a stadium expansion took one off costs to £6.1 million. This was however offset by a £6.7 million compensation claim against FIFA and the FA relating to Michael Owen suffering an ACL injury in the previous year’s World Cup.

What is clear is that Spurs, under the astute leadership of Daniel Levy, controlled their costs well and this meant that the club was profitable, unlike Newcastle, where the Hall/Shepherd era was coming to its final throes, which made losses under practically every performance measure.

Profits/losses

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Of the above profit measures, we believe that EBIT and EBITDA are the most relevant ones, as they exclude one off transactions such as profits on player sales and compensation for sacked managers. Spurs were making broadly £30 million more than Newcastle in 2006/7 under both these measures, so Ashley was inheriting a club that whilst it had been more successful on the pitch in the previous decade compared to Spurs, had some warning signs in its finances.

The Ashley Years: 2008-17

Income

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Newcastle continued to have an advantage in terms of matchday income for the first two seasons under Ashley, but relegation in 2008/9 reversed this picture and Spurs have reinforced this ever since. This is mainly due to participation in UEFA competitions, combined with increasing prices for matchday packages as White Hart Lane is a popular destination for football tourists.

In 2006/7 Spurs generated £863 per matchday fan per season, compared to £608 at Newcastle. By 2017 Spurs had increased theirs to £1,433 per fan, helped by four matches at Wembley in the Champions League & Europa Cup. Newcastle, playing in the Championship made only £458 per fan, as the likes of Burton and QPR were clearly less attractive than Monaco and Bayer Leverkusen.

With Spurs new stadium coming on stream in 2018/19 at eye watering prices, and another year in the Champions League, expect the gap here to grow even further.

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Broadcast income was neck and neck between the two clubs in Ashley’s first year of ownership, but again relegation in 2009 changed the dynamic between the two clubs and that has been magnified ever since by Spurs.

With BT Sport paying huge sums for Champions League rights, along with approximately a £2m increase per domestic place in the Premier League, Spurs are likely to generate £100 million a year more from broadcasting than Newcastle as long as they continue to qualify for Europe.

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In terms of commercial income, Spurs have a geographical advantage due to being London based, and therefore more appealing than Newcastle to global brands and partners. Newcastle have suffered too due to the Sports Direct and Wonga factors. Other sponsors are reluctant to be seen alongside the logo of the carrier bag of choice of those who like to wear velour onesies and use payday loans to fund their daily purchases of wifebeater from Bargain Booze.

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Spurs generated total income of £616 million in the decade before Ashley arrived, compared to £709 million for Newcastle.

In the decade since Ashley took control, the reversal is depressing for Toon fans. Spurs income has risen 175% to £1,696 million whereas Newcastle’s has increased only 39% to £986 million, representing a huge lost opportunity.

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Costs

Spurs have overperformed in terms of on the field performances compared to the wages they pay. The other ‘Big Six’ clubs pay substantially more, so it is credit to the negotiation skills of Daniel Levy in agreeing wages with staff that are lower than that of Spurs peer group (except for the pay of the highest paid chief executive in the Premier League…Daniel Levy, who earned £6m in 2017/18)

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In Mike Ashley’s first season as owner Newcastle’s wage bill was 32% higher than that of Spurs. His reluctance to invest in players (and pay them accordingly) as new TV deals were agreed resulted in a reversal of this situation, even when compared to the relatively parsimonious (compared to the rest of the Big Six) wage levels being paid at White Hart Lane.

Overall Ashley has paid out a beastly £666 million in wages over the decade compared to £950 million at Spurs. You pay peanuts, you get Xisco, Titus Bramble and Stephane Guivarc’h…and relegated twice.

At the same time Spurs have keep their wages relatively low compared to income, but by boosting income levels it allowed them to increase the wage total.

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The same reversal of spending had arisen in relation to player amortisation.

