New TV Distribution Rules: Everyone’s A Winner.

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 Wrexham 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 big 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

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 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.

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

Premier League Club Values 2017

It’s worth THIS much!

As the 2017/18 season comes to an end, all but one Premier League (EPL) club has submitted their accounts for publication, and that has allowed us to estimate values.

The new domestic broadcasting deal that came into play in 2016/17, combined with wage restraint due to the EPL’s Short Term Cost Control rules, has boosted club income and profitability.

As a result the total value of EPL clubs has risen over 30% from £12.1 billion to £15.8 billion.

The clubs have been valued using the Markham Multivariate Model (MMM) devised by Dr Tom Markham, a graduate of the University of Liverpool’s Football Industries MBA programme, and is now head of Strategic Business Development at Sports Interactive, the producers of Football Manager.

The model has been slightly tweaked to remove some of the volatility in gains arising from selling players in individual years, which explains why some of the comparative figures from 2016 are different to those published last year.

The average value of a club in the EPL is now £791 million, up from £607 million the previous season. This helps explain why there are so many investors, speculators, wide boys and charlatans keen to get involved in the division.

The Table

The formula used to calculate club values is (Revenue + Net Assets) x (Revenue + Cleaned Net Profit + average gain on player sales over last three years)/ Revenue x stadium utilisiation % / wage control %

The formula assumes that the club will continue to be in the EPL for at least five years. If the club is relegated then values in the Championship (and for Sunderland League One) are probably 15-20% of the EPL figures.

Club summaries

1: Manchester United £2,463 million (2016 £2,402 million)

United have consolidated their position at the top of the table as a result of higher broadcast income and making profits of £11 million compared to losses of £10 million on player sales. Not selling players at a loss helped too, along with winning two trophies (three if you believe Mourinho).

2: Chelsea £ 2,062 million (2016 £1,837 million)

Chelsea’s ability to continually sell players at a profit (£159 million in three years), bonuses for winning the EPL & new kit deals pushed them into second position. Biggest constraint is matchday income, only £65m compared to over £100 m for United and Arsenal

3: Manchester City £1,979 million (2016 £2,139 million)

A bit of a slide for City, as the investment in new players and wages under Pep meant profits fell from £20m to £1m despite income up 20% & wage control percentage rose from 50% to 56%. Profitability is an irrelevance to the owners, but an increase is on the cards for 2018.

4: Arsenal £1,822 million (2016 £1,269 million)

Arsenal’s ability to extract money from fans is very impressive, their matchday income is second only to Manchester United. Lower wages than Liverpool, the Manchester clubs & Chelsea help. Profits up from £2m to £35m contributed too. Lack of CL exposure in 2018 will restrict value growth.

5: Spurs £1,445 million (2016 £1,169 million)

Champions League income & tight control over wages (apart from CEO Daniel Levy’s £6 million) which are £80-£140 m less than the other ‘Big Six’ clubs mean Spurs value is higher than you would expect from a club that has not won the league for nearly 60 years.

6: Liverpool £1,129 million (2016 £626 million)

It might upset Reds’ fans to see their club sixth, but remember the owners only paid £300 million for the club a few years ago. The club’s value increased by over £500 million in 2017 & expect to see another big jump in 2018 due to the Coutinho sale and CL success.

7: Leicester £955 million (2016 £339 million)

Leicester’s value nearly trebled due to participation in the Champions League & earning more from the competition than winners Real Madrid due to the formula used to award prize money. Expect to see a big fall in 2018 though.

8: Southampton £508 million ( 2016 £299 million)

For a club that was sold for £260 million little over a year ago this looks impressive. Gains on player sales of £112 million in three years is a driving force, and the sale of VVD in 2018 is likely to keep this figure high this season.

9: Everton £440 million (2016 £107 million)

Moshiri wiping off the club’s debt, a reversal from being loss to profit making, better wage control & the sale of John Stones were the major drivers of Everton’s quadrupling of value this year

10: West Brom £381 million (2016 £165 million)

If something looks too good to be true, it’s probably not true, and the Baggies valuation is a classic example of this. The club had underinvested in players for a few years up to 2017 & survived until then. Whilst good for profits (£32m in 2017) it meant that it was a high risk for relegation if any new recruits failed to deliver, as the club found out in 2018.

11: West Ham £368 million (£142 million)

West Ham’s value shot up mainly due to income rising far quicker than wages, substantial gains on player sales and debts being paid off after the controversial sale of the Boleyn (where did the profits end up there?)

12: Burnley £352 million (2016 n/a)

The EPL’s best run club? No frills in the boardroom or the dressing room meant that promoted Burnley made a substantial profit, pay out just over half their income in wages and are debt free. A formula for success in terms of value for a club on gates of 20,000. Likely to be maintained in 2018 with a 7th place finish.

13: Bournemouth £344 million (2016 £143 million)

Flying under the radar as they have done since promotion to the EPL. £124million of TC money, quadrupled profits, wages under tight control & owners who lend interest free mean that AFCB can thrive on gates of 11,000.

14: Middlesbrough £312 million (2016 Championship)

Boro’s lack of ambition in the EPL transfer market in terms of trying to survive meant that whilst they were very profitable, and wages dropped from £149 for every £100 of income in the Championship to £53 in the EPL, their value of £312 million will have plummeted in 2018 following relegation.

15: Stoke £300 million (2016 £132 million)

Stoke are a textbook beneficiary of the new TV deal. Wage control improved from 79% to 62%, income rose by nearly a third & the club has no external debt. Whilst the value is likely to hold in 2018 that ignores the impact of relegation, so expect the value to fall in 2019.

16: Watford £283 million (2016 £184 million)

Another club who cope well with a relatively small stadium. Wages kept under control, the Hornets generate modest profits. Sales of Ighalo & Vydra helped boost results in 2017. Could be attractive to a buyer in their present state as close enough to London to command a premium.

17: Hull £257 million (2016 Championship)

Recent Yo-Yo club, value in Championship likely to be about £40-50 million following relegation as TV accounted for 80% (£94m) of their income in 2017.

18: Sunderland £216 million (2016 £128 million)

The only EPL club last season to lose money after player sales, Sunderland are about to be given away for nothing as they face League One. Daft transfers, boardroom payoffs and a revolving door in the manager’s office. The last club run this poorly was the Haçienda in Manchester in the 80’s. Owner Ellis Short may have lost over a quarter of a billion pounds from his involvement with the Black Cats.

19: Swansea City £183 million (£108 million in 2016)

Swansea are bottom due to paying out a higher proportion of income as wages than nearly any other EPL club. Value would be lower but saved to an extent by sales of Ayew & Williams which boost profits in short term. Value likely to be about £40 million in Championship.

20: Crystal Palace £142 million (£142 million in 2016)

Small London club Crystal Palace shouldn’t really be bottom of the table, but for reasons best known to themselves they have chosen to not submit their accounts to the registrar, even though the due date was 31 March. Would expect value to be closer to £300 million if our estimates for 2016/17 are close to the actual figures when they are finally published.

 

West Bromwich Albion: Dazed and Confused.

It’s of little consolation to West Brom fans as their club is facing relegation, but the club’s holding company have just published their financial results for 2016/17 revealing record profits. A few months later though it was the night of the long knives in the boardroom and the club’s boardroom big cheeses were shown the door.

