Championship Archives - Page 2 of 3 - FINANCIAL FOOTBALL NEWS

April 4, 2019April 4, 2019

Blackburn Rover’s 2018 Finances – Rovers In Red

Blackburn had to endure a season in League One following relegation in 2017, but immediately bounced back to the Championship via automatic promotion following a second-placed finish.

A season in League One for a team not used to being that far down the football pyramid will no doubt have a significant financial impact and it did. Blackburn saw their losses more than triple, increasing from £5.2m to a sizeable £16.8m.

Despite this increased loss and the growing Financial Fair Play concerns, promotion back to the Championship should calm down these concerns as their finances should begin to improve.

Let’s delve into the numbers.

Revenue Analysis

Blackburn unsurprisingly saw a steep fall in revenue following their relegation, with revenue falling from £16.1m to £9.0m (44%).

Matchday revenue dropped from £3.3m to £2.8m (15%). This was despite average attendances actually increasing from 12,688 to 12,832 (1%), indicating a fall in ticket price due to the lower standard in League One. Attendance of 12,832 is still well below the full capacity of 31,367 at Ewood Park, so there is plenty room for growth in this area, although a return to the Premier is probably needed for any of this to be realised.

Broadcasting revenue plummeted, falling from £7.9m to a measly £1.9m (76%) after a huge reduction in the prize money received in League One, showcasing the importance of at least remaining in the Championship for Blackburn.

Commercial revenue fell from £4.4m to £4.3m (2%), proving relatively robust despite relegation with the majority of sponsors remaining with the club. Blackburn will be hoping that since they managed to maintain commercial revenue following relegation, a return to the Championship will enable commercial revenue to grow.

There was no other revenue in 2018 (2017: £0.5m).

Looking ahead, Blackburn will obviously see a huge increase in revenue back to around 2017 levels, hopefully higher. Blackburn look likely to remain in the Championship so will therefore finish higher than they did in 2017. Prize money has also increased since then so broadcasting revenue should be £8m at the minimum. Average attendances have increased so matchday revenue is likely to be around £4m while commercial revenue could increase to around £5m.

All in all, revenue should be between £17-20m, around double revenue this year.

Costs Analysis

Blackburn managed to reduce costs following relegation, decreasing them from £34.1m to £26.5m (22%). Despite cutting costs well, the fall in costs was half that of revenue, hurting profitability considerably, hence the large loss.

Amortisation increased slightly, rising from £0.7m to £0.8m (14%) after spending in the summer, having not signed anyone in 2017 for a transfer fee.

Interest costs dropped a third from 0.6m to £0.4m (33%) due to a smaller overdraft while other interest costs also fell slightly.

Blackburn paid no tax due to making a loss, a situation which will continue for the foreseeable future in all likelihood.

Wages fell a quarter from £22.6m to £16.8m (26%) as high earners departed the club following relegation. Relegation wage drop clauses would have also come into effect, reducing existing players salaries considerably.

Blackburn managed to cut wages well, saving roughly £112k a week, a nice saving for anyone!

Directors interestingly saw their renumeration increase significantly, rising from £166k to £282k (70%) despite relegation. It is possible these include bonuses from promotion last season which would make more sense. They may have also been rewarded for the financial savings made that helped restrict the losses to what they were (despite how large they appear to be).

Looking ahead, costs will rise following promotion, not only has spending increased (increasing wages and amortisation) but promotion wage clauses will also see wages rise (plus new contracts).

Transfers Analysis

It was a fairly quiet transfer window for Blackburn as three players arrived at Ewood Park and 2 departed.

In came Dack (£0.8m), Samuel (£0.5m) and Bell (£0.3m) for a combined £1.5m (rounds down).

Out went Steele (£0.5m) and Brown (£0.2m) for a combined £0.7m.

This led to a low net transfer spend of £0.8m following two years of sizeable negative net spends.

Dack proved to be one of the signings of the season across all 4 top divisions in England and was a major reason for their promotion. Samuel and Bell both contributed as well to the expected but still impressive promotion.

Blackburn also recorded a profit on player sales of £1.1m, although this includes the sale of Marshall at the end of the season as well.

In cash terms, Blackburn spent cash of £1.1m and received cash of £0.7m, a net cash outlay of £0.4m, not much to write home about.

Blackburn owe a further £1.3m in transfer fees, however this is completely cancelled out by the fact that are also owed £1.3m (£1.2m of which is due this year), so this should have no impact on future transfer plans.

Blackburn could also have to pay players, agents and other clubs a further £2.1m in transfer fees should certain clauses be met.

Interestingly, Blackburn also disclosed that they paid players £0.8m cash to leave the club following relegation. This is likely to have been paid to the likes of Akpan, Lowe and Stokes, all who left on free transfers following relegation.

Debt Analysis

Blackburn saw their modest cash levels double from £0.2m to £0.4m (100%) despite sizeable losses. Their owners provided new loans of £13.9m to fund these losses and pay for those players who were released.

Blackburn also spent £0.4m on infrastructure, the same level as last year. Blackburn should aim to increase this to better invest in their long-term future.

Debt levels rose from £106.7m to £120.4m (13%) after new loans of £13.8m from their owners, while their overdraft fell by £0.1m to £1.7m.

These new loans were necessary due to relegation, although they may also need further investment following promotion to be competitive in the Championship and even more so should they wish to make an overdue return to the Premier League.

Net debt increased then from £106.5m to £120.0m (13%). The level of ambition of their owners is important now. Should they wish to consolidate as a Championship side, some investment is needed, however they should become self-sufficient fairly quickly.

Should they wish to make a return to the Premier League significant investment will be needed, although this may be restricted due to Financial Fair Play.

Blackburn have made cumulative losses of £40.7m over the last 3 years, which is around the upward limit allowable. They should be okay as long as their losses next year don’t exceed £20m, meaning the club cannot go too wild even if their owner wants to.

They could still be in trouble due to financial Fair Play issues from 2015 where their 3-year cumulative losses were an astronomical £98m. It remains to be seen whether sanctions have already been agreed in relation to these as they were a few years ago and they were punished in 2013 for Financial Fair Play transgressions.

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April 3, 2019April 3, 2019

Reading FC’s 2018 Finances – Royals Flushed

In the famous words of Drake, Reading went from 100 to zero real quick (not quite right is it?), going from the play-off final to 20^th in one season, narrowly avoiding relegation.

After nearly gaining promotion last year, a poor season cost Manchester United legend Jaap Stam his job although things haven’t really improved since his departure.

A poor cup campaign further dampened spirits in a disappointing season.

A demoralising season was just as poor off the pitch as a £4.7m profit in 2017 turned into a £21.0m loss in 2018 following the receipt of their final parachute payment last year.

Let’s delve into the numbers.

