West Ham 2018 Financial Review – Hammered

West Ham had a difficult season. A poor start under Bilic led to a relegation scare and his sacking. Bilic’s replacement, David Moyes, did well and successfully steered West Ham clear of relegation and a 13^thplaced finish and League Cup Quarter-Final.

This was compounded with fan unrest over the club management of the owners due to a lack of direction and investment in the club. A lot of the complaints were right; however West Ham’s recent finances do show some factors in the owners’ favours after they paid down some debt meaning West Ham are a lot more sustainable than previously.

Due to a poor season however, West Ham saw their profits slump, more than having from £43.0m to £18.5m (57.4%), last year’s figure does however include the sale of the Boleyn Ground.

Let’s delve into the numbers

Revenue Analysis

Revenue fell from £183.3m to £175.3m (4.4%) after a disappointing campaign, halting a significant period of year on year growth. West Ham’s accounts note that £5.8m of the £8m fall in revenue relates to one-off events that were held last year at the ground.

Matchday income fell from £28.6m to £24.5m (14.3%) with disgruntled fans spending less at games. This was compounded by a fall in the amount of home games West Ham had due to a shorter cup run and no Europa League football this year. Season tickets once again sold out in 2018.

Broadcasting revenue remained relatively stable, falling from £119.3m to £118.5m (0.7%) after a poor season meant that the slight increase in Premier League prize money was negated by a fall in league position plus the lack of Europa League prize money meant broadcasting revenue unsurprisingly fell.

Commercial income also dropped, falling from £35.4m to £32.3m (8.8%) primarily due to one-off events held at the Olympic Stadium in 2017. Retail income and commercial income fell by £1.4m and £1.8m respectively. West Ham note that excluding one-off items, commercial revenue only fell by £0.9m, this still indicates that West Ham’s commercial strategy was ineffective in 2018 and needs to be revisited.

West Ham would expect to see revenue rise in 2019 with performances improving again and a higher league finish on the cards. Matchday income should remain robust as season tickets once again sold out. West Ham will be hoping for an improved commercial strategy to increase commercial revenue and take advantage of their large fan base that should attract more sponsors than it currently is.

Expense Analysis

Despite revenue falling, costs saw no sign of slowing down as costs continued to rise year on year. Cost rose from £165.4m to £183.6m (11.0%), reducing profitability significantly.

Amortisation is the clearest sign available of player investment, so this unsurprisingly fell in 2018, dropping from £45.4m to £41.0m (9.7%) after a lack of investment by the owners in the playing squad as voiced (loudly) by their fans.

The lease costs of the Olympic Stadium rose from £2.4m to £2.9m (20.8%) as part of the ongoing agreement with the Mayor and the City of London.

Net interest paid, fell from £5.0m to £3.7m (26.6%) as the owners decided to pay down some debt, reducing interest payments which may be seen by some not affiliated with West Ham as a smart decision despite a lack of investment.

Wages were on the rise, increasing from £95.0m to £106.6m (12.2%) due to new signings such as Arnautovic, Chicharito and Zabaleta being much higher earners than the departures from West Ham.

This wage increase works out at an extra £223k a week on wages.

Directors saw their wages rise despite a poor season as pay increased from £1.3m to £1.4m while the highest paid director (most likely David Sullivan) saw wages increase from £868k to £898k.

West Ham paid £932k in taxes during the year, an effective tax rate of only 4.9% compared with the current tax rate of 19%. This is due to West Ham having large tax losses from previous years which has been used now to reduce their tax in profitable years. West Ham still have £62.3m in such tax losses so West Ham’s tax bills are likely to remain small for the foreseeable future.

West Ham can expect costs to continue to rise next year after significant player investment in the summer which will cause wages and amortisation to both rise significantly.

Transfer Analysis

Now we come to the area that angers most West Ham fans, transfers.

West Ham brought in Arnautovic (£20.1m), Chicharito (£16.0m), Hugill (£9.2m), Haksabanovic (£2.7m), Hart (Loan – £2.1m), Mario (Loan – £1.1m) for a combined £51.1m.

Out went Ayew (£20.5m), Sakho (£9.0m), Nordtveit (£7.2m), Fletcher (£6.6m), Randolph (£5.0m), Fonte (£5.0m), Valencia (£5.0m) and Feghouli (£3.8m) for a combined income of £62.1m.

This led to a net transfer income of £11.0m compared to a net spend of £38.3m in 2017. Net transfer incomes are incredibly frowned upon in this modern era with the riches available to clubs.

The signings had a lot of promise with fans initially excited by the signings however they all flattered to deceive except for Arnautovic who proved a great signing.

The players sold were not missed however and the fees received for most would be considered a good deal however fans would have hoped more of the fees would have been reinvested.

West Ham recorded a profit on player sales of £29.9m from an accounting perspective mainly due to the sales of Ayew, Fletcher, Nordtveit and Randolph.

In relation to this, West Ham owe £25.2m to other clubs in transfer fees with £15.7m of this owed in 2019.

West Ham are surprisingly owed a lot more, with clubs owing them £57.0m with £32.5m being owed in 2019. This may explain the lack of investment with the club yet to receive a large portion of transfer fees for players sold due to the deals negotiated not being favourable. Receiving £32.5m in 2019 may explain why they have spent more heavily this summer.

West Ham potentially have another £4.8m in contingent transfer fees they will owe other clubs if certain clauses are met.

Asset/Liability Analysis

West Ham have kept cash levels relatively stable over the last couple of years, Cash increase from £30.0m to £30.5m (1.7%). This is largely due to increases in cash from transfers and profits which were used to reduce debts as explained below.

Debt levels fell by £20m, decreasing from £75.0m to £55.0m (26.7%) as the owners used cash to reduce bank debt by £20m which has interest of 4-6% due on it.