Summary of key figures (West Bromwich Albion Holdings Limited)

Income £137.9 million (up 40%)

Broadcasting income £118.7 million (up 51%)

Wages £79.1 million (up 7%)

Profit before player sales £26.7 million (Loss of £5.2 million in 2016)

Player purchases £37.4 million (£28.2 million in 2016)

Player sales £19.8 million (£6.3 million in 2016)

Borrowings: None

Income

The Baggies have been in the Premier League (PL) since 2010/11, and their income has broadly been linked to new PL broadcasting deals, which are negotiated every three years.

The impact of the new TV deals that commenced in 2014 and 2017 have been the biggest drivers of extra income for the club. The problem the club has is that it is constricted by a 27,000-seater stadium and not being one of the ‘Big Six’ in terms of commercial appeal. Such is the success of the PL in selling broadcasting rights that West Brom are in the top 30 revenue generating clubs in the world in 2016/17.

Eighteen clubs who were in the Premier League last season have reported their results to date. Only car crash Sunderland, probably too busy setting the club coach’s sat nav to Accrington, and Crystal Palace, whose owner also controls a company called ‘Smoke and Mirrors Limited’ have failed to do so.

All Premier League clubs are reporting higher income for 2016/17 than in the previous season. The average income of the 18 clubs that have reported to date is £239 million, up 31% from £182 million the previous season. The average in the Championship is just £28.6 million.

West Brom are in a bunch of eight clubs who are in the £117-138 million income bracket.

The main reason for the increase in overall income in the Premier League for 2016/17 was the new Sky/BT domestic TV deal, worth £5.1 billion over three seasons.

The Premier League divide money into five pots. Three of the pots cover the domestic TV deal, and they are split 50% evenly, 25% based on the number of TV appearances (every club is guaranteed a minimum of ten of these) and 25% based on final league position. Each place up the table is worth just under £2 million.

Overseas broadcasting income and centrally agreed commercial deals are split evenly between the twenty clubs. This arrangement is likely to come under fire in the summer as the ‘Bix Six’ want to grab a bigger slice of this pie for themselves. Their argument is that overseas TV fans would rather watch one of their clubs than that of a team such as West Brom, and so they ‘deserve’ more money.

Whilst this argument is true in terms of the number of viewers, it ignores the fact that the ‘Other 14’ can compete against most clubs in Europe apart from the elite for players (all 20 EPL clubs are in the top 35 richest in Europe) and thus can put up a decent performance against the Big Six.

This partly explains why West Brom won at Old Trafford, Burnley won at Stamford Bridge, Swansea beat Liverpool and many clubs have turned over Arsenal.

Like all clubs West Brom earn their income from three sources, matchday, broadcasting and commercial/sponsorship.

Matchday Income

Matchday income fell by 12% to £6.8 million. This was due to average attendances falling 3% to 23,876 and non-existent cup runs.

Overall in the Premier League, matchday income counts for £1 in every £7, but for West Brom it is only £1 in every £20.

West Brom had the second lowest matchday income total in the division, but still managed to survive in the Premier League for many seasons. This suggests that in the Premier League it is case of spending money wisely, rather than just spending it quickly, that counts.

Ticket prices seem to have fallen since West Brom’s last season in the Premier League, with matchday income averaging £283.51, about 9% lower than in 2016. This works out at £14.92 per match, which may surprise some Baggies fans, but remember this is the average of adults, seniors and kids, and is also net of VAT.

The reduction in prices may be a combination of fewer hospitality packages being sold as the club was pragmatic if unexciting under Tony Pulis, and the capping of away fan prices in the Premier League.

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Broadcast Income

Broadcast income for Premier League clubs is linked to deals signed by the PL. West Brom benefitted in 2016/17 from finishing 10th in the table compared to 14th the previous season, but more importantly from the new domestic BT/Sky deal.

Premier League TV money is divided into 5 pots, splits as follows:

For domestic rights there are three pots.

  • 50% of the money is split evenly between all 20 clubs (called the ‘Basic Award’)
  • 25% is split based on the number of times a club appears live on TV, with each club being guaranteed ten matches, and an extra £1 million for each additional appearance
  • 25% is based on final league position, with the bottom team receiving £1.9 million, and every place above that being worth an additional £1.9 million. Therefore, by finishing four places higher in 2016/17 than the previous season West Brom earned an additional £7.6 million, which is more than they earned through matchday income.

Overseas TV rights are presently split equally between all 20 clubs, but a bunfight is likely to take place this summer as the ‘Big Six’ (Manchester United and City, Liverpool, Arsenal , Chelsea and Spurs), already far richer than the other clubs, want more of this money as they claim they are main reason why overseas broadcasters pay so much for PL rights. The Big Six’s argument conveniently ignores that they earn additional broadcasting rights from appearing in European competitions.

If the Big Six are to be successful, they will need 14 votes at the meeting of club owners in the summer. Expect to see tantrums and threats of joining/creating a European Super League should they not get their way.

The PL’s central advertising/commercial contracts are also split evenly between all 20 clubs.

The present domestic deal lasts until 2018/19, so it is likely that West Brom’s broadcast income peaked last season. If the club is relegated then the PL’s snappily named rule D.25, more commonly called parachute payments, applies.

West Brom would therefore receive 55% of the basic award (£35.3 million in 2016/17) and overseas broadcasting money (£39.1 million in 2016/17) next season, which works out at £41 million.

Commercial Income

Commercial income in the Premier League is a case of the haves and the have nots. Here the Big Six mop are to an extent able to name their price, as it is a seller’s market and the likes of Manchester United have a strategy of signing deals in individual countries for individual products, such as an official tractor partner in Japan.

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For clubs such as West Brom the outlook is different. Here the buyers can play the likes of The Baggies, Bournemouth, Everton, Stoke etc. off against each other when negotiating shirt and commercial deals, so the prices are far lower. In addition, smaller clubs have limited overseas appeal as football tourists and plastic fans only tend to ‘support’ the major clubs. Accordingly, Manchester United make £22.10 from their commercial activities for every £1 generated by West Brom.

A screenshot of a cell phone Description generated with very high confidence West Brom’s commercial income increased by nearly 6% in 2016/17, mainly due to a new shirt sponsorship deal with generic Chinese online casino operator UK-K8.com.

Cost

The main costs at a football club are player related, wages and transfer fee amortisation.

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West Brom’s wages have grown steadily over the last give years, and the average wage is (we estimate) about £38,000 a week. Their total wage bill is broadly where you would expect it to be for a club that has been a constant feature of the Premier League for the last decade, above that of promoted clubs and below that of clubs with bigger stadia and resources.

The riches of the Premier League TV deal meant that West Brom only paid out £57 in wages for every £100 of income. If the club is relegated to the Championship the outlook is different. In the last season for which there are full records clubs paid out an average of £101 for every £100 in wages, which leaves nothing to pay for the other other running costs…including player signings.

One reason why West Brom’s wages to income ratio has fallen is due to a variant of Financial Fair Play (FFP) called Short Term Cost Control (STCC). This restricts wage growth to £7 million a season plus any money the club generates itself from matchday and commercial sales. For a club such as West Brom this gives a significant challenge.

Under the new ownership of the club, the highest paid director has taken a significant reduction in pay. Under the former regime this person, presumably the CEO, was earning over a million pounds per year. This fell to ‘only’ £181,000 in 2016/17.

