Football Transfers and Creative Accounting: Protect me from what I want

It’s the disease of the age, It’s the disease that we crave.

When Derby County published their response to the EFL charges for financial misconduct on Friday 17th January 2020, it included reference to ‘the newly notified charge of intangible fixed asset amortisation’.

The nonsense below is all about the said subject, but extended to how clubs can increase or decrease costs in the accounts in relation to how they account for players.

The Basics

When a club signs a player, they will often pay compensation to the previous club for his registration certificate lodged at the football authorities, this is what is commonly called a transfer fee and is either negotiated between the two clubs or embedded in the player’s contract.

The buying club then spreads the cost of the transfer fee over the period of the contract signed by the player, so when Harry Maguire signed for Manchester United in summer 2019 for £80 million on a six year deal this works out as an annual amortisation cost of £13.3 million (£80m/6).

The total amortisation fees for the whole squad are treated as an expense in the accounts, and importantly, ARE included in Financial Fair Play/Profitability & Sustainability (P&S) calculations.

Amortisation costs for many clubs in higher divisions are usually the second biggest expense after that of player wages, as shown by the figures below for Everton.

The creatives

Under P&S rules clubs are assessed over a three year period, so sometimes it may be beneficial for them to accelerate or decelerate costs in a particular year, so ensure they stay within the limits during a particular three year assessment period.

Here are possible methods that could be used, all of which have been approved by the clubs’ respective auditors.

  1. Player impairment

All fans have seen players who they quickly write off as rubbish and a waste of money. This applies in the accounts too.

In 2015/16 Aston Villa were relegated from the Premier League, which allows a P&S loss of £105 million over three years, which then tapers down to £39 million over three years in the EFL Championship.

It is therefore in Villa’s interests to put as many costs into their 2015/16 accounts to be absorbed by their Premier League P&S limit.

Villa achieved this by charging an extra £79.6 million as a cost in the expense for impairment of the stadium and players (called ‘intangible assets’ in the accounts).

This works as follows. If you sign a player for £30 million on a five year contract the amortisation cost is £6m a year, a tough cost to have to deal with in the Championship. However, if the club was relegated at the end of the first season there is nothing to stop it from assessing the player’s value and conclude that he is worth, say, £10 million.

This would mean that his book value at the end of year one would fall from £24 million (£30m less one year’s amortisation of £6m) to £10m, which would result in a £14 million impairment charge.

However in subsequent years the amortisation charge would be just £2.5 million a year (£10m book value spread over the remaining four years of the contract), which is useful for P&S purposes in the Championship.

When Villa did this the £35 million impairment charge in 2016 would (if remaining contract lengths were on average 3 years) have reduced costs by nearly £12 million a year in the Championship.

Sometimes the reason for an impairment is clear and the decrease in value is understandable (due to long term injury, the fee initially paid was too high or the player is Mario Balotelli). Impairment does however give clubs licence to accelerate player costs into an earlier year.

  1. Contract extensions

Amortisation is the registration fee spread over the contract period, so if you extend the contract you reduce the annual cost.

Example: Sign a player for £20m on 1 January 2019 on a four year contract. At the end of 2019 give him a two year contract extension.

Amortisation charge in 2019 = £5m (£20m/4)

Amortisation charge 2020 onwards £3m ((20-5m)/(3+2))

This reduces FFP losses by £2m a year.

Therefore by extending a contract a club can reduce costs in a single year.

  1. Player sale profits

These are calculated by comparing the transfer fee receivable to the book value of the player. Even when a player is sold at what fans may think is a loss for accounting purposes it can work out at a profit.

Example: A player is signed for £40 million on a five year contract on 1 January 2018. He’s not been a success so is sold for £26 million on 1 January 2020. At that date his accounting book value is £24 million (£40m – 2 years amortisation at £8m a year) so book a profit of £2m on the deal.

It’s always important to check the sale date though, as these can be confusing. In the Derby County accounts for the year ended 30 June 2017 the club included the profit on the sale of Tom Ince to Huddersfield Town, which contributed towards FFP for that year. That’s all well and good but the sale of Ince did not take place until July 2017, which is in the 2017/18 accounts in theory.

By having a player sale just before or after the year end a club can increase or decrease profits in the year that suits it best.

  1. Residual Values

The issue that appears to be irking the EFL most of all is Derby’s use of residual values for players. All other Premier League and Championship clubs amortise player contracts on a straight line basis to a zero value at the end of the contract. This is because players can leave on a Bosman deal at the contract end so the ‘selling’ club received no fee.

Derby changed their accounting policy in 2017 for player registration fees to include the ‘ consideration of active market residual values’. Prior to that Derby ignored residual values similar to other clubs.

This might seem an insignificant comment, but this allows a club to reduce amortisation fees (and therefore costs for FFP). A player signed on a £30m four year deal costs £7.5 million annually in amortisation.

