Chelsea: Suffer Little Childreni

Introduction: Oh Manchester, so much to answer for…

Chelsea announced their financial results recently, and since then manager Antonio Conte has been muttering about not being able to compete in the football transfer and wages markets with the two big Manchester clubs. Is this true, and what are the state of Chelsea’s finances? Time to take a peek.

On the face of it, being Premier League Champions in 2017, progress through the group stages of the Champions League, semi-finalists in the League Cup and presently in the FA Cup, you would think there would be plenty to cheer about.

Income

Clubs have three sources of income. In 2016/17 Chelsea’s total income rose by 9.8% to £361 million, which is impressive given the club did not have the benefit of qualifying for European competition. As always, the devil is in the detail.

The increase in income of £32 million is behind that of both United (£66 million) and City (£82 million). Even Arsenal managed an increase of £70 million. So, it appears that Chelsea are struggling to keep up with the other ‘big’ clubs (Liverpool have yet to announce their results, and Spurs, who have not won the title in over 50 years, don’t really compete with the clubs already mentioned financially).

If we extend this growth comparisons over five years, Conte’s comments appear to have greater validity.

Clubs generate income from three sources, matchday, broadcast and commercial, so how have Chelsea performed?

Matchday

After four years of static matchday income, due to Stamford Bridge being at capacity every match and no price increases, there was a 9.4% fall in 2016/17. This was due to a lack of European competition, which usually would generate a minimum of three home matches.

At £65m, Chelsea’s matchday income is the third highest in the Premier League, but may have been overtaken by Liverpool (who had £62m in 2016). The gap between Chelsea and the two clubs above them shows the urgent need for a new stadium with increased capacity. If the rumours are true and the stadium will have 28% of seats sold to the prawn sandwich brigade this could catapult Chelsea easily into the £100 million a season club for this type of income.

Broadcasting

Broadcasting income was up 14% and tops £150m for the first time. This is due to the impact of the new domestic TV deal with BT/Sky. Chelsea’s UEFA TV monies were €69 million the previous season when the club was eliminated in the last 16. They should make at least that sum this season, as they earn extra due to being English Champions, although, due to the complicated formula used to determine UEFA payouts, will be hoping that the other English clubs are knocked out of the competition as quickly as possible.

The failure to qualify for Europe in 2016/17 put Chelsea at a £30-40 million disadvantage, enough to cover Alexei Sanchez’s wages and amortisation cost in the profit and loss account for a year.

Commercial

Chelsea’s commercial income grew by a solid 14% to £133 million. This seems good enough, but it pales compared to the peer group mentioned by Conte.

Whilst Chelsea have done well to increase their income by over £50 million in five years, they started off far behind United and City, and have fallen further behind. All clubs struggle to compete with United for sponsor appeal.

Intuitively Chelsea might expect their commercial income to be on a par with that of City. The reason why it is not normally elicits a call to the North London branch of The Samaritans from a man with a French accent, muttering something about ‘financial doping’.

This issue has implications for financial fair play too, as clubs are limited a £7 million increase in wages each year, plus any money generated by matchday, commercial income and gains on player sales.

Chelsea managed to extend their sponsorship income in 2016/17 by finding a separate sponsor for their training kit, a trick first spotted by Manchester United a few seasons ago.

The club may have had penalty clauses activated by some sponsors, and will have lost out in terms of perimeter advertising, due to the lack of European football.

Costs

The main costs for a club are player wages and player amortisation (transfer fee costs spread over the life of the contract).

Wage costs fell for Chelsea in 2016/17. The club will have had to pay out win bonuses for lifting the Premier League trophy, but against that there will have been no match fees for Champions League fixtures, and some big earners (such as Mourinho J.) were no longer on the payroll.

Wage control in most industries is usually applauded, but football is not most industries. In the rarefied market for elite players, wages usually rise every time there is a new TV deal, as the Alan Sugar ‘prune juice’ impact is applied, Chelsea’s figures are at odds with this viewpoint.