Shareholder debt remained at £45.0m.

This may be a shrewd move by the owners to make West Ham more self-sufficient however they have heeded fan concerns and spent more this year which may bring about more debt, offsetting the reduction of this year.

West Ham received new loans of £33.0m in total (not reflected in finances above) in August and October 2018 which is due to be repaid in July 2019.

West Ham also repaid £4.6m in shareholder loans in August 2018 (not reflected in finances above).

West Ham’s net debt hence nearly halved, falling from £45.0m to £24.5m (45.6%) which is a much more positive position to be in from a sustainability perspective. However as mentioned above, fan unrest has seen spending increase and it remains to be seen whether this sustainability strategy will take a back seat which may be a risk, but fans will be willing to take it.

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August 16, 2018

Premier League 2018 Review – Wages

As Premier League clubs grow richer, so do the players as we saw in our revenue analysis, revenue has increased dramatically and so have wages, rising 18.5% to surpass the £2.5bn barrier.

In this new Premier League world, we have wages of £150k a week as commonplace throughout the league, not just the top 6. Wages rose by over £7.5m per week and this includes the growing wage of directors and key management as their competence off the field grows in importance.

This article analyses the wages of players and directors among Premier League clubs competing in the 2016/17 season.

Who’s Up, Who’s Down?

Wages increased on average by 28.6% as the majority of clubs saw sharp increases due to increased player investment.

The promoted clubs were key contributors here with Burnley (59.4%), Middlesbrough (100.3%) and Hull (104.3%) experiencing the highest growth rates as they looked to align their wages with their newly earned Premier League riches. Interestingly, only Burnley survived despite being considerably more cautious with their wages than the other two.

Chelsea (-1.2%) and Liverpool (-0.6%) were surprisingly the only clubs to experience a fall in wages, albeit very small drops. Chelsea’s sales of high earners Oscar, Cuardrado (Loan), Ivanovic and Mikel were the main reasons for this in a season of few high-profile purchases. Liverpool similarly saw the exit of Benteke, Skrtel, Balotelli and Sakho who were all on high wages as Jurgen Klopp began his rebuild.

Tottenham saw wages grow by 26.9% as they looked to reward their players performances with new, improved contracts such as Kane, Alli and Eriksen. The purchases of Sissoko, Janssen and Wanyama supported this growth with the only high-earner to depart being Chadli.

Manchester City financial growth saw no signs of slowing down as wages grew by 33.5% as the Guardiola era began with a summer transfer spree featuring minimal departures as surplus players entered the final year or two of their high paid contracts, we expect wage growth to fall as these players depart at the end of their contracts.

Rivals Manchester United experienced a smaller rise of only 13.5% despite the high-profile purchases of Pogba and Ibrahimović due to a number of departures and the relative size of their wage bill already.

Leicester rewarded their Premier League winning squad with substantial pay rises leading to wage growth of 40% as the likes of Vardy, Mahrez and Schmeichel signed new deals which was added to by new higher profile players.

On the low side alongside Chelsea and Liverpool were Sunderland (0.6%) and Stoke (3.2%), possibly signalling they were worried about their soon to be relegations and were preparing for as much.

In absolute terms, the average wage rise was £375k per week, or £19.5m a year. Leading the way however was Manchester City’s astronomical rise of £1.3m a week in wages after their transfer spree to introduce Guardiola to the Premier League.

Crystal Palace saw wages rise £600k a week after the introduction of Sam Allardyce who used the winter transfer window to significantly strengthen the squad with a sizeable investment, a tactic that ultimately worked as they secured survival.

Middlesbrough also experienced a £600k a week increase but were unfortunately much less successful in doing so after suffering relegation and the unenviable wage reduction strategy required. Wages are likely to fall automatically as relegation wage clauses come into effect.

Tottenham significant contract renewals contributed to wages rising by £517k a week as Harry Kane and Co became richer after another top 4 finish for the club.

Manchester United saw wages rise by £600k a week despite a relatively small % increase due to the enormous size of their wage bill to begin with.

As mentioned, on the other end of the scale is Chelsea and Liverpool who saw minimal wage drops per week of £50k and £15k, remaining relatively stable in terms of wages after offloading deadwood.

Arsenal also remained relatively stable with wages growing by £77k a week, a minimal 2% increase for the club.

Wage to Revenue Ratio

A key performance indicator for all clubs, the wage: revenue ratio is key to a club in measuring financially stability and prudence. A high ratio suggests overspending, making profitability almost impossible whilst a ratio too low suggest over cautiousness and a failure maximise the use of resources. The average is 57% and most clubs will be aiming for a ratio of 50-55%.

The ratio shows a clear trade-off between risk and reward with clubs having to balance the need to grow and meet their targets and their financial future. Clubs near the bottom of the Premier League are likely to have higher ratios due to their lower revenues, however these clubs still spend an awful lot on wages due to the riches of staying in the Premier League.

Those higher up the table pay higher wages but see relatively higher revenue – which is what those spending large near the bottom are aspiring to.

Crystal Palace have the highest rate at 78.5% after their huge spending in the winter transfer window to preserve their Premier League status, a gamble that paid off but also potentially jeopardised their future, however such a gamble has enriched those at the club including senior management (more on this later).

Swansea’s was nearly as high at 77.3% due to low revenue and relatively high wages, a situation we hope they have remedied in 2018 after relegation which will cause this key ratio to increase.

Tottenham much discussed wage policy sees them achieve the lowest ratio at 41.4% as Daniel Levy continues to run a tight ship, something he is proud of considering their recent domestic performances, an increase in revenue will however help them increase their wages more in line with their rivals.

