Financial Reviews Archives - Page 2 of 9

May 13, 2019May 13, 2019

Premier League 2018 Financial Review – Profits

The 2017/18 Premier League season saw a cluster of clubs turn profitable, with 11 of the 20 clubs competing in the competition earning a profit.

The cumulative profits realised were a high £285m, an average of £14m per club. However, this doesn’t tell the story at all with huge variances among teams, from a record breaking £113m profit (Tottenham) to a loss of £37m (Manchester United).

The top 6 unsurprisingly led the way, accounting for £274m of the profits, 96% of the total Premier League profits. The rest account for £11m of profits, due to the huge variances in financial fortune among the rest of the pack.

There is no real correlation in terms of profit and league positions, other than at both extremes of the table, with 5 of the top 6 being profitable and all three relegated clubs turning in a loss.

The vast majority of profits were due to clubs recording large profits on players sales after several high-profile players departed the Premier League. Such transfer windows are not common place and these clubs may see a steep fall in profits without these sales.

In 2018, profits outside the top 6 related predominately to an ability to keep costs down, while a couple of clubs also benefitted from relatively sizeable commercial and matchday revenue.

This article will look into the those who performed well and those who didn’t and the main reasons behind this, before finishing with a look at how things may look for the 2018/19 season.

Let’s delve into the numbers.

Top of The Profits

It was a good year for Tottenham (£113m), Liverpool (£106m) and Arsenal (£56m) who were the top three performing clubs from a profit (after tax) perspective, and all members of the illustrious top six.

Tottenham broke Liverpool’s short lived record profit figure for a football club following the release of their accounts after the sales of the likes Walker, Wimmer and Bentaleb helped Tottenham records a profit on player sales of £73m, 65% of their total profits.

Liverpool had Coutinho to thank for their huge profit after recording a huge profit on player sales of £124m, more than their after-tax profit but slightly less than their profit before tax (£125m).

Arsenal would have been loss making had it no been for their profit on player sales of £120m, due to a flurry of sales including Oxlade-Chamberlain, Walcott, Giroud, Coquelin and Szczesny plus many more.

Tottenham were further helped by revenue growth of £71m (23%) to a personal high of £381m, primarily due to their temporary move to Wembley and the commencement of their new Nike sponsorship deal.

Liverpool benefitted hugely from a run to the Champions League Final and a great Premier League campaign which saw revenue increase by £90m (25%) to £455m.

It was the opposite for Arsenal whose profits were entirely down to player sales with a loss being recorded without these sales as revenue fell by £21m (5%) after a season without Champions League football.

Tottenham had a lack of any real transfer activity this season and as such, profit on player sales will be small, however a run to the Champions League Final and the potential trophy itself will see profits remain relatively high, although lower than this year.

Liverpool also saw a huge dip in transfer departures of a high-profile nature, and as such profits will take a large hit. Another Champions League final and an improved Premier League campaign will offset some of this, however due to rising costs, profits are likely to be nowhere near 2018 levels.

Arsenal likewise saw minimal player sales and will be fortunate if they don’t record a loss, even if there is Europa League glory at this month.

Take the L

It was a bad year for Manchester United (£37m), Crystal Palace (£33m) and Stoke (£32m) who all recorded rather large losses that will not please their bosses.

Manchester United can partly be excused with loss solely down to US Tax and accounting hocus pocus with Manchester United recording a £26m profit before tax. This loss isn’t a real loss and reflects accounting adjustments rather than a cash loss.

The same cannot be said for Crystal Palace, who made a £10m profit in 2017 due to player sales that were lacking in 2018. Despite revenue rising by 5% to £150m, Crystal Palace saw costs rise 11% to £187m as Crystal Palace struggled to stay competitive while keeping costs low.

The same can be said for Stoke that will be unhappier with relegation than the loss (which will grow even larger following relegation). Revenue fell due to a poor campaign by 9% to £127m while costs rose 33% to £180m, a double whammy their financial health didn’t enjoy.

This year, we are likely to see one of the largest losses in Premier League history with Fulham relegated after a £100m+ spend which will see huge impairment losses as players leave for a fraction of the transfer fees spent.

Cardiff and Huddersfield are unlikely to see huge losses due to relatively low costs despite relegation.

Crystal Palace are likely to keep their place near the bottom of the profits table with another loss following another year of low player sales.

No Sales, No profits

Premier League clubs sold a whole host of talent in 2018, some to other Premier League clubs but also a large portion of players went abroad.

Premier League clubs recorded profits on these sales of an eye-watering £836m, an average of £42m per club although the amounts vary greatly from club to club.

Leading the way were Liverpool (£124m), Arsenal (£120m), Everton (£88m) and Tottenham (£73m) after the high-profile sales of Coutinho, Oxlade-Chamberlain, Lukaku and Walker respectively.

These sales helped Liverpool and Tottenham boost profits, Arsenal to turn a loss into a profit and helped Everton reduce a loss significantly.

The Premier League profit table looks a whole lot different without player sales. Although important to clubs, relying on player sales is not a true test of profitability as they large sales are not made every year, nor would fans want them to be (unless adequately replaced).

To work out the profits without player sales, we take the profit before tax and deduct the profits on player sales and we will ignore taxes for this analysis.

Interestingly, without player sales, Premier League clubs make a huge loss of £403m. It is worth noting here however that had clubs not sold players, they also wouldn’t have brought many. When players are brought, they experience an amortisation charge in each year of their contract.

Had these additional amortisation costs not been included, clubs would have still turned a profit on the assumption that the total fees spent of £1,833m on average contract length of 4 years, the amortisation this year would have been £458m, essentially meaning a profit of around £50m would have been recorded without transfers, around a fifth of the profits actually recorded.

Tottenham would have been way out in front even without transfers, recording a profit of £66m after another successful season was boosted by Wembley and Nike, while their costs remain way below the level of their rivals.

Huddersfield experienced the financial joys of promotion which accounted for the majority of their profits which would have still been £24m without transfers.

Brighton (£8m), Burnley (£14m), Liverpool (£1m), Manchester (£8m – due to not taking into account the taxes) and Newcastle (£19m) were the only other clubs to record a profit without player sales.

The largest loss would have been Everton, whose losses amounted to £101 without the sale of Lukaku and others.

Chelsea also benefitted hugely from players sales, recording a loss of £83m without them.

Arsenal (£50m), Crystal Palace (£38m), Leicester (£37m), Manchester City (£29m), Stoke (£52m), Swansea (£49m) and Watford (£35m) all recorded huge losses without players sales.

Summer ‘19

This year, there has been lack of high-profile player sales in the Premier League which will mean profits will be lower unless revenue rises significantly, or costs are lowered. Costs are unlikely to be on the decline with wages continuing to grow. Revenue from the Premier League will be similar to this year due to the League being in the final year of a 3-year cycle.

However, European performances have been huge this year and have concluded in an All English final in both the Champions League and Europa League, the first time this has happened. This should enhance profits of the top six and hence the Premier League as a whole.

On top of this, commercial revenue will continue to rise as the popularity of football and the ability to monetise this appears to have no bounds.

Outside of this, Burnley will have high profits once again after playing in the Europa League.

Watford and Leicester saw the high profile exits of Richarlison and Mahrez which should see large profits realised by both clubs.

As seen in the previous section, the likes of Arsenal, Crystal Palace, Stoke and Swansea all recorded huge losses without players sales and are likely to see large losses this season without them. Stoke and Swansea’s relegations mean that their losses will be large regardless of any sales.

It’s an interesting time for Premier League clubs who are all looking to become profitable and sustainable to a mixed degree of success due to the delicate balance of achieving your goals and spending prudently. The key is to spend smarter not more, something most clubs are yet to master.

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May 5, 2019May 6, 2019

Sunderland AFC’s 2018 Finances – Back to Back

Sunderland endured their first season in the Championship since 2006 and it was severely unhappy one as Sunderland suffered back to back relegations after hitting rock bottom (literally).