If the club gives him (say) a £12 million residual value at the end of the contract (which ignores he can leave on a Bosman) then the amortisation cost falls to ((£30-12m)/4) = £4.5 million a year.

A look at Derby’s accounts shows that for 2017/18 the club had transfer fees and registration intangible assets that were £52.5m at the start of the year and £62.2m at the end. This gives an average of £57.3m. The amortisation fee for the year was £6.6 million. This means that Derby were effectively spreading transfer fees over 8.7 years, which seems very long for contract length, and is far longer than the average for the division of about 3.7 years.

Derby’s defence is that the EFL had already signed off on the issue and that they should have been aware of it. I can confirm the latter having written to the EFL in June 2018 on the very subject which generated this response from…supporter services.

Given that the EFL have been aware of the issue since June 2018, it does seem odd that the charges have been made at Derby in January 2020.

Podcast 16 January

In this show Kevin and Kieran look at how Chelsea won the Europa League, finished in the top four domestically but still needed to borrow £247 million from Roman Abramovich as they racked up huge losses.

Plus a look at what happens when UEFA ride into town, the situation at Southend where wages have gone unpaid, why Spanish and Italian games are being played in Riyadh and much more.

Podcast 13th January

It’s another one of our listener’s questions (or should that be reader’s wives) shows in which we look at the demise of Chesterfield since relegation to the National League, whether another Leeds United style implosion could arise if a club leaves the Premier League and exactly what did (and did not) the auditors do at the FAI. https://podcasts.apple.com/gb/podcast/spireites-the-next-leeds-united-and-the-fai/id1482886394?i=1000462328392

Podcast 9 January 2020

After UEFA reveals how much cash each club received for the group stages of this season’s Champions League, Kevin and Kieran find out who came out on top. Plus, with talk again of a European Super League in the future, they ask whether these figures effectively mean we have one already. They also look at the implications of Macclesfield’s latest points deduction and the mysterious case of Craig Dawson and the £2m fee.

https://share.transistor.fm/s/d980e874

Podcast January 2nd

In this episode we look at why Stoke City’s, owned by £65 billion a year in wagers Bet365 want FFP to be changed. We look at the price of opening your mouth, as Mesut Ozil upsets the Chinese state broadcaster who pay a lot of money for Premier League TV rights, Sunderland director Charlie Methven calls the club’s fans uneducated and a fan gets a ban from his own club for complaining about Manchester City’s owner’s human rights record.

https://share.transistor.fm/s/09e9fc7f

Christmas Day Podcast

Kevin and Kieran answer a load listeners’ questions, including where the fine paid by Leeds over ‘spygate’ ended up, whether Premier League clubs’ revenue is anywhere near its peak, and why the away club’s ticket money s often paid to the home club five days after the match. They also hand out the Price of Football podcast’s end-of-season awards and Kevin gives his tip for perfect Brussels sprouts on the big day.

https://podcasts.apple.com/uz/podcast/price-of-football/id1482886394

Brighton 2018/19: Switch

Introduction

As easy as riding a bike

A lot of money is required to get to the Premier League, but as the 2018/19 Brighton and Hove Albion accounts reveal, it takes a lot to stay there too.

Losses of £21 million were announced for the year to 30 June 2019, reversing a profit of £12 million the previous season as the club finished in 17th position in the table.

Investment in players was the main reason for the deterioration in the financial results, as well as some one off costs following Chris Hughton’s sacking the day after the season ended.

Income

Just ten years ago Brighton’s income was £5 million for the whole season, but this had increased to £143 million by 2019.

A football club generates income from three main sources, matchday, commercial and broadcasting.

Having sold out matches at the Amex for the club’s two seasons in the Premier League matchday income was static in 2018/19.

A club can only increase matchday income by increasing prices, capacity or the number of events that take place at the stadium.

No league attendances fell below 29,600 last season as the club sold out most home matches at the Amex stadium and whilst there were three cup matches at home these were at discounted prices so had little impact on total matchday revenue.

Brighton’s matchday income put it 12th in the Premier League table (note figures are for 2017/18 for most clubs as they haven’t yet published their accounts) which is intuitively higher than you might expect with the club being above the likes of Everton and Leicester.

A look at the small print of club accounts however reveals that some clubs treat the likes of merchandise and hospitality boxes as matchday income and others as commercial, which makes a 100% accurate comparison impossible.

Keeping attendances at close to capacity is a tricky exercise and means that Brighton cannot increase ticket prices too aggressively in case fans revolt.

Sponsorship income mainly comes from American Express and Nike for Brighton and this increased by 7% in 2018/19 but should accelerate due to a revised Amex deal worth an estimated £100 million over the next decade compared to £1.5m a year at present.

Half the clubs in the Premier League have gambling companies as sponsors who historically have paid more than other industries for the non ‘Big Six’ clubs but Brighton seem to have bucked the trend by aiming for a long term relationship with American Express which seems to have paid off.

Income from broadcasting is the main source for non Big-Six teams and Brighton are no exception and last year benefitted from an improved Premier League overseas deal plus an FA Cup run to the semi finals.