Revenue Analysis

Reading saw their revenue halved from £36.7m to £17.9m (51%) following a poor season that saw fans turn away from the club.

Matchday revenue more than halved from £9.7m to £4.2m (57%) as fans left in droves as their performances on the pitch plummeted. A fall in attendance only partly explains the fall in revenue as average attendance only fell from 17,481 to 15,181 (13%), meaning ticket prices must have fell or the ticketing strategy was a poor one.

Broadcasting revenue fell from £20.9m to £7.5m (64%) as Reading dropped 17 places in the Championship. This free-fall was compounded by the fact they no longer receive parachute payments for their relegation from the Premier League five years ago that helped prop up their finances.

This means that Reading are officially back to being a normal Championship side and are now on the same financial playing field as the majority.

Commercial revenue surprisingly increased from £4.8m to £5.6m (17%) as Reading managed to increase their income on the back of the memorable 2017 season. It remains to be seen whether this level of commercial revenue can be maintained after the season they just had (and are having this year).

Looking ahead, Reading will see a similar level of revenue this year, with the deciding factor being their final league position. At the time of writing, Reading are 19^th, one places above last season’s 20^th placed finish. Should they climb or fall, this will impact their broadcasting revenue, while relegation would have a long-term impact on their revenue and finances in general.

Costs Analysis

Reading saw a sizeable increase in costs despite falling revenue, hurting profitability considerably. Costs rose from £44.2m to £56.7m (28%).

Amortisation more than doubled, rising from £3.7m to £8.2m (122%) on the back of significant player investment, relative to recent levels. This investment has yet to pay any dividends with performances worsening rather than improving.

Reading incurred lease costs of £0.2m, an amount that will increase following the sale and lease back of the Madejski stadium (see debt analysis for more details).

Interest costs fell to almost zero, decreasing from £2.2m to £0.2m. This was mainly due to £1.2m of costs relating to arranging loans last season that weren’t present this year. General loan interest expenses fell as well.

Reading paid no tax this year having incurred a large loss, this is likely to be the case for the foreseeable future given their revenue and costs currently.

Wages rose from £37.9m to £35.3m (27%) after the signing of new higher-earners, while new contracts were rewarded to the players who performed so well in 2017.

There would also have been severance payments to Jaap Stam and his staff, although these haven’t been disclosed.

The wage increase works out at a sizeable extra £142k a week, a figure that is going to have to be reversed following a couple of poor seasons that have stretched their finances.

Directors were rewarded for their 2017 performance in 2018, as their renumeration increased from £0.7m to £1.4m, despite a poor season. It remains to be seen whether this will fall back to 2017 levels given the poor season the club are having.

Looking ahead, costs are likely to remain at a similar level, although they really do need to begin controlling their costs too avoid financial fair play issues as their losses mount. A second successive poor season is likely to be the catalyst to a cost reduction strategy, with high-earners likely to depart, while transfer spending will also fall.

Transfers Analysis

Reading had a busy season in the transfer market as they signed 5 players and sold 3, spending the largest amount they have done in over 6 years.

In came Aluko (£6.8m), Mannone (£2.1m), Barrow (£1.5m), Bacuna (£1.4m) and Edwards (£1.0m) for a combined £12.7m.

Departing the Madejski stadium were Beerens (£0.9m), Samuel (£0.5m) and Hurtado (£0.5m) for a combined £1.9m.

Reading’s net transfer spend hence increased from £2.7m to £10.8m (300%) as they recorded their largest net spend in recent memory.

The signings were meant to push the club on having narrowly missed out on promotion, however they did the opposite with none of the players (bar Barrow) impressing.

Reading did at least manage to record a profit on player sales of £1.4m. They also hold sell-on clauses on 9 players being McCarthy, Novakovitch, Fosu, Cooper, Norwood, Beerens, Samuel and Al Habsi that may bring some money into the club soon.

In cash terms, Reading spent a heavy cash load of £19.2m as they had to pay for transfers from previous seasons. In contrast, Reading only received £2.0m of cash in 2018, a net cash outlay of £17.2m.

It doesn’t get any better financially as Reading still owe £6.9m (all of which is owed this year) and are only owed £0.5m. This £6.4m owed needs to be funded and will further constrain any future transfer plans.

Reading may also potentially owe players, clubs and agents a further £12.9m in contingent transfer fees should certain clauses be met, although it is unlikely all of this will ever become payable.

Debt Analysis

A poor season for Reading ended in the need for cash to fund their spending (which was meant to be funded by a return to the Premier League).

Cash levels remained low, falling from £1.1m to £0.7m (36%) as their losses were funded via three main sources: new shares issued by their owners (£15.8m), new loans from their owners (£3.2m) and the sale and leaseback of the Madejski stadium (£26.5m). These funds were used to pay for transfers, fund their losses and invest in their infrastructure (£1.1m).

The sale and leaseback of the Madejski stadium for £26.5m to their owners is a short-term measure to provide funding. What it does is at least give their owners something in return for their investment. The lease is £750k a year until 2043. The value of the stadium hasn’t been disclosed so it is uncertain whether this was a fair deal for Reading or not. It is likely that following the lease ending in 2043, the Madejski stadium will return to the ownership of the football club.

Debt levels increased from £58.4m to £61.2m (5%) after the owners lent a further £3.2m to the club. The owners also gave Reading funds of £15.8m by issuing new shares, Reading will not have to repay their owners this money. Looking ahead, unless costs are cut it is likely further funding will be necessary.

Net debt hence increased from £57.3m to £60.5m (6%). The increase is not big but masks the fact that they received £15.8m in share issues and also had to sell and lease back their stadium.

With their parachute payments running out and a return to the Premier League looking remote currently, Reading’s financial health will only deteriorate further unless significant financial changes are made or there is a surprise upturn in performances on the pitch.

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March 26, 2019March 29, 2019

Ipswich Town FC’s 2018 Finances – Out of Gas

Ipswich had another steady year in 2018, finishing 12^thin what was their 16^thconsecutive season in the Championship

It was a disappointing cup year with Ipswich not progressing past the third round in either competition.

Fans were not happy about yet another year in the Championship and the playing style of the team, with it all coming to a head with Mick McCarthy’s shock resignation.

Things haven’t improved this season with relegation looming which would affect finances going forward which are already not in a great state.

Losses increased by 21% to £5.2m, the third consecutive year Ipswich have recorded a loss.

Let’s delve into the numbers.

Revenue Analysis

Ipswich saw stable revenue, falling ever so slightly from £17.3m to £17.2m (1%), showcasing how stagnant the club have become even financially.

Matchday revenue fell from £5.1m to £4.7m (8%) due to attendances falling from 16,980 to 16,272 (4%) as fans became bored with a timid playing style and the same-old results. This was showcased by season ticket sales at the beginning of the season falling from 12,022 to 10,144 (16%), although this may have partly been a new ticketing strategy.