A 24^thplaced finish concluded a turbulent campaign that saw 4 managers try and steer the club to safety to no avail as the Black Cats luck was well and truly out.

Off the pitch was just as bad, as losses doubled in size, increasing from £10.2m to £19.9m (95%) as their financial problems continued to mount, a problem that is now Mr. Donald’s following his purchase of the club which is in much need of a financial saviour.

Let’s delve into the numbers.

Revenue Analysis

Relegation from the Premier League was a costly one as Sunderland saw their revenue halve from £123.5m to £63.3m (49%).

Matchday revenue was on the decline, falling from £9.0m to £6.6m (27%) as fans left in their droves as average attendances fell from 41,287 to 27,635 (33%) as the doom and gloom around the club saw support fade.

Broadcasting revenue plummeted, dropping from £95.6m to £48.4m (49%) as the lack of Premier League football was felt financially. The drop was cushioned by parachute payments, although the amount received will fall next year and see revenue drop significantly once again.

Commercial revenue fell off a cliff, plummeting from £17.8m to £6.9m (61%) as relegation hit and the troubles surrounding the club scared off sponsors and saw lucrative deals fall away. Until Sunderland get their affairs in order, commercial revenue will continue at these low levels.

Other revenue increased from £1.1m to £1.4m (27%).

Looking ahead, revenue will drop significantly once again as Sunderland play in League One this year. An immediate return looked on the cards for much of the season but a fall into the play-offs means promotion is far from certain.

Regardless, broadcasting revenue will fall as both parachute payments fall, and the club receive League One TV money following one year of Championship income. Commercial revenue will once again fall as Sunderland’s status drops another notch.

Matchday revenue may stabilise at its current levels after a much more promising season means attendances were high.

Costs Analysis

Sunderland had to get used to their new reality with revenue dropping like a stone meaning their costs had to fall as well to avoid financial oblivion.

Costs fell from £162.7m to £83.9m (48%) almost mirroring the % fall in revenue, meaning profitability (or the lack of it) was hardly affected.

Amortisation fell from £29.4m to £10.5m (64%) as player investment ground to a halt as the club were forced into a negative net transfer spend for the first time in ages.

On top of this, poor signings and relegation led to some previous expensive signings being deemed worthless and leaving on free transfers which saw Sunderland record an impairment expense on these players of £12.4m.

Interest costs fell from £7.9m to £6.3m (20%) as bank interest fell as loans were repaid following their takeover.

Sunderland paid no tax due to their recent financial troubles and the losses this has created.

Wages nearly halved, falling from £82.7m to £46.8m (43%) as high earners departed and relegation wage drops came into effect.

This £47m of wages was still a fairly high wage for the Championship and therefore will be heads above the level in the League One and will once again need reducing.

The wage drop saved Sunderland £690k per week in wages, an unheard of drop in wages as Sunderland begun to shed years of poor signings and high wages that were far from deserved.

Surprisingly, directors saw their remuneration INCREASED despite the troubles the club find themselves in. Remuneration rose from £1.7m to £2.0m (18%) as the departing director was paid £1.1m to leave his role, lucky for some.

Looking ahead, costs will once again fall as further high earners leave after seeing out their lucrative contracts. Relegation wage drops will come into effect after the fall into League One while amortisation will fall following little player investment yet again.

Transfers Analysis

It was a busy window for Sunderland as they looked to offload deadwood and reduce wages.

In came Vaughan (£0.5m), Steele (£0.5m) and McGeady (£0.3m) for a combined £1.3m.

Out went Pickford (£25.7m), Mannone (£2.1m), Lens (Loan – £1.4m), Borini (£0.5m) and Vaughan (£0.3m) for a combined £29.8m, while a host of players left on free transfers.

This led to a net transfer income of £28.5m, the first time that has happened in recent memory.

The signings failed to galvanise a team low on confidence and morale, while despite the poor season, I don’t think those who left were missed as their heart was no longer in it.

McGeady is the one bright spark, beginning to show his quality this season.

The sales led to a profit on players sales of £6.6m, with the sale of Pickford included in last years accounts due to the accounts being to 31 July. A couple of this summer’s departures were hence also included in this figure.

Sunderland somehow still owe £18.6m in transfer fees (£15.1m due this year) as they continue to pay for past transfer mistakes. Sunderland are however owed £16.2m (£11.8m due this year), meaning they owe only £2.4m net which is still £2.4m too much at present.

This burden has further constrained their transfer activity as they need to pay off these transfers with cash they really can’t afford to spare.

Debt Analysis

Sunderland saw their sizeable cash balance depleted, falling from £35.7m to £11.2m (69%) as the losses mount and relegation sees their funds severely stretched.

On a debt front, Sunderland are relatively debt free following their takeover with all debt owed to the previous owner taken over by Mr.Donald and this debt was then written off by Mr. Donald.

The debt position this year is unclear following the takeover with the accounts not currently providing an accurate position of their debt, although I believe this to be minimal currently.

Going forward, further funding will be needed as Sunderland’s finances continue to worsen and their troubles will grow even more if promotion is not achieved back to the Championship this season.

A failure to gain promotion will see revenue plummet again and also mean further cuts to costs will be necessary, meaning Sunderland will become less and less competitive as they look to comply with Financial Fair Play and also avoid financial oblivion.

Hopefully for Sunderland, the owners are willing to invest and get the club through these hard times as if they can, he will have a legion of fans and a wonderful club at his hands.

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May 3, 2019May 3, 2019

Swansea City FC’s 2018 Finances – Sinking Swans

Swansea saw their 7^th consecutive season in the Premier League end in relegation after a loss on the final day of the season sealed their fate and a return to the Championship.

A disappointing season had the one positive of a FA Cup Quarter Final run that lifted the mood around the club but may have proven a costly distraction in their Premier League survival bid.

A disappointing season was compounded off the pitch with a £12.9m profit in 2017 turning into a £2.8m loss this year, although they did have the great news that they have purchased the Liberty Stadium from the Council that should enable development of the ground at a later date.

Let’s delve into the numbers.

Revenue Analysis

Swansea saw their revenue remain fairly stable, even increasing slightly from £127.8m to £128.2m (0.3%) despite a disappointing season on the pitch.

Matchday revenue remained stable at £7.4m despite an increase in games due to their FA Cup run. With attendances remaining stable, increasing from 20,619 to 20,623 it would seem fans are spending less at games due to a poor campaign.

Broadcasting revenue fell from £109.4m to £104.7 (4%) as Swansea fell from 15^th to 18^th in the Premier League. This fall in revenue would have been more pronounced if not for the Swans run to the FA Cup Quarter Finals.

Commercial revenue rose from £9.4m to £12.1m (29%) as Swansea managed to exploit their Premier League status successfully one last time. This growth in commercial revenue has been promising and it’s a shame this growth will be halted by relegation.

Other revenue increased from £1.6m to £4.0m (150%). What this relates to is not disclosed.

Looking ahead, Swansea will see a huge drop in revenue following relegation. A difficult season in the Championship hasn’t helped either. Parachute payments will significantly offset the loss in revenue, however revenue will still fall by at least a third and probably to around £60-70m as matchday and commercial revenue suffer, although the major fall will be due to broadcasting revenue falling by around 40-50%.

Costs Analysis

Swansea saw a large rise in costs despite revenue flatling, meaning profitability was hurt significantly as Swansea attempted to stave off the threat of relegation. Costs increased from £150.8m to £176.2m (17%) which was not enough to aid their survival push.

Amortisation increased from £24.2m to £37.1m (53%) as Swansea ramped up spending, however it proved too little to late as they reinvested the cash received from the sales of Sigurdsson, Llorente and Cork poorly.

Relegation also saw the value of some of their players crash. This led to Swansea impairing player value by £14.8m, a cost of their relegation (this is likely to relate in the main to Andre Ayew). Interestingly, without this impairment Swansea would have made a profit of a similar level to last year, proving relegation was the main reason for their losses.