Seventeenth position in the Premier League meant that Brighton earned £4m less from the prize pot but this was offset by the other issues, meaning that almost four pounds in every five came from broadcasting.

Total income for Brighton was therefore a record £143 million, but this was not sufficient to prevent them losing money last season and still puts them in the bottom half of Premier League clubs.

Player Costs

Having been promoted in 2017 Brighton’s costs in their first season in the Premier League increased more slowly than income, allowing the club to make a profit, but this benefit reversed last season as Sir Alan Sugar’s ‘prune juice’ comment was evident and wages absorbed more and more revenue.

Every fan knows that player costs are the most significant expense for a football club and this is the main reason why Brighton lost money in 2018/19.

Player’s wages were the main driver of the bill increasing by over 30% to £101 million last season, as new contracts for Dunk, Duffy and Gross, plus the signing of Jahanbaksh, Bernardo, Montoya, Andone, Burn, Bissouma, Button, MacAllister, Tau and others came in with Premier League wage expectations.

Even so, Brighton’s total wage bill is still relatively modest by Premier League standards, and the total cost for the season for all 20 clubs could top £3 billion for 2018/19 once all the remaining clubs publish their accounts.

Relative to every £100 in income Brighton paid out in £71 wages last season, UEFA have a ‘red line’ of £70 although this is far lower than the majority of their time in the Championship.

Some fans may remember Brighton’s first season in the top division in 1979/80 wheret the wage bill for all whole staff was £785,000, equivalent to what the average Brighton first team player earned last season in four months.

In the content of the Premier League as a whole Brighton’s wages are still quite modest, partly as a legacy of being relatively recently promoted and this puts them in the main bunch of provincial clubs in the division.

Amortisation is the other player expense, which is calculated as transfer fees spread over contract life, so the signing of Ali Jahanbaksh for £16 million on a five-year deal works out as an annual amortisation cost of £3.2 million (unless you’re Derby County, in which case it is mysteriously lower).

Nevertheless, despite the amortisation charge increasing by 500% since promotion in 2017 Brighton’s total of £33m again places them, as you would expect from a squad that still has a number of Championship and academy/youth signings, towards the bottom of the Premier League table in regards to this expense category.

Profits/(Losses)

Profit (and losses) are calculated as income less costs and Brighton’s pre-tax loss of £22 million may have surprised some but the figure was impacted by the cost of sacking Chris Hughton and paying compensation to Swansea for Graham Potter.

‘Exceptional’ items as the above management changes are called are usually set out in detail by Premier League clubs (such as Manchester United sacking Mourinho for £19.6m and Arsenal having £3.1m in their 2018/19 accounts too) but Brighton are notoriously coy when it comes to disclosures and have frustratingly not disclosed any details here.

Losses would have been higher had it not been for selling some fringe players which generated modest profits, without these Brighton’s losses would have been £24.6 million.

Everton made the highest losses in the Premier League of over £1 million a week in 2018 and what may surprise many is that only a Norfolk handful of clubs made a profit, relying on owner bailouts and player sales to cover the losses.

Player trading

Brighton’s singings detailed above cost a combined £78 million in 2018/19 although their impact on the pitch can best be described as ‘mixed’ none of them made a huge impact on the pitch. This took the total cost of the squad to £152 million.

In the summer 2019 window Brighton bought Maupay, Webster, Trossard and Clarke, but again, unlike most Premier League clubs, frustratingly didn’t disclose the gross or net spend in the window.

Funding

Brighton have been dependent upon owner Tony Bloom for over a decade. He originally was providing money for signings (such as Glenn Murray from Rochdale in 2007 for £300k) behind the scenes but since becoming chairman has underwritten the cost of the stadium, training ground and operational losses to a total of £352 million.

This investment is split between interest free loans and shares, and 2018/19 was no exception as he lent the club a further £49 million to provide funds for further infrastructure and player spending.

Whilst no doubt Bloom wants the club to be self sufficient at some point, at present his benevolence has advanced the club from the wrong end of League One to a third season in the Premier League. More investment may be required if his stated aim of a regular top ten place in the Premier League is achieved.

Summary

So, where does this leave Brighton? The achievement of getting to and staying in the Premier League had worn off for both fans and owner last season as Chris Hughton’s pragmatic but unlovable football during the second half of the season ultimately led to his dismissal.

The club still needs time to establish itself in the Premier League and no doubt has seen how the likes of Sunderland, Middlesbrough and Stoke have struggled when relegated to the Championship.

Fans have been impressed with the style of football under new manager Graham Potter, but with a very compacted middle part of the table two or three consecutive wins or defeats can have a club such as Brighton eyeing up Europa Cup or relegation spots.

The losses made by Brighton last seaon do perhaps suggest that those who think that buying a club in the Championship or League One and underwriting losses to get to the Premier League are probably chasing fool’s gold.