In February 2018 the club however sacked the CEO and the chairman. The following month the new CEO, Mark Jenkins, claimed to be ‘shocked’ at the state of the club’s finances, especially in relation to wages.

Amortisation (skip this bit unless you want a quick and dirty accounting lecture) is how clubs deal with transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract. Therefore, when West Brom signed Jay Rodriquez for £12 million from Southampton on a 4-year deal, the amortisation charge works out as £3 million a year (£12/4). The amortisation fee in the profit and loss account includes all players who have been signed for a fee (assuming they are still in their initial contract).

West Brom’s amortisation total of £17 million is 30% higher than the previous season, and over five times the figure of 2013. It shows that the club decided in 2014/15 to invest more significantly in players, signing the likes of Ideye, Livermore, Chester, Rondon and Chadli for £10million plus fees.

However, compared to the rest of the division, West Brom are relative paupers. Their amortisation charge for 2016/17 was by far the lowest in the Premier League.

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The danger of such an approach is that by trying to survive in the Premier League by spending less on players may be successful in the short term, it is likely to drag the club down over a longer period. The West Brom hierarchy may point out that they finished a creditable 10th in 2016/17 and thought they could repeat the success with a lack of investment in players but the club is playing with fire taking such an approach.

Profits and losses

Profits are income less costs. West Brom made record profits before player sales in 2016/17 of £26.7million

This was mainly due to the club only spending £5 million of the extra £40 million TV money on wages. The previous season, when West Brom finished 14th in the Premier League, the club loss £100,000 a week.

After a long period of time in which nearly all clubs were loss making, partially due to Alan Sugar’s ‘prune juice’ effect, where any increases in TV income went straight through the club into player wages, the Premier League is now far more lucrative.

West Brom had the sixth highest profit in the Premier League using this measure, but it does perhaps suggest once again that the club was setting itself up for a fall by not investing in players.

If you strip out the impact of player amortisation and depreciation (the cost of the stadium and training facilities spread over several years, then another profit measure, called EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) arises. This is popular with analysts looking at businesses as it is the nearest thing they can find to a sustainable cash equivalent of profit.

Once again West Brom did well here, comfortably mid table.

Under Financial Fair Play (FFP) rules, Premier League clubs can make a maximum FFP loss of £105 million over three years. West Brom clearly have little to fear in this regard. In the Championship the club will be allowed to have lost £83 million in the three years to 2018/19 if they are relegated.

Player trading

Accounting for player trading is a financial quagmire. We’ve already shown that when a player is signed, his transfer fee is spread over the life of the contract. When the player is sold, the profit, which is based on the player’s accounting rather than market value, is shown immediately in the profit and loss account.

This creates erratic and volatile figures in the profit and loss account, so these are best separated out from the rest of the financial results.

If we instead focus on the actual purchase and sales, West Brom have the following figures:

The above table shows that over the last five years West Brom have bought players for £96.3 million and generated sales of £44.2 million, a net cost of £52.1 million over the period.

West Brom’s spending in 2016/17 was a record sum for the club, but pales into insignificance in relation to the big Manchester and London clubs. By being the fourth lowest spender on signings in the division and regularly being towards the bottom of the table in this regard for many years it means that the club cannot afford too many poor signings if they are to stay in the Premier League.

The club then spent a further £41 million in 2017/18, but this has not been enough to prevent a dismal season, under first of all Tony Pulis, the man who was accused of fraudulent behaviour at his previous club Crystal Palace https://www.telegraph.co.uk/football/2016/11/28/tony-pulis-accused-fraudulent-behaviour-high-court-judgment/ and was accused of trying to blackmail the owner of Gillingham when he was manager there. https://www.theguardian.com/football/2001/apr/27/newsstory.sport1

Pulis was replaced by Alan Pardew, whose name is an anagram of Warped Anal.

Under Pardew West Brom only had one victory, against a very poor Brighton, in eighteen games in charge.

Debts to and from the club

West Brom didn’t sell many players before the 2017/18 window, and so were only owed £13.4 million by other clubs for players at 30 June 2017.

The club did owe other clubs nearly £23.4 million for player transfers, but this is chicken feed compared to the likes of Manchester United who owe over £180 million.

Perhaps more importantly the club is debt free, with no borrowings from either banks or the club owners. The owners have not put any money into the club though for many years, but the club still had nearly £40 million in the bank at 30 June 2017.

Summary

West Brom have shown that a club can survive for many years in the Premier League on a relatively modest wage bill.

They have had a strategy, which to be fair has worked for many years, of spending less on transfers than their peer group. It now, unless Darren Moore can pull off the greatest escape of all time, as if this approach has finally caught up with them. At the start of each season they have been in the dozen or so clubs who ‘could’ get relegated for some time, and this looks like being the season when gravity finally wins.

Data Set

Burnley: Your name’s not down, you’re not coming in

As The Notsensibles are one of our favourite bands, it’s time to take a look at the financies of Burnley as the club celebrated their most successful season to date in the Premier League in 2016/17 by finishing six points above the drop and have since used this as a springboard to be presently challenging for a European place.

The club, along with manager Sean Dyche and the players, don’t get the credit they deserve for winning matches and playing decent football, with too many critics lazily linking Dyche’s nightclub bouncer dress code, Dalek like voice to a club with the ethos of a slightly upmarket Wimbledon of the Crazy Gang era.

There are three companies involved in the running of Burnley

(a) The Burnley Football and Athletic Company, formed in 1897, runs the club’s day to day operations.

(b) Longside Properties Limited, which appears to own Turf Moor and rent it to the football club.

(c) Burnley FC Holdings Limited, which owns 100% of the shares of both the above companies, and which forms the basis for this analysis.

Executive summary of key figures (Burnley FC Holdings Limited)

Income £121.2 million (up 203%)

Broadcasting income £105 million (up 254%)

Wages £61.2 million (up 126%)

Profit before player sales £26.0 million (Loss of £3.6 million in 2016)

Player purchases £42.8 million (£21.9 million in 2016)

Player sales £1.8 million

Borrowings: None

Income

Burnley have bounced between the top two divisions in recent years, with three promotions and two relegations since 2009, and this is reflected in their volatile income levels.

Burnley have been beneficiaries of either Premier League membership or parachute payments since 2010, and the sharp spikes in income in 2010, 2015 and 2017 represent the years in which they have been in the top flight.

Although it tripled in 2016/17, Burnley’s overall income was the second lowest of Premier League teams last season. Talk to a Lancastrian, and they will tell you it’s not about how much money you earn, but spending it wisely that matters, and The Clarets have wasted little and added strength to their team after surviving last season.

Eighteen clubs who were in the Premier League last season have reported their results to date. Only car crash Sunderland, probably too busy setting the club coach’s sat nav to Accrington, and small London outfit Crystal Palace have failed to do so.

All Premier League clubs are reporting higher income for 2016/17 than in the previous season. The average income of the 18 clubs that have reported to date is £239 million, up 31% from £182 million the previous season. The average in the Championship is just £28.6 million.

Burnley therefore earned half of the average income in the division, such is the way that money is skewed towards the ‘Big Six’ in the Premier League of Manchester United and City, Liverpool, Arsenal and Spurs (even though the latter haven’t won the title for nearly 60 years).