Swansea will then be hoping for a quick return to the Premier League, although 2019 has proven too soon after a disappointing season back in the Championship that has at least ended strongly.

Interest costs increased from £0.6m to £1.1m (83%) as interest costs on players signed increased due to the number of instalment deals negotiated this year while their costs on other loans also rose.

Swansea paid minimal tax due to the club making a loss this year.

Wages surprisingly fell, dropping from £98.7m to £91.1m (7%) as despite the incoming signings, the departure of key players and high earners actually saw wages fall. Relegation wage drops would have also come into effect right at the end of the season which would have contributed to this fall.

Having already begun reducing wages as they braced themselves for the Championship, Swansea should be well placed financially to further reduce these wages and and maintain current levels of profitability to some degree which is vital for Financial Fair Play and their overall financial health.

The fall in wages works out at a cool £146k per week saving in wages, a decent sum that will help the club going forward.

Directors saw their wage increase slightly despite relegation, increasing from £634k to £655k (3%).

Looking ahead, costs will fall out of necessity. Wages will fall as relegation wage drops come into effect and high earners depart while amortisation will also fall after a large drop in the level of player investment following relegation.

Transfers Analysis

A busy transfer season was imposed on Swansea following the loss of their talisman Gylfi Sigurdsson with 6 players entering and 6 departing the Liberty Stadium.

In came Andre Ayew (£20.5m), Clucas (£14.7m), Bony (£11.7m), Mesa (£11.3m), Sanches (Loan – £7.7m), Harries (£0.3m) for a combined £66.1m.

Out went Sigurdsson (£44.5m), Llorente (£13.6m), Cork (£8.2m), Kingsley (£3.0m), Gomis (£2.3m) and Barrow (£1.5m) for a combined £73.0m.

This led to Swansea recording a net transfer income of £6.9m for the first time in 3 years.

The Sigurdsson money was reinvested in former players with Ayew and Bony returning to the club and confirming that former players should never go back after both disappointed. The signing of Mesa was also poor with the Spaniard never settling. Clucas was a decent purchase and while Sanches looked an inspired loan signing, it just never quite worked out.

Sigurdsson and Llorente were missed hugely, proving costly departures with the loss of their Premier League status likely to prove far costlier than the cash their sales brought in.

The sales of these key players did help Swansea record a profit on player sales of £46.1m, up from £36.9m in 2017. This does however show that without selling players, Swansea would have recorded huge losses, explaining to some extent the need for these departures. This will be even more vital in the Championship due to the drop in revenue.

In cash terms, Swansea spent cash on transfers of £38.5m but received a chunky £54.4m, a net cash inflow of £22.8m, a nice bumper on their return to the Championship.

Swansea are also owed a further £30.0m in transfer fees. However, Swansea owe £43.0m (£32.1m due this year), a net creditor position of £13.0m which has clearly affected Swansea in the transfer market this year.

Swansea could potentially also owe a further £12.7m in contingent transfer fees should certain clauses be met relating to signings.

On top of this, Swansea have signing on bonuses that could become payable should players stay for at the club for a specific period. These amounts may reach £8.2m.

Both these figures above are unlikely to ever become payable in full.

Debt Analysis

Swansea saw their cash reserves depleted after a difficult season. Cash levels fell from £7.5m to £1.1m (85%) plus Swansea now have an overdraft of £0.8m, effectively leaving them with actual cash of their own of £0.3m.

Cash levels were severely affected by the losses incurred this year which were funded for by the sales of Sigurdsson and Llorente as well as new loans of £4.5m. These new loans did also enable Swansea to spend £1.8m on improving club infrastructure, although this was about halve the £3.9m spent last season, a worrying trend.

Debt increased from £9.2m to £15.3m (66%) as their new owners plunged a bit more money into the club following relegation to keep the club ticking along. The level of debt within Swansea is very low compared to their rivals and isn’t an area of concern although relegation may see their debt rise out of necessity.

Net debt hence rose from £1.7m to £14.2m (735%), a huge increase from the previous lowly figure.

Swansea are in an important period financially with the ability for their finances to go either way.

The club have to be smart and invest well so they can secure a swift return to the Premier League. This season hasn’t gone to plan although the Swans form has improved since the turn of the year and promotion should be an achievable target depending on signings made.

A failure to return to the Premier League in the next couple of years will make it increasingly difficult to then return as parachute payments will taper off and revenue will be much lower, meaning their costs will also have to fall in line and investment will have to drop to avoid Financial Fair Play issues.

Taking The Liberty

The Liberty Stadium was purchased from the Swansea Council for free with operating control now with Swansea who will pay Swansea Council an annual fee for the Stadium and will also receive a share of any naming rights placed on the stadium.

As part of the deal Swansea will also purchase a number of 3G pitches for the local community in an all round good deal for all parties.

The purchase of the stadium now gives Swansea the ability to expand the stadium as they wish and consider naming rights should a lucrative deal appear. Recently the club have also purchased the land behind the stadium which will be used to expand the Liberty Stadium but only once the club are back in the Premier League, making a return even more exciting and important.

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May 1, 2019May 2, 2019

Brentford FC’s 2018 Finances – Much Of The Same

Brentford enjoyed their 4^thconsecutive season in the Championship, securing a 9^thplaced finish which was their 4^thsuccessive top ten finish since their return to the league, a great achievement.

Having narrowly missed out on the play-offs but will be fairly happy with the continued progress and performances on the pitch considering the departure of key players over the last couple of seasons.

The only downside of an otherwise solid season was third round exits in both domestic cup competitions.

Off the pitch, Brentford are in fairly good shape, losses did rise from a measly £1.0m to from £3.9m as costs rose but despite this, Brentford are well within Financial Fair Play regulations at a time that many Championship clubs are on the brink of breaking them.

Looking to the future, Brentford have begun development for a new stadium that should boost finances in the long run. A peculiar arrangement for this development is in the works that will boost finances. However, may not be the best course of action as explained later.

Let’s delve into the numbers.

Revenue Analysis

Brentford saw their revenue remain stable, increasing slightly from £12.6m to £12.7m due to a similar season to last.

Matchday revenue fell from £3.5m to £3.1m (11%) despite average attendances increasing by 11% to 10,581. The ticketing mix changed slightly as season ticket sales fell from 5,840 to 5,828 which cannot explain the sizeable difference. The main reason was matchday revenue last year was boosted by their FA Cup Third Round match with Chelsea. Another reason is likely to be due to less takings on matchday in food and beverage sales as ticket prices remained flat.

Broadcasting revenue increased from £7.1m to £7.3m (3%) due to an increase in general distributions from the EFL and the fact Brentford finished 1 place higher in the Championship. In the domestic cups the changes in fortunes in the FA Cup (exiting one round earlier) and League Cup (exiting two rounds further) cancelled out to a large extent, although the marquee tie last year against Chelsea was financially missed.

Commercial revenue increased from £1.9m to £2.2m as another solid season as a top half Championship club paid dividends. Going forward, Brentford will want to exploit their close proximity to London to increase commercial income.

Other revenue was stable at £0.1m.

Looking ahead, revenue is likely to increase slightly despite a much poorer, mid-table campaign in the Championship this year. A fifth round FA Cup campaign should help bridge any shortfall in revenue from their fall in the Championship table. Matchday revenue should increase slightly after the additional FA Cup games, while commercial revenue should also increase slightly.

Costs Analysis

Brentford saw their costs rise despite revenue flatlining, hurting profitability as the costs of being competitive in the Championship continue to rise, causing many Championship clubs financial troubles.

Costs rose from £26.9m to £31.5m (17%) as Brentford strived for a play-off place.

Amortisation increased from £4.3m to £5.6m (30%) as Brentford reinvested some of the vast sums realised of late in the transfer market. Further investment is required if Brentford are to move back up the table.