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Ashley’s reluctance to invest in the transfer market is very evident. There was a £3m difference between the two clubs in the year before he took over, but since then Spurs have had a total amortisation charge of £364 million, nearly twice that of Newcastle’s £192 million.

If clubs fail to invest in player recruitment, then this has a knock on effect when it comes to selling players at a profit.

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Spurs have benefitted from signing the likes of Modric and Bale and then selling them to Real Madrid, but they were prepared to invest in the first place. Newcastle, by rummaging around the bargain bins on a more regular basis, were more likely to struggle to make a return on those players as many failed to make the grade. Overall Spurs have made a profit of £324 million whereas Newcastle have only made £180 million.

One area where Newcastle have benefitted from Ashley’s ownership is that he paid off the club’s loans and lent the club money interest free. This has resulted in Newcastle only paying £8 million in interest over the decade compared to £55 million at Spurs.

The downside of this is that because it is his own money he had been lending, Ashley has been overly cautious in financially supporting the club once his initial enthusiasm waned.

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Spurs have borrowed money most years, and this has been used to fund infrastructure projects as well as the transfer market. Under Ashley, Newcastle have borrowed a net £4 million in the last 7 years, and this was mainly in 2016/17 as the owner needed the club to return to the Premier League to have a chance of selling it for his desired price of £400 million.

Transfer Market

Both clubs have a reputation for caution in the transfer market and this is reflected in the figures. Newcastle have outspent Spurs in terms of recruitment three times in the last decade (and this is likely to be repeated in 2018/19 too), but overall Spurs have spent £564 million in the period compared to just £331 million by Newcastle.

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Net spend is a topic that gets many Newcastle fans into an anti-Ashley frenzy, and here they have some justification.

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In the first eight years of Mike Ashley’s ownership, there was a net overall spend of just £5.6 million, whereas Spurs net spend was £81 million, despite the sales of Bale and Modric.

Summary

First of all credit should be given to Spurs for having a plan, they wanted to move to the next level in the Premier League, and through excellent recruitment and good cost control they’ve managed to become a club that is expected to challenge for UEFA cup competitions each year.

Ashley’s ownership of Newcastle is baffling. If he wanted to make a fortune by selling the club at a healthy profit, then refusing to invest in the assets that generate the best return, in the form of players, has come back to bite him in the bum.

When he acquired the club in 2007 it was in a prime position to challenge for the top four regularly. Whether he took the eye off the ball (Daniel Levy’s investment in Spurs is 24/7) due to the other elements of his business empire, or a belief that his successful methods in running his retail empire could be transferred to a football club, is unclear.

With the Big Six clubs being worth at least £1 billion each, and Ashley hawking Newcastle around for about £350 million, his period of ownership has cost him hundreds of millions due to his focus on spending as little as possible to keep the club in the Premier League instead of one of ambition on the pitch.

The last decade has been a lost one for Newcastle, and the problem is it is a situation that cannot be seen to be reversed under the present management, and even a new owner, given the wage constraints of the Premier League’s STCC rules which are aimed at reinforcing the status quo in terms of the Big Six, will face an almost impossible task at breaking through the glass ceiling.

The Ashley Years Table

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QPR FFP Fine: Everything Counts in Large Amounts

Imagine someone stealing £170 million from you, and the culprit eventually is fined a tenth of that sum having spent all the money elsewhere. That’s how Derby County and their fans are feeling following the EFL Financial Fair Play verdict against QPR.

On 24 May 2014, in the 90th minute of the Championship play off final against Derby County, (Sir) Bobby Zamora scored the only goal of the game to achieve promotion for Queens Park Rangers.

Had QPR complied with FFP properly, it is highly unlikely that Zamora would have been part of the QPR team, after the club was relegated the previous season from the Premier League, along with the likes of Rob Green, Joey Barton, Nedum Onuoha on big wages from the higher division.

