Middlesbrough 2018 Financial Review – Riverside Reeling

Middlesbrough were back in the Championship after a very brief 1-year return to the Premier League. The club had one aim; to make their Championship stay as short-lived as their most recent Premier League one.

Middlesbrough were close to meeting this objective, being in the automatic promotion chase for much of the season and despite falling short, they qualified for the play-offs with as much a chance of promotion as anyone. However, a semi-final exit saw the club’s deepest fears realised as they failed to escape the Championship at the first time of asking, a further hit to their finances after investing significantly to bounce straight back to the Premier League.

Middlesbrough were loss-making once again following relegation, as a £11.5m profit turned into a £6.6m loss, with a prolonged stay in the division likely to only increase the size of their losses.

Let’s delve into the numbers.

Revenue Analysis

Middlesbrough unsurprisingly saw revenue plummet following relegation, nearly halving from £121.4m to £62.0m (49%).

This was predominately due to broadcasting revenue more than halving from £101.5m to £46.6m (54%), as the club counted the cost of relegation with an eye-watering drop in TV/Prize money of £55m. This was even with receipt of sizeable parachute payments all clubs receive for a few years following relegation.

Matchday revenue fell significantly considering its normally stable nature. Matchday revenue fell from £8.7m to £7.1m (18%) as it fell below even 2016 levels due to lower ticket prices and match attendances. With Tony Pulis in charge, the style of football at the Riverside Stadium is not the most pleasing and will struggle to put bums on seats in the absence of results which is likely to suppress matchday earnings going forward.

Commercial revenue also experienced a relegation hit, falling from £11.2m to £8.3m (26%) as sponsors ran away due to the fall in global appeal of Middlesbrough following the loss of their newly earned Premier League status. Middlesbrough’s commercial team failed to manage sponsors and saw people leave as well as relegation clauses that led to lower payments come into effect. Middlesbrough will find it difficult to recoup the losses here in the absence of Premier League football.

Looking ahead, Middlesbrough will unfortunately see a further dip in revenue following a second successive season in the Championship. Parachute payments will fall which will reduce broadcasting revenue significantly again. Matchday revenue is likely to stabilise at between £7-8m while commercial income will likely see a further small dip if promotion is not achieved.

Costs Analysis

Middlesbrough managed to reduce costs as they re-acclimatised to the Championship. Costs fell by a third from £125.6m to £82.3m (34%), confirming that profitability has dipped as cost dropped at slower rate than revenue dropped.

Amortisation cost fell from £28.4m to £24.5m (14%). Although this usually signifies a drop-in investment relative to previous years, in actual fact Middlesbrough’s investment was fairly stable as last year the club impaired the value of some players following relegation. If this figure of £4m is omitted from the above, amortisation actually increased slightly, signifying stable investment.

Interest charges increased significantly in the year, rising from £0.3m to £1.5m (400%) after the introduction of new loans into the club (more on this later).

Middlesbrough saw a large drop in wages as wages fell from £64.9m to £48.7m (25%) as high-earners departed the Riverside and relegation wage-drop clauses came into effect.

The drop-in wages work out at a cool saving of £312k a week to the club which was much-needed following the fall in revenue following relegation.

Interestingly, Middlesbrough paid directors a measly £5k through their main company. It is likely (almost certain) that the actual figure is considerably bigger, this would either be because it just hasn’t been disclosed, paid elsewhere or the director was paid with shares.

Transfer Analysis

Middlesbrough were very active in the transfer window in 2018 as they overhauled the squad to prepare for a different challenge in the Championship as 9 players entered and 9 departed the Riverside Stadium.

In came Assombalonga (£15.4m), Braithwaite (£10.2m), Fletcher (£6.6m), Howson (£5.1m), Randolph (£5.0m), Shotton (£2.9m), Christie (£2.5m) and Johnson (£2.4m) for a combined £50.1m.

This was almost entirely funded by departures as De Roon (£12.2m), Rhodes (£10.5m), Ramirez (£8.1m), Forshaw (£4.6m), Espinosa (£4.1m), Christie (£3.1m), Fischer (£2.7m), Stuani (£2.3m) and Husband (£1.0m) left the club for a combined £48.4m.

This meant a net spend of £1.7m, down 95% on last year as the club had to balance the books. Relatively speaking, having a net spend at all after relegation shows a good level of ambition as clubs have to watch their finances after a large drop in revenue.

The signings were a mixture of successes with Assombalonga performing well while others were the sort of signings you need to succeed in the Championship. Those who left were not missed greatly with their performances at the club a major reason they were relegated in the first place.

Aiding performance was a sizeable profit on player sales of £15.3m, which stopped the loss being any larger as the club made a profit on a number of players who departed.

Middlesbrough do have some transfer worries financially as although £26.9m is owed to the club in terms of transfers and similar in the next few years, the club owe a whopping £56.2m in transfer fees to clubs from their failed Premier League campaign and this year. Of this fee, £40m of it is due this year which may be a concern should the club fail to gain promotion.

The club also has contingent transfer fees of £6.2m that may become payable should certain clauses be met.

Debt Analysis

Middlesbrough saw a steady rise in debt over the last few years to £100m, at which point it has begun to stabilise at that level. As with most Championship clubs, cash can be in short supply and the club need to utilise all their cash reserves to be competitive.

Cash more than doubled from a measly £0.2m to £0.5m as Middlesbrough’s cash balance remained fairly low with the club needing all the transfer fees and revenue received to push for promotion.

Debt levels remained fairly stable, falling slightly from £102m to £100.2m (1%) as the owners surprisingly didn’t feel the need to inject any new funds following relegation with the club able to fund itself. This may bode well if this means he has excess capital he can still put in should their promotion bid falter again, or it could signal and tone-down in investment from above.

The club also has a bank loan of £7.1m which it took out at £8.6m last year, paying down £1.5m in 2018. They will probably pay down a further £1.5m next year, an expensive interest charge that significantly increased their interest charge as mentioned in the cost section.

Middlesbrough seem relatively financially secure for the time being, however should the club remain in the Championship for a few seasons, their picture may change dramatically as their financial structure is one built for the Premier League.

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February 19, 2019February 19, 2019

QPR 2018 Financial Review – FFP Hits

QPR suffered their third consecutive season in the Championship following relegation from the Premier League. It was another disappointing season in the Championship after finishing 16^thas the club’s performances and finances continue to deteriorate after years of financial mismanagement.