Brentford saw a net interest expense of £0.2m turn into a net interest income of £0.5m this year due to an increase in the interest due to them from transfers. Brentford factored some receivables last year to receive money owed to them sooner than they were due, however this was not needed this year and the associated costs were not therefore present.

Brentford paid no tax after making a loss this year. The accumulated losses over the last few years will be useful should Brentford make a profit next year, as they can be used to reduce any tax bill faced.

Wages were on the rise, increasing from £14.7m to £17.2m (17%) as the general wage levels in the Championship rose. Brentford rewarded their key players with new contracts while new signings also attracted higher wages.

This wage increase works out at an extra £48k a week, which isn’t a great deal for an established Championship club.

Directors saw their remuneration increase from £0.2m to £0.3m (50%) as they were rewarded for another top half finish.

Looking ahead, costs are likely to increase by a similar amount to this year as wages continue to rise in the league. Further high profile departures may reduce this impact and keep costs at around £18m.

Transfers Analysis

Brentford were fairly busy in the transfer market this year, seeing 4 signings and 6 departures, with some key players unfortunately leaving Griffin Park.

In came Watkins (£1.8m), Maupay (£1.8m), Dalsgaard (£1.0m) and Mokotjo (£0.9m) for a combined £5.5m.

Departing were Jota (£5.9m), Colin (£2.9m), Vibe (£2.0m), Dean (£1.9m), Gogia (£0.7m) and Hofmann (£0.2m) for a combined £13.7m.

This led to a net transfer income of £8.2m, similar to the £8.4m income last year, the third year in a row of negative net transfer spends (four after this season) as Brentford continue to be a selling club.

Despite key players departing, the signings proved inspired with Watkins and Maupay proving a prolific partnership worth several times the fees paid now.

The departures earnt Brentford a profit on player sales of £14.1m, up 10% on last year as Brentford continue to benefit from great scouting and selling players at a premium.

Without these sales over the past 3 years, Brentford would have recorded large losses that would have surely bought about Financial Fair Play issues, explaining the number of departures. In order to not have to sell these players, Brentford need to work on improving their profitability, primarily by boosting revenue (matchday and commercial in particular), by reducing costs (not feasible) or by gaining promotion (the ideal scenario).

In cash terms, Brentford spent cash of £11.5m but received cash of £14.9m on transfers, a net cash inflow of £3.4m, much smaller than the net transfer income of £8.2m as many of the deals were negotiated with instalments.

This means Brentford are still owed £10.5m in transfer fees (£8.7m is due this year) while they only owe £2.7m (all due this year), a net debtor position of £7.8m, a good position to be in that will boost their cash balance next year and will assist their development and future transfers.

Brentford may also have to pay £3.5m in transfer fees should certain clauses be met based on their league performance and player appearances although it is unlikely this will all become payable.

After selling £31.5m of players this year, a big profit on player sales is expected that should see Brentford record a profit next year.

Debt Analysis

Brentford saw a similar debt profile to last year as their owners invested a bit more in the club.

Cash levels remained fairly low, falling from £1.3m to £1.1m (15%). The loss this year was funded by player sales that brought in £3.4m net, while new loans of £12.3m also allowed Brentford to spend £4.5m on club infrastructure as they look to develop for the long term.

Debt levels hence increased from £59.7m to £71.0m (19%) after these new loans, which took Matthew Benham’s investment in the club to £113.9m. Transfer sales this year were large and should mean further loans are not required in the short run and due to profit likely to be recorded next year from transfers, there is less pressure to sell key players.

Net debt hence increased from £58.4m to £69.9m (20%). Brentford are financially in decent shape with no Financial Fair Play issues surrounding the club at a time many clubs are sweating over their compliance. Player sales over the last few years have helped stabilise the club and have been reinvested well in the most part.

Brentford are primed to move forward and should hope to be a financially sustainable club in a couple years, with promotion then becoming a real possibility.

Brentford began preparing for a new stadium in 2018, looking to boost matchday revenue despite having a capacity utilisation of only 85% last year.

The stadium arrangement is a peculiar one, with Brentford entering a development agreement with a third party (not named) who the club will sell Griffin Park to and also the land for the new stadium. Griffin Park is to be sold for £30m while the new stadium is being sold to the developer for £52m. This will raise a huge sum of cash for Brentford and a brand spanking new ground which the club will then have to lease each year rather than own, reducing the initial cash needed significantly.

This will see Brentford record a massive profit on the sale of the stadium, meaning Brentford will probably record profits not only for themselves, but also for a Championship club next year.

The only issue here is obvious, they will not own their stadium. This may make expanding at a later date difficulty and will also mean they may have little power at a later date if the developer wishes to use the stadium for other uses (e.g. other sporting events etc.). Brentford would be wise to have a number of safeguards in place (which I’m sure they do). It will be interesting to see how this develops (no pun intended) going forward.

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April 28, 2019April 28, 2019

Newcastle United’s 2018 Finances – Promotion Pays

Newcastle enjoyed a successful first season back in the Premier League following a 1-year hiatus, finishing in 10^thfollowing a strong finish to their 2018 season.

It was however a turbulent season off the pitch as the much maligned Mike Ashley looked to sell the club to no avail following promotion, with performance suffering at times as a result of the distractions this brought.

Promotion saw a huge boost to Newcastle’s finances, with a loss of £41.3m turning into a sizeable profit of £18.6m, as Mike Ashley dialled back investment in a bid to make the club attractive to potential buyers.

Let’s delve into the numbers.

Revenue Analysis

Newcastle saw revenue rocket following promotion, rising from £85.6m to £178.5m (109%), record levels for Newcastle.

Matchday revenue remained relatively stable, increasing from £23.4m to £23.9m (2%) as attendances rose slightly from 51,108 to 51,992 (2%).

Broadcasting revenue saw the largest increase, more than doubling from £47.4m to £126.4m (167%) as Newcastle saw the return of Premier League TV money following promotion. This increase would have been even larger had the Magpies not been so disappointing in the domestic cups.

Commercial revenue more than doubled as well, increasing from £12.1m to record levels of £26.7m (121%). Relegation had seen a steep drop in their commercial income, but an immediate return saw it exceed previous levels as Newcastle continue to exploit their huge fan base to good effect.

Other revenue fell from £2.7m to £1.5m (44%).

Looking ahead, Newcastle are likely to see a similar level of revenue next season. Matchday revenue will remain stable at £30m. Broadcasting revenue will fall slightly as Newcastle can only hope to finish 11^that the best this season with two games to go. Commercial revenue is likely to increase further, which may offset the loss in broadcasting revenue.

Costs Analysis

Newcastle surprisingly saw their costs FALL on a return to the Premier League, which is unheard of. Costs fell from £176.6m to £160.9m (9%). The fall in costs while revenue ballooned saw a huge improvement in their profitability.

Amortisation rose from £35.8m to £41.3m (15%) as Newcastle invested in their playing squad, although the size of the investment was much smaller than fans would have hoped for.

Lease payments remained stable at £0.6m.

Newcastle have net interest income due to having little interest costs from their debt (which is interest-free) and this income fell slightly from £1.9m to £1.8m (5%).

Newcastle had a tax bill of £4.3m, an effective tax rate of 19%, equal to the corporate tax rate of 19%. This is slightly surprisingly given the ability to use previous losses to reduce taxes, which were quite large last year.

Wages were the main area to see a fall, decreasing from £112.2m to £93.6m (17%), unheard of after a team gains promotion. Wages would have fallen slightly due to bonuses paid out last year for promotion, however it is expected that incoming players will attract higher wages which didn’t happen in this case.

This wage saving works out a cool £358k a week less in wages, an amount that has boosted Newcastle’s finances considerably. This tight wage control by Mike Ashley was a ploy by the notorious owner to make the club more attractive to potential buyers, a strategy which is yet to pay dividends.