In 2013/14 QPR signed players of the calibre of Charlie Austin, Danny Simpson, Richard Dunne, Gary O’Neill and Matt Phillips, as well as Niko Krancjcar, Ravel Morrison, & Beoit Assou-Ekotto on loan, as Harry Redknapp did what Harry Redknapp does best with a large amount of someone else’s money.

That season QPR’s wage bill was £195 for every £100 of income the club generated, even though the club earned over £28 million in parachute payments, having been relegated in 2012/13.

The wage bill of £75.4 million was only £3m less than that of the previous season in the Premier League. It works out as an average wage of £39,000 a week. The average total wage bill that season for the other 23 clubs in the Championship was £19 million, a quarter of that of QPR.

QPR’s accounts for 2013/14, published in November 2014, revealed that QPR Holdings Ltd made an operating loss (which is income less the day to day costs of running the club) of over £65 million, which works out at £178,000 a day, whilst in the Championship for 2013/14.

So what about Financial Fair Play (FFP), the rules which were supposed to prevent clubs from spending too much money on players and wages?

Under FFP rules for that season the maximum loss allowed by a Championship club was £3 million, or £8 million if the owners put made up the difference. Clubs that broke the rules were either subject to a transfer embargo (which has impacted the likes of Leeds United, Blackburn Rovers and Nottingham Forest in that division) or if promoted to the Premier League an FFP Fine/Tax is payable, with the proceeds going to charity.

Under EFL rules the fine was based on a sliding scale until losses exceeded £10 million above the FFP limit (which works out as a £6.7 million fine) and then 100% of the losses above this amount

Under these rules we estimate the QPR FFP fine would have been something along the following

Operating loss (65.2)
Add back allowable expenses
Promotion bonuses (estimated) 10.0
Infrastructure costs 1.3
Academy/community (estimated) 4.0
FFP loss (49.9)

This works out as an estimated fine of about £46 million.

The QPR approach was initially one of creative accounting. The owners wrote off £60 million of debt due to them by the club, and this was offset against the losses in the profit and loss account, meaning that in the eyes of the club the loss was only £9 million and that there was effectively no FFP tax to pay.

We’ve argued since day one of FFP that for most rules there are loopholes, accountants and lawyers are well practiced at finding them, and this was phase one of QPR owners’ attempt to avoid any penalties.

This approach was presumably rejected by the EFL, as it makes a mockery of the rules, which were aimed to preventing owners trying to buy promotion through their personal wealth.

QPR’s owners include Tony Fernandes (estimated wealth $745 million), Ruben Gnagalingam ($800 million)  and Lakshmi Mittal ($18.6 billion) then took a different approach, seemingly taking the view that rules applying to other clubs were beneath them.

There was no reference to FFP in the 2014 accounts, but a year later, hidden away in the footnotes, was a reference to QPR challenging the legality of the FFP rules.

Since then, not a lot has happened, apart from time passing, and the advisors on both sides clocking up huge sums in fees as they argued over the small print.

Dragging out a ruling is a classic ploy, raising petty objections (arguing over what constitutes allowable expenses for FFP purposes, or which of the Tellytubbies would win in a fight*) and requesting further information that they know will take time to produce, with the sole aim of delaying any potential decision, and therefore payment, hoping the other side loses the will to keep on fighting and will settle for a smaller sum.

I have a mate who is a tax accountant in Swansea. If he knows a client is likely to have to pay more tax he writes an appeal letter in Welsh, as he knows there are a relatively few people who speak the language at HMRC, and so it will take a long time to reply, which will drag out the time until payment is made. If a rebate a due, he writes in English at it elicit a speedier response.

Sources close to the events advised PriceOfFootball.com a couple of years agao that a compromise deal was likely, with QPR likely to pay a much reduced fine, and both sides would claim a victory.

Rumours were that at EFL board meetings where the matter was being discussed the members became so nervous that no minutes were kept on the topic, for fear of this being used by the opposition to further find minor points to quibble about (at £1,000 an hour in fees probs).