The main reason for the increase in overall income in the Premier League for 2016/17 was the new Sky/BT domestic TV deal, worth £5.1 billion over three seasons.

The Premier League divide money into five pots. Three of the pots cover the domestic TV deal, and they are split 50% evenly, 25% based on the number of TV appearances (every club is guaranteed a minimum of ten of these) and 25% based on final league position. Each place up the table is worth just under £2 million.

Overseas broadcasting income and centrally agreed commercial deals are split evenly between the twenty clubs. This arrangement is likely to come under fire in the summer as the ‘Bix Six’ want to grab a bigger slice of this pie for themselves. Their argument is that overseas TV fans would rather watch one of their clubs than that of a team such as Burnley, and so they ‘deserve’ more money.

Whilst this argument is true in terms of the number of viewers, it ignores the fact that the ‘Other 14’ can compete against most clubs in Europe apart from the elite for players (all 20 EPL clubs are in the top 35 richest in Europe) and thus can put up a decent performance against the Big Six.

This partly explains why Burnley won at Chelsea, Huddersfield beat Manchester United, Swansea beat Liverpool and many clubs have turned over Arsenal.

Like all clubs Burnley earn their income from three sources, matchday, broadcasting and commercial/sponsorship.

Matchday income increased by 17% to £5.8 million. This appears to be due to higher attendances (a 23% increase to 20,558) rather than increased ticket prices.

Matchday income was enough to pay Alexei Sanchez’s wages for three months and represents only represents 5% of the club’s total income.

Burnley had the second lowest matchday income total in the division, but still managed to be survive and thene thrive. This shows that size doesn’t necessarily matter, it’s what you do with it that counts (something I’ve been trying to persuade my slightly disappointed wife of for years).

Ticket prices seem to have fallen since Burnley’s last season in the Premier League, with matchday income averaging £284.27, about 10% lower than in 2015. This works out at £14.96 per match, which may surprise some Clarets, but remember this is the average of adults, seniors and kids, and is also net of VAT.

Broadcast income is the one most sensitive the division in which a club plays. Even though Burnley had the benefit of parachute payments in 2015/16, broadcast income still rocketed from £30 million to £105 million.

The present domestic deal lasts until 2018/19, so don’t expect to see Burnley increase their broadcast income until the following season, unless they significantly improve their final league position (likely, and finishing 7th will bring in an extra £18 million compared to finishing 16th) or qualifying for Europe, which is presently possible. Manchester United made £40 million from winning the Europa League in 2017.

Commercial income nearly doubled to £10.4 million, mainly due to the club signing a new shirt sponsorship deal with Dafabet worth £2.5 million a year.

Cost

The main costs at a football club are player related, wages and transfer fee amortisation.

Burnley’s wage expenditure last season is noticeably different to when they were promoted in 2013/14. To a certain extent Burnley budgeted for relegation in 2014/15, and duly went down. They were then in a very strong position to pay relatively high wages in the Championship in 2015/16, and were able to retain key squad members and recruit the likes of Joey Barton to help the club go up as champions.

This time Burnley substantially increased the wage bill, and it was enough to ensure the club stayed up.

Even though the wage bill more than doubled, Burnley had the lowest wage bill in the Premier League in 2016/17.

Burnley players are however unlikely to be seen selling copies of The Big Issue to make ends meet, even as the lowest payers in the division, wages average £29,422 a week.

The riches of the Premier League TV deal meant that Burnley only paid out £51 in wages for every £100 of income. The club’s strategy for 2015 is also highlighted here when it was only £37 in wages. In the Championship over half the clubs pay out more in wages than they generate in income, leaving club owners to pay the rest of the bills.

Amortisation (skip this bit unless you want a quick and dirty accounting lecture) is how clubs deal with transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract. Therefore, when Burnley signed Robbie Brady for £13 million from Norwich on a 3½ year deal, the amortisation charge works out as £3.7 million a year (£13/3.5). The amortisation fee in the profit and loss account includes all players who have been signed for a fee (assuming they are still in their initial contract).

Burnley’s amortisation total of £22 million is double that of the previous year, but also tellingly four times that of the club’s last Premier League season. This again suggests the club was using their 2014/15 season in that division as an ‘air shot’, effectively budgeting for relegation and anything other than that was a bonus.

Burnley’s total amortisation in 2016/17 but still one of the lowest in the division. This is partially due to the club’s recruitment of hardworking players such as Ashley Barnes for £300,000, who according to the bellend element of his former club Brighton, was only Sunday league standard.

Profits and losses

Profits are income less costs. Burnley made a lot of profit in 2016/17. This was lower than their previous season in the Premier League due to, as we have already seen, the Clarets in 2014/15 paying relatively low wages and spending little in the transfer market.

Operating profits are income less the running costs of the club (wages, maintenance, insurance, amortisation etc. and they are before deducting interest and promotion costs and player sale profits. In 2016/17 this worked out as £26 million, or £500,000 a week. The previous season the club lost £3.6 million, and this was before paying out over £13 million in promotion bonuses.

Under Financial Fair Play (FFP) rules, Premier League clubs can make a maximum FFP loss of £105 million over three years. Burnley clearly have little to fear in this regard.

Player trading

The accountants treat player trading in a weird way in the financials. We’ve already shown that when a player is signed, his transfer fee is spread over the life of the contract. When the player is sold, the profit is shown immediately, and it based on the player’s accounting value, not the original transfer fee.

This creates erratic and volatile figures in the profit and loss account.

If we instead focus on the actual purchase and sales, the following arises

The above table shows that over the last five years Burnley have bought players for £82.5 million and generated sales of £22.3 million, a net cost of £60.2 million over the period.

Burnley’s spending in 2016/17 was a record sum for the club, but pales into insignificance in relation to the big Manchester and London clubs.

Debts to and from the club

Burnley didn’t sell many players before the 2017/18 window, and so were only owed £1.7 million by other clubs for players at 30 June 2017.

The club did owe other clubs nearly £16 million for player transfers, but this is chicken feed compared to the likes of Manchester United who owe over £180 million.

Perhaps more importantly the club is debt free, with no borrowings from either banks or the club owners.

Summary

Burnley have shown that a club can match some of the bigger spenders in the division in terms of wages and player transfers, and still stay in the Premier League.

The way they have pushed on this season, through hard work and superb defending, gives hope to others within the ‘Other 14’. They are guaranteed another season in the top division and about £125 million in TV income this season, which Sean Dyche can use in the summer transfer market.

Unfashionable yes, underrated certainly, but they are in the top half of the division on merit, and with a potential European campaign to look forward to next season.

Based on the financials for 2016/17, the club is worth a total of about £350 million using the Markham Multivariate Model. This figure looks a little top heavy, but even so it shows the attraction of the Premier League to investors who might want to risk their money in a club that looks after the pennies and can still win plenty of matches.