This came to head in the form of a huge fine for the club from the EFL for Financial Fair Play (FFP) transgressions which has severely impacted their finances. QPR recorded a loss of £37.5m, and interestingly, for the records for the past 20 years we could obtain, shows the club have never posted a profit which shows their history for poor financial performance and management.

Let’s delve into the numbers.

Revenue Analysis

Revenue sank yet again, dropping from £47.6m to £31.5m (35%) as the club continued to languish in the Championship.

Matchday revenue fell only slightly, falling from £5.2m to £4.9m (6%) as the general dissatisfaction by fans reduced spending at matches and attendance as a whole.

Broadcasting revenue dropped significantly from £35.2m to £20.2m (43%) as a third year in a row in the Championship meant a further fall in parachute payments for QPR which could not be offset by a 2-place improvement in the league.

Commercial revenue was stable at £4.6m and it seems there is little hope of this figure increasing any time soon for a club in stand still, showing little to create a buzz for QPR fans or the football fans in general.

Looking ahead, QPR are likely to see revenue drop once more as parachute payments fall for again before they run out completely after next year. The club are likely to see stable matchday revenue and may see a drop in commercial revenue as current sponsorship deals run out and the club will find it difficult to attract new sponsors on lucrative terms.

Costs Analysis

QPR saw costs increase at the same time as revenue was falling, reducing profitability considerably. Costs rose from £56.0m to £73.7m, however if their huge fine of £20m (£42m in total – more on this later) is not taken into account, there is a small fall in costs.

Amortisation declined, decreasing from £11.3m to £9.1m (19%) as player investment was virtually non-existent again. QPR’s poor finances has held the club back in recent times and meant the club have been unable to invest into the club and has meant significant under investment after a period of excessive and poorly used investment.

Finances costs fell from £5.7m to a £5.0m finance income due to accounting rules around the FFP fine. In addition to this, the club paid no interest to their owners this year which hasn’t been the case in recent years.

Now to the big one, the FFP fine. The EFL have fined QPR £42m due to breaking FFP rules. This fine consists of:

A cash fine of £17m
Legal costs of £3m
The owners having to capitalise (essentially write-off) £22m of debt the club owe him. This debt was unlikely to be repaid any time soon anyway unless the club was sold for a large sum (which is unlikely in its current state)
A January 2019 transfer ban

This fine has had a significant effect on QPR and its finances, increasing their losses by £20m, however now that it has been finalised, QPR can move forward and plan for a healthier financial future.

Wages remained stable at £30.7m, falling by a measly £29k due to no major movement in or out of the club. Currently the club is restrained by FFP rules and the EFL from increasing their wages, the fine will however not be taken into account when setting the cap for this year for QPR.

Looking ahead, QPR are likely to see a full in costs, not least due to there being no fine to pay next year. Wages are likely to decline, and a further lack of investment will see amortisation fall also.

Transfer Analysis

QPR have had little transfer activity due to their current finances. The club saw Wheeler (£0.5m) and Smyth (£0.1m) join for a combine £0.6m. There were no fee-bearing transfers out of the club.

Despite this minimal net spend, there was some significant movement in terms of cash flowing in and out of QPR.

QPR saw a timely cash boost of £7.7m in terms of transfers from previous windows while they also had to spend £4.8m on previous transfers that they most likely regretted.

QPR will also earn a few more pounds as they are owed £1.2m in transfer fees still, of which £923k is due this year. In comparison, they only owe £64k themselves.

Debt Analysis

QPR’s current financial situation is a cause for concern due to the shaky foundation underneath it and their run-ins with the EFL and the FFP rules.

As with most Championship clubs, cash reserves are low. Their cash levels fell from £4.4m to £2.5m (43%) due to the increased loss incurred this. However, this was in part paid for by transfers fees (detailed above) and the owners plunging in a further £10m to steady the ship, they also had to repay £4m of bank loans.

Debt levels increased significantly, rising from £50m to £71m (42%) due to the new loan of £10m from their owners which took the debt owed by QPR to its owners to £56m.

The rest of the debt is the £15m (discounted figure) owed to the EFL for their FFP failures, with £4.7m due this year and the rest at a later date.

Hence, net debt levels rose from £45.6m to £68.5m (50%) as the club’s finances continue to cause worry. QPR will hope that the ending of the FFP saga will enable them to move forward. Of most importance is survival in the next two years as the acclimatise to life without parachute payments and begin to control their finances to a greater degree.

If this balance can be achieved, there is no reason why QPR fans can’t dream of a return to the Premier League in the next 5 years (on more stable footings than the last time).

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February 14, 2019February 14, 2019

Sheffield United 2018 Financial Review – Blades Cut Losses

Sheffield United returned to the Championship in the 2017/18 season with great success. Despite a poor start, the Blades form spectacularly picked up and a promotion charge was in the offing. Unfortunately a playoff place was narrowly missed, with Sheffield United being in the race until the penultimate game of the season. A successful league campaign was accompanied by a decent FA Cup run to the Fifth Round.

Off the pitch, financial losses fell as the club headed towards profitability with their loss levels decreasing from £5.7m to £1.9m. However, this was primarily a function of the sale of young starlet David Brooks at the end of the season.

Let’s delve into the numbers.

Revenue Analysis

Sheffield United saw revenue rise from £11.4m to £20.0m (75%), with a return to the Championship being the obvious major factor.

Matchday revenue rose by a third, increasing from £6.5m to £8.7m (34%) as the Blades sold over 20,000 season tickets on the back of promotion. Sheffield United benefit from having a relatively large stadium, average attendance of 26,854 was the 6^thhighest in Championship and higher than 6 Premier League clubs. The return to the Championship not only boosted attendance at matches, the feel-good factor and higher quality opponents also yielded higher ticket prices and increased spending by fans on matchdays.

Broadcasting revenue exploded, rising from £1.6m to £8.1m (406%) due to a huge uplift in TV money from promotion. This is due to an increase in televised games and the higher prize money available for Championship clubs in comparison to League One.

Commercial income rose slightly, increasing from £1.7m to £1.9m (12%) after new deals with Teletext Holidays (Shirt sponsor), Disba Structures (Training sponsor), Heineken and Ladbrokes. Sheffield United will be hoping to further exploit their return to the Championship and relevancy with high commercial income going forward.

Other revenue fell from £1.9m to £1.6m (19%).