Other clubs have increased their wages over the last five years. Chelsea were on a par with both Manchester United and Arsenal five years ago, but United have spent big, as shown the sums they have paid to the likes of Ibrahomovic, Pogba and Sanchez. United’s wage bill has increased by nearly £80 million over this period compared to just £43 million for Chelsea.

The other cost is that of amortisation, which is how a club expenses players signed in the profit and loss account. When N’Golo Kante signed for Chelsea in summer 2016 from Leicester for £30 million on a five-year contract, this works out as an amortisation cost of £6 million (30/5) per year. Chelsea’s total amortisation charge for the whole squad in 2016/17 was just under £90 million, an increase of 25% on the previous season. It’s high by Premier League standards (the average was £35 million in 2016), but significantly lower than the Manchester clubs.

Adding both wages and amortisation together gives the total football player cost for the season.

United and City are neck and neck, Chelsea are about £75 million a season behind.

One common metric used to look at the effectiveness of player cost control is to compare wages (or wages and amortisation) as a percentage of total income. The lower the percentage,  the more effective the control, and the greater the scope for future investment in players.

The above reveal that Chelsea presently have the poorest wage control of its peer group, and Manchester United, as resented as they are by fans of other clubs, run the tightest ship. If you factor in what United have paid to banks over the years in interest payments though, it’s advantage over the other clubs is eroded.

Profit

Profit is an abstract concept, in theory it should simply be income less costs. In practice there are a range of profits quoted, depending on which costs are included.

Chelsea in their press release stated a profit of £15.3 million for 2016/17. This is however after considering gains on player disposals, including that of Oscar. These gains totalled £69.2 million.

Whilst we expect to see clubs making a profit on player sales each year due to the way player signings are treated in the accounts, this figure is volatile as it depends on individual player disposals.

Excluding player disposals, Chelsea’s EBIT (which is ‘recurring’ profit before interest and tax) was a loss of £53.4 million, slightly higher than £46.2 million the previous season.

Adding back the non-cash expenses in the form of depreciation and amortisation gives an EBITDA profit of £46 million, which is over 30% higher that the previous year’s £35.1m.

Comparing to the peer group, United made an EBITDA profit of £200m, City £105 million and Arsenal £145m, reflecting that Chelsea are weaker than the other elite clubs in this regard.

All the elite clubs are well within FFP limits.

Player activity

Chelsea spent over £100 million on players in 2016/17, including Kante, Luiz, Batshuayi and Alonso. This is a major investment but isn’t keeping up with the noisy Mancunian (or as my mum likes to call them, Manchurian) neighbours at the top of the Premier League, it was even less than Arsenal spent in the same season.

In terms of disposals, Chelsea sold players for £98 million, to give a net spend for 2016/17 of £8m.

Hidden in the footnotes to the Chelsea accounts are a couple of interesting figures (interesting only to those who are still reading this tedious summary we suspect). The first is contingent liabilities.

This is the sum the club must pay to players and former clubs if certain achievements (appearances, trophies, international caps etc.) are met. This was £3 million and compares to £111 million for Manchester City and £45 million for United at the end of June 2017.

This suggests that Chelsea have a different approach to the two Manchester clubs when signing players, aiming for a set fee with little based on future performance.

Chelsea had a spending spree in Summer 2017, mainly on signing Morata, Bakayoko, Drinkwater, Rudiger and Zappacosta for £212 million, which suggests that Antonio Conte’s comments were perhaps wide of the mark. A number of players left the club too, bringing in £63 million.

Summary

Roman Abramovic these days seems to want to make Chelsea break even financially, but that will be insufficient if he also wants to win trophies such as the Premier and Champions League.

The proposed stadium is essential if Chelsea are going to compete in terms of income against the two Manchester clubs, but its going to be a few years before the constraints of playing at Stamford Bridge are overcome.