Brighton are fortunate to have an owner in Tony Bloom who has a strategy for the club and as such is unlikely to indulge in some of the madcap short term schemes that have left many in the EFL looking very vulnerable. Those club owners gambling on selling stadia, unusual sponsorship deals and creative accounting are taking a huge risk.

Rangers and Celtic: Never Let Me Down

Reach out and touch faith

Glasgow’s big two teams have  good starts to both domestic and Europa Cup campaigns so far this season and both have just announced their financial results for 2018/19.

Everyone know that the rivalry between the clubs and especially their fans is intense,  but do the accounts give the likes of @BearNecessities1872 and @PopeAndGlory on Twitter more point scoring opportunities against each other?

Revenue

Revenue for clubs is generated from three sources, matchday, broadcasting and commercial.

Relative to the rest of Scottish football, where many clubs are so small, they are not legally obliged to show income and expenses in their accounts, Celtic and Rangers dominate as would be expected.

All clubs have committed fanbases but this is especially reflected in the big two in ticket sales with Celtic averaging nearly 58,000 every match at home last season and Rangers well over 49,000.

Revenue from matchday is calculated as number of tickets sold per match x average ticket price x number of home matches played.

Due to both clubs nearly selling out every match and fans being resistant to significant ticket price increases matchday revenue growth is only achieved via clubs increasing the number of matches played.

An impressive increase in Rangers matchday income was due to the club reaching the group stage of the Europa League whereas Celtic reached the last 32 of that competition.

Note that the two Glasgow clubs are significantly ahead of the Hearts, who have the third highest matchday income in the Scottish Premiership with just over £5 million.

Due to the level of support from fans that both Glasgow clubs would only be behind the ‘Big Six’ clubs in terms of Premier League matchday income.

Love it or loath it broadcast income is a big discriminator in terms of club earnings.

European cup participation makes a big difference to overall earnings.

Nevertheless, Scottish clubs both benefit and suffer from the complex distribution methods used to distribute money from UEFA.

Not many realise that Because BT pay the largest sum for Champions and Europa League rights in Europe, Scottish and English clubs benefit from this being distributed via what is called the market pool.

Only Scottish clubs relatively poor performance in UEFA competitions in recent years resulted in a low UEFA coefficient (which measures historical success by national teams in the Champions and Europa League) and therefore their share of this pot of money is far lower than that of England, Germany, Italy, Spain etc.

Not that fans will like it but paradoxically Rangers and Celtic both stand to benefit indirectly from all Scottish clubs progressing in Europe as this will increase their UEFA ranking, where being in the top 15 nations could have significant implications in future competitions.

Seeing Celtic’s broadcast income higher than that of Rangers needs further investigation and this was because Celtic made more progress in the domestic cups and in Europe.

Due to another one of UEFA’s pots of cash, which is linked to overall performance over the last decade in Europe, Celtic earned more broadcast revenue.

European participation for Rangers wasn’t the case when they were in the lower leagues of Scottish football for some of the last decade.

Broadcasting income in England is the major driver for the gap between Celtic and Rangers and Premier League clubs, but what is perhaps more alarming for their fans is that they are also behind many teams in the English Championship who are earning parachute payments.

Universally impressive for both clubs is the level of commercial income generated from sponsorship, advertising, kit manufacturing, merchandise and hospitality.

The impact of Steven Gerrard was a driver of Rangers increase in this income stream last season as sponsors are willing to pay more to be associated with such a high-profile individual

Sales from retail activities increased substantially at Ibrox last season but are still not maximising their potential due to an ongoing legal dispute with other parties including Mike Ashley, the Newcastle owner, which has restricted sales and had some fans boycotting products.

In the case of Celtic the club has had the benefit of European competition access including some Champions League participation in recent years to help them improve commercial income.

Numbers from the three revenue sources added together resulted in Celtic generating revenue of over a quarter of a billion pounds more than Rangers over the last six years but both clubs income still dwarfs that of Aberdeen, the club with the next largest income.

Gaps of that size are difficult to eliminate but last year was the narrowest for some time, yet Celtic still had a thirty-million-pound advantage over Rangers and that’s before considering player sales, although a Premiership win and participation in the group stages in the Champions League could change things for Rangers..

Looking at the profit and loss account in more detail showed that Celtic also had ‘other income’ of £8.8 million as compensation from Leicester City for headhunting Brendan Rodgers and his backroom team part way through the season.

Costs

Every club’s main costs are in respect of players via wages and transfer fee amortisation.

In the case of the two big Glasgow clubs their wage bills are far in excess of other Scottish clubs and Celtic’s higher income in turn allows them to pay higher wages than Rangers.


Steven Gerrard’s wages plus those of the players he signed resulted in Rangers wage bill increasing by over a third, whereas a lack of Champions League participation meant that Celtic’s wages falling slightly.

Player transfer fee amortisation is the amount paid spread over the length of the contract.