North London rivals Arsenal are 3^rdon the list at 47.6%, another club who are notoriously known under Wenger to watch the purse strings, it must be something in the water up in North London!

Manchester United despite have one of the largest wage bills in world football have a wage to revenue ratio of only 45.3% due to the huge revenue they generate, showcasing that potentially player investment and huge wages leads to larger revenue, a model that Manchester City seem to have adopted in their earlier years.

Chelsea at 60.8% have the highest ratio due to providing players with historically high wages whilst also stockpiling young talent meaning they have more player wages on their books.

Liverpool (57%) and Manchester City (55.8%) complete the top 6 who all have lower than 61% ratios which is around the ball park most clubs should be.

Other than Chelsea, Crystal Palace and Swansea, the only other clubs with ratios above 60% are Everton (61.1%), Southampton (61.2%), Stoke (62.5%), Sunderland (66.8%) and Watford (60.3%), all clubs with aspirations of growing despite Sunderland and Stoke’s recent troubles.

Of the rest, Burnley’s low ratio (50.5%) should be commended due to their performances in 2017 and 2018. Outside of those already mentioned Bournemouth (52.4%), Hull (52.4%), Middlesbrough (53.5%) and West Ham (51.8%) all have ratios below 55%.

Rich Directors

Directors and key management staff are becoming increasingly vital to the success of football clubs with their business acumen key in driving revenue from off the field sources. The work of many executives has been praised in both the transfer market and in raising the profile of their club. A good executive can propel a financially ruined club into a viable business and footballing success.

This is apparent in the fact that directors’ salaries rose 19% to £41.5m despite not playing a minute of football, with the average salary being just under £4m, working out an average of £72k a week which is a respectable Premier League footballer wage.

However, note that director salary disclosures in the accounts may not show the full picture with some directors paid in other opaque companies and through other means which are hidden and difficult to locate so the numbers here are likely to be understated to some degree.

The highest director compensation paid was by Manchester United unsurprisingly considering their global profile and stock listing. Manchester United directors were paid £12.5m last year with this including stock options that may be more valuable than recorded currently.

Tottenham are the next closet some way behind with payments of £9m with Daniel Levy paying himself £6m as a golden pat on the back for the recent successes of the club that few would argue with despite his insistence of being more prudent than that on his players.

Arsenal also pay highly with directors being paid £3.4m despite performing poorly as of late.

Liverpool’s directors were paid relatively poorly compared to their above rivals, receiving a meagre £1.6m.

Chelsea and Manchester City had minimal values in their accounts. This may have to do with Chelsea having no CEO for the majority of the year and until the appointment of Guy Laurence. The payments for other key management were likely to not have been disclosed and as such no analysis can be performed. There is a similar story for Burnley as well.

The lowest outside of this appears to be Hull with payments of only £185k made to directors.

Also, below £1m were Leicester (£325k), Stoke (£806k), Swansea (£634k) and Watford (£571k). The most surprising club here is Leicester due to the absence of any significant rise in director payments despite the incredible season they recently had.

Crystal Palace have a notably high compensation package for directors with wages paid to directors of £2.4m, with Steve Parrish paying himself all of that as the club’s only director after the club steered clear of relegation last year, a controversial decision by the Mr. Parrish.

Wages Summary

There was £2.5bn in wages last year, an eye-watering £48.1m a week with Premier League clubs incurring an average wage bill of £125m. The Premier League Top 6 account for a huge 51% of total wages, showing their unparalleled financial power.

There was a change at the top of the wage bill chart as Manchester City’s continuing financial growth saw them shell out £264.1m in Guardiola’s first season, overtaking Manchester United who paid out £263.5m in wages.

Chelsea (£219.7m), Liverpool (£207.5m) and Arsenal (£199.4m) follow at around the £200m mark as they continue to pay players top dollar to maintain their power and clutch of world class players.

The ever-rising Tottenham lag their rivals yet again in this department, paying out ‘only’ £126.9m on wages due to Levy’s tight wage policy, a strategy that may see them struggle to keep competing with their rivals.

Burnley must be commended for their comfortable survival despite operating the lowest wage bill in the Premier League of £61.2m.

Bournemouth (£64.9m) and Hull (£61.3m) were the only other clubs with wages under £70m.

On the other end of the scale, Leicester (£112.6m), Everton (£104.7m), Crystal Palace (£111.8m) and Southampton (£112.4m) were the only clubs outside the top 6 with wages exceeding £100m.

With this all said, wages are likely to continue increasing as the amount of revenue continues to rise in the Premier League and player wage demands continue to rise and the price of relegation becomes costlier. Wages are likely to increase to around £3bn in the coming year.

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August 13, 2018

The True Costs of Transfers

Premier League True Summer Transfer Cost

The True Costs of the Premier League 2018 Summer Transfer Window

The Premier League transfer window has officially shut with over £1.2bn spent by Premier League clubs ahead of the new season.

Clubs have to be wary of Financial Fair Play when purchasing players to avoid penalties and bans (for more on this click here) and also need to ensure they are running sustainably for their owners etc.

This brings us to this article, which will explain the true costs of transfers from the 2018 summer transfer window explained briefly below:

When clubs sign a player, from an accounting perspective this is not all charged in the year of the transfer as the payments are matched to how the player will be used. So, a player signing for £50m on a 5-year contract is deemed to cost the club £10m a year, known as the amortisation cost. This is the true costs of the transfer per season for the club.

Another key element is player sales. In this regard the profit the club gain is not simply the transfer fee received minus the transfer fee paid, it is the transfer fee received less the remaining value of the player sold. So, for a £50m player on a 5-year contract, he will be ‘worth’ £50m minus the amortisation charges to date, so after two years of charges, the player will be ‘worth’ £30m. Hence, should a player be sold 2 years later for £50m, a ‘profit’ of £20m will be recorded, rather than nothing like many people believe.