Looking ahead, we expect Sheffield United to see a rise, albeit smaller in revenue. Commercial revenue should increase on the back of new sponsors. Matchday revenue may increase slightly but will remain relatively stable. Broadcasting revenue could increase significantly due to Sheffield United’s promising season to date where automatic promotion and even 1^stplace is huge possibility.

Costs Analysis

Operating costs rose significantly, increasing from £19.8m to £30.3m (53%). This increase however was much less than the 75% growth in revenue and hence profitability has risen this year.

Amortisation fell despite player investment, falling from £2.6m to £2.2m (15%). Amortisation falling usually signifies a lack of investment, however in this case it seems that it more greatly signifies the lack of investment in prior years which has now caught up to the club due to spending far too long in League One and the financial constraints that came with that.

Sheffield United had a net interest expense of £148k, up from £36k.

Sheffield United paid no tax in the year due to their loss-making status.

Wages nearly doubled, increasing from £10.0m to £19.0m (90%) after promotion saw brand new (more expensive) players, promotion bonuses and wage rises. This increase is unlikely to be repeated next year (unless the Blades are promoted) as there will be no large bonuses and wage rises handed to existing players.

This wage increase works out a relatively high extra £173k a week.

Directors at Sheffield United were interestingly only paid a measly £13k compared to £196k last year despite promotion. Directors may have been paid in another group company or were awarded stock options as this amount is unlikely to be that low.

Looking ahead, we would expect costs to rise next year as the Blades continue to invest in their playing squad with the ambition of a return to the Premier League.

Transfers Analysis

Sheffield United Net Transfer Spend 2018

Sheffield United had a busy year of incomings to Bramall Lane with no outgoings (with a transfer fee) on their return to the Championship, they did however sell Brooks in the summer which has made its way into the finances of last year.

In came Stearman (£0.8m), Lee Evans (£0.8m), Leonard (£0.7m), Baldock (£0.7m), Ched Evans (£0.5m), Lundstram (£0.4m), Holmes (£0.4m), Heneghan (£0.4m) and Thomas (£0.3m) for a combined £5.1m.

This combined with no outgoings led to a net spend of £5.1m, the first time in years the club have seen a net outlay on transfers with no net spends since they were relegated to League One.

Sheffield United recorded a profit on player sales of £8.4m after the sale of David Brooks at the season end. Without this sale, Sheffield United were facing a large loss and partly explains the need for the club to sell.

In terms of transfer fees owed and owing, Sheffield United owe £0.9m in transfer fees and are owed £2.0m which means the club have little to worry about on this front.

Slightly more worrying is contingent transfers fees may become due of £6.2m although the board gave confirmed these costs are not expected to be realised.

Debt Analysis

Since relegation to League One, Sheffield United have battled to get their finances back in order. The owners have been more stringent and run a steady ship which even meant a write down a few years ago in debt owed to himself.

In terms of cash, as with most Championship/League One clubs, Sheffield United have little cash to spare so are unlikely to ever have large cash balances. Cash did fall, decreasing from £2.55m to £1.3m (48%) on the back of the loss in the year and higher transfer spending than usual.

Debt remained relatively stable, increasing slightly from £1.9m to £2.0m (5%) as the club look to run more sustainably this debt is relatively small.

This means the club have a net debt of £0.7m, which is essentially breaking even. This minimal amount shows the financial responsibility within Sheffield United has changed and the club is much more financially astute. This bodes well for the future and builds a solid platform with which to build a strong promotion challenge on the back of.

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January 28, 2019January 28, 2019

FA Cup Finances – Why The Magic has Gone

The FA Cup Fourth Round is officially over and only 7 Premier League teams are in the draw for the next round. Neutrals have triumphed this as a sign that the ‘magic of the cup’ is still alive with a raft of giant killings occurring, however the reality is unfortunately a bit different.

The motivation of teams in the FA Cup is at an all-time low for Premier League clubs with weakened teams and poor performance across all but a few due to the slipping importance of this once great cup financially.

At the end of the season when all is said and done, the trophy itself is of great pride to the winner however, there can only be one such winner with everyone else believing their efforts were a waste of time due to the lack of money (and trophy) to show for it.

This article analyses why Premier League clubs are disregarding the FA Cup by comparing the finances on offer to those in the other, higher-priority competitions.

FA Cup – Booby Prize

The FA Cup sees most Premier League clubs enter at the Third Round stage to great excitement of those in the lower leagues looking for a big payday and 90 minutes of fame.

For Premier League clubs and their owners, it is looked at as another fixture in a congested festive period. The winnings for such a fixture? A mere £180k which goes nowhere to funding anything in this day and age. These winnings only start to accumulate to any degree at the Quarter-Finals stage where a win earns you £720k. Cumulatively, the only rounds that earn you above £1m is the semi-finals and final, with the winner earning a decent sized £6.8m and the prestigious trophy.

However, getting to the final is no easy feat for any club with a fixture congestion to deal with, other good teams and injuries that can ruin any cup campaign. This means the risk to reward is fairly poor compared to what’s offered elsewhere…

Premier League – Lion Size Loots

As shown above, Premier League clubs earn roughly an incremental £1.9m per league position in Premier League prize money (merit payments). This pay-out is larger than any FA Cup win other than a victory in the final (£3.6m). What makes this even more interesting is that the difference in points between 8^th(£25.1m) and 15^th(£13.5m) in 2018 was 9 points and a mouth-watering £13.5m, nearly double the total for an FA Cup victory despite taking only 3 games compared to 6 needed (at minimum) to win the FA Cup, not taking into account the added difficulty of navigating a cup run than picking up an extra 3 wins.

This showcase why resting players in cup games to be fresh for a Premier League game is becoming the wiser decision financially with the added rewards available.

Relegation – The Penny (lots of them) Drops

Premier League Relegation Cost 2015 - 2017

Not only is the Premier League important due to the differential of £1.9m per position, more importantly is survival which sees those near the bottom forego potential cup glory in the quest for preserving their Premier League status. Last year only 9 points separated 15^thand 20^thand 3 points between 17^thand 18^th.

Since 2015 (for those to release their financial data), the average revenue drop following relegation was £40.6m, ranging from as high as £61.2m to the lowest drop of£22.7m. The average is a crazy six times the winnings for the FA Cup, and such a revenue drop can be hard to come back from even if against all odds a relegated team wins the FA Cup (Hi Wigan).