Broadcasting revenue increased from £7.8m to £8.1m (4%) after an increase in distributions from the EFL and the fact Ipswich finished 4 places higher than the previous season.

Commercial revenue remained stable at £4.4m as the club managed to retain existing deals but were unable to broker any significant new ones.

Looking ahead, a difficult season looks like ending in relegation will see a drop in revenue as broadcasting revenue falls due to less EFL prize money. Matchday revenue will fall as attendance once again drops while the loss of their Championship status would see commercial revenue drop. However, the full effect of relegation would be felt in the following season when they receive League One TV money rather than Championship money which would see a drop of at least 60%.

Costs Analysis

Ipswich saw costs rise despite stable revenue, hurting profitability significantly. Operating costs rose from £20.5m to £25.7m (25%).

Amortisation rose from £0.7m to £1.1m (57%) after Ipswich invested relatively heavily (considering previous transfer windows) to try and revitalise the club from their sombre state.

Interest costs, you guessed it, remained stable at £0.6m, decreasing by £12k in total.

Ipswich had no corporate tax to pay due to making a loss last year.

Wages were the main area where costs grew, increasing from £17.8m to £18.5m (4%) as their new signings attracted slightly higher wages. Wages make up the majority of their costs at 72%.

To put it into context though, these extra wages costs Ipswich an extra £13k a week, a minor sum.

Surprisingly, directors saw their wages increase from £76k to £130k (71%) despite an average season.

Looking ahead, Ipswich are likely to see a drop in costs regardless of whether they retain their Championship status. The sale of key players this year will see wages drop, while if they get relegated they will also see wages drop as relegation wage-drop clauses come into effect.

Transfers Analysis

Ipswich were busier than usual in the transfer market, bringing in 5 players in what was their biggest transfer outlay in years.

In came Huws (£1.0m), Garner (£1.0m), Waghorn (£1.0m), Drinan (£0.1m) and Cotter (£0.1m) for a combined £3.2m.

The only departure was Kieffer Moore for £0.8m.

This led to a net transfer spend of £2.4m their biggest since 2013 (which was also the last time they had a net spend).

Ipswich sold Adam Webster to Bristol City on the 28 June 2018 (just before their financial year ended on 30 June 2018) which along with the sale of Moore helped Ipswich record a profit on player sales of £3.8m. Webster was not included above as it relates more to the 2018/19 season that to this one.

The signings by Ipswich showed promise with Waghorn being a great buy who was sold to Derby for more than £5m this season. Huws seemed a good buy while Garner was also decent for Ipswich before leaving for Wigan.

In cash terms, Ipswich spent cash of £1.4m and received cash of £1.4m, meaning they pretty much broke even.

Ipswich are also owed a further £3.4m (most probably in relation to the sale of Webster) while they only owe £1.1m in transfer fees to other clubs (of which £0.6m is due this year). This should be useful in providing funds for future investments or too cushion relegation should the worse materialise this season.

Ipswich could potentially owe another £0.6m in transfer fees should certain clauses be met, although it is unlikely the full amount would be realised, and even if it did the amount is minimal and unlikely to affect their long-term finances.

Debt Analysis

Ipswich remained in a very similar position to last year, the club had minimal cash in their coffers as all cash received from revenue and transfers was used to pay their transfer fees and cover the increased costs.

Increased costs were also partly funded by new loans of £6.1m, while their financial plight saw club investment stifled, as club facilities investment spending fell from £0.5m to £0.2m (60%).

Debt rose from £89.3m to £93.2m (4%) after new loans were provided by companies owed by Marcus Evans with interest rates varying from 0% to 7%.

Debt levels have remained around £86m for some time as Marcus Evans refuses to invest more heavily in the club that desperately needs revitalisation following years of stagnating.

Net debt hence increased from £89.3m to £93.2m (4%).

Rumours have been rife that Marcus Evans is open to a sale of Ipswich, with a price of £35m mooted, although this has been denied by the club.

Evans is deeply fond of Ipswich having grown up in Suffolk and is said to be only willing to sell the club to someone who has the finances to take the club forward.

With relegation looming, the value of Ipswich is likely to have plummeted making any sale difficult. Relegation may be just the tonic Ipswich need to get out of their 16-year Championship slumber and restructure the club to then move forward.

The finances have been poor for some time, losing on average of £6m a year which will only increase with relegation and may require further investment soon from Evans or elsewhere going forward to avoid financial disaster. Financial Fair Play unlikely to be an issue currently with the losses within the limits allowed.

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March 25, 2019March 25, 2019

Wigan Athletic’s 2018 Finances – Wigan’s Woes

Wigan secured an immediate bounce back to the Championship following an unexpected relegation last year by winning League One.

Promotion was the minimum expectation and Wigan met this challenge successfully to avoid financial ruin.

An FA Cup Quarter Final run was a further highlight to a good season that gave fans renewed optimism going into 2019.

Relegation was however costly for Wigan, increasing their losses from a measly £1.6m to an eye-watering £27.6m (1,000%!).

Let’s delve into the numbers.

Revenue Analysis

Wigan saw a huge drop in revenue as it fell from £27.2m to £9.3m (66%).

Matchday revenue dropped from £3.0m to £2.1m (30%) as Wigan suffered from lower attendances at games and also from cheaper tickets. This is despite having more home games as their FA Cup campaign yielded 6 home ties.

Broadcasting revenue fell off a cliff, free-falling from £20.2m to only £3.1m (85%). This drop was more pronounced then the majority of relegations from League One to Championship due to the fact that Wigan were receiving their final parachute payment during the 2016/17 season.

This meant that not only did broadcasting revenue from the Championship drop to League one levels, they also lost the buffer that their former Premier League status gave, talk about poor timing!

Even a solid FA Cup run couldn’t save their broadcasting income.

Commercial revenue surprisingly remained robust, even increasing slightly from £3.3m to £3.4m (3%) despite the loss of their Championship status. Their immediate return means that they are unlikely to see any drop in commercial revenue and now have a platform to build from.

Other revenue remained stable at £0.7m.

Looking ahead, Wigan can expect to see a rise in revenue which should at least double to around £7m due to promotion back to the Championship and could well approach £9-10m. Matchday revenue should return to around £3m while commercial revenue has potential to grow.

Revenue will still be substantially below their 2017 revenue due to no more parachute payments as mentioned above.

Costs Analysis

Wigan saw their costs thankfully decrease last year, falling from £33.9m to £28.9m (15%). This was still a much lower fall than the fall in revenue, hurting profitability hugely. Crazily, revenue is less than 3 times the size of their costs, an unsustainable position to be in for any business for any prolonged period of time.