Estimating transfer fees is difficult as so many transfer fees are ‘undisclosed, but if Rangers signed Conor Goldson from Premier League Brighton for about £1.5 million on a four-year deal this would result in an amortisation cost of £375,000 per annum.

Rangers spending on the squad has increased noticeably since they returned to the top division and this is shown by the rise in their amortisation charge.

Success on the field for Celtic has resulted in a far bigger amortisation charge in recent years partly due to winning eight Premiership titles in a row.

Obviously, the income that such success brings domestically and in European competition has then been invested in player signings.

Notes to the accounts reveal that In addition to amortisation, both Rangers and Celtic reported ‘impairment’ costs of £1.6 million and £2 million respectively in relation to players whom they had signed whose poor performances meant their values were reduced.

A lot of fans will point their fingers at the likely individuals who suffered this ignominy but the clubs themselves are tight lipped on the matter.

Looking at Rangers ‘other costs’ these increased by 70% to over £21 million in 2018/19.

Just part of this is due to extra stewarding and policing in respect of Europa League matches at Ibrox but also an alarming £3.6 million increase in legal costs as Rangers disputes with Mike Ashley’s Sports Direct rumbled on throughout the year.

Player Trading

Every club sells as well as buys players and In recent years Celtic have made impressive profits selling one or two high profile players each year.

Selling Moussa Dembele to Lyon for about £20 million generated a big profit as the player cost the club a fraction of that sum from Fulham.

Upping profits for next season for Celtic will be the sale of Kieran Tierney which took place after the accounting year ended and that will contribute £25 million.

Selling player by Rangers has not been such a contribution to the bottom line, although the prolific Alfredo Morelos is likely to command a high price should he leave the club in the next year or so.

Buying into Steven Gerrard’s vision for the club last season meant Rangers outspent Celtic for the first time in many years in terms of player signings.

Profits and Losses

Yearly profits are total income less costs and whilst Celtic’s fell significantly in 2018/19 they were still substantially ahead of Rangers.

Desperate times can arise If a club is losing money, as the only way to survive is to sell off assets or have funding from lenders or shareholders.

Even though Rangers didn’t sell any players for large fees they generated £2 million from share issues and £8 million from loans in 2018/19 to plug the gap from day to day losses, whereas Celtic needed no such funding.

Summary

Predictably given their respective finances Celtic and Rangers finished in the top two positions in the Premiership in 2018/19.

Exploiting the financial gap between these two clubs and the rest of the division, means that it will be difficult for other Premiership clubs to make a challenge for the top positions in the league, especially with their relative success to date in the Europa League in 2019/20.

Celtic have a noticeable advantage over Rangers in terms of income generation and profitability, partly due to their ability to buy low and sell high in terms of player trading, and this has allowed them to pay higher wages, which is usually, but not always, reflected on the pitch.

Having this advantage gives Celtic a greater, but not guaranteed, chance of success in terms of trophies.

Even so, Rangers is potentially going to continue to lose money unless a more successful player trading policy and a resolution to ongoing legal disputes is achieved.

Most concerning is that in the accounts are the comments from Rangers auditors highlighting the club’s ability to trade as a going concern.

Only investment by Dave King and other investor plugged the gaps in Rangers finances last season and £16.6 million of shareholder loans were effectively written off by being converted into shares, diluting other shareholdings in the process, and King has been subject to criticism by the Takeover Panel for some of his actions.

Due to Rangers finances being precarious if investors are unable or unwilling to cover the losses indefinitely then Rangers would face substantial cost cutting or what Sir Alex Ferguson would call ‘squeaky bum time’.

Every Rangers fan will be asking themselves, given the clubs recent history, whether or not they are willing to take this risk if it stops Celtic winning ten titles in a row?

Bristol City 2018/19: Empty Skies

Call us free by a promise torn, you said I’ll meet you there

Introduction:

Life in the Championship is tough, and Bristol City’s latest financial results are testament to that as playoff hopes were dashed and the club lost a lot of money on a day to day basis.

Every cloud has a silver lining and City’s impressive player recruitment and talent spotting allowed the club to reverse these losses due to player sales that generated £38 million profits.

Even so, the club needed the benevolence of owner Stephen Lansdown to keep its head above water as he continued to pump money into City.

Key figures for year to 31 May 2019: Bristol City Holdings Ltd

Income £30.3 million (up 20%).

Wages £30.6 million (up 12%) .

Losses before player sales £26.3 million (up 9%)

Player sale profits £38.2 million (2018 £0.3 million)

Player signings £10.2 million (2018 £12 million)

Player sales £39.7 million (2018 £1.8 million)

Steve Lansdown investment £137 million (up £10 million).

Justifying such a huge investment is difficult but City are fortunately owned by Pula Sports Limited, a company based in Guernsey.

Owner of Pula Sports is in turn Steve Lansdown, half of Hargreaves Lansdown, the £8 billion plus valued financial services company.

Income:

How most clubs generate money does vary but for most is split between matchday, broadcasting and commercial sources.

