Bristol City 2017/18: Mezzanine

Introduction:

The insanity of life in the Championship chasing a place in ‘The Promised Land’ ((c) Alan Green and all other unimaginative commentators) is highlighted in Bristol City’s latest financial results.

City were 2nd in the table on 26th December 2017 but were slid to mid table by the end of the season, and with that had to disassemble the squad as the vultures came picking off their best players.

Key figures for year to 30 June 18: Bristol City Holdings Ltd

Income £25.2 million (up 19%).

Wages £27.3 million (up 30%) .

Losses before player sales £24.2 million (up 26%)

Player signings £12 million

Player sales £1.8 million

Steve Lansdown investment £137 million (up £19 million).

The club are owned by Pula Sports Limited, a company based in the tax haven of Guernsey. Pula Sports Limited also own Bristol Rugby club and Bristol Flyers basketball team.

Pula are owned by Steve Lansdown, a very successful accountant and businessman, half of Hargreaves Lansdown, the £8 billion plus valued financial services company.

Income:

All clubs generate money from three sources, matchday, broadcasting and commercial. What separates out the Championship from other league is the impact of parachute payments from clubs who were previously members of the Premier League (EPL).

Total income for the season was £25.2 million. To put this in context, the three clubs relegated from the Premier League, Hull, Middlesbrough and Sunderland, each earned over £40 million in parachute payments.

City are one of the earliest clubs to publish their finances for 2017/18, so the figures in the Championship table are from 2016/17 unless labelled 2018.

As far as Championship clubs go, Bristol City are competitive with other clubs not in receipt of parachute payments.

Strip out the parachute payments and City rise to 7th in the income table.

Football clubs generate cash from three main sources, matchday, broadcasting and commercial.

Since 2013/14 City’s income has quadrupled, but this hasn’t been enough to stem the losses.

Matchday income from ticket sales rose a third to £6.6 million. This was due to attendances at Ashton Gate increasing 9% from 19,256 to 20,953, but a good cup run added some lucrative fixtures. .

Broadcasting income rose 14% to 6.8million. This was due to the ‘solidarity payment’ paid by the Premier League to the English Football League increasing from £4.3 million to £4.5 million as well as some of the cup matches being shown live on Sky.

Other income, mainly commercial and retail, rose by an impressive 15%. This is mainly due to the completed development of Ashton Gate, the stadium that City share with Bristol Rugby Club.

Additional facilities allow the club to generate extra money from hospitality, conferences, catering etc, and allows the club to be open for more than the 25-30 days a year when home fixtures take place.

Costs:

The main costs for a club are in relation to players, and come in the form of wages and player amortisation.

Wages in total rose by 30% to £27.3 million and have more than doubled since promotion in 2015. The wage/income ratio for City rose to 108%. This means Bristol City paid out £108 in wages for every £100 they generated from revenue, leaving nothing to pay any of the other running costs, unless these are bankrolled by the owner, Steve Lansdown.

This of course leaves effectively nothing to pay for all the other overheads of the club, such as ground maintenance, heat and light, HR, finance and so on.

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In the Championship as a whole, this puts the club slightly lower than the average wage level for 2016/17 of £29.8 million, and a wage/income level of 100% for the division as a whole.

The other player related expense is that of player amortisation. This is the cost of signing a player spread over the length of his contract. So, when City signed Famara Diedhiou for £5 million on a four-year contract this works out as an annual amortisation charge of £1.25 million a year (£5m/4yrs).

City’s amortisation charge rose by 160% to £5.2 million compared to the previous season.

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The advantage of focussing on amortisation instead of just looking at transfer fees is that it removes some of the volatility from making one big signing in a single year and shows the impact of the club’s long-term player signing strategy. It’s clear that Bristol City’s board have backed the manager to ‘go for it’ to an extent over the last two years, as the amortisation charge is now five times the sum of when the club was in League One.

Other costs:

After spending a lot of money in recent years redeveloping Ashton Gate, the club cut back on capital spending in 2017/18. It does appear to have started work though on new training facilities, (classified here as ‘assets under construction’) for which formal planning permission was granted in September 2018.