Amortisation was almost halved in the year, decreasing from £4.4m to £2.4m (45%) as investment in the playing squad fell significantly following relegation which was a necessity.

Interestingly, Wigan disclosed their agent fees which fell from £0.9m to £0.5m (44%), a figure which still seems high considering Wigan spent only £0.6m in transfer fees and received £1.0m.

A huge part of Wigan’s costs and hence loss was due to an accounting impairment on the goodwill in the club that was created when they were brought. Wigan being relegated obviously saw their value plummet and hence the goodwill was devalued due to this (technical accounting sits behind this explanation). The good thing however is that due to the nature of this cost (being just an accounting costs and not a real one), it will not be taken into account in any Financial Fair Play investigation.

Wigan saw wages fall from £18.1m to £13.6m (25%) as relegation wage drops came into effect and some high-earners and fringe players left as Wigan attempted to create some sort of wage control to brace for their season in League One.

The wage drop was equivalent to a saving of £87k per week, a sizeable amount for a club the size of Wigan.

Wigan also had interest on new loans of £1.0m in the year, having previously had loans that were interest-free.

Wigan also paid no tax due to their loss in the year.

Looking ahead, Wigan can expect a fall in costs due to the unlikelihood of another sizeable impairment of goodwill. Wages are likely to increase slightly however not substantially as Wigan look to be more prudent following promotion.

Transfers Analysis

It was a quiet transfer season for Wigan, with two signings and two departures for low transfer fees.

In came Walker (£0.3m) and Vaughan (£0.3m) for a combined £0.6m.

Out went Bogle (£0.7m) and Woolery (£0.3m) for a combined £1.0m.

This led to a small net income of £0.4m, the 6^thconsecutive year of having net transfer income as the club are forced to budget and partly rely on transfer income to stay afloat.

The new signings were important in securing the league title and the departures were not particularly missed despite their quality.

Wigan also recorded a profit on player sales of £1.0m, which is almost all the fees received in the year despite Bogle being purchased the year before for £0.8m. It is likely that the fees on transfermarkt.com are slightly wrong.

In cash terms, Wigan spent cash of £2.8m and received a mini windfall of £5.9m, a net cash income of £3.1m as they received a large amount from previous transfers (most likely Wildschut) which helped the club following the loss this year.

Wigan are also owed a further £0.5m (all due this year) and owe £0.3m (all due this year), meaning they are net due £0.2m which isn’t much and shouldn’t help or hinder any future transfer plans.

There are potential contingent transfer fees payable of £3.6m should certain transfer clauses be met, although it is unlikely a large part of this is ever paid.

Debt Analysis

Wigan needed all the cash they could get their hands-on meaning cash reserves halved from an already low £1.0m to £0.5m (50%). Wigan used cash received from transfers (£3.1m) and new loans (£2.3m) to subsidise their costly relegation.

Relegation also threatened investment in club facilities, as investment fell to £0.3m from £0.6m (50%) as club improvements became low priority in the face of poor finances.

Debt increased due to the new loans mentioned above, increasing from £12.3m to £14.8m (20%). Wigan received new bank loans of £1.7m and also new owner loans of £0.9m, while a small amount was repaid to Whelan before the sale of the club.

Following a sale of Wigan to International Entertainment Corporation (IEC) by Whelan, Whelan is to be repaid all of his loans by IEC which are approximately £11m.

It remains to be seen whether IEC will include this £11m or so as an amount owed to them by Wigan or if they are just going to pay it off as part of the acquisition consideration.

Wigan hence saw net debt increase from £11.3m to £14.3m (27%). Wigan seem financially secure following their sale by Whelan who could no longer cope with the pressures, both financially and sporting.

It now remains to be seen what the level of ambition is of IEC and their plans for Wigan who are in need of investment in their playing squad should they harbour ambitions of remaining a Championship club, let alone returning to the Premier League.

Wigan’s return to the Championship should enable their finances to begin improving although we expect them to remain loss-making for the time being until a return to the Premier League is secured, costs are cut significantly, or a big player is sold.

Lastly, from an FFP standpoint, Wigan should be okay due to the nature of some of their costs which is likely to be excluded when examining whether any rules have been broken.

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March 8, 2019March 9, 2019

Aston Villa FC’s 2018 Finances – Financial Limbo

Aston Villa had an interesting season that ultimately ended in disappointment, failure and fear following a narrow 1-0 loss in the Play-off final to Fulham after finishing 4^th in the Championship.

This condemned Aston Villa to their third successive year in the Championship and after the level of investment immediately following relegation, was a huge failure and unplanned disaster for the club.

The huge financial gamble (in failing to control costs) taken led to questions of the financial viability of the club going forward that needed the intervention of billionaires Nassef Sawiris and Wes Edens to save the club from what seemed to be financial meltdown.

The investments made and the failure to secure promotion meant there was no way of recouping any of their investment this season and after a loss of £36.1m, Aston Villa were in a spot of bother. This isn’t the end of their troubles despite significant investment. A cumulative loss over the last 3 years of £131.3m is well over the EFL’s Financial Fair Play limits and Aston Villa may be penalised as a result.

Let’s delve into the numbers.

Revenue Analysis

Aston Villa saw a fall in revenue despite improved performances in the Championship this season. Revenue decreased from £73.8m to £68.6m (7%).

Matchday revenue increased from £10.7m to £11.8m (10%) despite revenue being relatively stable, increasing slightly from 32,018 to 32,095, signalling higher prices or a change in the mix of season tickets and matchday sales. The play-off matches also would have significantly boosted matchday revenue.

Broadcasting revenue fell from £48.1m to £40.3m (16%) as despite finishing 9 places higher last season, the fall in parachute payments majorly overrode this increase. This will only fall further next year, making a return to the Premier League of the upmost importance.

Commercial revenue increased from £15.0m to £16.5m (10%) signalling a good year for Aston Villa considering they remain in the Championship; however, they are still a long way off the £30m+ they used to attract while in the Premier League.

Looking ahead, Aston Villa are likely to see a further drop in revenue following a difficult season where the Play-offs is looking more and more like an unlikely possibility. Even with a play-off appearance, revenue is likely to fall on the back of parachute payments declining again. Aston Villa will be hoping to sneak into the play-offs and also that their commercial department can make up any shortfall in revenue as they look to attract more lucrative sponsors comparable to their Premier League days of around £30m.

Costs Analysis

Aston Villa saw their already substantial costs rise further, increasing from £114.9m to £122.6m (7%). This fall is largely at the same rate as revenue, meaning that profitability has largely remained unaffected.

Amortisation remained relatively stable at £23.8m (2017: £23.7m) as transfer spending slowed considerably on the back of their financial instability.

On a positive note, Aston Villa invested £10.7m, nearly double the already sizeable amount of £5.9m (81%), showing that hopefully their future will be bright.