Nowadays some clubs in the Championship also have the benefit of parachute payments following relegation from the Premier League (EPL).

Stoke, Swansea and West Bromwich Albion will all have generated more money from parachute payments in 2018/19 (about £41 million) than City will have made from all their regular income sources.

One thing that is always good about City is that they are always one of the earliest clubs to publish their finances each season, but this does mean that many comparative figures for other clubs are from 2017/18.

Nudging their way into the top ten revenue earners in the Championship is an achievement given that City start so far behind the recipients of parachute payments.

Strip out the parachute payments (and their quasi-equivalent for other clubs in the Championship from the Premier League called solidarity payments) and City rise to 4th in the income table, which suggests that the club’s investment in Ashton Gate recently is paying off.

Football fans pay money through the turnstiles via season ticket purchases, which tend to be relatively constant, and matchday tickets, which are more volatile as clubs dependent upon promotion and cup runs.

Ashton Gate’s attendances were very similar to those of the previous season, at just over 20,000, but City’s impressive League Cup run in 2017/18 was not replicated, reducing income from one off matches.

Very few clubs in the Championship have matchday income increasing every year as clubs’ fortunes vary, and City had a 10% decrease in 2018/19.

Overall City’s matchday income was mid table for the Championship and this is intuitively where you would expect to see them in a division that does generate from some large attendances at other clubs.

Under Steve Lansdown’s ownership recently Ashton Gate has been transformed and this is reflected in the growth in commercial income.

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Relative to other income sources commercial income is now the biggest earner for City, generating over half of the club’s revenues compared to a quarter in 2013.

Infrastructure spending by City at Ashton Gate and the consequent surge in banqueting, conference hosting and other similar activities has resulted in the club having the second largest commercial income stream in the Championship.

The split of broadcasting income in the Championship is very much a two-tier scenario, with parachute payments distorting numbers significantly.

Every club in the Championship receives broadcast income from both the Premier League and the EFL.

Distribution of broadcast money to clubs such as City comes in the form of solidarity payments (which is an agreed percentage of the Premier League fixed broadcasting pay-outs) which were £4.5 million and their share of the EFL TV deal at £2.9 million.

Income overall therefore for City was a record £30.3 million, five times that of 2013/14, but was it enough to allow the club to make a profit?

Costs:

Success in football is down to players, and player costs are the most significant for a club.

Nowadays players and their agents are fully aware of their value and this means that clubs must pay substantial wages to attract and keep talent.

Every club has two forms of player costs, wages and transfer fee amortisation.

Year on year wages in the Championship have risen in recent years and between 2014 and 2018 they increased by over £284 million, more than the change in revenue during the same period.

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For City the wage change has been equally alarming as the wages increased by over 12% and the average is now £13,700 a week as the club tried to keep up with the Joneses in the Championship salary league table.

Investing to this extent has resulted in City spending £96 million in wages since returning to the Championship in 2015/16, during which total income has been £91 million leaving nothing to pay any of the other running costs, unless these are bankrolled by Steve Lansdown.

Life in the Championship is hard as clubs paid out £107 in wages for every £100 of income, but City also had similar issues when they were in League One a few years ago.

Most clubs in the Championship are paying wages that are unsustainable in the long run but the relaxation of FFP rules (or Profitability and Sustainability, which is ironic as clubs are neither profitable nor sustainable under the rules) a few years ago has resulted in wage growth being significant.

Investment in players also comes via transfer fee amortisation, which is where the sum paid for the player’s registration is spread over the length of the contract signed.

Signing the excellent Adam Webster from Ipswich at the start of 2018/19 for £3 million on a four-year contract therefore resulted in an amortisation charge of £750,000 (£3m/4) in the profit and loss account for 2018/19.

The total amortisation charge for the last season was £7.9 million, an increase of 16% over the previous season and six times the amount of when City were in League One.

Having been only the second club in the Championship to publish accounts for 2018/19 means that a perfect comparison isn’t possible with other clubs, but City are about mid table in terms of their amortisation cost.

Every business has other operating costs too and City’s increased by over 20% to £15.2 million, perhaps due to the increased expense of running the expanded conferencing and hospitality activities.

Profits (or perhaps more appropriately Losses?)

Losing money in the Championship is pretty much a given and City’s underlying operating losses from day to day activities were £26.3 million last season, or £506,000 a week.

It therefore means that total losses since 2013 exceed £100 million and means either player sale profits or owner investment are required to reduce these losses.

The sales of Reid, Bryan, Flint and Kelly during the year to 31 May 2019, as well as a promotion clause kicking in from Villa in respect of the sale of Kodija resulted in City having player sale profits of £38.2 million in 2018/19.

This level of profit is very high by both City’s own standards and those of the Championship but is also very volatile and can’t be relied upon to take place every season.

Losses following player sales have therefore been reduced to ‘just’ £69 million since, but Steve Lansdown still has effectively had to find £200,000 each and every week for six years.

