Cardiff 2018 Financial Review – The Promotion Penalty

Cardiff surprised many in 2018, achieving promotion back to the Premier League at the fourth time of asking. The club had been stuck in mid-table following relegation and were expected to be closer to the other end of the table following a decline in investment and performances. However, Warnock and Co. thrilled their fans and achieved the incredible feat of automatic promotion.

Despite this achievement, the costs of getting the club ready for the Premier League was high and as such, increased Cardiff’s losses from £21.3m to £36.1m (69%), showing the immediate promotion penalty a club receives before the riches come in.

Let’s delve into the numbers.

Revenue Analysis

Cardiff unsurprisingly saw a boost in revenue following promotion, with revenue rising from £27.1m to £32.8m (21%), a timely boost as the club came to the end of their parachute payments.

Matchday revenue rose from £3.5m to £4.9m (40%) as a fantastic season and improved performance saw disgruntled Cardiff fans return in their droves as attendance rose from 16,654 to 20,164 (21%). However, matchday revenue is still well below 2014 levels of £8.3m, showing there is still room for improvement in this area and Cardiff should see a further increase on their return to the Premier League.

Broadcasting revenue rose from £20.6m to £21.6m (5%) as the club moved up 10 places to 2^nd in the Championship and featured more heavily on TV due to their exciting promotion battle. The increase in prize money and TV money was offset by the reduction in parachute payments after a fourth year in the Championship, making their return to the Premier League perfectly timed.

Commercial revenue was the largest climber, more than doubling from £3.0m to £6.3m (110%) as their imminent return to the Premier League boosted their popularity and led to new commercial sponsors and bonuses from existing ones.  Cardiff’s commercial income peaked in 2014 at £7.7m, so Cardiff will be hoping to surpass that figure this time round.

Looking ahead, there is no doubt that Cardiff will see a huge boost in revenue, which is likely to more than triple to in excess of £100m as the riches of the Premier League flood in to the club. The magnitude of the amount will depend slightly on their season performance, however even if the club are relegated, they should still realise revenue in excess of £100m.

Costs Analysis

Cardiff were hit by promotion with an unprecedented rise in costs, more than quadrupling from £15.5m to £66.9m (332%).

Steve Borley (Cardiff Director) put the cost increase down as ‘mainly due to additional commitments made to players, management, staff and other creditors as a result of promotion to the English Premier League’.

Amortisation did however remain relatively stable, increasing slightly from £5.0m to £5.1m (2%), showing that it was a tremendous achievement to gain promotion when club investment was relatively low.

The main reason as mentioned above for the huge increase in costs was £23.2m of exceptional costs ‘in respect of bonuses and other contractual commitments payable following promotion to the English Premier League’. These costs are usually high with clubs keen to reward players for their achievements and savvy agents negotiating hefty bonuses of this kind into player contracts.

Cardiff’s finance costs fell from £8.3m to £7.7m (8%) after a large fall in interest costs relating to overseas taxes, although this was slightly negated by an increase in interest due to an increase in shareholder loans owed to their owners.

Wages were up considerably, increasing from £29.0m to £48.4m (67%) as players were rewarded for promotion with bonuses, pay rises and new players entered the club with higher wages than the players they replaced in the summer.

This huge wage increase is equivalent to an extra £373k a week (just enough to get Ozil) and is likely to only rise further following promotion.

Among those to gain from promotion were Cardiff’s directors, whose total pay increased from £283k to £1,429k (405%), much to their delight after a job well done.

Looking ahead, costs will rise slightly, but to a lesser extent than revenue so Cardiff will hopefully be in a profitable position in 2019. An increase in wages and amortisation will be offset by the lack of exceptional costs next year, however the club may have considerable bonuses in place should the club survive, which could in fact significantly increase costs.

Transfer Analysis

Cardiff were relatively quiet in 2018 transfer wise despite securing promotion, focusing their main efforts on free transfers and a couple of key signings.

Joining Cardiff (for transfer fees) were Madine (£6.1m), Tomlin (£3.0m), Ward (£1.6m) and Bogle (£0.7m) for a combined £11.4m.

Only two players departed (for transfer fees) and they were Saadi (£1.4m) and Huws (£1.0m) for a combined £2.4m.

This led Cardiff to their first net transfer spend (£9.0m) since their only Premier League season and resulted in the club gaining promotion back to the Premier League.

The key for Cardiff didn’t seem to be the money spent, rather keeping most of the team together and adding some shrewd free transfers, especially Callum Paterson and Neil Ethridge.

The departures (which may include some of 2018 summer transfers) led to a small profit on player sales of £2.4m.

The club are also owed a further £0.4m in transfer fees however they owe a further £2.4m with both amounts due this year, this shouldn’t however be a concern with the influx of cash the club are going to receive following promotion.

The club may also have to pay a further £2.1m in contingent transfer fees should certain clauses be met by players in the future. Again, this minimal amount should not be of any concern.

During the year the club spent cash of £14.3m to buy players due to a host of instalments being due on transfers of previous years. This was a significant cash burden as the club only received £2.9m in transfer fees from other clubs.

Debt Analysis

Cardiff are historically a club of low cash reserves and fairly high debt, which has been slowly increasing of late. This trend showed no signs of changing as cash levels fell from £9.3m (abnormally high for Cardiff) to £2.9m (69%).

This cash depletion was mainly due to the cost of promotion as well as the large net transfer outlay this season. In order to finance these costs, Cardiff’s owners plunged another £25.4m into the club, however there were repayments of £11.0m to various parties, including the owners.

Debt levels rose from £115.1m to £137.3m (19%) on the back of the extra £25m investment (some old loans were repaid to the owners at the same time).

Cardiff fans and their owner will be hoping that a return to the Premier League will help the club be self-sufficient, however to stay there may require further capital, although the owners have shown they are not afraid to supply that.

An immediate relegation back to the Championship has most likely been prepared for due to the likelihood of this happening at the beginning of the season, meaning Cardiff should be financially secure should the worst happen (although they currently have a great chance of staying up).

It is also worth noting that the club have vaguely stated that a claim has been made against the club, however have not detailed anything further relating to its nature or amount. This could potentially, although unlikely, seriously impact their finances.

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