This article will analyse each Premier League club’s business and compare to their counterparts.

Due to the availability of data, this excludes the costs of loans and player wages. All transfer fees and contract lengths are via Transfmartk.co.uk. In order to simplify the amortisation costs, we have ignored contract renewals which make the calculation more complex without much added insight.

Let’s Not Talk About Spend, Let’s Talk About Net Spend

Premier League clubs had an active transfer window despite its shortening, spending over £1.2bn, receiving only £353m in return, leaving the club with an astronomical net spend of £909m.

This was due to higher spending by certain clubs, with Liverpool leading the way by a distant after investing heavily following their Champions League heartache with Naby Keita, Fabinho, Alisson and Shaqiri joining while only Danny Ward left, leaving the merseysiders with a net spend of £151m.

Fulham became the first promoted club to ever break the £100m barrier after a barnstorming transfer window with 7 players arriving for transfer fees and only 1 leaving. This led to the club having a net transfer spend of £101m with Seri the pick of the players signed.

Fellow West Londoners Chelsea had the third biggest net spend at £92m after breaking the world transfer record for a goalkeeper in the £72m paid for Kepa after losing Courtois to Real Madrid and they also signed Jorginho.

Manchester United and Manchester City had quiet windows with both making one big purchase a piece with Fred joining United (along with Dalot and Grant) and Mahrez joining City.

At the other end of the scale were Watford with a net transfer spend of minus £23m after not reinvesting all of their Richarlison windfall. Newcastle also were in the black after recording a net transfer spend of minus £13m as Mike Ashley used transfer cash received to purchase House of Fraser rather than reinvest in the Toon.

Additional Amortisation Costs

Premier League clubs face additional transfer costs of £275m this year alone after a huge transfer spend of over £1.2bn, with this cost spread of the players signed contracts which average at just over 4-year contracts.

Amortisation costs are, as explained above, based on transfer spend and contract lengths and as such the costs are higher for larger spends and also higher when contract lengths are shorter. A key example is Kepa, a £72m keeper who signed a 7-year contract, costing Chelsea just over £10m a year. While Mahrez, a £61m purchase on a 5-year contract cost Manchester City more at just over £12m a year despite the smaller transfer fee.

Liverpool unsurprisingly lead the way after their impressive transfer window where they spent £164m with Alisson signing a 6-year contract while Keita, Fabinho and Shaqiri signed 5-year deals. Liverpool will have additional costs of £31m after these deals.

Fulham had the second highest net spend after their £105m 7 player splurge with contracts lengths 4 years on average, bringing amortisation costs of £24m over that period.

Leicester despite their relatively small net spend have a large transfer costs due to their £103m spend with the Mahrez deal diluting their net spend after the club reinvested the Mahrez cash and then some, leading to an amortisation cost of £22m.

Chelsea and West Ham also had large amortisation costs above £20m after their productive transfer windows.

Tottenham were at the other end of scale after an inactive transfer window, becoming the first club since the transfer window came into effect in 2003 not to purchase or sell a player.

Crystal Palace were the only other club to have an additional amortisation cost below £5m.

Amortisation Costs Savings

Premier League clubs saved £41m on amortisation cost after after player sales of £353m with many players sold either brought cheaply or have been long serving players that no longer attract amortisation costs after staying longer than their original contract.

Amortisation costs savings are driven again by the transfer fee paid when the player was brought and their original contract length. So, for instance Daley Blind signed for Manchester United 4 years ago for £15.8m on a 4-year contract, costing Manchester United just under £4m a year for those 4 years. Now that the 4 years are up, Blind costs United nothing from an accounting perspective, so no amortisation costs are saved and hence no savings included in our calculations.

As such many Premier League clubs didn’t recorded any savings as the players sold had already seen their entire transfer fee amortised. This includes players signed as youths such as Danny Ward at Liverpool or long serving players such as Courtois at Chelsea.

In a couple of situations, players were signed and immediately sold. This was the case for Benik Afobe at Wolves and Mikel Merino for Newcastle. In both these cases the amortisation costs were excluded when calculating additional costs and savings.

Bournemouth were the biggest savers, saving just under £8m after the sales of the after mentioned Benik Afobe to Wolves (before Wolves later sold him to Stoke), Lewis Grabban and Max Gradel.

Everton (£7m), Newcastle (£6m) and Watford (£5.5m) were the only other clubs to save in excess of £5m on player sales after the sales of the likes of Klassen, Mitrovic and Richarlison.

Burnley, Cardiff, Crystal Palace and Tottenham sold no players hence the reason for their lack of amortisation costs savings.

Chelsea, Liverpool, Manchester United, Southampton and West Ham also had no amortisation costs savings despite player sales due to the players sold having been at the club for at least their original contract lengths such as Courtois, Danny Ward, Blind, Tadic and Kouyate.

Profit, Profit, Profit (Or Loss)

Premier League clubs due to this made profits on their sales of £247m after selling players for £353m, a 70% return on investment.

When players are sold, as seen above, this may not lead to amortisation costs savings if the players amortisation costs were low due to the price paid or they have been at the club a long time.

This doesn’t mean they receive nothing, as the amount earned is recorded as a profit on player sales. This is recorded as the transfer fee received minus their remaining value as explained in the introduction. However, to avoid you having to scroll up, here is an example from this season using Courtois.

Courtois cost Chelsea £8m 7 years ago on a 5-year contract, costing the club £1.6m a year initially. Each year he is worth less of his transfer fee, so after 1 year he is worth £6.4m and after 2 years £4.8m etc. After 5 years he is worth essentially zero, at this point when he is sold the transfer fee received is all profit, so Chelsea record a profit of £31.5m.