Wigan fans may say they treasure that victory and they would be right in saying so, however the owners may have a slightly different view now it has all blown over.

Europa League – FA’s Big Brother

Another benefit to going full out on only the Premier League is potential European qualification, starting first with the Europa League.

Seventh place seems to always be up for grab in the race to be the ‘best of the rest’ and will secure a Europa League place (unless the League Cup and FA Cup winners aren’t already qualified).

It is worth noting that an FA Cup will gain a club entry to the Europa League as an added benefit however for this still seems like an unrewarding venture due to the difficulties in winning the cup and most likely having to beat one of the top 6 in the process.

The Europa League also offers better financial reward after coming through the early stage and is the closest in prize money to the FA Cup. A million pound plus prize money is available with every win from the Last 16 onwards and the massive prize of £7.4m to the winners and a Champions League place, make it a more enticing competition to the two of the Top 6 who missed out on the Champions League in the previous season.

Cumulatively, A Europa League victory will net you nearly double that of an FA Cup win, not taking into account the Champions League qualification earned in the process.

Champions League – The Money Shot

The pinnacle of European football and there is not much need to vindicate the reasons why the Premier League top dogs would prioritise this over the FA Cup. £14m is available in the group stage alone with a maximum pot of around £74m available to the winner plus more in commercial sponsors and additional prize money given to all clubs.

The finances on offer dwarf the FA Cup by more than ten-to-one and no fan would even want their club to jeopardise European glory for the FA Cup.

Conclusion

The FA Cup is a great cup of tremendous prestige however its importance is waning as the finances available elsewhere outshine the FA Cup in its current format, not only this but participation in it can jeopardise the finishes and finances earned elsewhere with the ever-increasing demands of players, opening clubs up to the kind of shocks we have seen this year.

Here is to a return of the magic and a hope that you enjoyed this article.

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January 24, 2019January 24, 2019

Norwich City 2018 Financial Review – Canaries’ Cash

Revenue AnalysisNorwich City have had a disappointing spell in the Championship following relegation, condemning them to a 3^rd consecutive season in the division. A brief relegation scare was overcome and a 14^th placed achieved which still fell well short of expectations.

Despite a poor year on the pitch and falling revenue, Norwich managed to achieve a sizeable profit of £14.6m after making a significant profit on player sales. This is Norwich’s highest recorded profit in the last 6 years if not longer.

Let’s delve into the numbers.

Revenue Analysis

Norwich saw a steep drop in revenue this season after a poor campaign with revenue falling from £75.2m to £61.6m (18%).

Matchday revenue surprisingly rose, increasing from £9.2m to £9.8m (7%) despite average attendance falling after a disappointing season, meaning fans are paying more for tickets and/or spending more on match days.

Broadcasting revenue fell significantly from £52.5m to £39.6m (25%) after Norwich finished 14^th, 6 places lower than the previous season. However, the main reason for the drop was a full in parachute payments following their relegation 2 years ago, this will fall further again next season.

Commercial revenue fell from £13.0m to £11.5m (12%) as fans spent less on merchandise and sponsors departed after a poor season. Norwich’s commercial team were unable to replace departing sponsors with as lucrative contracts.

Looking forward, Norwich have had quite the resurgence this season and are among the front runners for promotion currently. Promotion would bring with it great riches again compared with the last 2 seasons. However, the riches of promotion won’t be evident in next year’s revenue with the club still being in the Championship. Revenue is likely to fall as the fall in parachute payments is likely to be bigger than any gains in broadcasting revenue (from a higher league position) and commercial revenue.

Costs Analysis

Norwich saw operating costs increase ever so slightly from £90.1m to £92.7m (3%). The combination of both revenue falling and costs rising has severely affected profitability and a profit only being recorded due to player sales.

Amortisation rose significantly, increasing from £16.5m to £24.0m (45%) as Norwich invested in new players to replace the youth products sold (who wouldn’t have attracted any amortisation charges as they came through the academy) leading to a surge in amortisation.

Net interest payable stayed stable at £0.5m.

Wages stayed relatively flat, decreasing from £55.1m to £54.3m (1%) as despite the new signings their wages were relatively similar to those departing. The decrease in wages of around £800k is equal to approximately £15k a week saving on wages which is minimal.

Directors saw a huge drop in pay, receiving £108k compared to £1.1m last year, although £717k of this wage was due to compensation for the loss of office.

Norwich paid a high £3.8m in taxes, giving them an effective tax rate of 20.5%, higher than the actual corporation tax rate of 19%.

Looking forward we would expect a slight decrease in costs next season after little transfer activity over the last year meaning wages are likely to fall while the lack of incoming transfers will lead to amortisation to decline as well.

Transfers Analysis

There was a flurry of activity in the transfer market for Norwich with 10 arrivals and 6 departures.

Entering Carrow Road were Hanley (£3.4m), Franke (£2.7m), Hernandez (£2.3m), Stepermann (£1.5m), Srbeny (£1.4m), Husband (£1.0m), Vrancic (£0.7m), Raggett (£0.2m), Abrahams (£0.2m) and McClean (£0.2m) for a combined £13.6m.

Leaving Norwich were Pritchard (£11.1m), Jacob Murphy (£10.2m), Howson (£5.1m), Jerome (£1.5m), Dorrans (£1.4m), Rudd (£1.0m) for a combined £30.3m.

This gave Norwich a net surplus of £16.7m, a second consecutive year where there was a net inflow since relegation as the club managed their finances however this didn’t lead to a sustained promotion push (until this season).

Norwich’s signings struggled to make an impact and the replace the talented players lost with Pritchard, Murphy, Howson and Dorrans in particular missed.

The silver lining is those outgoings led to a profitable season as the club recorded a profit on player sales of £48m. Despite these accounts being based on the 17/18 season, it seems the sale of Maddison and/or Josh Murphy who were sold in the summer.

Norwich are in a healthy position in terms of future transfer fees payable. Norwich are owed a total of £42.4m, of which £19.8m is owed in the next year. Norwich in contrast only owe £13.8m in transfers, of which £8.7m is due this year.

However, Norwich could potentially owe a further £22.5m in contingent transfer fees if certain clauses are met.

In terms of cash, Norwich received cash of £24.8m for transfers and spent cash of £20.1m as the club pay down previous transfer fees still.

Debt Analysis

Norwich are traditionally a club of little debt which bodes well for their future.