An independent arbitration panel was created, with both parties seemingly committed to agreeing to the final decision

In October 2017 the arbitration panel published their decision, ruling against QPR and fining them £40 million, who instantly appealed to further delay any cash beng paid over (thus allowing their lawyers and accountants to upgrade from Range Rovers to Maserati brochures), dragging out the process again.

The ruling had consequences for Leicester and Bournemouth too, who had initially piggybacked on QPR’s claim that FFP was illegal. Both clubs settled with the EFL earlier this year and agreed to pay fines of £3.1 million and £4.7 million, less than had been initially forecast.

We now have the final ruling, after a carefully worded press release from EFL, the main points being:

  • QPR have dropped their objection to the previous ruling
  • QPR fined £17 million as an FFP Tax but it being paid in instalments over ten years.
  • QPR have transfer embargo in the January 2019 window
  • QPR pay EFL’s legal costs of £3 million (plus presumably their own costs too).
  • QPR owners convert £21 million of debt into shares.
  • The FFP fine will be excluded from QPR’s losses when calculating the 2018/19 figures.

Is this a fair settlement?

As a result of being promoted, QPR earned £148 million in broadcasting income and parachute payments between 2014/15 and 2017/18. Derby fans will no doubt take the view that this money could have ended up in the coffers of their club had QPR not flouted the rules.

The debts of QPR to the owners were effectively worthless as the club has no means of paying back the owners, so converting one piece of junk paper in the form of debt to another in the form of shares is accounting sleight of hand, no more than that.

The above table shows that prior to the ruling, assuming the club was worth £100 million (which is generous) then the loans due to the owners were last valued at £52 million, meaning their shares were worth £48 million. The total due to the owners if the club was sold would be £100 million.

By converting £22 million of loans into shares, the debt figure falls, and is offset by an increase in the value of the shares. The total value of the owners’ investment is still £100 million.

The aim here is simply to make the headline fine in the media reports appearfar larger than it is in reality. The press release is as best disingenuous , assumes that all football fans are financially illiterate and will swallow the headline figure of 

Charities that could have received £41 million in the FFP tax, (and there has been discussion from QPR fans, rightly, that Grenfell survivors should be top of this list) will now receive £17 million, which, as some will not be received until 2027, is far lower than even this amount in reality.

If, as is rumoured, the £17 million fine is being paid over ten years, and using an imputed interest rate of 7.4% per year (which, according to HSBC, is their small business loan rate), then sticking the figures into a nerd calculator (see below) shows that the cash cost of the fine to QPR is the equivalent of £9.46 million being paid by the club in 2014 as a fine.

The interest rate chosen is by the way far lower than the interest rate which is being charged by QPR owners themselves of 1% a MONTH on some loans , and 2% a MONTH on others.

The comments from Shaun Harvey that ‘the board was conscious that the financial burden placed on the Club was manageable so as not to put its future in doubt’ is best filed under ‘bollocks’.

Tony Fernandes has previously stated that he was committed to the club irrespective of the decision, and he and his partners certainly have the resources to pay the fine and could have put the cash into the club in the form of shares or a loan to do so if they wished.

If you look at QPR’s accounts for recent years, the club borrowed £222 million, mainly from the owners, between 2013-17.

So there would appear to be little reason, apart from sulkiness or a loss of interest in the club, why the owners could not have invested a further £41 million either in shares or interest free loans to allow the correct amount of the fine to be paid.  The claim that by spreading the fine over ten years will allow the club to avoid administraction is yet another smokescreen.

As for the transfer embargo, the club has sufficient notice to accelerate signings by a few months. The terms of the embargo are more on the lines of  one player in and one player out rather than an inability to sign anyone. So this is a light tap on the wrists, along with the rest of the ruling.

Sadly, if you’re a Derby fan, as far as the EFL is concerned, grab your ankles.