The fall in wages makes their 10^thplaced finish even more spectacular given these constraints and the unwanted media attention /distractions the potential sale brings.

The one director on pay roll saw their remuneration double from £150k to £300k (100%) as they met all the targets expected of them.

Looking ahead, costs are likely to rise after new signings this season will see wages and amortisation both rise. It is unlikely this rise will be large with Mike Ashley still looking to sell the club and he is not interested in worsening the club’s financial health at this stage or plug any more money into Newcastle.

Transfers Analysis

Newcastle were fairly busy in the transfer market throughout the season, signing 7 players and seeing 5 depart the Toon Army.

In came Murphy (£10.2m), Lejeune (£9.0m), Atsu (£6.8m), Joselu (£5.0m), Manquillo (£4.5m), Merino (Loan – £2.7m) and Duvbraka (Loan – £1.8m) for a combined £39.9m.

Departing Newcastle were Thauvin (£9.9m), Hanley (£3.4m), De Jong (£2.1m), Murphy (£2.1m) and Mbabu (£0.1m) for a combined £17.6m.

This led to a net transfer spend of £22.3m, up from a net transfer income of £33.4m last year. Despite this, this is a fairly low figure for a newly promoted club.

The big signings of Murphy, Atsu and Joselu failed to contribute consistently but all had key contributions at certain points of the season. Lejeune proved a good signing however injuries plagued a bright season. The loan signings of Duvbraka and Merino were inspired, although Merino was soon on his way to Dortmund.

Of the departures, Thauvin and Mbabu have flourished since their departures and their sales may be looked back on with a tinge of regret.

Newcastle recorded a profit on player sales of £3.6m, showing that Newcastle would have made a profit even without player sales, an outstanding and fairly rare achievement.

In cash terms, Newcastle spent cash of £46.2m and recouped cash of £30.5m, a net cash outlay of £15.7m, paid for entirely with their profits.

Newcastle are owed a sizeable £43.9m (£20m due this year) in transfer fees from previous transfer windows and only owe other clubs £28.8m (£22.8m due this year), a net debtor position of £15.1m.

This puts Newcastle in a strong position to push and this £15m almost entirely funds the signing of Almiron in January.

Newcastle could potentially owe £7.0m in contingent transfer fees should certain clauses be met.

Debt Analysis

Newcastle’s fine season saw their cash reserves boom. An overdraft of £8.3m turned into a £33.8m cash balance following a hugely profitable year after promotion.

Their profits helped fund their transfer outlay and also allowed a measly £0.7m investment in infrastructure, further showing the lack of investment Mike Ashley is willing to sanction.

The little investment in the past year is likely to continue until the club is sold to new owners who are excited by Newcastle’s potential.

Debt levels fell slightly, falling from £152.3m to £145.3m (5%) due to the elimination of their bank overdraft, with actual debt staying the same.

Mike Ashley refuses to invest further into the club, wanting to show the club as self-sufficient to attract potential suitors, while also wanting to keep his pockets flush.

Net debt hence fell from £152.3m to £111.5m (27%). This shows Newcastle as incredibly financially stable compared to years gone by.

Fans are not happy with the level of investment at the moment and have every right to be, however fans should take comfort in the financial health of the club and the opportunities available once a new, more ambitious owner is found.

This new owner is needed sooner rather than later with not only fans becoming impatient, but just as importantly at the moment their manager Rafael Benitez, whose departure would put club in danger.

Following early flirtations with relegation, a bit of investment in January helped the club stride clear of the drop zone and shows what can be achieved if they invest more (and smartly).

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April 27, 2019April 27, 2019

Derby County FC’s 2018 Finances – Pride Park Profits

Derby endured their 10^thsuccessive season in the Championship in 2018. Their decade long stay in the Championship nearly ended, failing to gain promotion in an agonising play-off semi-final defeat to Fulham. Derby have been going close to promotion in recent times and will be hoping they can get over the line soon.

All the club’s efforts were put towards promotion, leading to poor cup performances in 2018.

Off the pitch, Derby saw their losses fall to almost zero, dropping from £21.2m to £1.1m after taking the dramatic step of selling Pride Park to their owners and leasing their stadium back from their owners, a move that has come into plenty of criticism.

Let’s delve into the numbers.

Revenue Analysis

Derby saw revenue drop slightly, falling from £29.6m to £29.1m (2%) despite a successful season.

Matchday revenue increased from £8.9m to £9.3m (4%) despite average attendance falling from 29,042 to 27,175 (7%). This rise was because Derby benefitted from a bumper pay-out from their FA Cup tie with Manchester United.

Derby will hope to reduce this worrying trend of falling attendances, with the appointment of Lampard likely to help with this objective.

Broadcasting revenue rose from £7.9m to £8.3m (5%) on the back of an increase in the Premier League basic award to £200k plus Derby finished 3 places higher in the Championship.

Commercial revenue increased slightly from £9.8m to £9.9m (1%). Derby should look to capitalise on the increased interest in the club following the appointment of Chelsea legend Frank Lampard.

Other revenue fell from £3.0m to £1.6m (47%), the main reason for the fall in revenue, although what this relates to is not disclosed.

Looking ahead, revenue is likely to increase slightly after another solid season that may end in a play-off place, with the club currently sat in 6^thwith two games remaining.

Broadcasting revenue hence will be similar and matchday revenue is likely to remain stagnant. Commercial revenue may increase slightly after another solid season.

A return to the Premier League via the play-offs will also boost revenue slightly this year before increasing to astronomical levels the season after, with a £100m+ boost likely.

Costs Analysis

Derby saw their costs balloon despite stagnant revenue, hurting profitability considerably.

Costs rose from £52.4m to £75.8m (45%), a huge increase as they looked to gain promotion.

Amortisation rose from £5.1m to £6.6m (29%) as investment in the playing squad grew as the club showed ambition to return to the Premier League after a decade long absence.

Youth development expenditure grew from £4.0m to £4.6m (15%) as Derby continued to invest in their future in the hope unearthing their next big talent.

Interest costs fell to zero from £0.7m after a significant change in their debt profile (see debt analysis).

Derby paid no tax due to making a loss this year.

Wages rose from £40.5m to £46.8m (16%) after new signings signed on lucrative terms and existing key players were rewarded with new contracts.

This wage increase works out at an extra £121k a week, a sizeable increase for a Championship side with an already sizeable wage bill.

Directors saw their pay cut from £1.2m to £0.8m (33%).

Derby also pocketed £1.9m in compensation when they allowed Gary Rowett to join Stoke in the summer.

Looking ahead, Derby will see a further rise in costs with the marquee managerial appointment of Lampard and increased transfer activity last summer. Any increases in costs are likely to stretch Derby’s finances and further increase Financial Fair Play scrutiny.

Transfers Analysis

Derby were fairly busy in the transfer market with 5 signings and 4 departures during the season.

In came Lawrence (£5.0m), Wisdom (£2.1m), Huddlestone (£2.0m), Jerome (£1.5m) and Davies (£0.5m) for a combined £11.0m.

Departing Pride Park were Ince (£8.2m), Hughes (£8.2m), Christie (£2.5m) and Russell (£0.3m) for a combined £19.2m.

This led to a net transfer income of £8.2m, ending 3 consecutive seasons of net transfer spends.

The loss of key players in Ince, Hughes and Christie may have been the difference between promotion and their agonising play-off defeat. Despite this, the signings made all contributed to a good season, with Davies proving to be a great signing.

The player sold led to a profit on player sales of only £3.7m, with the sale of Hughes taken into account last year.

In cash terms, Derby spent cash of £19.5m and received cash of £22.3m, a net cash inflow of £2.8m, a small boost to their coffers.

This cash is likely to be needed to repay transfers soon with Derby owing other clubs £12.9m (£9.9m due this year) and the club only being owed £2.3m (none due this year). This £10.6m liability is likely to affect transfer plans going forward.