After some big transfers Norwich saw cash levels soar from last year, rising from £1.4m to £16.1m (1,050%). This was in addition to a £2.3m investment in the training ground and academy after what their owners called “years of under-investment”. This was financed by a new loan from the owner of £4.8m, showcasing some much-needed ambition.

Looking forward with the level of transfer fees receivable detailed above, cash levels should increase further which will be more than helpful if the club secure promotion back to the Premier League this season.

Debt levels hence rose due to the new loan, increasing from £3.2m to £6.5m (103%). This level of debt is minimal compared to their peers.

Norwich are run so sustainably that they are currently in a net cash position, unheard of for a Championship club which should be commended especially due to the recent relegation. Norwich find themselves in a net cash position of £9.6m after a net debt position of £1.8m. It remains to be seen what promotion may do to this balance as the squad will require significant investment to stay up.

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January 13, 2019January 28, 2019

Mike’s Mess – What Awaits the New Newcastle Owners?

Mike Ashley’s time at Newcastle has polarized opinion, the businessman has a poor relationship with the Toon army to say the least. Since buying the club for around £136m in 2007, Mike Ashley has invested a further £144m net (which is still owed to him) according to Newcastle’s most recent accounts, meaning a total investment of around £280m.

A rumoured sale is in the works as Mike Ashley looks to part ways with Newcastle to the delight of Newcastle fans. It is quite possible (and fairly likely), that Mike Ashley will make a loss on the sale of Newcastle with many suitors valuing the club at around the £200-£250m mark.

This article analyses the position Mike Ashley leaves the club in and what any potential buyer will be purchasing.

The financial data used is based on Newcastle United’s most recent accounts, being the year ended 30 June 2017 (So the 2016/17 season) for the company named Newcastle Limited. The financial data for other current and former Premier League clubs is based on the 2016/17 season and those clubs most recent financial accounts.

Domestic Performance

Premier League

Newcastle were a mainstay in the Premier League prior to relegation in 2017, even being a European contender as recently as 2012. After 2012, Newcastle continually flirted with relegation and became a bottom-half team with no finishes above 10^thin recent times. Relegation was rock bottom for such an illustrious club however an immediate return and a respectable 10^thplace finish was achieved in 2018. This year Newcastle are firmly in a relegation battle and a bottom half finish is very likely while relegation is a possibility, it is still unexpected at this stage due to the quality of the manager and a decent playing squad.

FA Cup

Newcastle have won 6 FA Cups, however that is not evident by their recent record in the competition. Newcastle have failed to pass the Fourth round in any of the last 7 years with survival and a higher placing in the Premier League being the main priority, especially in the second half of the season. Any new owner of Newcastle will be hoping with investment, for an improvement in Newcastle’s cup performances which shouldn’t be too difficult given recent efforts.

League Cup

Newcastle have performed better in the League Cup. This is probably due to the timing of the competition being in the first half of the season when Newcastle face less relegation pressure and the players are fresher. Newcastle have reached the Quarter-finals twice in the last 7 years and the Last 16 another two times also. Newcastle will be hoping, with fortunate draws that the club could go even further given Burton’s run to the Semi-finals this year. The League Cup probably represents Newcastle and their potential new owners’ best chance at a trophy in the next few years.

Profitability

Now onto the finances. Newcastle were profitable in the 5 years up to relegation in 2017, recording on average a profit of £13.4m, before a huge loss of £41.3m in 2017 after relegation, showing the huge costs of suffering relegation.

The largest years of profit for Newcastle were 2014 and 2015 where Newcastle recorded profits of £18.7m and £32.4m respectively. These profits were mainly due to an uplift in Premier League TV Money ahead of the 2013/2014 season where the total TV received by the Premier league increased from £3bn to £5.1bn. This led to a huge increase in revenue for Newcastle and all Premier League clubs while in 2014 Newcastle also negotiated new and improved sponsorship deals with Puma and Wonga.

These revenue increases were supplemented with income from profits on players sales of £14m and £17m respectively.

These profit levels were wiped out by 2016 as costs grew to match the rising revenues.

In 2017, following relegation costs continued to rise due to increasing wages and a promotion bonus following promotion led to costs rising nearly £40m, while revenue fell by £40m (32%) leading to a huge loss in 2017.

Another relegation is likely to have a similar impact on profits, revenue and costs and is why many potential suitors are worried of such a fate and have priced this into their valuation of the club which is why the club is being priced fairly low.

Revenue

Revenue increased year on year up to 2014 before stabilising once the record-breaking TV deal was in effect. As mentioned above, revenue fell a third following relegation however an instant return means that Newcastle’s revenue will recover to 2016 levels and is likely to surpass this even due to a more rewarding distribution system.

The new owners will be taking over a club with robust revenue. The fall in revenue by Newcastle following relegation still meant they had the most revenue in the Championship by a distance. Last year’s commercial revenue of £12.1m would put them 13^thplace in that regard in the Premier League, more than the likes of Crystal Palace, Southampton and Burnley.

Matchday revenue of £23.4m is even more impressive, placing them 8^thamong teams competing in the Premier League due to their stadium size and fan support (despite their current discontent), placing them above all teams except the usual ‘Top 6’ and West Ham.

Both matchday revenue has remained stable despite relegation, falling by only £1m following the event. Commercial revenue on the other hand halved following relegation meaning there is plenty of scope for this to increase following promotion something any new owner will see as a clear opportunity to add value to the club.

Costs

Newcastle have seen their costs balloon as of late to £177m, enough to put them 10^thcompared to 2016/17 Premier League clubs despite Newcastle being in the Championship, it is worth noting that £10m of this relates to promotion bonuses (if these are excluded Newcastle drop to 12^th).

Newcastle wages Mike Ashley 2017Newcastle wages Mike Ashley 2017

These costs are made predominately of wages for which Newcastle spent £112m, the 9^thhighest in England despite being in the Championship. Such a large wage base is concerning however due to some recent departures it can be assumed this is likely to be falling in 2018. This will still concern any potential new owner; however, it does bring the opportunity to unload players and replace using the excess wage budget without too much investment being need (potentially).

As seen, relegation immediately crashes revenue, however costs tend not to fall so easily or quickly. Players have contracts, and some have managed to negotiate deals without relegation wage drop clauses. Such events mean that profitability is severely affected as costs remain high or increase, relative to revenue.