For other clubs thinking of showing two fingers to the rules, the EFL has shown as much backbone as a jellyfish.

*Tinky-Winky, anyone who says different is clearly insane.

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.

New TV Distribution Rules: Everyone’s A Winner…?

On the same day that lots of people were getting giddy about Amazon buying one of the Premier League TV rights packages for 2019-22 for an ‘unspecified price’ (i.e. peanuts) the Premier League owners also sneaked through a new formula for the distribution of PL monies between clubs, in what was a textbook example of a slick PE operation choosing a good day to bury bad news for anyone outside of the Premier League.

Q: What’s the problem?

Some of the ‘Big’ clubs feel that they get a raw deal from the existing way that broadcasting monies are split in the Premier League, so want to change the rules.

Q: What’s their particular beef?

At present the Premier League divides money into five pots.

(a) Domestic broadcast money from BT/Sky of £1.7 billion a year is split into three pots

  • 50% is split evenly between all 20 clubs
  • 25% is split based on the number of times the clubs are shown live on TV.
  • 25% is split based on the final league position.

(b) Central advertising for sponsorship of the Premier League is split evenly between all 20 clubs.

(c) Overseas broadcast money worth about £1bn a year is split evenly between all 20 clubs. It is this issue that is creating the aggravation.

Q: What’s wrong with splitting the money evenly?

Nothing, except the ‘Big Six’ (Manchester United and City, Liverpool, Arsenal, Chelsea and Spurs) claim that viewers overseas are only interested in seeing their clubs on the box and so should get more of the cash.

When the Premier League was set up in 1992 (and football was invented) the overseas TV rights were so miniscule that nobody cared about them, so the club chairmen were happy with an even split.

Q: Surely a more democratic split of monies makes the game more competitive?

Yes it does, and the Big Six were happy to go along with this, until Leicester City spoiled their little cartel and won the Premier League in 2016. This caused the owners of the big clubs to soil themselves and try to ensure it did not happen again.

Q: I thought the smaller Premier League clubs were against such a split?

They were, in October 2017 a vote for the Big Six plans to redistribute overseas money partly on a merit (league position) basis was delayed/deferred. According to inside SAUCES this would have resulted in 65% of the overseas money being split evenly between clubs and 35% on merit.

If this had been approved the broadcast distribution between clubs would have been as follows:

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The proposal would have resulted in 12 clubs being better off and 8 worse off than under the original rules. The reason why it was 12 and 8 rather than 10 and 10 is that less money would have gone to clubs relegated (who receive parachute payments) and ‘solidarity’ payments to the other clubs in the Football League Championship, League One and League Two.

This is because the Football League agreed to a deal with the Premier League such that a fixed percentage of money given on an equal basis to Premier League clubs would be allocated to parachute and solidarity payments. Reduce the amount of Premier League money split evenly and therefore the amount that filters through to the EFL clubs by about £48 million.

The reason why a vote did not take place at the Premier League chairmen meeting was that Richard Scudamore, the often maligned but actually pretty decent Premier League chairman, realised the proposal would not get the 14 votes required for a change in the rules and so managed to put off a decision being made.

Since then the Big Six have been quietly fuming at not getting their way and there has been a muttering and unfulfilled threat of quitting the Premier League and joining a European Superleague if their wishes were unfulfilled.

They clearly believe that the Premier League’s success is all due to their clubs. This is very harsh on Scudamore and his team, who have marketed the Premier League superbly, partly on the grounds of it being more competitive and unpredictable than other leagues.

In 2017/18 Burnley and Palace have beaten champions Chelsea, Swansea have beaten Liverpool, West Brom and all three promoted clubs have beaten Manchester and practically everyone has beaten Arsenal.

Scudamore has spent the last six months trying to keep all 20 club owners, if not happy, then at least not moaning too much, and he’s succeeded.

Q: Why should the Premier League give money to clubs in the Football League?