Conte’s comments (which are echoed to a degree by Arsene Wenger) do appear valid. Chelsea cannot compete with the two Manchester clubs as they cannot match them in terms of income, which in terms gives the ability to pay wages and sign players…unless Abramovic decides to pursue a more expansive strategy. He’s already sunk over a billion into the club, but it may take almost as much again to fund a new stadium.

Data Set

Everton Financial Results: We Are Glass

Introduction:

In what could have been a good title for a song title by The Cure, 10:30 on a Friday Night is a very odd time for a club to tease out its financial results. Initially there was a press release, full of positives as one would expect, and enough for the media to put out a column or two.

To find out the full details it was necessary to wait though, and that’s something we don’t like because the story has become old news by the time some of the key numbers have been released (Chelsea have just done the same).

Having said that, it was a memorable season for Everton from a financial perspective, as the benefits of new owner Farhad Moshiri’s investment impacted upon both profitability and balance sheet strength. In addition, the club inched closer to a new stadium, which will be necessary financially (although will be a loss emotionally) if the club is going to break through the glass ceiling and challenge for Champions League places.

Key figures for 2016/17:

Income £171.3 million (up 40.9%).

Wages £104.7 million (up 24.6%)

Losses before player sales £12.3 million (down 28.1%)

Player signings £92.1 million

Player sales £54.7 million

Farhad Moshiri investment £150 million (£45 million since the end of the season).

League position 7th (11th)

Everton had a decent season, qualified for the Europa Cup, but were still 15 points off a Champions League place.

Everton are controlled by Blue Heaven Holdings Limited, a company based in the Isle of Man tax haven.

Bluesky are owned by Farhad Moshiri, born in Iran, his family fled the revolution and came to the UK, where he attended university in London and obtained British citizenship (no doubt being part of the migrant ‘problem’ and stealing our undergraduate places according to the Nigel Farage wing of football fans) before a successful career working for some leading accounting firms.

How he made his fortune is unclear, which didn’t stop the Grauniad having a thinly veiled pop at the nature of his investment and the role played by Alisher Usmanov, the minority shareholder in Arsenal. The inference is that Moshiri is influenced/controlled by Usmanov, but there’s no hard evidence to support that.

He then bought a share in Arsenal, before selling it to acquire 49.9% of Everton in 2016, although his loans via Bluesky make him the effective club owner.

How he made his fortune is unclear, which didn’t stop the Grauniad having a thinly veiled pop at the nature of his investment and the role played by Alisher Usmanov, the minority shareholder in Arsenal.

Moshiri also appears in the Panama Papers, which ultimately means nothing, but again fuels the nudge-nudge wink-wink school of cynic.

https://offshoreleaks.icij.org/nodes/80015954

https://www.theguardian.com/football/blog/2017/jan/25/everton-farhad-moshiri-alisher-usmanov-new-money-ownership

Income:

All clubs generate money from three sources, matchday, broadcasting and commercial. For a club such as Everton, with no Champions League benefits and a competitive ticket pricing policy, they are reliant on broadcasting income to a greater degree than the media concocted ‘Big Six’ (ignoring that Everton have won the top division more recently than Spurs).

After effectively treading water from an income perspective for three years, due to the Premier League (EPL) signing a TV deal of that length with BT Sport and Sky, commencing in 2013/14, Everton benefitted from the new deal that kicked in for 2016/17.

The previous season Everton had 68% of their income from TV, whilst not as much as the likes of (Plucky Little) Bournemouth, it was still substantially higher than the ‘Big Six’.

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2016/17 resulted in a £48 million (58%) increase in TV revenues, most of it simply for being in the EPL, but about £8 million was due to increased prize money for finishing four places higher up the table than the previous season.

Only six clubs have reported their results to date for 2016/17, but there is a noticeable increase in the contribution made by TV monies.

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Matchday income from ticket sales fell 20% to £14.1million, despite an increase in average attendances by over 1,000 to over 39,000. This was due to Everton reducing some ticket prices, especially for younger fans.