The Playing Squad

Newcastle Transfer Value Mike Ashley 2017

Newcastle are famed for the quality players they have had over the years. The likes of Shearer have graced St James Park, however in recent years the star players have not been joining or staying at Newcastle due to a fall in status and poor recruitment.

According to Transfermarkt.com, Newcastle’s squad is worth only £159m, the 18^thlowest in the Premier League in 2018/19, with Lascalles, Shelvey and Rondon (on loan) being the most valuable at £13.5m each.

Outside of this there are very few players that have been good enough aside from the above and Dubravka.

Any potential owner will have a job on their hand to improve the playing squad and significant investment is likely to be required after acquisition, which further explains the pricing as the new owner will have to set aside additional cash to inject into the club for transfers.

Key to the playing squad as it currently is staving off relegation is the quality of Newcastle’s manager, Benitez. The Spaniard is working on a shoestring budget and still getting some good performance out of the players despite the lack of quality in many areas. The owner will have to convince him to stay in the summer to spearhead a revival. This shouldn’t be too hard given he has stayed throughout the tribulations of Mike Ashley’s reign so we would expect him to continue on under new management.

Transfers

Newcastle have seen an inconsistent spending pattern of late with a worrying downward trend in recent times. Either side of a huge net spend of £93.2m in 2016 (prior to the arrival of Benitez), Mike Ashley has been stingy with Newcastle’s cash spending less than £20m net in any of the last 6 years and recording a transfer profit in 2 of them. In 2017, Newcastle recorded a net profit of £33m despite the club being in desperate need of investment. Any new owner will risk the wrath of the Newcastle fans if they follow a similar path.

From 2017 to the end of 2018, Newcastle are right near the bottom in terms of net spends, spending a mere £16m way below the average net spend (excluding the top 6) of £69m. This is a recipe for disaster as despite having a world class coach, the club continually slip towards the relegation zone as the lack of investment starts to show.

It will be difficult for the new owner to make up for lost time however a much bigger investment of £50m+ will most likely be immediately required to bolster the squad and its value.

Debt

Newcastle’s debt levels had been slowly fallen since 2013 until relegation meant a large increase in debt as Mike Ashley began loaning more money to Newcastle in a bid to firstly avoid relegation with £47m loaned in 2016 and a further £17m following relegation.

In total, Mike Ashley has invested roughly £144m net in the club. This amount will most likely be incorporated into the purchase price of Newcastle and either paid to Mike Ashley as part of this or taken over by the new owner and written off; in both cases Newcastle will no longer have this debt in their finances.

Above the loans owed to Mike Ashley, £xm is owed to banks in the form of loans and overdrafts, the amount is fairly minimal so isn’t something either the club nor a new owner should worry about.

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January 5, 2019January 5, 2019

Birmingham City 2018 Financial Review – Midland’s Mess

Birmingham have shown ambition in recent years, spending relatively heavily for the Championship. This investment has failed to produce any goods so far with two consecutives 19^thplaced finishes and a revolving managerial door after a very disappointing season.

The investments to date have been a gamble that hasn’t paid off and as such Birmingham are financially unstable. Following a loss this year of a huge £37.5m, Birmingham have a huge cumulative loss of £60m over 3 years and as such are in breach of Financial Fair Play rules for the Championship and are currently under a transfer ban as well as facing potentially fines and penalties for breaking Financial Fair Play rules.

Birmingham are in a financial mess and their directors begin the accounts with a lot of commentary on the financial situation the club finds itself in after poor financial controls. The directors admit that Birmingham are in financial trouble unless the owners continue to inject cash to help the club financially. As such their status as a going concern is under threat however should be okay for now.

Let’s delve into the numbers.

Revenue Analysis

Birmingham finished in the same position as last year and their revenue remained fairly stable due to this. Overall revenue rose from £17.6m to £18.8m (9%).

Matchday revenue rose from £4.5m to £4.9m (9%) as fans started the season optimistically despite a poor start due to the investment in the club and the adrenaline from their relegation battle the previous season.

Broadcasting revenue also rose, increasing from £7.0m to £7.6m (9%) as the distribution of prize money from the EFL rose meaning Birmingham received more income despite finishing 19^thagain. Birmingham also went slightly further in the domestic cups which supplemented this income.

Commercial revenue rose slightly, increasing from £6.1m to £6.3m (3%). This remained fairly stable as the commercial team failed to drum up any additional sponsorship interest. Birmingham however can take pride from having a relatively high commercial income for the Championship.

Looking to next year, Birmingham should see a jump in revenue after an upturn in form this season has led to a promotion chase by the club which will likely see the club at least manage a top half finish, a considerable improvement on last season which will boost broadcasting revenue. This may enable the club to benefit from increased takings on matchdays and also commercially.

Expense Analysis

After investing heavily as already mentioned, Birmingham saw their costs balloon, rising from £35.3m to £58.1m (65%). This rise significantly outstrips the 9% rise in revenue causing the massive loss of £37.5m.

Amortisation (the key indicator of investment in players) rose from £3.0m to £8.0m (167%). The fact that this amount more than doubled shows the relative size of their investment compared to previous more conservative years and the risks taken recently.

The club also had net finance expenses of £0.9m of which the majority related to transfer fees due in the future.

Wages grew significantly, rising from £22.2m to £38.0m (71%) due to the after mentioned player investments. This huge rise equates to an eye-watering extra £438k a week, a huge sum for a Championship side.

Related to this, directors saw their pay fall from £406k to £386k after a poor season.

Looking forward, Birmingham are likely to see a fall in costs after their Financial Fair Play problems meant they were under transfer restrictions and pressures to reduce costs. This is likely to mean amortisation and wages fall however this may be offset by any severance pay due to Harry Redknapp after his sacking.

Transfer Analysis

Talking of the player investment we finally come to Birmingham transfers. Birmingham spent £15.9m bringing in Jota (£5.9m), Roberts (£3.6m), Colin (£2.9m), Dean (£1.9m) and Gardner (£1.6m).

Out went Shotton (£2.9m) and Frei (£1.3m) for a combined £4.2m.

This led to a transfer net spend of £11.7m, a 31% increase on last year and 7^thhighest in the Championship last year despite finishing 19^th.

The players signed found it difficult adapting and the managerial upheaval early on in the season did not help. This season the earlier investment has started to pay dividends and it may have just been a period of adjustment was required.

Birmingham recorded an accounting profit on player sales of £2.0m due to the sale of Shotton which boosted reported earnings slightly.

