Stoke City 2016/17 Results: Bring on the dancing horses

Introduction

We like Stoke City, owned by a local who has underwritten the club’s rise to the Premier League, free coaches organised for fans to away matches, decent ticket prices, oat cakes (if you’ve not tried them you are missing out), cheap beer…and Peter Crouch, one of the game’s most likeable players.

The club’s financial results are similar to the club itself. Nothing too flash, solid, dependable, which begs the question, why on earth have they just been relegated?

Summary of key figures

Income £136 million (up 30%)

Broadcast income £108.7 million (up 37%)

Wages £84.9 million (up 3%)

Wages to income 62% (79% in 2016)

Profit before player sales £3.7 million (£11.9m loss in 2016)

Player additions £35.9 million (£51.4 million in 2016)

Borrowings £75.7 million (up 27%)

Money wasted on Berahinho £12 million (nothing in 2016)

Income

Stoke’s income rose by over 30% in 2016/17, which on the face of it, despite falling from their traditional 9th place to 13th, looks impressive.

This places Stoke broadly where you would expect it to be in the Premier League food chain. Not bothering the elite clubs with their football tourist fans and global commercial partners, but neither are they paupers.

Broadcast Income

Stoke are a club who are very dependent upon continued membership of the Premier League as broadcasting income is the key element of their finances.

A new Sky/BT domestic deal, coupled with the Premier League’s amazing ability to extract increased fees for broadcasting rights overseas, especially in emerging markets such as Asia, means that EPL clubs are sharing just over £8 billion over the three seasons commencing 2016/17.

As a consequence, the proportion of total income that comes from broadcasting for Stoke has increased from 69% to 80% since 2013. There is nothing wrong with this, but now that the club has been relegated,  even with parachute payments, there will be a big hole to fill.

The decrease in the final position from 9th to 13th in the table cost Stoke about £7.5 million in ‘merit payments’ in terms of broadcasting rights distributions. This is because 25% of the amount paid out is based on the final league position.

A further 25% of broadcast distribution is linked to the number of times a club appears on live domestic TV. Stoke had the third lowest number of matches (nine) broadcast, and so suffered relatively to small London clubs such as Crystal Palace (who had 14) who have more local derbies, which are popular with the TV companies.

Parachute payments are yet to be finalised, but are looking at approximately £41 milion in 2018/19, and, if the club don’t bounce back to the Premier League, falling to £34 milion and then £14 million in the following two seasons.

After that the club would be part of the EFL TV deal, which brings in about £6.5 million a season, slightly more if you are regularly chosen  for live TV.

Stoke sell out the Bet365 stadium every week, but it is not a huge cash generator. The Potteries is not a wealthy area of the country, and the Coates family, who own the club, have kept prices low.

Matchday income for 2016/17 was down 14% to £7.2million, which is the lowest for a number of years. This may be partly due to work undertaken to expand the capacity of the Bet365 stadium to over 30,000 for 2017/18.

There are not many figures available for other clubs yet for 2016/17, but an analysis of Stoke’s matchday income for the previous season shows that it is towards the bottom of the division in this regard.

Stoke’s ‘other’ income, which includes commercial deals and sponsorship, rose by 23% to just over £20 million. How much of this comes indirectly via the owners at Bet365, who are shirt sponsors as well as stadium rights, is unclear.

Expenses

Despite the overall 30% increase in income, Stoke managed to keep a lid on wages in 2016/17. The wages bill only rose by £2.7m (3%) to £84.9 million. The previous season wages increased by 24%, so it appears that the club decided to gamble to a degree in 2015/16 on spending on players (and wages) prior to the new TV deal in 2016/17.

This is evidenced by the amortisation charge (player costs spread over the contract term) rising by nearly a third to £23 million.

The reason for such an increase is that after a couple of cautious seasons, Stoke had record spending in 2015/16, with mixed results, as Imbula, Shaqiri and Joselu were signed.

Last season Stoke somewhat bizarrely signed Said Beharinho, who most West Brom fans would have driven to the Potteries for nothing, and Joe Allen took up the bulk of the £35.9 million.

As most of these recent signings are on long term contracts, the amortisation costs will remain relatively high for a few more seasons.

The summer 2017 transfer window was a relatively quiet one for Stoke, the accounts show a net income of £1.9m as the signings of Wimmer and Indi were offset by Arnautovic and Joselu leaving.

It’s not just the players for whom wage restraint exists at Stoke, one director, in all probability chief executive Tony Scholes, had a 14% pay cut in 2016/17. Admittedly this took his paypacket down to a still considerable £806,000, which is the cost of a good night out in Hanley or Burslem.

Such levels of pay are quite common in the Premier League, with  ten clubs having highest paid directors on a million plus a year,  a decent return for deciding on what colour next season’s away kit will be.

Profits

As a family run club funded by the Coates family, the owners are not particularly motivated by making profits.

Profit is the residue after subtracting the running expenses of the club from the income. Prior to 2014 most clubs in the Premier League were losing money. Despite the riches of the game, income went out almost immediately in what Alan Sugar referred to as the ‘prune juice effect’. As each new TV deal was signed, players agents would negotiate improved contracts for their clients to ensure the extra money was swallowed up by higher wages.

Premier League owners managed to reduce the prune juice effect by introducing Short Term Cost Control (STCC) rules, which meant that the wage bill could only be initially increased by £4 million a year, unless the club also managed to increase its non-TV income.

The impact on Stoke shows how successful STCC has been, as the club has gone from losing over £30 million in 2012/13 to making a small profit in subsequent years.

Summary

Stoke have a solid financial base, but are still reliant on the Coates family, via Bet365, and are presently owed over £60 million, interest free, by the club.

It’s difficult to know where the club go next. 9th in the Premier League was about as much as they could realistically hope for, although there is always the allure of a decent cup run.

Provided fans are happy with this situation then the club can carry on in their present role, ruffling the feathers of some of the ‘Big 6’ who don’t fancy playing in front of a hostile local crowd, hopefully a cup run as a distraction now and then…and that’s it. So long as this is acceptable then the club has potentially a decent stay of execution in the Premier League.

Five year summary

Below are all the numbers from the analysis. Apologies for any mistakes!