Clearly the biggest benefiters here were Leicester after their sale of Mahrez was essentially all profit and hence the club recorded a profit of £67.1m.

Chelsea also benefited as described above, whilst Watford were the only other club to record a profit of more than £30m after their sale of Richarlison.

Everton were one of only two clubs to make a loss after the costly purchases of Klassen and Funes Mori who they both made a loss on after buying them recently and then selling on the cheap. Leading to a loss of £3.8m.

Arsenal also made a loss on the flop transfer of Lucas Perez, diluted slightly by the sale of academy graduate Akpom.

Burnley, Cardiff, Crystal Palace and Tottenham made no transfer sales and hence recorded no profit or loss this year.

The Summary – The True Cost

To work out the true cost of this transfer window we use the following formula:

Additional amortisation costs – Amortisation costs saved -/+ Profit/Loss on player sales.

This gives an interesting picture for Premier League clubs with a net transfer costs of minus £13.9m! Meaning Premier League clubs as a whole have saved on transfers this year from a Financial Fair Play perspective.

This is heavily skewed due to the net savings made by Leicester, Watford and Newcastle in particular.

Leicester, due to the Mahrez deal have made a saving of approximately £50m after their new signings, while Watford and Newcastle have also saved in excess of £20m.

Both Manchester clubs are in the black after making one big purchase each and selling a couple fringe players.

Chelsea are also in the black after selling Courtois.

Fulham have the highest cost of £20m after their sensation transfer window in which they spent hugely for a Premier League newcomer, making a statement on their ambitions.

Liverpool were unsurprisingly up there with a net cost of £18m. Everton and Arsenal were the only other clubs with a net cost exceeding £15m.

To put this all into perspective there is a mismatch. The profits received are all given in the period of sale, while new transfers are spread over their contract. This means that Chelsea, despite making a profit on Courtois, and hence their net costs are negative, will indeed see amortisation costs rise in the long run as next year they will not have that Courtois profit.

The same is the case for amortisation costs saved, for some of the players sold, they may only have had one more year of amortisation costs and as such this saving will not be there next year and hence they will see amortisation costs rise the following year.

Amortisation costs have risen over the years and will continue to as long as clubs net spends are still as large as they are.

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June 24, 2018June 29, 2018

Premier League Financial Review – Summary

Here is your summary of Premier League financial performance for all Premier League clubs in 2018. As financial accounts are released one year in arrears, finances are based on 2017 season performance. In depth summaries of these finances are available by clicking the club’s name or the infographic.

Arsenal – Wenger’s Wonga

Bournemouth – Finances With a Cherry on Top

Burnley – Marking Their Turf

Chelsea – Riches of Champions

Crystal Palace – The Price Of Survival

Everton – Stuck Toffees

Hull – Tigers Timid Roar

Leicester – Foxes’ Fortunes

Liverpool – Top 4, Top Finances

Manchester City – Sky’s The Limit

Manchester United – No Top 4, No Problem

Middlesbrough – Down The River

Southampton – Saints Keep Marching On

Stoke – Cold, Wet and Windy But Safe

Sunderland – Out of Lives

Swansea – Survival Swans

Tottenham – White Cash Lane

Watford – Honest Hornets

West Brom – Unusual Addicks

West Ham – Ambitious Hammers

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March 12, 2018

Financial Football News Round-Up Edition 17

Financial Football News Weekly Round-Up 17

Here is your weekly financial football news round-up to keep you up to date with all things financial football! This is your round-up for the week commencing 5th March 2018, featuring Amazon, Manchester City, Bundesliga, Chinese Super League, Liverpool, Leicester and Wolves.

Amazon Infiltrate La Liga In New Documentary

Amazon continue to increase their presence in football with the consumer giants set to produce a documentary on La Liga.

The documentary, Six Dreams is to feature Atletico Madrid midfielder Saul Niguez and Athletic Bilbao forward Inaki Williams among others, following their day to day activities aimed at the Spanish football fans.

Amazon are producing similar documentaries with Manchester City and Juventus having completed one for Argentinian giants Boca Juniors, with rumours of a second series of Six Dreams featuring Real Madrid and Barcelona already rife.

The documentary is scheduled for a 2018 fall release.

Serie A Have A New Chief In Town

Gaetano Micciché has been unanimously approved as the temporary president of Italy’s Serie A by all Serie A clubs as the Italian league look to overhaul the division to better compete with their European rivals.

Micciché is presently the chairman of financial services group Banca IMI and will be hoping to bring a fresh look at the troubled league that with the exception of Juventus, have failed to progress on and off the pitch.

Their new TV deal significantly lags those experienced in Germany, Spain and England and will need a long term strategy to bridge the gap.

Manchester City Agree US Barclays Deal

Barclays have agreed a sponsorship deal with soon-to-be Premier League champions Manchester City to be their sponsor during their US preseason tour, where they compete in the International Champions Cup (ICC).

Barclays branding will appear on interview backdrops during pre-season player and manager interviews, while Barclays will hold various competitions and offers during the tournament.

IMG Win Chinese Super League TV Rights

Global sports agency IMG has agreed a three-year extension with the Chinese Super League for the distribution of the global TV rights to the upcoming league.

The new contract also includes in-flight rights, while IMG will also advise the Chinese Super League on television production for the league.

SWM Motors Secure Chinese Team’s Name

Continuing on a successful commercial week for the Chinese Super League, SWM Motors have also signed a sponsorship deal with the CSL club Chongqing Dangdai Lifan to rename the club!

The club will be named Chongqing SWM until 2020 for a fee of £21.3m, something that would cause complete outrage in England but is seen as financially wise in the forward thinking Chinese Super League.

Bundesliga are Completely Sleeved After Freiburg Deal

Freiburg have become the final Bundesliga side to sign a sleeve sponsor, signing a deal with energy company Badenova.