From a cash perspective, Birmingham spent actual cash this year of £12.1m in transfers and recouped cash of £2.9m meaning a net cash outlay of £9.2m.

Worryingly for the club’s future financial health, Birmingham still owe £11.1m in transfer fees for this and previous windows, of which £7.3m is due in the next 12 months. On the flipside they are only owed £2.4m in transfer fees of which £1.9m is due in the next 12 months meaning further net cash will be required by the club.

Further to this issue, Birmingham may owe another £6.1m should certain contingent clauses in players contracts are met such as performance related fees and appearance fees.

Debt Analysis

As you can see, Birmingham are in a bit of financial bother and their issue conclude with their rising debt levels.

Cash wise, levels remain as standard. Cash rose from £3.3m to £3.6m. A huge loss of £37.5m was offset by a cash injection in the form of a loan from their owners of £39m which was used for this and to fund transfers and club improvements.

Debt hence rose from £33.4m to £73.1m (119%) on the back of this cash injection. The cash needed to keep the club running doesn’t look like slowing down due to the financial mess the club have created due to overindulgence and the club are currently in a position where they cannot survive without external funding. Luckily it seems this will be available for the foreseeable future and they should be okay subject to any Financial Fair Play punishments they may receive (for more on this have a read of our article on the potentially punishments they could face).

This has led to net debt more than doubling from £30.1m to £69.5m (131%) as a usually conservative club count the costs of ambition and poor financial management.

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December 24, 2018December 24, 2018

Millwall 2018 Financial Review – The Lion Roars

Millwall returned to the Championship after a season in League One and nearly succeeded in making it a brief return for all the right reasons, surprising most in narrowly missing out on the Play-offs with an 8^thplaced finish.

Millwall had a great season all round, going 17 games unbeaten during the season and renewing hope around the club with The Den proving a fortress in its 25^thyear of existence.

Despite this, Millwall continued to be loss-making however the level of losses fell to £3.8m, their lowest levels since 2012. The low level of loss means that at least Millwall remain well within the Financial Fair Play regulations with a cumulative loss of £17.8m, significantly less than the allowable £39m loss.

Revenue Analysis

Millwall saw record revenue after returning to the Championship with revenue rising from £10.0m to £15.6m (56%) with the main contributing factor unsurprisingly being promotion back to the Championship.

Matchday revenue grew from £5.2m to £5.7m (9.6%) as fans, happy with performances, spent more on matchdays and average attendance grew on the back of their performances.

Broadcasting revenue more than doubled, increasing from £2.8m to £7.6m (171.4%) as the return to Championship saw prize money explode which was further boosted by an increase last season in distributions by the football league to all Championship clubs.

Commercial income rose slightly from £2.0m to £2.3m (15%) as the club attracted more sponsorships and fans increased spending on merchandise on their return to the Championship.

This season hasn’t gone as planned for Millwall as they find themselves in and around the relegation zone at the mid-way point of the season. This means an improvement on their 8^thplaced finish last season seems ambitious which will see broadcasting revenue suffer. Matchday income is likely to see a small dip on the back of disappointed fans spending less. Relegation would not see a huge change in revenue this season, however next season would see a huge drop in revenue on the back of a drop in prize money.

Expense Analysis

With a return to the Championship, Millwall needed to spend in order to compete at a higher level and reward their existing stars in order to keep everyone happy.

This saw expenses rise from £14.0m to £19.4m (38.6%), increasing at a slower rate than revenue which nicely improves Millwall’s profitability. Expenses are still lower than 2015 levels where Millwall’s finances were close to unravelling which will be of comfort to their owners who are looking to make the club more financially sustainable and self-sufficient.

Amortisation tripled from a measly £0.2m to £0.6m (200%) as the club increased player investment after no transfer fees paid in the previous season.

Lease rentals also grew significantly, rising from £0.2m to £0.5m (150%) as Millwall move to a leasing model after selling their training facilities and leasing them back recently while there is also some costs related to current negotiations around the areas surrounding The Den.

Wages rose significantly, increasing from £9.4m to £13.4m (42.6%) due to new signings (mainly on frees) and promotion wage rises to existing stars. Interestingly, wages are also still below 2015 levels as Millwall exercise tighter financial controls.

The £4m rise in wages is equal to a reasonable £77k extra per week in wages.

Directors saw wages rise slightly to a total of £287k compared to £259k last year.

Millwall are not tax paying having made losses for a long time and will also not pay much tax for foreseeable future even if they make a profit due to the build-up of £79m in tax losses meaning profits up to £79m will be covered by losses in the future (some complicated tax loss rules mean that not all profits each year will be covered).

Transfer Analysis

Millwall’s recent financial history has meant they have predominately relied upon loans and free signings to improve the squad. This did not really change this year with only one cash signing and no departures for transfer fees.

With no departures, joining The Den was George Saville from Wolves for £0.5m, proving a shrewd signing by the club alongside their frees and loans, including club legend Tim Cahill.

Despite no outgoings, Millwall are still owed £99k in transfer fees over the next year. Millwall owe no transfer fees currently.

More worryingly but still a minor issue, Millwall have a potentially contingent transfer fee payable of £0.8m, up £0.5m, most likely due to the signing of Saville.

Millwall have no contingent transfer fees that could be received.

Assets/Liabilities Analysis

Millwall have recently seen net debt rise as losses mount and the club require financial boosts from their owners.

Cash levels fell slightly, falling from £0.4m to £0.3m (25%). Cash levels have remained relatively low and stable for Millwall as they require all their capital in order to operate currently.

There were no transfer fees received to boost cash levels and the loss was offset by a cash injection from Millwall’s owners .

The after mentioned cash injection of £4.1m increased debt from £86.9m to £90.9m (4.6%) as the owners continue to service the club’s losses in the hope things turn around and they begin to become profitable.

It is however promising that the rate of owner funding is falling as the club look to become more self-sufficient as the losses fall, however this may unravel if Millwall suffer relegation.

All of Millwall’s debt is owner debt and is interest free with no imminent repayment date meaning the club are not under any immediate financial pressure.

This leaves Millwall with net debt levels of £90.3m, up from £86.5m.

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September 13, 2018September 13, 2018

Hull 2018 Financial Review – The Cost of Relegation

Hull are back in the Championship after a disappointing Premier League return saw the club relegated after an 18^thplaced finish in the Premier League, a position they would achieve again in the Championship after a poor return to the division.