Data Set

Huddersfield Town: The Model

Must confess to having a huge soft spot for Yorkshire’s leading football club, Huddersfield Town. The locals are friendly, one of their fans runs the funniest football website on t’internet in http://www.htfc-world.com/ , they sell any remaining pies and burgers for £1 at the end of matches to fans, the club is owned by a local lad who clearly loves his club (and isn’t a Billy Bigbollocks), they are not managed by Neil Warnock AND they were promoted last season on merit, relatively under the radar. Did they achieve promotion last season on a shoestring or is that a Yorkshire myth? Let’s look…

Summary of key figures (Huddersfield Town Association Football Club Limited

Income £15.8 million (up 40%)

Broadcasting income £7.5 million (up 54%)

Wages £16.5 million (up 32%)

Loss before player sales £9.0 million (up 7%)

Player purchases £6.6 million

Player sales £1.3 million

Borrowings £53.1 million (Thanks to Uncle Dean!)

Final Position: Promoted via the playoffs to the Premier League.

Income

In the Championship there is effectively two divisions, effectively split between those clubs that do and do not receive parachute payments.

Huddersfield’s overall income was in the bottom quarter of Championship teams in 2016/17. Talk to a Yorkshireman, and they will tell you it’s not about spending money, but spending it wisely that matters, and the Terriers are a textbook example of how to do just that.

The above tables shows the income of all Championship clubs apart from  Newcastle (surely Mike Ashley has nothing to hide?) for 2016/17.

Additionally Barnsley are a pain in the butt as they used a legal loophole to avoid showing their profit and loss account (although they did make a profit of over £10 million last season, mainly due to the sell on clause when John Stones was sold by Everton to Manchester City).

Most clubs are showing higher income than in the previous season. The average income of the 22 clubs that have reported to date is £28.6 million. This compares to an average of £22.9 million the previous season.

Huddersfield therefore were promoted despite earning just over half of the average income for a club in the division, which is an incredible achievement.

The main reason for the increase in overall income in the Championship is due to a combination of higher parachute payments, a new TV deal in the Premier League, which drips down to the Championship in what are called ‘Solidarity Payments and having ‘big’ clubs in the shape of Newcastle and Villa relegated from the Premier League.

Championship clubs earn about £4.3 million a year from solidarity payments, plus their earnings from the Football League TV deal which are worth a minimum of a further £2 million. Championship clubs also pick up £100,000 for each home game broadcast on Sky, and £10,000 for each away game.

The English Football League (EFL) negotiated a flat percentage of all future TV deals with the Premier League (PL) a couple of years ago. This at the time seemed to be a great deal, but subsequently the PL sold its domestic rights for 10% less in 2019-22 than the current three-year arrangement generates.

Like all clubs Huddersfield earn their income from three sources, matchday, broadcasting and commercial/sponsorship.

Huddersfield therefore had the fourth lowest (probably the fifth if the miserable sods at Barnsley had the decency to show the figures) matchday income total in the division, but still managed to be promoted. Which shows that size doesn’t’ necessarily matter, it’s what you do with it that counts (something I’ve been trying to persuade my slightly disappointed wife to buy into for years).

Despite a playoff match at home and a Wembley appearance, there was no change to Town’s matchday income for the season. This was due to a combination of low ticket prices which contributed to average attendances rising to over 20,000, and the club keeping with the tradition of giving their share of the Wembley receipts to the losing playoff team, in this case the division’s dullest club Reading. This also explains why Reading’s matchday income increased by 86% in 2016/17.

The decision by chairman Dean Hoyle to cut ticket prices meant that the club only generated £155 per fan for the season, or £6.73 per match.

Hoyle’s benevolence contrasts with clubs such as Spurs, who next season will be charging a minimum price for a season ticket of £799 and an average price of about £1051 to watch the club at the ‘new’ White Hart Lane.

Town’s broadcast income was up 41% to £7.9 million. The baseline figure for clubs in the Championship is about £6.3 million, plus an additional £100,000 for every home, and £10,000 for every away game that is broadcast live on Sky. A combination of some local derby games, making the playoffs and attractive football meant that Huddersfield were popular with Sky in 2016/17

The impact of parachute payments for the top six clubs in the chart is very evident. Recently relegated Norwich earned £6.80 from broadcasting for every pound earned by Huddersfield.

Huddersfield’s commercial income rose by an impressive 57% to £5.2 million. The combination of higher matchday attendances and the club’s high league position helped when negotiating deals with commercial partners.

Costs

The main costs at a football club are player related, wages and transfer fee amortisation (accounting nerd alert!).

After years of relative caution, wages increased by over 30% in 2016/17. This was due to a combination of better players on better contracts, as well as having to pay win bonuses more regularly than in prior years.

The club’s basic wage bill was one of the lowest in the division.

On top of the wage bill shown above, the club also paid out £11.9 million in ‘promotion costs’ at the end of the season. Most of this cost will be bonuses (thoroughly deserved in our view) to David Wagner and his squad for the trememdous achievement in reaching the ‘promised land’ ( © All Lazy Journalists and Radio Five Live professional twat Alan Green).

Whilst Town’s basic wage bill is low by Championship standards (the average was £26.4 million in 2016/17), they still managed to pay out £104 in wages for every £100 of income during the season, and have had wages bills that exceeded income for many years.

If we factor in promotion bonuses too, then the club paid out £180 in wages for every £100 of income in 2016/17, a price all Town fans will no doubt will say was worth paying (especially as it was Dean Hoyle who paid it, the club paid out £899 in wages (including promotion bonuses) for every £100 of matchday income, or to put it another way, for every £1 in wages, the fans paid 11 pence directly).

Amortisation (skip this bit unless you want a quick and dirty accounting lecture) is how clubs deal with transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract.

Therefore, when Huddersfield signed Christopher Schindler, the German defender with the speech impediment in 2016 for a then record £1.8 million on a three year contract the amortisation charge was £600,000 a year for three years (£1.8m/3). Whilst not a huge fee by divisional standards he did help lift Town to the Premier League (you’re fired…Ed).

The amortisation fee in the profit and loss account includes all players who have been signed for a fee (assuming they are still in their initial contract).

Huddersfield’s total amortisation charge rise significantly in 2016/17 but was still one of the lowest in the division. This is partially due to the club’s excellent recruitment of loan players in the shape of Aaron Mooy and Izzy Brown, further evidence of being sensible with money instead of just spunking it away spending it for the sake of it, such as in the case of Aston Villa who spent over £80 million on players in 2016/17 and had a subsequent amortisation charge of nearly £24 million.

If the amortisation costs are added to wages, then total player costs (including bonuses) for Huddersfield in 2016/17 were £196 for every £100 of income. This shows that the cost of promotion is ridiculously high (it cost fellow promoted club Brighton £160 in player costs for every £100 of income) to get into the Premier League.

The other major cost for Town is that of the stadium. This is linked to the number of games paid and fans attending. In 2016/17 this was £875,000. The club are tenants until at least 2043, which is nearly a quarter to nine in old money.

Profits and losses

Profits (or more commonly for non-Premier League football clubs losses) are income less costs. The bad news for Huddersfield is that the club lost a lot of money last season from day to day trading.

The good news is that they were promoted, so who cares?

Operating losses are income less the running costs of the club (wages, maintenance, insurance, amortisation etc. and they are before deducting interest and promotion costs and player sale profits. In 2016/17 this worked out as £9 million, or £172,000 a week. This is 7% more than the previous season.

Selling players helps to cushion these losses, but there is no guarantee that this will take place on a regular basis.

The above chart shows that Town did well in 2013 in selling Jordan ‘Where’s the nearest branch of Greggs’ Rhodes to Blackburn in 2013 and Jacob Butterfield to Derby in 2016.