This means all Bundesliga clubs next season will sport sleeve sponsors, the first league to do this. The Bundesliga have done a good job of remaining financially competitive despite low TV rights compared to Spain and England and this is just another example of that impressive feat.

Wolves – Foul or Fair Play?

Wolves inevitable pursuit to the Premier League has hit a bump in the road after Championship clubs complained of Financial Fair Play, with accusations of suppressed transfer fees for their star players so they can

Wolves connections through super agent Jorge Mendes has lead to some of Europe’s top young talent now plying their trade in the Molineux Stadium such as Ruben Neves and Diego Jota, players who have been linked with top Premier League clubs for fees larger than they paid in the past.

Wolves are “entirely comfortable” with their compliance with Financial Fair Play. We will watch this develop with intrigue and keep you up to date with developments.

Flurry of Financial Statements

In a big week of financial announcements the following clubs have released their financial results:

Premier League

Leicester

Liverpool

West Ham

Watford

Championship

Cardiff

Ipswich

Nottingham Forest

QPR

Reading

Sheffield Wednesday

Wolves

League 1

MK Dons

Rotherham

We will be analysing all these accounts at FFN, stay tuned !

Directors On The Move

A new feature! Here is a list of Director movement at Premier League and Championship clubs this week:

Chelsea
- In: Jonathan Guy Laurence
West Brom
- In: Mark Jones Jenkins
- Out: Richard Garlick

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March 11, 2018

West Ham Financial Review 2018

West Ham endured a disappointing season on the pitch, a new Olympic pitch, finishing 11th in the Premier League after being in a relegation battle for much of the season. The season started full of hope with the new 66,000 seater stadium, this was extinguished immediately after a surprise loss in the play-offs round of the Europa League which undid all the hardworking put in the previous season.

The club invested heavily in players without any success, also having a poor season in the FA Cup and Carabao Cup, with 3rd and 5th round exits respectively.

Off the pitch however the club soared to record profit levels, recording a profit of £43m, which fans would expect to be pumped back into transfers this year – however there has been little indication that would be the case.

Revenues reached record levels, as did expenses however revenue growth outshone the expenses growth in order to reach these record profit levels.

This article will analyse the financial performance of West Ham for the 2016/17 season.

Revenue Analysis

Revenue continues to grow year on year for West Ham, reaching new record levels of £183.3m, a 29% increase on last year’s revenue of £142m.

Revenue compromises income from matchdays and gate receipts, TV broadcasting revenue based on televised games and competition finishes and commercial revenue from merchandise and sponsorship’s.

Revenue grew on all these fronts with broadcasting bringing in the biggest boost on the back of the new Premier League TV deal.

Broadcasting revenue grew 27.3%, increasing from £86.7m to £119.3m despite finishing 4 places lower than the previous season. As for many mid-table Premier League teams, broadcasting revenue is vital to the club’s survival as broadcasting revenue makes up 65% of West Ham’s revenue, making relegation unthinkable at this stage despite its very real possibility.

Matchday revenue surprisingly rose timidly, increasing from £26.9m to £28.6m (6%) despite their new stadium increasing average attendance by over 20,000. Lower pricing and less spend at games are the only explanations for a lack of a significant revenue boost, the West Ham owners will be hoping for a larger rise in the coming season to lessen their reliance on broadcasting revenue.

Commercial revenue grew significantly on the back of West Ham’s Olympic Stadium move, growing 19.8% to £35.4m. West Ham enjoy the ‘London premium’ with London Premier League outside the top 6 usually bringing in larger revenue from commercial sponsorship’s due to their London homes.

We expect West Ham to have largely stagnant revenue next year, poor cup performances yet again mean there will be a lack of revenue from here, while another poor season in the Premier League looks destined meaning less revenue from this source with the current TV deal already reflected this year.

West Ham will require matchday and commercial activities to see any significant rise in revenue next season.

Expense Analysis

Operating expenses also continued it’s year on year growth for West Ham, increasing to £165.4m from last year’s £146.7m (12.7%).

Expenses grew largely to three factors – Amortisation costs, wages and their new stadium rental costs.

Amortisation costs rose 32% to £45.4m due to the huge influx in players joining the club last season and minimal outgoings. 13 players joined the club with only 3 players leaving, this will be discussed in the next section.

Wages growth was less significant however still rose 14.5% to £95m. Wages grew by roughly £200k a week despite the departure of the club’s highest earner, Dimitri Payet.

Leasing costs for their new Olympic Stadium also boosted this expense figure at a cost of £2.4m, which still seems a huge bargain compared to the costs of maintaining Upton Park (Boleyn Ground).

Net interest expense fell this year by 16.7%, with the club paying off a significant chunk of debt after selling their old stadium which will be discussed in the final section.

West Ham paid a tax bill of £0.4m, which works out at a tax rate of just under 1% compared to the current 19% rate in effect. This is due to the use of previous losses made that can be used to offset profits.

Transfers Analysis

West Ham had a busy season in the transfer market, signing 13 players for a combined fee of £75.2m while seeing their star player Dimitri Payet leaving after a tug of war battle between West Ham and his new club Marseille.

West Ham signed Ayew (£21.7m), Snodgrass (£10.8m), Lanzini (£10.8m), `Fonte (£8.3m), Masuaku (£6.4m), Fernandes (£5.8m) on permanent deals.

Zaza (£4.5m), Calleri (£4.2m) and Tore (£2.7m) all joined for significant loan fees.

Arbeloa, Ashley Fletcher, Feghouli and Nordtveit all joined on free transfers, adding significant costs to West Ham’s wage bill.

The players signed overall can be claim be failures with 11 of the players no longer being at the club saying it all, only Lanzini and Masuaku remain from last year’s spending spree.