This is both a decent thing to do from an economic point of view, but also makes sense in allowing more young fans to see the club and increase the likelihood of them coming to see Everton if the move to the Bramley Moore dock stadium, where the club hope to have more than 61,000 seats available. This is dependent upon the move taking place, as costs seem to be rising all the time.

As a result, Everton’s average income per matchday fan dropped from £462 to £359. This also reflects that the club’s present facilities are not geared towards attracting large numbers of corporate fans, who pay premium prices to watch the game. Whilst there’s no love lost by regulars of any club towards the prawn sandwich brigade, the chinless wonders who occupy those seats can contribute towards the budget for players and other facilities.

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A problem for Everton is the new stadium is not expected to be available until 2022. Generating about £50 million a season less than local rivals Liverpool from matchdays does put the club at a significant disadvantage if wanting to break into the Champions League contenders.

https://www.theguardian.com/football/2017/dec/31/everton-new-stadium-costs-escalate-2022-target-bramley-moore-dock

Commercial income increased by £5.3 million (24.5%). On the face of things this looks impressive, but all is perhaps not as it seems. The club signed a deal to sponsor the training ground name, which generates an impressive £6 million. This deal was signed with USM Holdings, controlled by Alisher Usmanov.

Under normal circumstances this would have Arsene Wenger’s handlers reaching for his straightjacket and the padded cell, as he would be dragged away muttering incoherently about ‘financial doping’ as he has done in the past in relation to Manchester City’s eyebrow raising commercial and naming rights deals with Etihad Airways.

It would be cynical to suggest that Wenger seems less concerned when the unusual naming rights deal comes from a major shareholder in his own club Arsenal…

Costs:

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

Wages in total rose by a quarter to £104.7 million. Only a third of clubs have reported their details to date for 2016/17, but it does seem that Everton did invest in the squad in terms of their payments to players for the season. What is noticeable is that in 2015/16 Everton’s wage bill was only 2% higher than that of Stoke, in 2016/17 this gap had increased to 23%.

This suggests that Moshiri’s commitment had found its way to the player budget, but the extra income generated ensured that that wages as a proportion of revenues actually fell to 61%. This compares to a Premier League average of 67% in 2015/16.

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The wages increase might explain the USM sponsorship deal too. Under Premier League rules, clubs can only increase their wage bill by £7 million plus any increases in non-broadcast income plus the average gains from player sales over the last three years.

This is known as the Short-Term Cost Control (STCC) rule. (Anyone wanting to read it is welcome to look at page 116 of the Premier League 2017/18 Handbook, but I’m sure you’d rather pick your feet to be honest, it’s more enjoyable).

The aim of STCC is to prevent all the increases in TV monies going straight through to the pockets of players and agents. Instead the increase in this revenue stream will go to either fans in the form of lower ticket prices (kudos here to Everton) and/or club owners (because multi-millionaires need extra cash too).

For Everton, with a wage bill increase of £20.7 million, the STCC rules are satisfied as follows.

£’m
Annual increase allowed 7.0
Increase in sponsorship income 5.3
Decrease in matchday income (3.5)
Averaged three year gain on player sales 21.0
Total 29.8

Everton were therefore well within the rules for 2016/17, due to both the USM sponsorship and the sale of John Stones to Manchester City.

The other player related expense is that of player amortisation. This is the cost of signing a player spread over the length of his contract. Everton’s biggest signing in 2016/17 was Bolasie from small London club Crystal Palace for £25 million on a five-year contract. This works out as an amortisation charge of £5 million per year for five years.

In our view amortisation is a better measure of player investment than net player spend, as it smooths out individual transfers over a longer period of time, and shows the trend in terms of player investment.

The downside of focussing on player amortisation is that it ignores the impact of academy players and Bosman deals on the strength of the squad (but so does net player spend TBH) as these involve zero cost and therefore zero amortisation.