Directors pay

Bristol City seem to have a fairly tight policy in relation to director pay. It could be that the costs are borne by holding company Pula Sport in Guernsey, but at £109,000 the amount is fairly low compared to other clubs, in an industry where there appears to be no ‘going rate’ as salaries vary between zero and £1.2 million.

Profits (or perhaps more appropriately Losses?)

Profits/losses are income less costs, and were £24.2 million last season, or £465,000 a week. The previous season the losses had been £19.2 million but the sale of Jonathan Kodjia to Aston Villa, for £15 million help offset these. There were no significantly profitable player sales in the year to June 2018.

Over the last six years City have racked up losses before player sales of £94 million, and the highest position during that period was last season’s 11th in the Championship (plus the wonderful League Cup run).

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Player sales have reduced these losses to ‘just’ £77 million, but Steve Lansdown still has effectively had to find a quarter of a million pounds each and every week for six years.

Some of you may by querying how the club has complies with financial fair play (FFP), which restricts losses to £39 million over three seasons, so it must average £13 million a season. Over the last three years City have had losses before tax of £47 million, so on the face of things would be subject to FFP sanction, but help is to hand.

FFP is calculated using a different formula to the accounting losses, and some expenses, such as infrastructure, promotion, women’s and academy football, community schemes and so on are excluded.

Some rough calculations suggest the FFP loss for City was therefore about £35 million over the three seasons, leaving some, but not a lot, of breathing space.

Player trading:

According to the accounts City paid out £12 million in 2017/18 on player additions, just short of the sum paid in the previous season.

This puts City mid-table in terms of the Championship, a division where you probably need to spend £10 million if you want to stand still in terms of maintaining the league position. It is also a division in which striking lucky with loan signings can make all the difference, as was experienced by Huddersfield when they had Mooy and Izzy Brown in 2016/17.

With the club failing to be promoted, it did mean that there were interested parties looking at some of City’s players, and this resulted in net player sales since 30 June of over £13 million as the impressive Flint, Bryan and Reid all departed and Webster, Watkins, Hunt & Eisa arrived.

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Funding the club

Steve Lansdown’s total investment increased further in 2017/18 as he invested a further £19 million in the club via Pula Sports. These loans were then converted into shares, which means relatively little to fans except that shareholders, unlike lenders, cannot ask for their money back.

This takes his total investment to £137 million, in the form of shares and interest free loans.

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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.

Whilst £53 million of the debt is technically due to banks it is Lansdown’s wealth and the guarantee given by Pula Sports Ltd that is the reason why the money was advanced by lenders in the first place. Under normal circumstances there’s no way a financial institution would lend to a business that loses £10-25m a year.

Conclusion

Bristol City are a textbook example of everything that is right and wrong with the Championship. Investment in the playing squad showed that the team could compete, on a single match basis at least, with clubs from the Premier League.

At the same time that level of investment cannot be funded from being a Championship club in its own right, and having a benevolent owner is essential to compete in the top half of the table.

The investment in the stadium at Ashton Gate will help generate extra income, but this will not make a serious dent in the operational losses, especially with no sign of wages slowing down in the Championship.

The good news for City fans is that there’s no sign of Steve’s affection for the club in the city where he made his fortune, or sport in Bristol, waning.

He’s invested in rugby and other sports in the city and region and is an excellent example of philanthropy (which I used to think meant he was a stamp collector).

He remains the club’s biggest asset in terms of his generosity but also its biggest risk should anything happen to him, and that’s always an issue for any business which is over reliant upon one individual.

Bristol City: Unfinished sympathy

Introduction:

Bristol City showed the challenge that exists for clubs trying to survive, let alone compete, in the Championship after racking up a recurring loss of £19.2 million before player sales last season. This is for a club that finished 17th in the division. The previous season similar losses were £14.4 million for finishing one place lower in the division.

The continued development of Ashton Gate should give City a better base on which to generate income.

The Championship remains the most frightening division in European football in terms of the financial gamble that exists there, as club owners decide whether to fund a promotion push with the potential £100 million a season that brings in terms of Premier League TV monies.

City are one of the earliest teams to report their results for 2016/17, but we maintain our estimate of sustainable pre-player disposal losses for the Championship exceeding £400 million for the season (compared to £361 million in 2015/16).