It’s an issue that clearly vexes Liverpool’s American owner John Henry. He was quoted in an interview with Associated Press as saying “it’s much more difficult to ask independent clubs to subsidise their competitors beyond a certain point”.

Henry clearly thinks that clubs in smaller towns and cities are an irrelevance and whether they survive or die is of little consequence for him. Point out the Liverpool signed the likes of Kevin Keegan from Scunthorpe, Phil Neal from Lincoln City and Ian Rush from Chester and he would probably look confused (as after all soccer began in 1992).

Q: Why were the other Premier League clubs opposed to the change?

Many of them would have ended up with less money and the Premier League would have become less competitive too.

Q: What are the agreed changes?

Under the rules which kick off in 2019/20, any INCREASE in overseas TV money will be split on a final league position. This means that the existing level of overseas cash will still be distributed evenly.

To stop the clubs at the top running streets ahead of the lower/midtable clubs, there is a cap such that the club who wins the Premier League cannot have more than 180% of the Premier League TV money than the side finishing bottom, under the present rules it works out at about 161%.

Q: Who will be the winner and losers then under the new rules and why did smaller clubs vote in favour?

Whoever came up with the new rules (and I have my suspicions who it may have been) has created a distribution method in which no one is worse off, as it is only the additional overseas money that is split on the new method. Everyone is therefore guaranteed their former income.

The teams who will lose out, as already mentioned, are those outside of the Premier League.

Under the old rules, if the Premier League generated an extra £100 million, £27 million of this would ‘leak’ out to the EFL clubs as follows:

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The Premier League clubs would each therefore receive an extra £3.65 million whereas the likes of greedy clubs such as Grimsby, Barnet and Forest Green in League 2 would receive an extra…err…£32,000 each per season, enough to play the average wage of one Liverpool player for all of three days.

John Henry could claim that these lower league clubs have done nothing to deserve any extra money, and under the new rules, his wish has come true.

The Premier League will now keep £100 million out of each extra £100 million generated from overseas income. Having crunched the numbers (and this was beyond me so I was lucky to use the talents of some university boffins for assistance) shows how an extra £100 million would be distributed using both the present (2018/19) and new (from 2019/20) rules.

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As can be seen from the above, 14 clubs would be better off under the new rules than using equal distribution, as no money goes to the Football League.

Funnily enough 14 votes were needed to pass the new rules and they were duly approved. If overseas money increased by a larger amount, say £750 million a season, then 15 clubs would be better off than under an equal share basis.

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Q: But what about the EFL clubs, couldn’t they vote against this?

The EFL clubs were the ones who negotiated and voted for as agreed set percentage of equally distributed Premier League monies. At the time they were delighted with the result but may be regretting it now.

It’s not the first time in this country in recent years that people have voted for something that makes them economically worse off though.

Conclusion

If you are a Premier League club owner things are looking great. There’s more money coming into your club from the Premier League and in addition UEFA have announced an extra £780 million of annual prize money each season too.

This money won’t go to players, as under the Premier League’s Short Term Cost Control rules wages can only increase by £7 million a season plus any money generated by the clubs themselves through commercial and matchday income.

The money won’t go to the EFL either, so who does that leave as potential beneficiaries apart from club owners themselves?

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

Aston Villa and FFP

 

 

It’s the hope that hurts you most

Executive Summary

Villa easily satisfied FFP in 2016/17 due to parachute payments and player sales despite spending £88 million on players.

They should easily satisfy it in 2017/18 as player trading position reversed and sold more than they bought.

Will need major belt tightening in 2018/19 as parachute payments fall from £34m to £15m and FFP loss limit falls from £61m to £39.

If you want the long version read on…

Introduction

There’s nearly as many questions about Financial Fair Play (FFP) these days as there is about Katie Price’s love life, and the answers are usually equally confusing.

I’ve been asked to look at Villa’s FFP position, and this will involve an element of guesswork in places, as some figures are not yet published or have never been in the public domain.