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Following a previously seen trend in relation to Everton, the club broadly plateaued between 2014-16, but the new TV deal and owner investment allowed the club to commit more to player signings and therefore amortisation in 2017.

We would expect this figure to accelerate significantly in 2017/18 due to the £150 million spend on new players during summer 2017.

Directors pay

One beneficiary of the extra monies at the club is that of the highest paid director. The club does not name the individual (there is no legal requirement to do so), but our money is that Chief Executive Robert Elstone is the likely person. His salary increased from £400,000 to £588,000.

That’s clearly a significant pay rise, but in 2015/16 the average pay for an EPL chief executive was £1.4 million, so he is relatively underpaid for the job he does (and it has to be said he’s a thoroughly nice chap too).

Profits and losses:

Losses are income less costs, and were £12.3 million last season, or £236,000 a week, before taking into consideration player sales, mainly that of John Stones, of £54.7 million.

We tend to look at what is called EBIT (Earnings Before Interest and Tax) as a main profit metric, as this removes the volatility of player sales and one off expenses (for example, Everton paid out £11.3 million in 2016 to Roberto Martinez and his team when the manager was sacked, this expense is excluded from EBIT as it is non-recurring in nature).

Everton have made EBIT losses of £35.5 million over the last five years, which explains why they have sold players to balance the books. Total gains on player sales during the same period were £107 million.

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There’s a case for saying that EBIT profits are too harsh, as it excluded player sales but included player acquisition costs in the form of amortisation.

It’s therefore also useful to consider EBITDA (EBIT with player amortisation and the depreciation of long term assets such as property and equipment) in addition to EBIT. This shows a healthier position for the club, which made an EBITDA profit every year.

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Player trading:

2016/17 was a record year for Everton (although will be surpassed by 2017/18). The club purchased players for £92.1 million, and had sales of £54.7 million, to give a net spend of £37.4 million. Although the gross figures are higher than in previous years, the net spend is in line with that of recent years.

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Everton seem to make a number of signings which are performance related. At the start of the 2017/18 season they were committed to additional payments for players, usually linked to appearances, trophies/Champions League qualification, international caps, loyalty bonuses and so on. This could cost the club £50 million if all the conditions are achieved, and we suspect that the fans would be more delighted than the finance department if those payments had to be made.

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Even after selling Lukaku to Manchester United, Everton did spend a net £60.6 million on the squad in summer 2017. On top of this Wayne Rooney arrived on a free transfer, so expect a major increase in the wage bill in 2017/18.

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The Owner:

Farhad Moshiri’s total investment is a mix of shares and quasi-loans. He paid £87.5 million for his 49.9% investment in 2016, but this money was to existing shareholders rather than the club itself.

His main action has been to pay off the bank loans of around £55 million, and replace them with an interest free advance of £105 million. During the summer of 2017, after the club’s year end, he advanced a further £45 million to fund player signings.

The early repayment of the bank loans was both good and bad news for Everton. The club had being paying out interest costs of £100,000 a week prior to Moshiri taking over, and this saving can therefore be invested in the playing squad. The banks did however charge a penalty fee £6.6 million for early repayment of the loans, revealing themselves to be a bunch of cockjuggling thundercunts harsh negotiators.

The club also took out a loan with a Chinese bank after the year end. Whether this is dipping the toe into the water in terms of financing the new stadium is yet to be seen.

Following Moshiri cleaning out the debts we estimate that the club is now worth £375 million, using our version of the Markham Multivariate Model. Given that the club was valued at £175 million when the takeover took place less than two years ago, plus £115 million in quasi-loans from Moshiri, it is a decent return on his original investment.

Summary

Everton are trying to be upwardly mobile as a result of new club ownership. To be realistically competitive for a Champions League place on a regular basis is unrealistic if the club continues to be based at Goodison, where the restrictions in terms of capacity and corporate income streams are an ongoing constraint.