Key figures for 2016/17:

Income £21.2 million (up 49.3%).

Wages £20.9 million (up 19.9%) .

Losses before player sales £19.2 million (up 33.3%)

Player signings £13.6 million

Player sales £16.7 million

Steve Lansdown investment £118 million (up £14.9 million).

City had a wobbly season, early contention for the playoffs evaporated and they ended up needing good results in the last month to avoid relegation.

The club are owned by Pula Sports Limited, a company based in the tax haven of Guernsey. Pula Sports Limited also own Bristol Rugby club and Bristol Flyers basketball team.

Pula are owned by Steve Lansdown, a very successful accountant and businessman, half of Hargreaves Lansdown, the £8 billion plus valued financial services company.

Income:

All clubs generate money from three sources, matchday, broadcasting and commercial. What separates out the Championship from other league is the impact of parachute payments from clubs who were previously members of the Premier League (EPL).

Total income for the season was £21.2 million. To put this in context, the three clubs relegated from the Premier League, Aston Villa, Newcastle and Norwich, each earned over £40 million in parachute payments.

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Whilst we don’t have figures for most of the clubs for 2016/17, as City are one of the first to announce their results, the table below, based on 2015/16 data, gives a rough indication of just how difficult it is to compete for those clubs without parachute payments.

Football clubs generate cash from three main sources, matchday, broadcasting and commercial.

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Matchday income from ticket sales rose 28% to £5 million. This was due to attendances at Ashton Gate increasing 26% from 15,292 to 19,256.

Broadcasting income rose 42% to 6.8million. This was due to the ‘solidarity payment’ paid by the Premier League to the English Football League increasing from £2.3 million to £4.3 million as a result of a new domestic TV deal for 2016/19 secured by Sky and BT Sport.

In addition, the club gets a share of the EFL TV deal with Sky, and is estimated to earn £100,000 for each home game and £10,000 for every away game broadcast live on Sky.

Other income, mainly commercial and retail, rose by an impressive 71%. This is mainly due to the completed development of Ashton Gate, the stadium that City share with Bristol Rugby Club. Having more modern facilities allows the club to generate extra money from hospitality, hosting conferences, restaurants etc, and allows the club to be open for more than the 25-30 days a year in which football matches are taking place.

Even with these significant increases in income City cannot hope to compete with those clubs in receipt of parachute payments, and so will be in the bottom half of earners in the Championship for the foreseeable future, unless attendances rise to the 25,000 plus level, which will only come if there is a sustained promotion campaign.

Costs:

The main costs for a club are in relation to players, and come in the form of wages and player amortisation.

Wages in total rose by 20% to £20.9 million. This is quite a frightening figure in many regards, as if a club in the bottom third of the division has to increase wages by 20% to tread water, it bodes poorly for the sustainability of teams in this division unless they are bankrolled by owners.

The wage/income ratio for City was the lowest for a number of years at 99%. This still means that wages were 99% of income, or to put it in more simple terms, Bristol City paid out £99 in wages for every £100 they generated from revenue. This of course leaves effectively nothing to pay for all the other overheads of the club, such as ground maintenance, heat and light, HR, finance and so on.

In the Championship as a whole, this puts the club slightly lower than the average wage level for 2015/16 of £23.1 million, and a wage/income level of 101% for the division as a whole.

Whilst the increase in wages was substantial, it is still significantly less than those of relegated Norwich, who paid out £55.1 million in 2016/17, and promoted Brighton, with £31.3 million plus a further £9 million in promotion bonuses.

The other player related expense is that of player amortisation. This is the cost of signing a player spread over the length of his contract. In the directors’ report City said that the club was heavily reliant on loan players for the season, most noticeably Tammy Abraham from Chelsea, who scored 23 goals in 2016/17.

Despite the use of the loan system, City also spent £13.6 million on signings during the season. The biggest signing was probably Lee Tomlin for about £3 million on a three year contract. This works out as £1 million of amortisation per year.

City’s amortisation charge rose by 160% to £5.2 million compared to the previous season.

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The advantage of focussing on amortisation instead of just looking at transfer fees is that it removes some of the volatility from making one big signing in a single year.