The Rules

In the Championship FFP is based on a rolling three-year period, with the aim of keeping losses to an ‘acceptable’ level.

Presently the rule is that a club can have an FFP loss of £13 million for every season it is a member of the Championship within the three-year period, and £35 million for each season in the Premier League.

Therefore, for Villa, for 2016/17 the allowable FFP loss was £83 millon (2x£35m + £13m) falling to £61 million in 2017/18 and £39 million in 2018/19.

The known losses

According to Villa’s accounts, the club lost £81.3 million in 2015/16 and £14.4 million in 2016/17 giving a grand total of £95.7 million, so it initially looks as if an FFP breach had occurred, but we now enter the world of murky accounting and additional FFP rules.

Good costs

To add to the confusion, some costs are excluded when calculating FFP losses. This is because they are considered ‘good’ as they represent an investment in the future of the game or its facilities.

These costs include:

  • Academy running expenses
  • Community support schemes
  • Infrastructure costs (usually depreciation on the stadium and training facilities etc)
  • Promotion bonuses to staff should the club go up to the Premier League.

Looking at Villa’s accounts for 2016/17

  • The club has a tier one academy, it looks as if this cost was £5.9m for Villa. (£5m in 2015/16)
  • Community support was £2m (£2.2m in 2015/16)
  • Infrastructure cost (depreciation) was £2.9m (£48.5 million in 2015/16 due to a bit write off of the value of Villa Park).

This means that Villa could have had an FFP loss of £31.8 million (£61m allowable three-year loss less £29.2m FFP loss incurred in last two years) for 2017/18.

Squeaky bum time

Have Villa managed to get in under this figure of £31.8 million for 2017/18?

I would say they have, but there is not a lot of room to spare.

In 2016/17 the loss of £14.4 million was AFTER selling players at a profit of £26.6 million. Villa have made significant sales in 2017/18 and it looks as if they’ve made a profit on these of a further £15 million.

Now for the bad news, Villa’s broadcast income for 2017/18 is down by about £7 million from £41 million to £34 million due to a reduction in parachute handouts. It’s likely the club’s other income will fall by £2-3m too as commercial deals expire.

The wage bill will still be high, and the figure for 2016/17 of £61 million was the third highest in Championship history, only beaten by Newcastle (who were promoted) in 2016/17 and QPR in 2013/14 and are now facing an FFP fine of between £40-50 million.

Expect the wage bill to be trimmed a bit but Villa have recruited John Terry and signed some loan players who are on big money. I’ve gone for a 10% reduction in wages to £55 million

Villa also spent a fortune on players in 2016/17 of £88 million on players. The cost of these are spread over the length of the contract signed. So if we assume players are on four year deals this is a cost of £22 million a season unless the player is sold.

These two costs put together are likely to be in the region of £70 million, and expected income is about £65 million, taking into account the fall in parachute payments.

Villa’s overheads in 2016/17 were £91 million excluding amortisation, of which £61m was wages, so lets assume that if there have been cutbacks for 2017/18 there are £25m of non-wage overheads.

Putting this together we have

£’m
Income 62
Wages (55)
Amortisation (22)
Other overheads (25)
Estimated accounting loss (40)
Add back:
Gain on player sales 15
Allowable FFP costs 10
FFP loss (15)

Therefore over the three years to June 2018 Villa will have a rolling FFP loss of £44.2 million, well within the £61 million limit.

2018/19

This is where I fear Villa will face its biggest challenge. The allowable three-year FFP loss will fall to £39 million from £61 million and parachute payments from £34 million to £15 million. Put those together and it’s a financial squeeze of £41 million.

In addition, they may struggle to get players on big wages such as Ross McCormack off the payroll. Even if he goes out on loan Villa will be picking up the majority of the tab.

It suggests that the club may have to sell Grealish and Chester to ensure they don’t exceed the limit.

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