Celtic: Inbetween Days

Introduction

Celtic’s accounts for 2016/17 arrived in our inbox 24 hours before the club lost its 69 game domestic unbeaten run.

We recently reported on the financial situation of Rangers, who were promoted to the Scottish Premiership (SPL) in 2016/7.

http://priceoffootball.com/glasgow-rangers-201617-orange-crush/

They highlight the paradox of being in their current position, too rich compared to their peers to make Scottish football competitive (although Hearts fans may now query that), but too poor to be able to challenge in the Champions League, leading to their fans searching through Google Maps as they try to find how easy it is to get to St Petersburg on public transport for the forthcoming Europa League match against Zenit.

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Key figures for 2016/17

Income £90.6m (2016 £52.0m)

Wages £52.2m (2016 £36.9m)

Profit before player sales £3.7m (compared to £13.6m loss in 2016)

Player signings £13.8 m (2016 £8.8m)

Player sales £4.2m (2016 £14.0m)

Income

According to the accounts the club generates its income from three main sources. Matchday, merchandising and broadcasting.

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Matchday income was up 50%, the main reasons for this were:

  • Champions League qualification and attractive ties against Munchengladbach, Barcelona and Manchester City.
  • Higher season ticket sales as fans wanted to ensure they saw their team play against Rangers in the Scottish Premiership for the first time in years.
  • Preseason tournament against Leicester, Barcelona and Inter Milan.

Matchday income contributed 41.5% of total revenues for the club. Compared to the English Premier League (EPL), this is a far higher proportion than for any club in that competition.

Celtic’s matchday income would place them seventh if they had been in the EPL, which shows the contribution made by fans to the club.

Broadcast income more than doubled, again driven by a Champions League qualification. The payout was €31.7 million, compared to only €5.8 million the previous year, when the club only qualified for the Europa League.

Celtic also benefited with the payouts being made in Euros, as the pound fell in value at the UK’s economy was downgraded as a result of the Brexit vote. This added a further 15% to the sterling value of the sum received by Celtic.

Other/merchandising income was up 30%, as the club launched three new kits during the season.

Compared to rivals Rangers, who have the second highest level of income in Scotland, Celtic’s income was substantially higher in all three main areas. The figures also show that the Scottish Premiership’s TV deal with Sky is paltry compared to the riches available in the Champions League.

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Having three times as much income as the next largest club makes it very difficult for anyone to compete with Celtic when it comes to paying out the costs of running a club.

Costs

The main expense for a football club is in relation to players. These consist of two main elements, wages and amortisation.

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Wages rose by over 40% because Brendon Rogers signed the likes of Scott Sinclair, Kolo Toure, Cristian Gamboa and Eboue Kouassi, all of whom were on lucrative contracts by Scottish standards. Players would also have been paid bonuses for featuring in the Champions League.

At £52.2million, Celtic’s wages were three times those of Rangers (£17.6m). The next highest in Scotland was Aberdeen at £6.8m.

For the first time a Celtic director received pay of more than £1 million, with Peter Lawwell taking home in total £1,167,000. Somewhat bizarrely, for the four previous years the highest paid director had always been paid £999,000, perhaps not wanting to upset fans with the thought of one of the suits trousering more than a million for being to help mastermind the defeat of the likes of Ross County and ICT.

Celtic seem to have their wage levels under control, even with the increased amounts being paid. The wage/income ratio, which in the English Championship was over 100%, was more in line with the EPL, which averages 68%.

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Player amortisation represents the transfer fee cost being spread over the life of the contract signed by the player. So. if Scott Sinclair signed for £3million on a four year deal, this would result in an amortisation charge of £750,000 a year.

The amortisation charge arose as a result of Celtic spending £13.8 million on players for the 2016/17 season. Over the last five years Celtic have spent a total of £49.8 million on new players, which will get you one very good full back in the Premier League.

This contrasts with Rangers spending £10.3 million in their first season back in the SPL, although that was in marked contrast to the £4 million they spent in total over the four preceding years.

Celtic did have a further £1.5 million of costs in 2016/17 that were called ‘exceptional’. These are expenses that are one off in nature and so not expected to recur every year.

This included £287k in relations to signings that proved to be shite less impressive than when the club bought the player, and so had to be written down. There were also payments to former employees and over £1 million.

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Profits and losses

Ask an accountant what they mean by profit, and they will start to sweat, loosen their tie, and look nervously around the room.

There are many levels of profit that can be calculated, but here at the Price of Football we concentrate on three.

The first is operating profit. It is total income less all day to day operational costs of running the club.

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Celtic’s operating profit rose by a factor of ten to £7.5 million in 2016/17, driven by the increased income mentioned above. Rangers had an operating loss of £6.8 million during the same period.

The problem with operating profit is that it can be distorted, especially by player disposals. We therefore also calculate profit before player sales and other one off items. We refer to this as EBIT (Earnings Before Interest and Tax) This removes the volatility in relation to selling one player in a single season at a huge gain (such as Van Dijk), and having no such sale the following year.

Despite the domestic success and European qualification over recent years, Celtic made an EBIT loss of over £31 million in the last five seasons.

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This shows that the club is dependent upon selling players each year to help make the books balance.

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Gary Hooper and Victor Wanyama contributed most of the gain in 2014, and Virgil Van Dijk that for 2016. These gains are used to offset the EBIT losses. Celtic have had a negative net transfer spend of £600,000 over the last five years as a result of these sales.

The final profit figure adds on player amortisation and depreciation of the stadium and other long-term assets. We call this EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation). This is the nearest figure we have that is a ‘cash’ profit total. This is what is used by analysts when they are trying to calculate a price for a club that is up for sale (such as Newcastle at present).

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Celtic’s EBITDA profit of £12.9 million, compared to a loss of £6.9 million the previous season shows how critical it is for the club to have Champions League qualification. This compares to an EBITDA loss of £0.7 million for Rangers.

Debts

Celtic are debt free, having cash of £24.5 million of cash at 30 June 2017, compared to outstanding loans of £13.5 million. This should be good for Rodgers if he is looking to strengthen the squad in the January transfer window. He did spend over £6 million on signings in the summer 2017 window. Rangers, by comparison, had a net receipt of £240,000 during the same window, as they sold more players than they signed.

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Conclusion

Celtic are in a strong position financially. Qualification for the Champions League in 2017/18 guaranteed the club another £30 million in broadcasting income. Whilst, as expected in a group featuring PSG and Bayern, they did not qualify for the knock-out stage, they are now in the Europa League, albeit with a tough first draw against Zenit.

The financial gap between them and Rangers is substantial, which gives them a playing advantage too. Whilst Celtic fans don’t care, how good the lack of competition is for Scottish football, especially if it is trying to negotiate new TV and commercial deals, is uncertain.

The numbers

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