By the time the Bramley Moor dock stadium is opened (and we’re assuming 2022 as the earliest date) Manchester United, Manchester City, Arsenal, Spurs, West Ham, (and possibly Liverpool and Chelsea) will have 60,000 plus capacity stadia too, and all will be aiming for those top four spots too. Having a large capacity stadium is no guarantee of success, just look at some of the clubs in the Championship.

Everton’s wage bill is currently less than half of the largest clubs, and it’s difficult to see how that gap will be eliminated in the short to medium term.

The Numbers

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Manchester City: Some girls are bigger than others

Introduction

No trophies, third in the league, and the costs of embedding a new managerial regime may have had some thinking City would struggle financially in 2016/17

The headline figures are mixed, income is up significantly, profit before interest down 80%, but the club claims to have no debt and is self sufficient.

Direct comparatives with the previous year’s profit and loss account figures are slightly distorted by City having a 13 month period of account for 2016/17, so bear this in mind when looking at growth compared to 2015/16. There’s nothing sinister in our opinion in changing the year end to 30 June.

Income

Clubs have three sources of income.

Matchday

Matchday income at City fell slightly, mainly due to a relatively early knockout in the Champions League. The expansion of the Etihad in recent years has allowed City to generate £50m plus a season from matchdays, but this is still way behind United (£111m) and Arsenal (£100m).

City have always priced their tickets towards the lower end of the market, which is great for fans. Initiatives such as the ‘Tunnel Club’, where (presumably corporate) fans get to sit behind the dugout and see the players in the tunnel pre and post match show that City are trying to extract more from the prawn sandwich brigade.

Matchday income was only 11% of City’s total revenues. You would perhaps expect this from a small club in the Premier League such as Crystal Palace, but it does seem low for a behemoth such as City. United had 19% of income and Arsenal 24% from this source.

Broadcasting

Broadcasting income was up 26% and tops £200m for the first time. This is mainly due to the impact of the new domestic TV deal with BT/Sky. UEFA TV monies actually fell by £13m due to City being knocked out of the last 16 round of the Champions League compared to the semi-final the previous year.

Compared to their closest rivals who have reported to date, at £204m City are slightly ahead of both United (£194m) and Arsenal (£199m)

Any growth in TV income in 2017/18 will be dependent upon City’s progress in the Champions League, as the domestic deal runs for three seasons. Even if City win the Premier League they will only receive about an extra £4m in terms of merit payments.

Commercial

Commercial income at City normally causes Arsene Wenger, an intelligent man who is nonetheless known for whining at events at the Etihad both on and off the field, to start muttering ‘Financial Doping’ as his handlers reach for the smelling salts.

This income source rose over 22% to £218 million. The reason why eyebrows are raised in relation to City in this regard is the club’s commercial links with related parties to the Abu Dhabi owners.

City’s critics accuse the club of negotiating deals at above market rates, overinflating income and therefore allowing the club to pay more for wages and transfers whilst complying with Financial Fair Play (FFP) regulations.

City have fallen foul of FFP issues in the past, but we suspect they have been very careful to adhere to the rules in the present climate of UEFA inspectors.

Can clubs manipulate their finance to comply with the rules? The answer in our opinion is an unequivocal yes, but that is the subject of a separate blog post. Are City guilty of such behaviour? We have no idea, but expect City to not be subject to any UEFA sanctions (the Premier League’s own FFP rules are much easier to satisfy than those of UEFA).

City’s commercial income is still some way behind that of United (£275.5m) but United are in a league of their own when it comes to global appeal, and their commercial department negotiates deals accordingly.

City are way ahead of Arsenal (£125.4m) in this income source, which is perhaps a testament to Arsenal’s inconsistent appeal to sponsors and their commercial department’s rather disappointing performance.

Costs

The main costs for a club are player wages and player amortisation (transfer fee costs spread over the life of the contract).