A decent FA Cup run to the Fifth Round was a brief highlight as the club struggled to reacclimatise to life in the Championship. Such a poor season has seen expectations diluted with the owners seemingly unwilling to spend big in order to achieve promotion.

Relegation halved revenues however costs also fell by a similar level meaning the club still remained very profitable, achieving a profit of £19.3m which was still a drop from last year’s record-breaking £34.8m profit.

Let’s delve into the numbers.

Revenue Analysis

Hull were braced for a steep drop in revenue after relegation with 80% of their revenue coming from broadcasting revenue. This meant revenue more than halved from £116.9m to £55.7m (52.4). All areas of revenue more than halved for Hull as they saw first-hand the cost of relegation.

Broadcasting revenue has already been eluded to as the main cause of this huge drop, more than halving from £93.9m to £45.6m (51.4%) as the club saw significantly reduced TV payments, even with the parachute payments received. This figure will continue to drop as parachute payments drop unless Hull navigate a quick return to the Premier League.

Matchday income also fell significantly, falling from £16.1m to £7.2m (55.3%) as the lack of Premier League worthy opponents saw a fall in ticket prices and sales. Fans want value and the fall in value is clear to see with the lack of games against the likes of Manchester City, Manchester United and Liverpool.

A common theme is concluded by the huge drop in commercial income as it more than halved from £6.9m to £2.9m (58.0%) as sponsors ran away after Hull lost their Premier League status with the fall in brand exposure to companies large when not featuring on TV as much and even when they are, to a much smaller audience.

Hull will expect revenue to fall again next year as parachute payments fall. This could be balanced by an improved league position and improved domestic cup performances however matchday income is unlikely to rise significantly without vast improvements on the pitch and the same can be said of commercial income. We expect revenue to fall closer to the £45m mark.

Expense Analysis

As revenue halved, Hull had to reduce expenses significantly to avoid incurring huge losses. Hull were successful in doing this as expenses fell from £107.5m to £60.3m (43.9%).

Amortisation costs fell dramatically from £32.6m to £12.3m (62.3%) as the club sold a few of their star players who were brought only a year or two earlier. This shows the true costs of their transfers as they saved costs on recent signings by necessity and also by force as players forced through moves to remain in the Premier League.

Hull also spent £760k leasing the KC Stadium, a £70k rise in costs in this area.

The club saw adverse movements on their foreign exchange hedges and operations as they lost £761k on these movements as the pound weakened.

Hull saw a decrease in interest costs, falling from £4.3m to £3.1 (27.9%) as the club paid off bank loans early and took on more owner debt (more on this later).

After another profitable year and no losses to offset profits against, Hull have begun paying a lot of tax, incurring UK tax of £4.4m this year. This works out at an effective tax rate of 18.6% which is essentially in line with the UK corporation tax rate of 19% after a few tax adjustments.

Hull would have had relegation wage drop clauses within the majority of player contracts and this has led to wages pretty much halving from £61.3m to £31.1m (49.3%) as player wages dropped due to clauses and the club also selling a few high earners.

Wages dropped by a substantial £30.2m, a huge £581k a week fall in wages. Interestingly, they are more or less back to same levels of their last Championship season where wages were £30m.

Hull will now look to carefully manage costs as they plot a strategy for returning to the Premier League or remaining profitable as a well-run Championship club. Wages are likely to remain at a similar level next year to now, either decreasing or increasing by a relatively small amount of no more than 10%.

Transfers Analysis

Hull saw a huge squad overhaul in the summer as they braced themselves for life back in the Championship, with many high earners and star players departing meaning replacements were required.

In came Stewart (£4.1m), Dicko (£3.4m), Toral (£3.0m), Kingsley (£3.0m), Irvine (£1.9m), Mazuch (£1.8m) and MacDonald (£0.7m) for a combined £17.9m.

Departing the KC Stadium were Clucas (£14.7m), Maguire (£12.3m), Robertson (£8.1m), Jakupovic (£2.1m), Huddlestone (£2.0m), Elmohammady (£1.0m) and Davies (£0.5m) for a huge combined £40.7m.

This meant Hull had a net transfer income of £22.8m as they sold a raft of players that impressed in the Premier League and decided not to reinvest this in its entirety and gamble on an immediate return to the Premier League.

The new signings obviously struggled as indicated by the poor league position achieved however this wasn’t helped by managerial change and a lack of clarity.

The players sold all impressed at their new clubs, especially Maguire and Robertson and were sorely missed by Hull last season.

Hull spent cash in the year on transfers of £16.9m compared to £32.4m last year. They also brought in cash of £31.3m compared to £33.3m after the significant sales of last season began to pay the cash they owed. This interestingly shows that Hull brought in more cash on players then they spent yet again as the owners continue to show a cautious approach to Hull’s finances.

Hull made a huge profit on player disposals for the second year in a row as this figure rose from £29.9m to £30.9m (3.3%) after the transfers of Clucas, Maguire and Robertson.

Hull are owed a further £20m in player transfer fees which will boost cash and club finances with £10.5m of that amount owed within the next year.

In comparison, Hull owe other clubs £7.5m in transfer fees with £5.8m owed within the next year.

Hull also have potential contingent transfer fees payable of £1.1m whilst they could be owed a further £8.7m in contingent transfers fees should certain clauses be met.

Net Debt Analysis

As eluded to last year and again this year, Hull are becoming a much more prudent and cautiously run club in terms of their finances and have taken this approach into managing their debt levels.

Last year Hull looked to boost cash levels, however this year they have used those extra reserves to pay off bank loans. Therefore, cash levels have significantly dropped, falling from £21.1m to £3.0m (85.8%).

Contributing to this was the £21.3m repayment in loans, net cash received from transfers of £17.1m and profit for the year of £19.3m.

Debt levels fell considerably yet again, declining from £81.3m to £63.0m (22.5%) as the club looked to become more sustainable after repaying all of their bank debt with their cash surplus rather than invest in players, potentially to aid compliance with Financial Fair Play after previous run-ins with UEFA.

To supplement this Allam has injected a further £3.0m in cash, increasing loans owed to him to £63.0m.

Net debt levels remained stable, falling from £60.2m to £60.0m as the club became continued to be conservative and the owners will be hoping this puts the club in good stead for an assault on promotion over the next year or two.

If you want to compare this to last year report, read it here.

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