The sheer volume of players joining led to the work done last year being undone as they all needed to settle in front of a demanding fan base, something they couldn’t manage and was the primary reason for such a disappointing season.

Leaving the club were Payet (£26.7m), Tomkins (£10.5m) and Elliot Lee (Free) for a combined (£36.9m), with the disruption of Payet’s transfer causing a poor dressing room atmosphere as he pushed for a move to his homeland.

This led to a net spend of £36.9m a figure that has been steadily been increasing in recent years, something West Ham fans were hoping would continue into the current season, however this hasn’t been the case and fans have been letting the owners know their feelings about this of late.

Adding to their profit figure for the season was a large profit on player disposals of £28.4m compared to last year’s £4.1m profit, an increase of 593%! This is due to Payet being signed for a bargain £13.5m and Tomkins having minimal value in the accounts. For more information on how this is calculated click here.

Asset and Liabilities Analysis

West Ham went some way to making the club more sustainable, using the additional profit made this season to pay off some of their debts.

The club saw cash in the bank rise 8.3% to £30m, given the club money to spend on players, something they are yet to do however.

Debt fell significantly by 20% to £75m from £94m after they repaid £6.4m off debt owed to their owners – who looked to take out some cash while the club was profitable.

After selling their old stadium for a modest £8.7m they used this money and some more to pay off £14.8m in bank debt.

They also took out new loans of £55m which was secured against guaranteed revenue from the Premier League TV deal which they received in July.

With all of this, net debt fell 32.1% to £45m from £66.3m as the club look to become more sustainable and meet Financial Fair Play rules.

The club may have further outgoings based on a HMRC enquiry into dodgy agent fees (we’ve been here before haven’t we) with a possibility of a £2.3m payout to the Government.

Interestingly during the year, West Ham owners also sold a 10% stake in the club to Blackstone CEO Albert Smith, selling the shares through a company called WHU LLC.

Albert Smith also put in £9.5m into this company which is repayable by West Ham in the event of a change of ownership, suggesting the Blackstone chief hopes to increase his stake in the future, especially if current fan unrest continues.

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February 7, 2018February 7, 2018

You’ve Been Sponsored

Sponsorship revenue is a major source of income for premier league clubs and has been increasing year on year. Commercially vital to clubs, major sponsorships provide revenue of a long period due to the contracts usually being over a few years. This year club sponsorships brought in £282 million in revenue for premier league clubs before taking into the various partnerships they also delve into. This article will will go into detail about the types of industries that are attracted to invest and sponsor football clubs. We will also look at kit manufacturers and the role they play in football finance.

Football sponsorship has changed immensely over the years. Looking at the last 11 years (2007 – 2017), Beer has diminished as a large purchaser of sponsorships with no current club having a beer manufacturer as a sponsor. Betting companies have dominated as of late with a high of 9 companies donning sponsorship deals in 2016/17 season, nearly half of all clubs. This makes perfect sense being that football fans represent a key audience for betting companies. Interestingly, this space is not dominated by the largest, most well-known betting companies (other than Bet365 and BetWay), rather overseas and casino gambling companies being the most keen sponsors. It would be interesting to see if the likes of Paddy Power and Ladbrokes decide to enter this space in the future.

Financial services companies are aiming to fill the gap left since Barclays no longer sponsor the Premier League. Banks, Insurance and pay-day loans companies are all present here and the financial sector has been ever present in the sponsoring premier league clubs, with at least 3 on average in each of age last 11 years.

Airlines are another major part of the football clubs with two of the largest clubs, Arsenal and Manchester City representing the industry. Both have long standing partnerships with their respective airline.

Other industries to have sponsored Premier League clubs over the years include Sports fashion, Charities, Automobiles and confusingly a Zoo!

As mentioned, sponsorships are a huge source of cash for the clubs with over £282m coming from shirt sponsors alone. Above we have the league table of shirt sponsors. It has a very familiar look to it, with domination from the top 6 who take home over 75% of sponsorship revenue. Man United show their dominance as the most reputable club in English football if not the world, with their Chevrolet deal bring them a handsome £47m a year. While newly promoted Huddersfield and Brighton at the foot of the table with deals of £1.5m each, more than 30 times less than Manchester United.

West Ham can be pleased at being 7th with their BetWay sponsorship bring in £10m a year, this is due to run until the end of this season and they will be hoping a strong showing in the league this season can lead to a similar, if not larger deal especially with the attraction of such of large stadium and tourist attraction for prospective sponsors.

Leicester have a long term agreement with shirt and stadium sponsor King Power and have yet to really cash in their title heroics through this commercial medium.

Interestingly, all London clubs are in the top half of the table, suggesting their is a preference among sponsors to pay a premium to sponsor London clubs, with Crystal Palace above the likes of Newcastle, Leicester, West Brom and Southampton.

Please Stay!

In terms of turnover of club sponsorships, only Tottenham of the Premier League ever-presents has had more than 2 sponsorships, with 6 in the 11 years analysed. Only Arsenal however have not changed sponsors during this period, however most of these changes were after a long period with that sponsor and we suspect their current deals to continue for the foreseeable future. West Brom have a record high of 7 sponsors in 9 years (including 1 year with none), this is interesting as to whether this indicates poor commercial success or just a policy of renewal. This doesn’t seem to be working with their current deal the 4th worst in the league ahead of only newly-promoted Brighton and Huddersfield, and Burnley.