EFL FFP rules restricts losses to £39 million over three seasons, but the player profit sales from last season mean that City’s losses are an estimated £7 million so the club will have plenty of wiggle room at present.

Manipulating club finances to satisfy FFP is a contentious issue at present with some clubs having unusual transactions with companies controlled by the club owner to boost income, but there is no evidence of such behaviour at City.

Every club can exclude academy, infrastructure, women’s and community scheme costs from FFP calculations, and this has created additional loopholes exploited by those clubs whose owners are used to getting their way.

Player trading:

Reliable figures for individual transfers aren’t available as these days (Transfermarkt numbers are usually just guesses) as most transactions are for ‘undisclosed’ sums but overall City spent just over £10 million on players in 2018/19.

Mid table in the spending charts is where £10 million gets you in the Championship although most of the figures in the table are from 2017/18 and we expect the total of £310 million that season to fall as clubs have reduced spending to comply with FFP.

As already mentioned, City had substantial player sales in 2018/19 which brought in a total of £40 million but many of the sales were on instalment terms and only £18 million of this was received in the form of cash.

In the footnotes to the accounts it shows that City earned a net £3 million after the year end from player trading, which presumably includes the sale of Webster to Brighton for £15-20 million so must include a lot of purchases too.

Funding the club

Director and owner Steve Lansdown’s total investment increased further in 2018/19 as he invested a further £10 million in the club via holding company Pula Sports and a share issue. Pula also guarantee a £50 million bank loan for the club. Lansdown’s total investment is therefore about £130 million in City.

Realistically, Lansdown will have to subsidise the club by a minimum of £10-20 million a year for the foreseeable future, unless promotion to the Premier League is achieved or there are substantial player sales.

Conclusion

Bristol City are a classic example of life in the Championship finances, loss making, reliant on a benevolent owner and occasional player sales and unable to keep wages under control.

If promotion is achieved fans will take the view that all of this is worth it, but until then it’s a hard slog of 46 league matches on a Saturday, Tuesday, Saturday, Tuesday cycle and thanking their lucky stars they have an owner prepared to cover the weekly losses.

Manchester United 2018/19: Waterfall

Now, you’re at the wheel, tell me how, how does it feel? So good to have equalized, to lift up the lids of your eyes

In May 2018 Ed Woodward, Manchester United’s vice-chairman said, “Playing performance doesn’t really have a meaningful impact on what we can do on the commercial side of the business.”

Down at the Stretford End hardcore United fans were unimpressed with the comment at the time and no doubt Woodward is squirming after the club’s moderate start to the 2019/20 season.

Reds fans know United have just announced their accounts for the year ended 30 June 2019, and like events on the pitch last season, they are a mixed bag of results.

Income

A Football club generates income from three main sources, matchday, commercial and broadcasting.

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The matchday income for Manchester United in 2018/19 was £111 million, impressive by Premier League standards and above that of any other club in that division (whose figures are from 2017/18 as no one else has published results yet). .

However, there has been hardly any growth in matchday revenue since Sir Alex Ferguson retired in 2013 and critics say that Old Trafford is falling behind rivals in terms of modern facilities and comfort.

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Each club’s matchday income is calculated as the number of home matches played multiplied by the average attendance multiplied by the average ticket price.

Respect is due for United keeping season ticket prices frozen for the eighth year and Old Trafford is sold out every match, so there is little opportunity to increase this income stream unless Old Trafford has its capacity increased.

Historically commercial income is where United have been the smartest kids on the block through their policy of selling rights to commercial partners in different countries for similar products and services.

A concern for the boardroom at Old Trafford is that this total too was relatively static in 2018/19 and perhaps suggests a lack of silverware is taking its toll as sponsors like to associate their products with success.

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Very few clubs can match United’s global appeal, but the club’s kit deals with adidas and Chevrolet signed a few years ago effectively locked it into long-term totals and other clubs are starting to catch up.

Even though broadcasting income increased by 18% in 2018/19 the numbers hide a more concerning story.

Reporting an increase in broadcast income of £37 million sounds impressive this was all due to a new Champions League TV deal starting in 2018/19.

In winning the Europa League 2016/17 United made £38 million in prize money.

Champions League prize money of £83 million was however made in 18/19 when United made the quarter finals of the Champions League but as UEFA award 80% of prize money for the Champions League and 20% for the Europa League United will face a drop this season. .

Having new ten-year club coefficients come into play in 2018/19 for clubs in the Champions League helped United earned €31 million, more than any other English club from this particular pot on the basis of their historic success over the last decade.

As there was success for other English clubs in UEFA competitions last season combined with United’s 2009/10 Champions League performance slipping out of the ten year equation has however seen Manchester City and Liverpool advance ahead of United in the club coefficient.

Results in the Premier League were moderate leading to a fall from 2nd to 6th and meant that Manchester United’s domestic broadcast earnings fell from £155 million to £148 million.

Despite this United still top the table for total income over their ‘Big Six’ peer group but the lead is eroding.