Under FFP rules, Championship clubs can make a maximum FFP loss of £39 million over three years in the Championship. Huddersfield have a pre-tax loss of just £28 million over the three-year period.

Additionally, some costs, such as promotion bonuses, infrastructure, academy and community schemes, are excluded from the FFP calculations. Huddersfield had a category two academy, which costs about £1.5 million a year to run according to our sources, so this, combined with other allowable costs and player sales, means that Huddersfield were well within the FFP limit for the three years ending June 2017.

Under Premier League FFP rules a club can lose £105 million over three years and still be within the limits. The good news for Town is it looks increasingly that they’ll be in the Premier League for at least two of those seasons.

Player trading

The accountants treat player trading in a weird way in the financials. We’ve already shown that when a player is signed, his transfer fee is spread over the life of the contract. When the player is sold, the profit is shown immediately, and it based on the player’s accounting value, not the original transfer fee.

This creates erratic and volatile figures in the profit and loss account.

If we instead focus on the actual purchase and sales, the following arises

The above table shows that over the last five years Huddersfield have bought players for £15.7 million and generated sales of £19.8 million, a net income of £4.1 million over the period.

This allows Town fans to say one word to those who claim that you have to buy your way out of the Championship with player signings and high wages, and that one word is ‘bollocks’.

When you look at spending in the Championship in 2016/17, total spending was £356 million, and some clubs spent ten times as much as Town and did bog all apart from provide chuckles in relation to Ross McCormack, Aston Villa’s £12 million signing from Fulham, missing training because the fat fuck couldn’t be arsed his security gates wouldn’t work at his swanky new home in the Midlands.

Debts to and from the club

Town don’t show how much is owed in respect of player transfers, which is a shame. The club are owed £6.3 million, of which £2.5 million is for deferred tax (don’t ask), so there’s not a lot left for sums owing in relation to players.

Short terms creditors increased from £48 million to £75 million. The majority of this is owed to Dean Hoyle, who has lent the club nearly £53 million interest free, which qualifies him for ‘very nice man’ status in West Yorkshire, which is about as high as praise ever gets.

In addition, there’s a sum of £16 million for ‘other creditors’ which we suspect is in respect of player transfers such as Tom Ince. Huddersfield were quick out of the blocks in the summer 2017 and owed money for signings very early in the transfer window.

Summary

Huddersfield have shown that a club can beat the big spenders in the division in terms of players transfers and wages. In doing so they give hope to others in a similar position compared to the wealthy in the Championship. The promise of £100 million a year in broadcast income causes some club owners to lose touch with reality in terms of trying to buy their way to the (ahem) Promised Land.

At the same time, they have been subsidised by the owner in recent years as the income generated hasn’t been enough to even pay the wages over the last five seasons, which highlights the impossible task of trying to achieve promotion whilst breaking even

Their biggest strength is also their biggest weakness. Dean Hoyle has put over £50 million into the club, and whilst Town won’t need his further support whilst in the Premier League, if they ever returned to the lower divisions we suspect they would struggle financially once parachute payments ran out. Provided nothing happens to DH there’s no problem, but if any Town fans see him about to cross the road, get out of the car and stop traffic until he’s reached the other side, you don’t want anything happening to him.

Data Set

Leeds United 2017: Cardboard box? You were lucky…

It may seem an unusual thing to say, but we feel a bit sorry for many Leeds fans. They’ve been shafted more times than Linda Lovelace in Deep Throat and were once so desperate for an owner they even cheered when Ken Bates took over the club.

2016/17 proved to Massimo Cellino’s reign of jaw dropping entertainment at Elland Road, as the colourful (crooked) Italian sold initially 50%, then the whole of the club to fellow Italian Andrea Radrizziani.

Fans were initially excited about the change of control, as Cellino had been tight with the cash (something that most Yorkshire folk would usually approve of) during his time at the club.

Summary of key figures

Income £34.1 million (up 13%)

Broadcasting income £7.6 million (up 45%)

Wages £20.7 million (up 14%)

Loss before player sales £8.8 million (up 26%)

Player purchases £6.8 million

Player sales £9.0 million

Borrowings £25.1 million

Income

In the Championship the amount of total income is effectively split between those clubs that do and do not receive parachute payments.

Leeds generated the highest earnings of the non-parachute payment receiving clubs, but this was not enough to get the club into a playoff position, although Brighton and Huddersfield, both of whom were not in receipt of parachute payments, were promoted, and Sheffield Wednesday made the playoffs.

Only Newcastle (surely Mike Ashley has nothing to hide?) and recently sold Barnsley have yet to announce their results for 2016/17. Most clubs are showing higher income than in the previous season. The average income of the 22 clubs that have reported to date is £28.6 million. This compares to an average of £22.9 million the previous season.

The main reason for the increase in overall income is due to a combination of higher parachute payments, a new TV deal in the Premier League, which drips down to the Championship in what are called ‘Solidarity Payments. Championship clubs earn about £4.3 million a year from solidarity payments, plus their earnings from the Football League TV deal which are worth a minimum of a further £2 million. Championship clubs also pick up £100,000 for each home game broadcast on Sky, and £10,000 for each away game.

The English Football League (EFL) negotiated a flat percentage of all future TV deals with the Premier League (PL) a couple of years ago. This at the time seemed to be a great deal, but subsequently the PL sold its domestic rights for 10% less in 2019-22 than the current three-year arrangement generates.

Like all clubs Leeds earn their income from three sources, matchday, broadcasting and commercial/sponsorship.

Leeds have shown growth in the all three income areas, but to give some context, their income of £34.1 million is still nearly £8 million less than their final season in the Premier League in 2003/4, when income was £41.9 million.

Matchday income in 2016/17 was up 24%, as the average attendance increased by 6,000 to 27,698 as the club just failed to reach the Championship playoffs. Cellino’s promise of a 25% reduction in season ticket prices for the following season if the club failed to reach the playoffs also contributed to this increase. This could have a knock-on effect on matchday income for 2017/18.

The club have kept prices relatively static for a few years and generated £367 per fan from matchday sales.

Leeds therefore had the third largest matchday income total in the division, although we anticipate this falling to fourth when Newcashley United finally publish their results.

Broadcast income was up 45% to £7.6 million. The baseline figure for clubs in the Championship is about £6.3 million, plus an additional £100,000 for every home, and £10,000 for every away game that is broadcast live on Sky. Leeds are always popular with Sky as they generate decent viewing figures.

The impact of parachute payments for the top six clubs in the chart is very evident. Recently relegated Norwich earned £7.50 from broadcasting for every £1 earned by non-parachute payment clubs.

Leeds commercial income fell slightly but is still an impressive £16.4 million. This figure is distorted to a degree since 2015, when Massimo Cellino threw one of his hissy fits and took the catering income in house (it had previously been outsourced), which was responsible for nearly all of the increase from 2015 to 2016 in this area.

Costs

The main costs at a football club are player related, wages and transfer fee amortisation.

Leeds wages increased by 14% in 2016/17, as new contracts for existing players plus some fresh signings increased the costs.

Leeds wage bill places it in the bottom third of clubs in the Championship in 2016/17. Whilst it won’t surprise fans that clubs in receipt of parachute payments are paying out big money still in player wages, we suspect a few Yorkshire eyebrows will be raised when they see their club behind the likes of Sheffield Wednesday, Bristol City and Birmingham (although with ‘Triffic’ Harry Redknapp in charge of the latter for a while in 2016/17, perhaps not so surprised by that club paying out more money to players).