We would expect the amortisation charge to continue at these levels at least for 2017/18. Despite selling tubby convicted felon Lee Tomlin to Cardiff in the summer of 2017, City still spent a net £9.5 million on players during the transfer window.

Other costs:

The club has significant other costs operating from the redeveloped Ashton Gate. Total expenditure on the stadium in 2016/17 was £11 million, bringing the total for the last few years to approximately £45 million.

The stadium and other property costs are being written off over 50 years, but to this is added the costs of depreciating shorter life assets such as office equipment. This gives an overall depreciation charge of £2.5 million, significantly up from £0.6 million the previous season, when the stadium improvements were not still a work in progress. This means that the deprecation charge was higher than for clubs with other stadia (Norwich’s was £1.9 million, for example).

Directors pay

Bristol City seem to have a fairly tight policy in relation to director pay. It could be that the costs are borne by holding company Pula Sports in Guernsey, but at £115,000 the amount is fairly low compared to other clubs, with seven clubs paying over £200,000. The Brighton CEO was paid £1.2 million in 2016/17 as the club was promoted.

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Losses:

Losses are income less costs, and were £19.2 million last season, or £370,000 a week,before taking into account the sale of Jonathan Kodjia to Aston Villa, for £15 million. This sale was the main driving force behind gains on player disposals of £13.6 million.

Over the last five years City have racked up losses before player sales of £70 million, and the highest positon during that period was last season’s 17th in the Championship.

Player sales have reduced these losses by over £16.7 million, but it is still a substantial level of commitment required from owner Steve Lansdown to underwrite these losses.

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Some of you may by querying how the club has complies with financial fair play (FFP), which restricts losses to £39 million over three seasons, so it must average £13 million a season.

FFP is calculated using a different formula to the accounting losses, and some expenses, such as infrastructure, promotion, women’s and academy football, community schemes and so on are excluded.

Whilst City don’t detail all of these costs, they appear to be easily FFP compliant last season. We’ve asked around some of our chums in football, and have calculated the following FFP loss for 2016/17.

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The sale of Kodjia ensured that the FFP losses were not an issue for the club, and this effectively means that they can incur losses of £39 million over two rather than three seasons and stay compliant.

Player trading:

As previously mentiond, according to the accounts CIty paid out £13.6 million in 2016/17 on player additions.

£13.6 million is a record sum for City, more than triple the amount of the previous season. There is a noticeable discrepancy between this figure and the amount of cash spent on players of £8.9 million. This suggests that a number of signings were made on credit.

it’s a reasonably high figure for a Championship club, but not if compared to the amounts spent last season by clubs relegated from the Premier League in Aston Villa (£76 million) Newcastle (£57 million) and Norwich (£20 million), and promoted Brighton (£19 million).

Similarly, although Kodjia was sold to Villa for £15 million, the amount of cash received from player sales was £6.6 million. Again this is due to the deal being based on instalments rather than a single cash sum. This is borne out by looking at City’s debtors footnote, which reveals that the club is now owed over £10 million from other clubs, comparted to just £250,000 at the end of the previous season.

Spending during the 2017 summer window has resulted in the club transfer record being broken with the signing of Famara Diedhiou from Angers for £6 million.

The Owner

Steve Lansdown’s total investment increased further in 2016/17 as he invested a further £15 million in the club via a new share issue.

This takes his total investment to just over £118 million, in the form of shares and interest free loans.

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Realistically, Lansdown will have to subsidise the club by a minimum of £10 million a year for the foreseeable future, unless promotion to the Premier League is achieved. The investment in the stadium at Ashton Gate will help to generate extra income, but this will not make a serious dent in the operational losses, especially with no sign of wage growth slowing down in the Championship.

The good news for City fans is that there’s no sign of his affection for the club in the city where he made his fortune, or sport in Bristol, waning, despite him moving to Guernsey for tax reasons. He remains the club’s biggest asset, but also it’s biggest risk should anything happen to him and he can no longer underwrite the losses.

Lansdown appears to have adopted the Brighton model of improving the infrastructure first to lay down the foundations of being able to compete in the Championship, and then using this as the basis for a promotion push.

More nights such as the recent defeat of Manchester United in the League Cup are likely to continue to cement Lansdown’s love affair with the city and the club.

The numbers