Net interest costs rose significantly from £0.1m to £0.9m as the club had interest charges on their bank overdraft and other short-term loans needed to save their financial future over the summer prior to the investment received.

Aston Villa have failed to control their wages and costs since relegation in the hope an immediate return would mean they wouldn’t have to worry about it. This Premier League return has failed to materialise so far, and wages are still rising, increasing from £61.5m to £73.1m (19%).

Aston Villa’s wages alone are greater than their revenue meaning they’re already at a loss before other expenses are taken into account. Therefore, Aston Villa can only be profitable currently by selling players which is far from sustainable.

The wage rise this year works out a large £223k, an additional amount that Aston Villa cannot really afford at the moment.

Maybe rightfully so, but interesting nonetheless, Aston Villa claim no directors received a salary in 2018 as the club underwent a restructuring among key management, which is defined by Aston Villa themselves. Therefore, it is entirely possible that they have paid their key directors but have decided they aren’t ‘key management’ so have not disclosed this amount.

Looking ahead it does not look likely that Aston Villa will reduce their costs despite the need to next year. New signings were made last year and although there were outgoings, the wage structure is unlikely to have fallen (nor will amortisation). This means that further investment will be needed by their owners to keep Aston Villa afloat.

Transfers Analysis

It was a quiet transfer window by Aston Villa’s standards.

Entering Villa Park were Whelan (£1.5m) and Elmohamady (£1.0m) for a combined £2.5m.

There were a few more departures as the following left Villa Park: Veretout (£6.3m), Baker (£3.9m), Sanchez (£2.7m), Amavi (Loan: £1.8m) and Bacuna (£1.4m) for a combined £16.1m.

This led to a negative net spend of £13.6m, a far cry from the net spend of £34.8m last season.

The signings were helpful to their promotion charge as their familiarity with Steve Bruce’s tactics was vital to their chances. The departures were mostly high earners and were not missed it would seem during their season.

The sale of those players helped Aston Villa record a profit on player sales of £15.9m which was still nowhere near enough to dent Aston Villa’s significant loss last year.

Aston Villa were still paying significant amounts of cash on previous transfers as cash of £41.1m was paid despite only signing £2.5m worth of players last year. Aston Villa did at least also receive £37.1m in cash from other clubs.

Aston Villa are also owed a further £18.1m in transfer fees from other clubs. However, Aston Villa owe £27.3m in transfer fees, of which £20.5m is due this year. This net burden of £9.2m is far from insignificant and will impact any spending by Aston Villa going forward.

Aston Villa could also potentially owe a further £2.0m in transfer fees should certain clauses be met by players.

Debt Analysis

Under their new owners, Aston Villa have seen a huge change in their debt profile.

Aston Villa saw cash levels more than double from £1.6m to £3.4m (113%) as the previous owners invested a net £21.5m in the club to help the clubs’ cash levels after the huge loss experienced and transfer fees due.

Debt fell from £50.1m to £6.0m as Aston Villa’s previous owners were repaid their owner loans of £48m and this was replaced with equity funding of £69.5m meaning the club now only have £6m in external debt as the owner changed the debt profile of the club, probably due in part to Financial Fair Play pressures and the sale of the club in June.

It remains to be seen whether the debt within the group will rise under new ownership or if it will similarly be investment by equity funding – meaning the new owners could only be repaid by a sale of the club and not the repayment of debt.

Net debt hence fell from £48.5m to £2.6m (95%).

Aston Villa interestingly are being sued by a former employee for unfair dismissal which may affect their finances further, no amount has been disclosed at the potential size of this lawsuit.

Aston Villa will now worry about Financial Fair Play which they will struggle to comply with this year and going forward unless promotion is secured or costs are significantly cut. Any Financial Fair Play sanctions will mainly hurt the owner, however due to the instability of the club, they will be hoping any threats of sanctions does not make their new owners get cold feet about the club as this could threaten Aston Villa’s long-term future.

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March 6, 2019March 7, 2019

Wolves FC’s 2018 Finances – Financial Fosun Play

Wolves had an outstanding 2018 after winning the Championship with ease following sizeable investment from their ambitious owners, Fosun.

Not only did they win the league, the style of play was that of a Premier League club and the side will go down as one of the best to grace the Championship.

Wolves’ heavy investment has led to a huge loss in the year that may cause Financial Fair Play issues in the near future as Wolves recorded a loss of £57.2m, more than double the £23.2m loss last year, which was already a sizeable amount.

Let’s delve into the numbers.

Revenue Analysis

Wolves unsurprisingly saw a rise in revenue after a successful season, as revenue rose from £23.7m to £26.4m (11%).

Matchday revenue rose from £6.5m to £7.8m (20%) after a great season drove improvement in match attendances with season ticket sales increasing from 13,757 to 21,233 (54%), an incredible one-year increase. Match attendances were also up from 21,572 to 28,298 (31%).

Broadcasting revenue was surprisingly stable at £8.0m despite promotion and a fantastic season in general, however this is because last year was their last of parachute payments after relegation from the Premier League 4 years ago, making it a timely return.

Commercial revenue impressively rose from £7.6m to £8.9m (17%) as their new links through their owners paid dividends as that combined with a strong performance by their commercial team meant new, lucrative relationships were formed.

Other revenue rose from £1.6m to £1.7m (6%).

Looking ahead, Wolves are going to see an astronomic rise in revenue next season on their Premier League return. Revenue is likely to quadruple if not more as their solid mid-table season to date means broadcasting revenue is likely to be in excess of £100m while their solid campaign means that both matchday revenue and commercial revenue are likely to rise.

Costs Analysis

This is where Wolves’ finances get interesting. Extraordinarily, Wolves costs rocketed to £91.2m from £48.5m (88%) as Fosun invested heavily into the club but caused Financial Fair Play issues to rear its head.

Amortisation more than doubled from £7.6m to £16.1m (118%) after huge levels of player investment relative to the size of the club previously. We expect that this will continue to increase as the club invest more and more into establishing Wolves as a Premier League mainstay.

Wolves saw interest costs fall slightly from £0.6m to £0.4m (33%), however these amounts were minimal to begin with.

Incredibly, wages rose from £28.2m to £50.7m (80%) as the club invested in their playing squad and brought in some marquee signings that needed marquee wages to sign. What is amazing about their wages is that it is nearly double their revenue of £26.4m which is unheard of levels of financial risk. Had the club failed to secure promotion, Wolves would have found themselves in deep water without more investment from Fosun.

It also questions how Financial Fair Play could allow such a situation without punishment due to the huge gamble the club made in attempting to secure promotion and the potentially unfair advantage this bought.

The wage rise is the equivalent of an eye-watering £433k extra a week, even more crazy considering they were a Championship club at the time.