For a club in the Championship to be paying wages that are effectively the same as five seasons previously is unusual. Most clubs get sucked into the vortex of trying to attract new players with more money and this becomes self-perpetuating.

Leeds paid out £61 in wages for every £100 in income. This was the second lowest ratio in the Championship, and Reading’s would have been far higher had they not been in receipt of parachute payments. This figure has fallen significantly under Cellino, partly due to the increase in catering income figure but also because he was clearly keen on keeping costs as low as possible with a view to selling the club to a new owner.

Over half the clubs in the Championship pay out more money in wages than they generate in income. This is under the auspices of Financial Fair Play (FFP). It is scary to think what would happen if FFP didn’t exist.

Amortisation is how clubs deal with transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract. Therefore, when Leeds signed Kemar Roofe from Oxford United for £3 million on a four year contract the amortisation charge was £750,000 a year for four years (£3m/4). The amortisation fee in the profit and loss account therefore includes all players who have been signed for a fee (assuming they are still in their initial contract).

Leeds’s total amortisation charge has risen steadily in recent years, reflecting the brakes slowly being removed from the transfer budget. They are in the top half of the division in relation to this cost, but some way behind clubs with parachute payments.

If the amortisation costs are added to wages, then total player costs for Leeds in 2016/17 were £76 for every £100 of income. This again suggests the club is relatively tight (no doubt Leeds fans will say ‘careful’ rather than ‘tight’ in terms of spending whatever it takes in terms of player investment to get back into the Premier League. There are many clubs who are spending £140 plus on this area.

One cost that Leeds have which is not common to all clubs is rent. The club paid £2.1 million in rent during 2016/17 for Elland Road and other facilities. The club did say that they had repurchased Elland Road on 28 June 2017, but there is no sign of this in the accounts or the strategic review of the year which was signed off by Radrizzani on 2nd March 2018.

http://www.bbc.co.uk/sport/football/40433193

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A further look at the club website reveals that Greenfield Investment Pte Ltd, also owned by Radrizzani, and based in Hong Kong (we think) , are the actual owners of Elland Road, so it’s not quite as transparent as it initially seems. Greenfield are themselves owned by Aser Group pte Ltd in Singapore.

How much rent is being charged by this company to Leeds United Football Club Limited has not been revealed, however a note to the account suggests that rent will fall from over £2.1 million a year to about £760,000, which could mean extra money for the manager to spend on players and wages.

Leeds sources suggest that the rent is for Thorpe Arch rather than Elland Road itself.

Profits and losses

Profits (or more commonly for non-Premier League football clubs losses) are income less costs. The bad news for Leeds is that the club lost a lot of money last season from day to day trading.

The good news is that they managed to sell Lewis Cook to Bournemouth, which brought in a profit of nearly £9 million, which offset the operating losses.

Operating losses are income less the running costs of the club (wages, maintenance, insurance, amortisation etc. and they are before deducting interest costs and player sale profits. In 2016/17 this worked out as £8.8 million, or £169,000 a week. This is slightly higher than the previous season, but still a lot of money to find on a regular basis. These losses are before taking into consideration the one-off cost player write down of £332,000, for someone who was signed for a fee but subsequently turned out to be a bit shite Christian Benteke. We don’t know enough about Leeds to know who the player(s) might be, but Leeds fans will no doubt have a few suggestions.

The previous season Leeds had one-off costs of nearly £4 million in legal and other fees as Cellino fell out with kit suppliers Kappa, previous employees, Sky TV, the Football League and anyone else who didn’t share the enlightened views of the Italian tax evader.

Being in the Championship is tough financially, and this is reflected in Leeds losses over the past few years.

Their total losses for the last five seasons are nearly £56 million, and this excludes one off costs of £6.4 million during that period too.

Fortunately for Leeds the club have managed to sell players on a regular basis at a profit of £25 million during this period, but it still leaves a substantial loss.

Under FFP rules, Championship clubs can make a maximum FFP loss of £39 million over three years in the Championship. Leeds have a pre-tax loss of just £10.2 million over the three-year period, helped by profits on player sales of £21.5 million over that period.

Additionally, some costs, such as infrastructure, academy and community schemes, are excluded from the FFP calculations. Leeds have a category two academy, which costs about £1.5 million a year to run according to our sources, so this, combined with other allowable costs, means that Leeds easily are within the FFP limit for the three years ending June 2017.

Assuming that Leeds have not gone crazy in terms of higher wage deals in 2017/18, they should be in a much stronger position than most clubs in the division in the forthcoming transfer windows.

This is because many clubs have spent big and gambled on promotion this season (2017/18) and will have to scale back investment in the next few windows to ensure FFP compliance. There is a caveat here, this will all depend on the extent to which the owner is willing to back the Leeds manager in the transfer market during the next couple of windows.

Player trading

The accountants treat player trading in a weird way in the financials. We’ve already shown that when a player is signed, his transfer fee is spread over the life of the contract. When the player is sold, the profit is shown immediately, and it based on the player’s accounting value, not the original transfer fee.

This creates erratic and volatile figures in the profit and loss account.

If we instead focus on the actual purchase and sales, the following arises

Over the last five years Leeds have bought players for £26.3 million and generated sales of £27.1 million. This is before the sale of Chris Wood to Burnley in summer 2017.

If Leeds are promoted to the Premier League there are additional transfer fees of £6.3 million payable, as well as player bonuses of over £16 million.

Debts to and from the club

Trying to make out the extent of Leeds debts is tricky. The easy bit is player transfers, where the club is owed £7.8 million (likely to be Bournemouth for Cook) and owe other clubs about £3.9 million.

The club is owed a mysterious £2.3 million in the form of ‘other debtors’ that the club is pursuing through the courts. Who this party is we don’t know, although Leeds fans will no doubt be able to point the finger at the party involved, and that finger is mainly being pointed at former owners GFH, who apparently have some contested debts. Whilst the outcome of the dispute is uncertain, one this is guaranteed, the lawyers will make plenty of brass from the dispute.

The club borrowed £16.5 million in the year, mainly from the owner, although £5 million of this was converted into shares. Total borrowings look to be about £25 million of which £14.5 million is to the owner.

Summary

The Cellino regime of chaos ending was a positive for Leeds in 2016/17. New owner Andrea Radrizzani had a huge amount of initial goodwill which has evaporated to a degree as the club has dropped from top of the table to nowhere in the past few months. This, coupled with the new club crest which turned the club into a laughing stock has meant that the upcoming summer is an opportunity to rebuild bridges with the fan base.

The good news is that the club is in an excellent position to invest heavily in the player market due to being significantly under the FFP loss limit. The big question is whether the owner will be prepared to dig deep and spend to bring in the calibre of player required for Leeds to be promotion contenders in 2018/19.

Data Set

Blackburn Rovers: Look what you could have won

Key Figures

Rovers became the first Premier League winners to be relegated to the third tier in May 2017, and their annual accounts aren’t going to put a smile on fans’ faces either.