Derby could also potentially owe £19.2m should certain clauses be met in player contracts and transfer deals, although it is unlikely all of this will ever become payable.

Debt Analysis

Derby had an interesting year in terms of finances after taking the bold step to sell Pride Park to their owners for £81.1m.

Despite this sale, cash levels fell from £4.1m to £3.2m (22%), highlighting the depth of their financial issues.

A profit of £39.9m was realised on the sale, meaning a loss of over £40m would have been recorded without this sale which would have almost certainly seen the club break Financial Fair Play rules.

The sale was used to fund these losses and their increased costs and also allowed Derby to spend £3.4m on improving the club’s infrastructure.

As well as selling their stadium to their owners, debt levels fell from £143.7m to £54.0m (62%) in consideration for the sale of the stadium.

Morris also essentially waived some of this debt, capitalising it as equity so it will not be repayable in a bid to make their finances look better. Morris also lent a further £22.9m after these accounts were released to further boost finances.

Net debt hence fell from £139.6m to 50.8m (64%) as the sale and leaseback was entered into to try and calm Financial Fair Play concerns after their compliance was questioned by Middlesbrough’s owner.

Derby have looked to ease fans concerns by confirming there are multiple restrictions in the terms to protect the interest of the football club. It was deemed a necessary decision in the short term, with promotion the key to relieving these issues.

A return to the Premier League is vital to the future of the club with another few seasons in the Championship likely to see their finances unravel as their losses mount.

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April 13, 2019April 13, 2019

Charlton Athletic FC’s 2018 Finances – Play-Off Pains

Charlton suffered another agonising season after once again losing in the play-offs, Condemning the Addicks to a third successive season in League One.

They will be hoping that they can achieve promotion at the third time of asking and return to the Championship, with the club close to another play-off place.

A profit of £1.2m was recorded last year due to player sales, their relegation last year and a lack of player sales has led to this turning into a loss of £10.1m in 2018.

Let’s delve into the numbers.

Revenue Analysis

Charlton saw revenue fall from £7.6m to £7.3m (4%).

Matchday revenue increased in 2018, rising from £3.2m to £3.4m (6%) as another solid campaign in League One saw attendances rise from 11,162 to 11,846 (6%).

Broadcasting revenue decreased once again, falling from £1.8m to £1.5m (17%) despite finishing in the same position as last season due EFL parachute payments following relegation falling which was capped with poor domestic cup performances.

Commercial revenue increased from £1.2m to £1.3m (8%) as their YouTube venture began to pay dividends after hosting events at The Valley.

Other revenue fell from £1.4m to £1.1m (21%).

Looking ahead, Charlton are likely to see a similar level of revenue with the play-offs beckoning again for the South London side. Promotion is likely to see a slight boost this year (and a huge boost the following season). Commercial revenue should grow again slightly, while matchday revenue may also increase slightly. Broadcasting revenue is likely to remain relatively stable.

Costs Analysis

Charlton saw a small dip in costs, falling from £21.9m to £20.7m (5%). This fall was in line with the fall in revenue (4%), improving profitability slightly despite the sizeable loss (which was due to the lack of transfers).

Amortisation fell from £1.9m to £1.7m (11%) after a lack of player investment this season after signings players on free transfers only.

Lease costs on facilities fell from £159k to £138k (13%).

Interest costs increased from £0.7m to £0.8m (14%) after an increase in loans from their owners (see debt analysis).

Charlton paid no tax after making a loss in the 2017/18 season which is usually the case for Charlton at the moment.

Wages rose fell from £11.1m to £10.2m (8%) as players left The Valley and Charlton had to cut costs after another season in League One.

The salary saving works out at measly £17k a week in wages, which is still a decent saving for a League one side.

No director remuneration was disclosed, with it being in the wage figure above.

Looking ahead, Charlton are likely to see a similar level of costs next year, although wages may cause costs to rise should they gain promotion as bonuses will be rewarded. Another season in League One however would require costs to be cut further to avoid larger losses and Financial Fair Play issues.

Transfers Analysis

Charlton had a quiet transfer season with the club constrained on spending due to their League One status.

The Addicks made no signings other than free transfers while they had one departure, with Holmes leaving for £0.4m.

This led to a negative net transfer spend of £0.4m, the third year in a row this has happened.

Charlton recorded a profit on player sales of £4.0m after receiving contingent transfer fees from the prior sales of the likes of Gomez, Lookman and Gudmundsson who all met appearance bonuses that increased Charlton’s income.

The profit also includes the sale of Konsa, which happened at the end of the season but before the end of June.

In 2017, Charlton recorded a profit on player sales of £16.2m after the sale of Lookman, an amount that was the sole reason for their profit last year, the lack of sales in 2018 hence so losses grow considerably.

Charlton benefit significantly from their academy and did well to negotiate contingent fees that can give the club a timely boost as they look to return to the Championship.

However, Charlton do owe other clubs £1.5m for transfers (all due this year) and are only owed £0.8m, a net creditor position of £0.7m which is affecting their ability to buy any players currently with finances tight.

Charlton could also be owed a further £7.7m in transfer fees if certain conditions are met, and with the likes of Gomez and Lookman beginning to make names for themselves, these fees are likely to be received at some point, although the sooner the better.

In comparison, Charlton could owe other clubs £1.9m in contingent transfer fees should certain conditions be met, although this is less likely to become payable than the figure above.

Debt Analysis

Charlton saw cash levels drop significantly, falling from £2.1m to £0.4m (81%) after the huge loss made.

There was also a sizeable £2.2m spend on training facilities at Sparrows Lane, showing a commitment to continue to grow despite their hardship of late.

This is vital for a club that prides itself on its ability to bring through youth, who will see this development as another reason to begin their young careers at The Valley.

To fund all of this, debt levels rose from £65.0m to £69.6m (7%) as the owners plunged more money into the club to keep them ticking over and hopefully aid their promotion push.

The loans from owners of £61.9m carry an interest rate of 2% while their director loans of £8.0m are interest free.

Net Debt hence increased from £62.8m to £69.2m (10%).

Charlton are likely to require further irrespective of whether promotion is achieved. If they are promoted, investment will be needed to bring them up to standard and stay in the division, while if promotion is not gained, further funding will be required to keep their finances in a decent position.

The prolonged stay is affecting their finances considerably and will make it increasingly difficult to return to the Championship due to a deterioration in their finances.

A Championship return soon is vital for the long term financial health of the club with Charlton not being a club built to survive in League One. A return to the Championship will allow them to better benefit commercially from their London status and grow financially.

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April 12, 2019April 12, 2019

West Brom FC’s 2018 Finances – Red & Relegated

West Brom suffered relegation in 2018 after an 8 year stay in the Premier League following a rock-bottom finish in 2018. A turbulent season saw West Brom run through 4 managers (albeit one was just a caretaker for one game).

A poor season was capped off with early exits in both domestic competitions.

Relegation hurt West Brom off the pitch as well, with a profit of £32.3m swinging to a £5.9m loss.

Let’s delve into the numbers.

Revenue Analysis

West Brom inevitably saw a drop in revenue after a difficult season. Revenue fell from £137.9m to £124.8m (9%), although this is just the start.

Matchday revenue surprisingly rose from £6.8m to £7.4m (9%) as fans supported their team throughout their battle with relegation. Average attendances rose from 23,876 to 24,520 (3%), meaning West Brom were running at a stadium fullness of 92%.

Broadcasting revenue was the reason for the fall in revenue, dropping from £118.7m to £102.0m (14%) after West Brom plummeted 10 places in the Premier League.

Commercial revenue rose as West Brom enjoyed and exploited their final season of their Premier League Status. Commercial income increased from £12.4m to £15.4m (24%).

Looking ahead, relegation will see a huge drop in revenue as Championship prize money hits. This will be a huge shock to the system for West Brom who have now grown accustomed to Premier League TV money.