A large portion of the wage rise will be due to promotion-related bonuses, possibly to the tune of £25m (maximum). This amount is likely to be excluded from any loss calculations made in relation Financial Fair Play due to the cost only being realised due to promotion. This may help Wolves when arguing their case, if it comes to that.

Directors saw their pay apparently cut from £494k to £110k (78%).

Looking ahead, Wolves will see costs rise even further as the money keeps flowing. This may also increase more than expected should the club receive any Financial Fair Play penalties if they are deemed to have broken the rules (which seems likely). Losses should however fall next year as revenue growth outpaces costs growth significantly.

Transfer Analysis

Wolves’ relationship with Jorge Mendes made for an exciting transfer season for the club as exotic names entered the Molineux.

In came Neves (£16.1m), Miranda (£2.7m), Mir (£1.8m), Douglas (£1.0m) and Stevenson (£0.5m) for a combined £22.2m.

Leaving Wolves were Dicko (£3.4m), Edwards (£1.0m), Evans (£0.8m) and Saville (£0.5m) for a combined fee of £5.7m.

This meant Wolves had a net spend of £22.2m, down 45% on last year as Wolves focussed more on getting the right player than spending senselessly.

This tactic worked as the additions really improved the squad and the signing of Neves was inspired as he made his own goal of the season competition while dictating the play of the club.

Wolves’ loss was not bigger only because of player sales on which Wolves made a profit of £8.1m (some of the summer sales slipped through to be included this year).

Wolves paid cash of £25.1m to buy players last season and only received £7.3m in cash for player sales, a net position of £17.8m which required funding from Fosun.

Wolves are also owed a further £5.0m in transfer fees, however, Wolves owe £23.0m in transfer fees, of which £17.5m is due this year which is a sizeable cash burden to Wolves. This didn’t however seem to curb spending last summer on their Premier League return.

Wolves may also have a further £9.0m in contingent transfer fees to pay should certain clauses be met.

Debt Analysis

Fosun’s Wolves are running up their debts to their owners this year after he began investing huge funds into the club who previously had little debt.

Cash levels fell slightly from £3.2m to £2.3m (28%) as the club spent heavily and Fosun funded the club with £48m in new loans which was used to pay for transfer fees (£25.1m), facility improvements (£2.8m) and the increased costs Wolves experienced last year.

This loan led to debt levels increasing from £27.0m to a huge £75.0m (178%) which is all owed to Fosun and attracts no interest charges. Fosun has big plans for the club and looks like they are just getting started with the investment into Wolves which is a good sign to the club. With performances matching what you would expect from their investment so far, Fosun will be happy to continue his investment as it will improve the value of Wolves which is how they will get recoup their investment when Wolves are eventually sold at a huge profit on the reported £45m paid for the club.

Net debt hence increased from £23.8m to £72.7m (205%) after the huge investment by Fosun.

Wolves fans need not worry about their financial situation as long as the owner stays interested, which so far seems the case. The only issue Wolves may have is their compliance with Financial Fair Play.

Championship clubs are meant to only record maximum loss of £13m loss a year. This means over a 3-year rolling period a maximum loss of £39m is usually allowed. Wolves have recorded a cumulative loss of £74.6m over that period, nearly double the limit which is likely to be deemed unacceptable despite Fosun pumping £48m of his own money into the club.

It is now up to the EFL to decide whether to penalise Wolves in what seems to be financial foul play, however the huge investment by Fosun may circumvent the rules if the EFL have given consent for this investment. However, other Championship clubs may lobby for sanctions to avoid a similar situation occurring again which may force the EFL’s hands regardless.

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March 4, 2019March 4, 2019

Preston FC’s 2018 Finances – Profit But No Play-Offs

Preston enjoyed their third consecutive season in the Championship in what was their most successful to date in that period. Preston narrowly missed out on the play-offs, finishing in seventh place, an agonising 2 points from a chance at promotion. However, the club thrilled fans with what was an unlikely promotion push (following a poor February/March) after a strong finish to the season that filled the club with hope heading into the 2018/19 season.

Off the pitch was equally as promising with a third consecutive of profits which increased from £0.9m to £2.6m (189%) as the club consolidated their Championship status. It is worth noting that despite another year of profit, this wouldn’t have been possible without a big departure…

Let’s delve into the numbers.

Revenue Analysis

Despite a great season, Preston saw an ever so slight dip in revenue, falling from £13.5m to £13.3m (1%), although this amount is broadly in line with last season.

Matchday revenue interestingly fell from £3.7m to £3.4m (8%) despite season ticket sales increasing from 7,605 to 8,298 (9%), showcasing a near perfectly correlated negative relationship between the two, suggesting a poor ticketing strategy but potentially greater support.

Broadcasting revenue unsurprisingly increased, rising from £6.8m to £7.1m (4%) after finishing 4 places higher in the league, although Preston did perform worse in the League Cup (although they went one round further in the FA Cup).

Commercial revenue disappointingly fell slightly, falling from £2.9m to £2.7m (7%) as the club failed to capitalise on the feel-good factor around the club and the ever-growing popularity of the Championship and football in general.

Other revenue remained stable at £0.1m.

Looking ahead, Preston are likely to see much more of the same with a slight dip in revenue following a poorer season to date (although Championship prize money is rising which will negate this). A late promotion push, much like last season, may see their outlook change completely. The club also need to perform better in the commercial department and will be hoping to attract more lucrative sponsors in the near future while they will hope that the increased season ticket sales begin to pay dividends.

Costs Analysis

Preston saw a rise in costs despite falling revenue as costs increased from £19.8m to £21.1m (7%), adversely affecting profitability in the process.

Amortisation rose from £1.4m to £2.0m (43%) after an increase in transfer spending which the club aren’t usually accustomed too (although completely funded by player sales). Although amortisation rises usually signals an increase in player investment, this would be misleading here as Preston only reinvested a small sum of the fee received for Hugill this season (more on the reason why below). However, due to this amount being greater than usual and Hugill not attracting much amortisation (due to being bought for £27k!) this meant a rise in amortisation.

Preston had no interest costs in the year (and a small amount of interest income of £25k).

Preston paid tax of a measly £9k due to benefitting from previous losses which were used to offset the profit of this year for tax purposes.

Wages made up the majority of Preston’s costs and increased from £13.5m to £15.0m (11%) as the club began paying higher salaries and players benefited from bonuses in their contract for a good season.

The rise in wages works out at an extra £29k a week, a not insignificant amount for Preston.

Preston’s directors didn’t see a wage rise of any sort unfortunately for them as their wages remained at £156k.

Looking ahead, Preston will likely see similar levels of costs next season with no major changes within the playing squad. Wages are likely to rise a little after Preston replaced Cunningham with three players. Amortisation will hence rise due to a similar situation as mentioned above.