City’s wage costs, which had been under relative control for three seasons, rose over a third to £264.1 million. This compares to United (£263.5m) and Arsenal (£199.4m). When Sheik Mansour acquired City, the club had to play over the odds in wages to attract high quality players, as Champions League appearances were not in the offing. This explains why wages were so high in 2013.

Clearly recruiting Pep Guardiola and his team, new signings and improved contracts for some squad members came at a cost.

Despite the increase in wages, City’s wage expense as a proportion of total income, which has risen in the year, is a healthy 56%, although notably higher than United (45%) and Arsenal (47%).

Amortisation charges are up nearly 30% to £121.7 million.

‘Other’ costs rose 23% to £104.3 million. It’s not clear what has driven such an increase.

One thing that may have Arsene Wenger once again being only allowed to eat with a spoon is directors’ pay. This is in the City accounts at a zero figure.

City’s parent company, City Football Group Limited, (which is not subject to FFP as such, and has not yet published its results) had ‘key management compensation’ (presumably director pay) of £4.4 million in 2015/16. Such behaviour prompts City’s critics to accuse the club of transferring some costs to other outposts of the City group empire to ensure the club of complying with FFP.

Whilst City have no direct bank debt, they do show an interest cost in relation to the Etihad stadium. Whilst not wanting to bore you with accounting dullardness, because the Etihad is rented on a 250 year lease, which is effectively its useful life, the stadium is treated as being an asset of the club, funded by a loan from the council.

Offset against the above costs is gains on profit sales of £34.6 million (see below for more detail).

Profit

Profit is an abstract concept, in theory it should simply be income less costs. In practice there are a range of profits quoted, depending on which costs are included.

City are quoting a profit of £1.1 million for the year. This is however after taking into account gains on player disposals. Whilst we expect to see clubs making a profit on player sales each year due to the way player signings are treated in the accounts, this figure is volatile as it depends on individual player disposals.

Excluding player disposals, City’s EBIT (which is ‘recurring’ profit before interest and tax) was a loss of £30.2million, compared to a profit of £2.8m the previous season.

Adding back the non-cash expenses in the form of depreciation and amortisation gives an EBITDA profit of £105 million, which is very close to the previous year’s £109m. United made an EBITDA profit of £200m and Arsenal £145m, reflecting City’s relative generosity in terms of wages compared to the two other clubs.

City had a negative tax expense in 2016/17.

Player activity

City spent £203.5 million on the likes of Stones, Jesus, Gundogan and Sane in 2016/17 (what about Nolito and Claudio Bravo some of you will of course also cry? We’ve not mentioned them as they are, in the words of former Manchester legend Frank Sidebottom, a bit bobbins, and we don’t want to embarrass Pep, especially as my wife fancies him).

If these players are each on five year contracts then this gives an extra amortisation cost of £40.6 million (£203.5/5), which ties into the cost analysis above.

In terms of disposals, City sold players for £51 million, to give a net spend for 2016/17 of £153m.

Hidden in the footnotes to the City accounts are a couple of interesting figures (interesting only to those who are still reading this tedious summary we suspect). The first is contingent liabilities. This is the sum City have to pay to players and former clubs if certain achievements (appearances, trophies, international caps etc.) are met. This is £111 million at the end of June 2017.

City had a spending spree in Summer 2017, mainly on signing Mendy, Walker, Bernardo Silva, Ederson and Danilo. A number of players left the club too, but the accounts reveal a net spend of £161 million in the window.

Summary

City’s owners are not motivated by making profits, so the breakeven in the year is more to do with keeping the beancounters at UEFA happy more than bringing a smile to face of Sheik Mansour.

Their business model in relation to being part of a group with tentacles in many clubs across the globe will fuel idle gossip and accusations from the club’s detractors.

For those who think that all this financial analysis is a load of old cobblers, there’s a case for saying, just watch the football, which is possibly the best seen in the Premier League since its inception (although of course no trophies are won in November).

Financial Summary

Key figures from the accounts shown below