Parachute payments will soften the blow, but revenue will still fall by at least a third. Matchday revenue is likely to remain robust, while both broadcasting and commercial revenue will be hit hard.

Costs Analysis

West Brom saw a large rise in costs, increasing from £112.2m to £138.2m (23%). With revenue falling, this large increase in costs resulted in their profitability plummeting.

Amortisation rose from £17.1m to £25.4m (49%) after heavy investment which obviously didn’t work but showed their desire to remain in the Premier League.

West Brom had no interest costs due to a lack of debt In the club (see debt analysis).

There was also no tax due to their loss making status, this is likely to persist into the near future.

Wages rose from £79.0 to £92.2m (17%) after an influx of new signings in the summer, while there was probably sizeable severance pay paid in the year, although no amounts have been disclosed.

These extra wages worked out at a sizeable extra £254k a week, an amount that will need to be completely reversed in the Championship.

Director remuneration of £90k has been disclosed, halve of the £180k paid last year as directors were penalised for relegation. This amount seems relatively low, so there is likely to be additional directors whose pay was not disclosed.

Looking ahead, Relegation will mean it is now vital West Brom reduce costs. Relegation wage drops will come into effect, reducing wages significantly while high-earners have departed. Amortisation is likely to fall after a negative net transfer spend in 2018/19.

General costs will fall due to the lower standards required in the Championship however this will not be huge.

Revenue is likely to fall by a greater extent than costs, meaning profitability will drop even further and losses will grow.

Transfers Analysis

West Brom had a busy transfer window in an attempt to remain in the Premier League with 8 signings and a couple of departures at the Hawthorns.

In came Burke (£13.7m), Rodriguez (£12.3m), Gibbs (£6.8m), Zhang (£6.5m), Hegazi (£4.5m), Sturridge (Loan – £2.1m), Barry (£1.0m) and Gabr (Loan – £0.5m) for a combined £48.2m.

Out went Gardener (£1.6m) and Zhang (Loan £0.3m) for a combined £1.9m.

This saw a huge increase in their net transfer spend from £9.8m to £46.3m (372%), showing their ambition to remain in the Premier League.

However, the signings proved to be poor. Burke never settled and Zhang only lasted half a season. Gibbs and Rodriguez are good players, but injuries halted their progress. Barry proved a level headed presence while Hegazi was a hit signing initially before tapering off.

West Brom recorded a profit on player sales of £5.8m, an amount that does include the sale of Evans on top of the sale of Gardener.

In cash terms, West Brom paid transfer fees of £41.7m and only recouped £6.0m in the year, a net cash outlay of a hefty £35.7m.

West Brom are also owed a further £15.2m in transfer fees (£5.1m due this year), however they owe clubs a chunkier £27.6m (£17.0m due this year), a net £12.4m creditor position.

This may affect future transfer plans for the club should they not bounce straight back to the Premier League.

West Brom also have contingent transfer fees of £8.7m which are payable if certain clauses are met, although it is unlikely all these fees will ever become payable.

Debt Analysis

This is going to be a pretty short section.

Cash reserves plummeted from a healthy £39.5m to £9.2m (72%) after significant transfer spending in the year and the small loss incurred this year.

On top of this, West Brom also spent £1.7m on improving club infrastructure.

West Brom have no debt, being completely funded by their success and misfortunes on the pitch.

Hence, West Brom saw a huge dip in their net cash position from £39.5m to £9.2m (72%).

West Brom are in a good place financially to bounce back to the Premier League, being a model Premier League club throughout their stay. It does however show that a few bad decisions can unravel even the most sensible of clubs with a poor strategy and signings causing their demise.

Their finances provide a great foundation to return sooner rather than later with no need to go for broke to return, making the decision to sack Moore even more perplexing, although it may be a function of their owner being unwilling to provide the funding a prolonged Championship stay would require.

West Brom are however in need of investment and a solid long term strategy to return to the Premier League and stay there.

Should promotion not be achieved in the next couple of years, growing losses would cause Financial Fair Play issues which would constrain their ability to compete and increasingly make a return more difficult.

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April 10, 2019April 10, 2019

Burnley FC’s 2018 Finances – Moor Profits

Burnley secured a third consecutive year in the Premier League in style by beating all expectations and achieving a 7^th placed finish. This astonishing achievement meant Burnley qualified for the Europa League, with 2018/19 being their first season in Europe for over 50 years.

Their success in the Premier League came at the detriment of their domestic cup campaigns with poor performances in both.

A great season was capped off with recording breaking profits, with profits rising from £22.2m to £36.6m (65%).

Let’s delve into the numbers.

Revenue Analysis

Burnley saw revenue reach record levels, rising from £121.2m to £139.0m (16%) after a great season.

Matchday revenue remained stable at £8.2m. Average attendance increased from 20,558 to 20,688 (0.6%), however Burnley are restricted by their stadium which only seats 21,401. This makes expanding Turf Moor a priority should Burnley wish to increase long term revenue.

Broadcasting revenue rose from £105.0m to £121.5m (16%) after Burnley finished 9 places higher than in 2017. The 7^th placed finish was the main reason for their rise in revenue, meaning that with Burnley likely to finish much lower in the league this season, Broadcasting revenue will be hit.

Commercial revenue rose from £8.0m to £9.3m (16%) as Burnley saw their popularity grow after a great season and further consolidation of their Premier League status. This should increase going forward due to their European campaign and ongoing Premier League status.

Looking ahead, Burnley will most likely see a similar level of revenue despite a poor campaign.

The Europa League money should offset some (or all) of the lost Premier League revenue however due to Burnley failing to make the group stage, their Europa League windfall may be less than hoped and broadcasting revenue may fall.

Matchday revenue will rise slightly after more home games this season, while commercial revenue will increase with another season in the Premier League.

Costs Analysis

Burnley saw their costs continue to rise as they grow as a Premier League club. Operating expenses rose from £95.8m to £125.8m (31%). This rise of 31% was far greater than the 16% rise in revenue, hurting profitability.

Amortisation costs increased from £22.4m to £27.4m (24%) signifying player investment, although they had a negative net transfer spend. This was largely due to the sale of Keane who was brought cheaply so carried little amortisation charge, and since a large portion of this was reinvested, amortisation rose.

There are minimal interest costs for Burnley due to the absence of debt in the club (see debt analysis).

Burnley paid tax of £8.5m, an effective tax rate of 19%. This is equivalent to the UK Corporate tax rate of 19%.

Wages once again rose but remained well below £100m, increasing from £61.2m to £81.6m (33%) after the addition of higher-earners and also the reward of new, lucrative contracts for their key players.

This wage bill is still closer to the bottom of the wage charts in the Premier League, but is slowly becoming more competitive, making their achievements in 2018 even more astonishing.

Burnley did not disclose any director renumeration in 2018.

Looking ahead, costs will continue to rise with the times. Burnley signed new players which will increase both amortisation and wages, although wages may fall if Burnley are relegated (due to relegation wage drops), although this looks extremely unlikely after a strong run of form.

Transfers Analysis

Burnley had a busy transfer season in 2018, signing 6 players and selling 3.

In came Wood (£14.8m), Cork (£8.2m), Wells (£4.9m), Walters (£2.1m), Lennon (£1.5m) and Bardsley (£0.8m) for a combined £32.2m.

Leaving Turf Moor were Keane (£25.7m), Gray (£18.4m) and Darikwa (£1.0m) for a combined £45.0m.

Therefore, Burnley achieved a 7^th placed Premier League finish despite a negative net spend of £12.8m.

Wood, Cork and Lennon proved great signings at relatively low fees and fitted well with the playing style of the club, slotting in seamlessly. Wells, Walters and Bardsley also proved good back up options.

Burnley recorded a profit on player sales of £30.7m due to the sales of Keane and Gray, this makes up the majority of the profit Burnley made, although they would still have been profitable without these sales, something most clubs cannot put their hands up too.