Transfer Analysis

Preston were active in the market following the huge blow of losing Hugill in January in the midst of a play-off push. Things didn’t quite go to plan for the forward at West Ham, however his importance to Preston at the time was invaluable.

Entering Deepdale were Rudd (£1.0m), Moult (£0.5m) and Bodin (£0.4m) for a combined £1.9m.

Departing Deepdale were Hugill (£9.2m) and May (£0.4m) for a total of £9.6m.

This led to Preston having a negative net spend of £7.7m, the second successive year of negative spending but improving results.

The loss of Hugill affected their play-off push and may have been a costly error despite his struggles elsewhere.

His sale did however help Preston record a profit this year as his sale meant a profit on his sale of £9.7m was recorded in their financial accounts, meaning the club would have made a loss of £7.0m if he wasn’t sold (and May contributed slightly as well).

The transfer activity this year brought in £3.4m in cash to the club’s coffers with the remaining to be paid in instalments. Preston did however spend cash of £4.5m surprisingly as past transfer had to be paid for, meaning a net £1.1m cash outlay, explaining why not all of the Hugill transfer fee has yet been spent.

Preston are however owed a further £7.7m in transfer fees over the next year or two and in contrast only owe around £1.8m in transfer fees, a net £5.9m position which is a good position to be in.

The club don’t have any contingent transfer fees they expect to be payable or receivable in the future.

Debt Analysis

Preston saw cash levels more than halve from £3.2m to £1.4m (56%) as they reinvested the Hugill cash received in new players and also spent £2.2m on their facilities, which was also in part funded by new loans of £5.7m.

Debt increased from £30.7m to £36.3m (18%) on the back of this new loan, the fourth consecutive year debt has risen since it was halved in 2014.

All loans are owed to their owners and as such, they are not a liquidity risk as the owner will be repaid when he sales the club or decides to remove some cash (which they won’t do unless the club are financially able). The loans also carry zero interest.

This has led to a sizeable increase in net debt, increasing from £30.7m to £36.3m (27%) as cash fell and debt rose.

Preston have no reason to worry financially, the club are fairly stable and are also run prudently and within their means. The club do however need to be wary of increasing costs, as with revenue not increasing, profitability is being eroded which may lead to losses going forward as would have been the case this year without the sale of Hugill.

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March 2, 2019March 2, 2019

Barnsley 2018 Finances – Relegated but Ready

2018 was a difficult year for Barnsley as they battled bravely against relegation to no avail. The mid-season departure of Paul Heckingbottom to Leeds was a huge blow and didn’t help their battle for survival in the Championship as the club fell to a 22^ndplaced finish.

Off the pitch, their long-time owners, the Cryne family, sold 80% of the club to international investors. Shortly following this, Patrick Cryne passed away, may he rest in peace following his services to the club. His son, James Cryne, continues to hold the 20% stake in Barnsley.

Barnsley did return to a loss-making position last year however, the fall in player sales being the main reason. Barnsley recorded a loss of a measly £0.2m (essentially breaking even), after recording a £12.8m profit last year (of which £13.6m related to player sales).

Let’s delve into the numbers.

Revenue Analysis

Barnsley’s second successive season in the Championship brought with it an increase in revenue. Revenue rose from £12.5m to £14.0m (12%).

Matchday revenue fell slightly from £3.7m to £3.6m (3%) as attendance fell slightly as relegation loomed. Barnsley will be hoping a more successful season in League One will see matchday revenue rise.

Broadcasting revenue increased despite relegation, rising from £7.2m to £8.2m (14%) as the club benefitted from an increase in distributions from the EFL. Broadcasting revenue will experience a large fall after relegation as the prize money available in League One is much lower than that available in the Championship.

Commercial revenue increased from £1.1m to £1.2m (9%) despite relegation as Barnsley managed to attract new sponsors. Barnsley will be hoping they can retain these sponsors despite relegation as they plot an immediate return to the Championship.

Other revenue doubled from £0.5m to £1.0m (100%).

Looking ahead, Barnsley will see an inevitable drop in revenue as broadcasting revenue plummets following relegation. The magnitude of the fall will depend on whether they can bounce back immediately and also whether they can increase matchday or commercial revenue which is a possibility but will be difficult.

Costs Analysis

Barnsley saw a rise in costs as they attempted to avoid relegation. Costs rose from £12.1m to £15.4m (27%), a rise that is significantly more than the 12% growth in revenue, hence Barnsley’s profitability took a hit.

Amortisation doubled from £1.1m to £2.2m (100%) as the club invested more heavily than usual in their playing squad as they looked to push on last season following survival in the previous campaign. This unfortunately didn’t materialise.

Lease charges on facilities remained stable at £150k.

Interest charges rose 54% from £100k to £154k.

Barnsley’s wages increased significantly from £8.6m to £10.6m (23%) as the club invested in their players and attracted new players at higher earnings. This rise would have been larger had it not been for relegation and the relegation wage drop clauses that brings.

This wage rise is the equivalent of an extra £38k per week, a lot for a club the size of Barnsley.

Directors also saw their wages rise significantly, increasing from £131k to £185k (41%) despite relegation, maybe a sign of good will to the directors staying following a change in ownership.

Looking ahead, costs are likely to fall as the club reacclimatise to life in League One. Relegation wage drop clauses will come into full effect. However, Barnsley did not sell many players this season in the hope of an immediate return to the Championship so wages and costs in general may not fall that much. If this is the case, Barnsley may experience a big financial loss this year.

Transfer Analysis

Barnsley had a very active transfer season last year as they attempted to kick on in the Championship with a raft of new players.

In came McGeehan (£1.0m), Thiam (£1.0m), Moore (£0.8m), Potts (£0.8m), Pinnock (£0.5m), Pearson (£0.5m), Knasmullner (£0.5m), Lindsay (£0.4m), Mallan (£0.3m), McCarthy (£0.2m) for a combined £5.8m.

Exiting Barnsley were Roberts (£3.6m) and MacDonald (£0.7m) for a combined £4.3m.

This led to a net spend of £1.5m, a huge change from last season’s negative net spend of £9.8m.

Despite staying up last year, the exits of key players Bree, Mawson and Hourihane have come back to bite Barnsley and the investments made were not enough to combat this and survive.

Barnsley recorded a profit on player sales of £3.8m in the year on the back of the two player sales, down from £13.6m.

Interestingly, Barnsley spent cash of £5.2m in the year on transfer fees but only received £10k cash after apparently negotiating terrible payment terms on the sale of Roberts and MacDonald.

Even more interesting is that their accounts say they are only owed £2.6m in transfer fees so the rest of the fees must be contingent based. In contrast, Barnsley owe clubs £1.3m in transfer fees, all of which is due this year.