Keeping ahead of rivals financially is essential if United are going to compete for players and whilst in 2017 United earned £217 million more than Liverpool, the following season this fell to £135 million.

European success for Liverpool and/or Manchester City in the Champions League in 2019/20 could eliminate the gap totally, with Spurs coming up on the rails on the back of the new stadium.

One of the footnotes in United’s press release states the club expect 2020 revenues to be in the £560-580 million range, a fall of up to £70 million.

Costs

Getting costs under control for a club is difficult as the main expenses are player related, in wages and amortisation.

Having to keep up with the competition, United’s wage bill, despite paying fewer win and trophy bonuses than the previous season, increased to £332 million in 2018/19.

Alexis Sanchez’s contract for the full season, along with new contracts for some other players and Champions League participation bonuses being triggered, were the main drivers of the 12% wage bill increase.

The wage bill at United since Sir Alex Ferguson retired in 2013 has increased by 83%, putting the average weekly wage at approximately £160,000 a week.

This means that the wage bill is by some distance the highest in the Premier League but remember that other clubs have not yet reported figures for 2018/19.

Having a high bill is affordable on the back of United’s revenue streams, with wages representing £53 of every £100 of income generated, the highest for a decade.

Even so United fans can be relatively relaxed as this is well below UEFA’s ‘red line’ of 70% when comparing wages to income.

Wages are one way of attracting talent but the other means is through player signings and these are dealt with in the profit and loss account via amortisation.

Having a new signing does not mean that the whole fee is charged as an expense immediately.

Every fee payable is spread over the contract life so when United signed Fred from Shakhtar Donetsk last season for £52 million on a five-year contract, this resulted in an annual amortisation charge of £10.4 million a year.

Every amortisation charge is then added together to give a total charge for the whole squad last season of £129 million, treble the amount of when Sir Alex was last in charge.

Looking at the rapid increase in amortisation costs indicates that Manchester United have spent large sums recruiting players from other clubs and paying them handsomely, but the quality of the recruitment must be called into question.

The two English clubs who participated in the Champions League final last season together had a lower amortisation charge than Manchester United, and remember that Rashford, Lingard and McTominay all are academy recruits with no amortisation cost.

Having sacked Jose Mourinho and his entourage during the season, United had to pay off their contracts at a cost of £19.6 million, which took the total cost of getting rid of managers to £40 million since 2013.

A surprise for some fans is that United boosted their profits with player sales that made the club £26 million as Fellaini, Blind and Johnstone left Old Trafford.

Profits

Net profits are calculated as total income less total costs, but before getting to the bottom line Manchester United had trading profits from their day to day operations of £50 million in 2018/19, an increase compared to the previous season but still lower than in 2013.

Every United fan knows that the Glazers borrowed £790 million in 2005 and at the time lenders were very wary about giving the club money so charged interest rates up to 16.25%.

Developing a reputation for making the interest payments on time was essential for United and the club managed to convince the markets it was generating enough cash from its day to day operations to reschedule the loans at lower rates in recent years.

Whilst the annual interest expense has fallen to just £22 million last season the total cost since 2005 has now reached £809 million, exceeding the sum originally borrowed.

Overall taking into account interest and tax costs Manchester United made a profit of just under £19 million, lower than some other clubs who had the benefits of much larger player sale gains the previous season.

Out of those profits £23 million was then paid from the club in the form of dividends to shareholders, United are the only club in the Premier League who make such payments to the Glazer family and hedge funds who own nearly all the shares in the club.

Player trading

Diago Dalot, Fred, Dan James and Aaron Wan-Bissaka arrived at Old Trafford in the year to 30 June 2019 for a total of £135 million, the latter two of course arrived just before the end of United’s year end.

Whilst United have now spent over £1 billion on new signings since Sir Alex retired, the quality of the signings has been questioned as the likes of Di Maria, Lukaku, Sanchez and Bailly have not justified the fees paid for them.

A glance at the footnotes to the accounts shows United have been busy in the transfer market since 30 June 2019 too, spending £99 million on new players and extending some existing player contracts, mainly on Maguire and De Gea.

Romelu Lukaku’s sale post the accounting year end is shown at £67 million, presumably in relation to Romelu Lukaku. This figure seems much lower than the amount quoted in the media but may be net of agents fees on the deal.

Debts due to other clubs on transfers to £188 million at 30 June 2019, although this figure is another which has risen rapidly since Sir Alex retired.

Summary

So, where does this leave Manchester United? There is no doubt that the Glazers and Ed Woodward are unpopular with a large proportion of fans. The lack of trophies in recent years is now perhaps catching up with the club as it no longer shows the incredible growth in sponsorship deal values that took place once upon a time. So perhaps Ed is wrong and playing performance does really have a meaningful impact on the commercial side of the business, and that might worry the owners and investors as it has done the fans in recent times. Whether that will result in an improvement in United’s fortunes on the pitch if the club is driven by the manager instead of the commercial department is an unknown.