Income £14.9 million (down 32%)

Wages £22.0 million (down 13%)

Loss before player sales £13.7 million (down 17%)

Player purchases £1.3 million

Player sales £11.1 million

Borrowings £112.8 million

The club was acquired by Venkateshwara Hatcheries Pvt Ltd in October 2010, so this analysis concentrates on the club’s finances under their ownership.

Income

2016/17 was the first season Blackburn did not have the benefit of parachute payments.

Not all clubs have announced their results for 2016/17 yet, but most clubs are showing higher income than in the previous season. The average income of the 17 clubs that have reported to date (which excludes some big hitters such as Newcastle and Dirty Leeds) is £31 million.

In 2015/16 the average for a Championship club was £23 million. The main reason for the increase is due to a combination of higher parachute payments, a new TV deal in the Premier League, which drips down to the Championship in what are called ‘Solidarity Payments. Championship clubs earn about £4.3 million a year from solidarity payments, plus their earnings from the Football League TV deal which are worth a minimum of a further £2 million.

Like all clubs Rovers earn their income from three sources, matchday, broadcasting and commercial/sponsorship.

The table shows how much Rovers benefitted from being in the Premier League in the first couple of seasons under the Venky’s ownership, but also how much the club was reliant on parachute payments for the next four seasons.

Matchday income in 2016/17 was down 6%, as crowds fell by an average of 1,500 to 12,600 as the club slid to relegation.

Rovers are in the bottom quartiles in terms of matchday income and combined with no parachute payments, in the era of FFP this puts them at a disadvantage when competing for players.

Broadcast income was down 50% to £6.7 million. This was due to the Rovers’ four-year receipt of parachute payments finishing the previous season, combined with the club rarely appearing on Sky at Ewood, which is worth £100,000 a match. As a consequence, the club has the second lowest broadcast income total in the division.

The impact of parachute payments for the top six clubs in the chart is very evident. Norwich earned £7.50 from broadcasting for every £1 earned by Rovers.

Things will be far worse in League One, as solidarity payments are only worth about £650,000 in this division.

Commercial income fell only by 3%, which, given Rovers relative lack of appeal to commercial partners, is probably a reasonable effort. What is unclear is how much of this is from the club’s holding company Venky’s London Limited.

The accounts do contain a mysterious note tucked away on page 29 of the accounts, by which time most right-minded people will have lost all interest.

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The note shows that Rovers received £3.7 million from the parent company, if this is included in commercial income then there’s not a lot of money being generated from other commercial relationships.

Overall broadcasting income is still the biggest contributor to Rovers’ coffers, although it is not contributing three quarters of the club’s income as when the club was in the Premier League.

Costs

The main costs at a football club are player related, wages and transfer fee amortisation.

Rovers wages have more than halved since they were in the last in the Premier League, but the rate of decrease is not as fast as the club’s fall in income.

Wages fell by 13% and are quite low by Championship standards, where the average for last season was about £27.1 million. Clubs such as Sheffield Wednesday, Brighton and Forest, all of whom also do not receive parachute payments, paid out significantly higher sums for wages last season.

Whilst Rovers’ wage bill is towards the bottom of the scale in the Championship, they are still paying out a lot of money compared to the club’s income.

The above graph shows how much the club has been paying out in wages compared to income. In 2016/17 Rovers paid out £147 in wages for every £100 of income. This means that the owners, the Venkys, whilst as popular in Lancashire as a fart in a spacesuit, were not only subsidising the wages to players, but also paying for all the other costs incurred by the club too, such as ground maintenance, electricity for the floodlights and insurance etc.

Since acquiring the club Rovers have generated £228 million of income but spent £248 million in wages under the Venky’s.

The Championship is a car crash of a division, and in 2015/6 the wages/income ratio was 101% for the division as a whole.

It will give Rovers fans little solace in the year they were relegated, but at present they stand at the top of the wages control % table for 2016/17.

Brighton, who are second in the table, had £9 million of promotion bonuses in their wage total which distorted the figure, and also had the enjoyment of being promoted last season.

Amortisation is how clubs deal with transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract. Therefore, when Rovers signed Jordan Rhodes for £8 million from Huddersfield on a five year contract the amortisation charge of £1.6 million a year for five years (£8m/5). The amortisation fee in the profit and loss account therefore includes all players who have been signed for a fee (assuming they are still in their initial contract).

Wolves total amortisation charge was £0.7 million, a decrease of 2/3 on the previous season and less than a tenth of the initial years under the Venky’s.

Whilst some will see this as prudent cost cutting, it also suggests that the club have been signing players at the bargain bin level, which means that the chances of selling them at a profit is also diminished.

Losses

Losses are income less costs. The bad news for Rovers is that the club lost a lot of money last season from day to day trading. The good news is that they sold Grant Hanley (to promoted Newcastle) and Shane Duffy (to promoted Brighton) at a combined profit of £10.4 million to offset the day to day losses, which will help the club in terms of FFP compliance.

Operating losses are income less the running costs of the club (wages, maintenance, insurance, amortisation etc. and they are before deducting interest costs. In 2016/17 this worked out as £13.7 million, or £263,000 a week.

In the seven seasons under the Venky’s, two of which were in the Premier League, and four of which the club were in receipt of parachute payments, Rovers have lost £136 million.

The club have managed to sell players on a regular basis at a profit of £38 million during this period, but it still leaves a substantial loss.

Under FFP rules, Championship clubs can make a maximum FFP loss of £39 million over three years in the Championship. Rovers have a pre-tax loss of £25.9 million over the three year period, mainly due to gains on player sales of £30 million, which prevented them breaching FFP.

Fortunately, some costs, such as infrastructure, academy and community schemes, are excluded from the FFP calculations. Rovers have a category one academy, which costs about £5 million a year to run, so this, combined with other allowable costs, should ensure the club has some leeway in terms of meeting the FFP target.

In League One the FFP rules are different, with players wages being not allowed to exceed 60% of income, but the rules are slightly relaxed for relegated clubs.

Player trading

The accountants treat player trading in a weird way in the accounts. We’ve already shown that when a player is signed, his transfer fee is spread over the life of the contract. When the player is sold, the profit is shown immediately, and it based on the player’s accounting value, not the original transfer fee.

This creates erratic and volatile figures in the profit and loss account.

If we instead focus on the actual purchase and sales, the following arises

Under the Venky’s Rovers have bought players for £47 million and generated sales of £57 million. Whilst this has been good for FFP purposes, the chances of the production line of players that can be sold for substantial fees continuing is remote, as evidenced by a footnote to the financials for 2016/17.

The note shows that Rovers had no transfer income during the 2017/18 summer window.

Debt

When the Venky’s took over Rovers, the club had debts of £21 million. Since then the debts have increased nearly every year, and now stand at just under £113 million, and would have been far higher had it not been for player sales in the last two seasons.

Summary

Under the Venky’s, Rovers have both been relegated and squandered their parachute payments. From an independent observer’s perspective the decision making of the owners seems baffling. They seem happy to underwrite losses running into hundreds of thousands of pounds per week for no benefit, financial or in terms of brand awareness of their main business in Indian poultry.

At least Rovers time in League One looks like being a brief one, as losses would potentially increase given the lack of TV money their compared to the Championship. If the club is promoted, the financial strategy of the owners is best described as ‘unpredictable’. Will they do a Fosun at Wolves and go for broke to be promoted, or try to get Rovers on an even keel financially?

Data Set

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