Barnsley may owe a further £3.3m based on contingent transfer fees that will become payable should certain transfer clauses be met.

Debt Analysis

Barnsley have historically been a well-run club financially with low levels of debt and this continued and even improved this season.

Cash levels fell slightly from £5.7m to £5.6m (2%) as the club reinvested the majority of the cash received from last season’s transfers on new players and higher costs.

Barnsley are now also remarkably debt free! Their owners converted their loans into share capital to eliminate their debt completely and will now only benefit from the club being successful when they choose to sell. The debt was converted as part of the acquisition of the club and means they are now self-sufficient.

This led to the club moving into a net cash position of £5.6m which is fantastic news for the club.

Now it will be interesting to see where the club goes from here. Promotion is very much on the cards so the fans will be hoping that their new owners invest more cash into the club or makes use of their cash reserves of £5.6m, although this amount may be needed to combat the fall in revenue Barnsley will experience on the back of last year’s relegation.

It is also worth noting that Barnsley are well within the Financial Fair Play rules and should have no problem meeting its requirements for the foreseeable future.

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March 1, 2019March 1, 2019

Nottingham Forest 2018 Financial Review – A New Era

2018 was the first full year of new ownership for Nottingham Forest under Mr Marinakis and Mr Kominakis. However, it was another disappointing season with relegation always in the background as the club finished 17^th.

After a period of bedding in and rebuilding, Nottingham Forest will hope that the significant investment made in the club will come good and see the club make its long-awaited return to the Premier League.

The investment made by the club had an immediate negative effect on their short term finances, as the club recorded a loss of £5.6m, a huge swing when taking into account a profit of £32.1m was recorded the previous season (although this was solely due to the write off of a loan that the club no longer had to pay, thus their loss excluding this amount actually shrunk).

Let’s delve into the numbers.

Revenue Analysis

Nottingham Forest saw revenue rise from £20.8m to £22.7m (9%) after a strong rise in matchday earnings.

Matchday revenue rose from £6.5m to £7.4m (14%), which was largely down to an increase in season ticket sales and high-profile domestic cup games against Arsenal (won 4-2) and Chelsea (lost 5-1) which featured very different outcomes. The high-profile cup games are just by chance so cannot be relied upon, however, with new found optimism around the club, Nottingham Forest will hope to be able to increase attendances further and enhance matchday revenue.

Broadcasting revenue rose from £8.2m to £9.0m (10%) after finishing a league place higher and the after mentioned high profile cup draws which had a strong impact on their revenue.

Commercial revenue disappointingly remained stable at £5.2m. Nottingham Forest will be hoping to drive increased commercial revenue in the coming years by revitalising the club and exploiting the commercial value of their huge fan base.

It is worth noting that Nottingham Forest increased revenue with the assistance of strong growth in catering (19%) and retail (8%).

Other revenue increased from £0.9m to £1.1m (22%).

Looking ahead, Nottingham Forest should see a rise in revenue this year. Performances at the club are improving and hence the stadium is getting fuller and as such matchday revenue will rise. A higher league finish will increase broadcasting revenue; however, this may be set off by the lack of marquee ties in this year’s domestic cups. Nottingham Forest will be hoping their commercial team has managed to bring in new sponsors that will boost this area of revenue.

Cost Analysis

Despite the increasing investment in the club, Nottingham Forest have reduced their costs slightly this year as their owners looked to control costs for future growth. Costs fell from £43.8m to £43.0m (2%).

Amortisation rose significantly, increasing from £2.0m to £3.2m (60%), signifying a huge increase in investment under their new owners in players (despite a negative net spend as Assombalonga was brought cheap and as such, attracted low amortisation).

Interest expenses increased from £25k to £325k as the club took out new, interest bearing loans.

The club also had loans owed to their owners of £5.0m written off in a similar way to last year’s £40.4m, so Nottingham have a further £5.0m of loans they no longer have to repay.

Nottingham Forest saw a slight deduction in wages as the owners exercised significant restraint in this regard, as wages fell from £28.6m to £27.7m (3%) after the club signed new players under a strict wage budget and let go of a couple of high earners.

The wage drop is minimal in context and works out at only £17k a week.

Interestingly, directors are the big winners under the new owners as their pay increased from £315k to £777k (147%).

Looking ahead, following a significant increase in investment, costs will rise next year as both wages and amortisation grow after a net spend in 2018/19 of £23.6m.

Transfers Analysis

Nottingham Forest Net Transfer Spend 2018

Nottingham Forest were prudent in the transfer market last year, spending less than halve of the windfall earned from the sale of Assombalonga.

In came Murphy (£2.1m), Cummings (£1.0m), Bridcutt (£1.0m), Darikwa (£1.0m), McKay (£0.8m) and Figueiredo (Loan – £0.2m) for a combined total of £6.0m.

The only departure was of course the high-profile sale of Assombalonga to Middlesbrough for £15.4m.

This led to a negative net spend of £9.4m, the third successive year this had happened.

The sale of Assombalonga was healthy for their finances as the club recorded a profit on player sales of £10.1m, down however on last year’s £14.7m.

In terms of cash, Nottingham Forest spent cash of £4.8m on transfers and surprisingly only received £4.5m as Middlesbrough managed to negotiate favourable payment terms on the transfer of Assombalonga.

This does however mean that they are owed a further £10.3m of which £5.0m is due this year.

Nottingham Forest in contrast only owe £4.5m, of which £2.8m must be paid this year. This means net, the club are owed £5.8m which is a good position to be in.

The club do however also have contingent transfer/contract fees of £3.9m which may become payable if certain clauses are met.

Debt Analysis

Nottingham Forest have historically had high levels of debt within the club. However, following the introduction of their new owners, this has begun to fall after they wrote off a huge £40m of debt last year (and a further £5m this year).

Cash levels are low, as with almost all Championship clubs, with all their cash needed to be competitive in the Championship. Cash levels did however double from £0.4m to £0.8m on the back of the Assombalonga transfer, and new loans totalling £12.8m.

Debt levels did rise, increasing from £45.3m to £49.2m (9%) as the club wrote off £5m in loans but took out a further £12.8m in loans, being mainly external debt, hence the rise in interest costs.

Net debt hence rose from £48.4m to £44.9m (8%) as the increased cash slightly offset the rising debt, although the rise in debt is relatively low.

It will be interesting to see if, following the debt waivers, the owners decide to increase debt levels again by pumping more money into the club or if he looks to finance from within. It seems the club may decide to go for broke under this owner who may decide to put his money where his mouth is in a bid to secure promotion which was suggested by the club’s transfer activity this season.

Fans should hope he chooses to invest himself as the introduction of more external debt will put pressure on the club should they over-leverage which may come back to haunt them.

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February 26, 2019February 26, 2019

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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