However, there was a lack of player sales however this season, meaning Burnley will see a steep fall in their profits this year.

In cash terms, Burnley spent £41.4m and recouped cash of £14.6m, a sizeable net outlay of £26.8m despite recording a net transfer income of £12.8m after negotiating to be paid in instalments.

Due to this, Burnley are owed £27.9m in transfer fees, although they do owe £22.5m themselves (£13.3m due this year), a net debtor position of £5.4m, a good position to be in.

This should also help with future transfer plans as they do not need to fund any previous transfers.

Burnley could potentially have to pay a further £13.0m in transfer related fees if certain clauses are met, although it is unlikely this will all become payable.

Debt Analysis

There is not much to say about Burnley from a debt perspective.

Cash levels grew even more robust, rising from £20.1m to £34.4m (71%). This was largely due to the profits recorded from rising revenues which helped fund their transfer outlay (although they are due to receive more transfer fees later) and also allowed Burnley to spend a sizeable £6.1m on club infrastructure, a much-needed investment as they continue to grow as a Premier League club.

Debt levels halved! From £0.2m to £0.1m …

Hence net cash increased from £19.9m to £34.3m (72%).

Burnley are, and have been an essentially debt-free club for years. Burnley are a model club for how to sustainably run a football club, being patient to reach their goals and not ever overstretching themselves.

Sometimes this can be criticised as too prudent, an argument that has some merits. Burnley should be careful not to be too prudent and risk an unneeded relegation (although I would expect them to bounce right back) which makes this season likely to be the wake-up call they need.

With their robust finances, now seems a great time to begin expanding their stadium and investing a bit heavier (but smart and sensibly) in the squad.

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April 9, 2019April 9, 2019

Crystal Palace FC’s 2018 Finances – No Transfers, No Profits

Crystal Palace started the 2018 season with a record breaking 7 losses that left their Premier League survival hanging in the balance and cost De Boer his first (and maybe last) job in England.

However, after a revival under Hodgson, Crystal Palace secured a sixth successive season in the Premier League after an astonishing 11^th placed finish considering the start they had.

All of Palace’s energy went into securing their Premier League survival, coming at the expense of their cup campaigns which ended early.

A stable season but a lack of player sales saw Crystal Palace turn a £10m profit in 2017 into the £33.4m loss.

Let’s delve into the numbers.

Revenue Analysis

Crystal Palace saw a slight increase in revenue, rising from £142.7m to £150.3m (5%) after a season of stability.

Matchday revenue increased from £10.6m to £10.9m (3%) despite attendance falling slightly from 25,161 to 25,063 (0.3%).

Crystal Palace are pretty much at full capacity, with an expansion of Selhurst Park a priority, however delays are putting plans to increase capacity to 34,000 in doubt. Costs are rumoured to be around £100m, although, similar to all construction projects, this is likely to be exceeded heavily.

Crystal Palace are also currently in discussions to potentially increase ticket prices, citing a low price in comparison to their London rivals as the rationale. Any increase should boost revenue (but annoy fans).

Broadcasting revenue increased from £116.9 to £121.1m (4%) after finishing 3 places higher this season despite their poor start. This increase would have been even greater had they featured more heavily on TV, after having 2 less games broadcasted this season.

Commercial revenue rose from £11.9m to £15.2m (28%). Crystal Palace benefitted from a more lucrative shirt deal with ManBetX, while they also made progress on their commercial strategy to increase commercial partnerships and LED board revenue.

Other revenue fell from £3.3m to £3.0m (9%).

Looking ahead, Crystal Palace’s revenue will remain relatively stable yet again. With Crystal Palace unlikely to improve on last year’s 11^th placed finish (and may not even match it), broadcasting revenue is likely to fall slightly.

Matchday revenue is basically capped (due to capacity constraints) at around £11m unless the club progress in the cups and have more home games.

Commercial revenue is likely to increase which will hopefully offset any revenue loss caused by a lower league finish.

Costs Analysis

Crystal Palace knew their revenue was unlikely to rise much and controlled costs well. Operating expenses increased from £168.7m to £187.3m (11%). This rise did unfortunately hurt profitability, being larger than the rise in revenue (5%).

Amortisation increased significantly, rising from £32.7m to £46.0m (41%) after spending £44m in 2018 (see transfers analysis).

Interest costs increased from £1.0m to £1.1m (10%) as interest on loans grew slightly (see debt analysis).

Crystal Palace paid no tax due to their loss-making status. The large loss this year may be useful in offsetting any taxable profit in the coming years, reducing the tax bill at that time.

Wages increased slightly from £111.8m to £117.3m (5%). Despite new signings, wages remained relatively stable as the new signings were signed at modest wages while a few high earners (Mandanda, Ledley and Flamini) departed Selhurst Park.

This wage increase works out at an additional £106k a week, a tiny sum for Premier League clubs.

Director renumeration took a hit this season, dropping from £2.4m to £1.8m (25%) with Parrish’s pay falling from £2.2m to £1.6m (27%).

Looking ahead, Crystal Palace will see a slight increase in costs. Wages will rise slightly due to the signings of Meyer, Kouyate, Guatia and Sako, in particular Meyer whose wages are rumoured to be over £100k a week. The exit of the likes of Cabaye and Delaney should offset a lot of these wages.

Amortisation will increase ever so slightly due to the only signing or departure not on a free transfer being Kouyate this year.

Transfers Analysis

Crystal Palace FC Net Transfer Spend 2018

Crystal Palace saw an influx of players join the club, with 4 signings and only 1 departure (for a transfer fee).

In came Sakho (£25.4m), Sorloth (£8.1m), Riedwald (£8.1m) and Jach (£2.5m) for a combined £44.1m.

The only departure was Mandanda for £2.7m.

This saw a drop in their net transfer spend from £46.0m to £41.4m (10%), in what was a season of similar finances for the club.

Crystal Palace recorded a profit on player sales of a measly £2.4m. Last year, Crystal Palace recorded a profit on player sales of £34.7m mainly due to the sale of Bolasie. This difference of £32.3m is main reason for the £43.4m swing into the red this year.

Therefore, with a season of no player sales in 2019, Crystal Palace are likely to once again record a loss.

In cash terms, Crystal spent cash of £53.8m, recouping cash of £12.7m. This was a net cash outlay of £51.1m, a larger outlay then Palace are used to.

Crystal Palace are only owed a further £2.4m in transfer fees. However, Crystal Palace owe £49.0m in transfer fees (£40.4m due this year). This net creditor position of £46.6m shows why Crystal Palace reduced their spending this year, with such a large amount needing to be repaid soon.

On top of this, Crystal Palace are likely to face contingent transfer fees of £8.4m, while they could face an additional £4.8m, although the directors deem this to be less likely.

Debt Analysis

Crystal Palace kept their cash reserves robust, increasing it from £15.9m to £17.9m (13%) despite their losses.

New loans of £7.5m were used to fund these losses, pay their transfer fees and also allowed them to spend £2.1m on improving club facilities.

It is also worth noting that Crystal Palace took out a £29.3m short-term loan while they waited to receive their cash from the Premier League for the season, this has already been repaid (due to the extremely short-term nature of this loan, it has been excluded from the debt amount below).

Debt levels increased from £14.6m to £21.5m (47%) after new loans were provided by their owners. This was a nice boost for Crystal Palace that was needed to maintain a decent cash balance.

Crystal Palace hence saw a net cash balance turn into a net £3.6m debt position. This change is minor, and the club are incredibly prudently run.

An increase in spending in the last couple of years to maintain and consolidate their Premier League status was uncharacteristic of the club.

To understand their financial strategy, it is worth noting how close they were to going bust prior to Parrish’s takeover, and have since shown a greater level of financial responsibility while performing well in the Premier League.

Going forward, a new stadium is on the horizon which may further explain their prudence. Should they maintain their Premier League status after this, Crystal Palace are likely to push on and exciting times may be ahead.

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