Kitted Out

Kit manufacturer income is another major source of sponsorship income, many large sport brands pay millions to create kits for clubs, profiting from the sales of these. The largest two manufactures are the most well known sports brand in the world, Adidas and Nike. Adidas have seen a huge decline however since their high of 9 kits in 2013 to only 3 in 2017, even losing Chelsea who cut their sponsorship short to sign for Nike last season, paying £67m in the process. The spread of sport companies has diversified in recent years with none dominating as was the case with Adidas, Nike and Umbro in previous years. Umbro were previously a huge producer of kits, making 6 kits in 2007, the largest at that time to none in 2013 before renewing their presence recently with 3 currently rocking the diamond on their kits.

It will be interesting to see how Adidas react to their recent fall, they may decide to attract a large club such as Arsenal to their ranks after missing out on Manchester City who have agreed a deal with Puma for next season.

Speaking of Puma, they lead the way this year for clubs wearing their brand, which has been on a steady increasing trend since 2007.

There is the usual pattern for Kit makers as there is in performance in domestic leagues, the top 6 dominate due to their domestic success and the large fan bases that come with that. The top 6 take home a remarkable 89% of income generated from kit manufacturers.

Surprisingly, Manchester City lag their domestic rivals significantly in the value of their deal with Nike, coming in at only £12m a year compared to the £75m Adidas deal of their Manchester rival or £60m a year deal of Chelsea who also have their kits made by Nike, something that will be rectified once Puma take over in the summer in a £50m a year deal.

Data was unavailable for Huddersfield and Brighton, however we suspect their deals to be around the £1m mark, maybe lower than Bournemouth who are bottom with an £800k annual deal.

Sleeves of Gold

A new phenomenon among premier league clubs is the introduction of sleeve sponsorships, with 17 out of the 20 premier league teams (Arsenal, Manchester United and Tottenham are yet to have one). This has brought in on average £3m a year extra revenue to premier league clubs, for example Liverpool Western Union deal has brought in £5m a year to the clubs coffers. Chelsea have the largest sleeve sponsor deal to date, with an extra £8m year brought in, while at the other end of the scale Huddersfield only bring in £300k in extra revenue from their sleeves.

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December 29, 2017December 29, 2017

Matchday Money – Gameweek 20

Welcome to the first in a new series where we estimate the matchday gate receipts taken at all premier league games each week. We will compare the revenue generated between teams and compare their strategy for maximising matchday revenue.

The revenue is calculated based on an average of the highest and lowest prices offered to club members for each match. This amount is then multiplied by the number of tickets available for sale which for home teams is attendance less away ticket allocation and season tickets sold. Away teams is simply the away ticket allocation multiplied by the away ticket price. A separate article will analyse the season ticket revenue taken by each club.

The away allocation differs from game to game with it up to negotiation between the clubs. The lower of 10% of stadium capacity or 3,000 seats must be offered to away teams on each matchday, however this is not always taken up as clubs analyse the demand for the game among their fans and choose accordingly.

Here are the matchday results for gameweek 20:

Bournemouth 3 – 3 West Ham

Chelsea 2 – 0 Brighton

Crystal Palace 2 – 3 Arsenal

Huddersfield 1 – 1 Stoke

Liverpool 5 – 0 Swansea

Manchester United 2 – 2 Burnley

Newcastle 0 – 1 Manchester City

Tottenham 5 – 2 Southampton

Watford 2 – 1 Leicester

West Brom 0 – 0 Everton

Gameweek 20 Analysis

Chelsea led the way in stadium capacity percentage with 99.8% of the stadium filled as 41,568 fans flocked to their boxing day fixture, closely followed by Newcastle fans who watched their team play league leaders Manchester City. Unsurprisingly, Manchester United’s attendance of 75,046 was the highest by a distance with Tottenham second nearly 20,000 behind despite a stadium capacity percentage of 61.6% in their temporary 90,000 seater home.

Despite their lowly stadium capacity %, Tottenham led the way with gate receipts with takings of over £1.3m, in part due to their high ticket prices of £55 and the fact they only sold 28,000 season tickets for Wembley, meaning a more matchday tickets on sale equating to a higher taking each matchday.

Liverpool’s season ticket sales of 25,000 also allow them to benefit from more expensive matchday tickets. Manchester United and Chelsea complete the top 4 this week with Manchester United’s lower due to the 55,000 season tickets sold. These amounts are more secure, so there is always a trade off between the guaranteed selling of season tickets and the potential for empty seats on matchday.

Bournemouth’s 11,360 seat stadium, combined with season ticket sales of 7,000 mean their takings from games are low, something they will be hoping to rectify after stabilising in the Premier League.

For away teams the revenue is usually fairly balanced, with the away allocation always fairly similar. All premier league teams agreed to cap away ticket prices to £30, with Arsenal even taking it a step further at £26. Southampton playing away to spurs were allocated the full 3,000 meaning they lead the way in away matchday revenue, followed closely by Brighton, Burnley Manchester City and Swansea – who all played teams with stadium capita of over 45,000. West Ham lag the rest by far, playing at the smallest stadium in the top flight by far, Bournemouth’s Vitality Stadium which boasts 11,360 seats. West Ham were only given an allocation of 2,000 seats.

Thats it for the first week of this matchday money series – any feedback would be greatly appreciated as we continue to refine the formula to get as accurate a read on matchday takings.

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December 4, 2017

Financial Football News Round-Up Edition 3

Financial Football News Weekly Round-Up Edition 3

Here is your weekly financial football news round-up to keep you up to date with all things financial football! This is your round-up for the week commencing 27th November 2017, featuring the Champions League, Manchester City, the London Mayor and Celtic. Stay tuned for further analysis of these developments over the coming week.

Pay day for Eagles as Allardyce Flies North

Allardyce this week joined Merseyside strugglers Everton on 18-month contract. Everton have been lifted by the announcement, recording 2 wins since Big Sam was given the job to move up the table. Also lifted by the news was Crystal Palace owner Steve Parrish, who’s club will net £2m from the deal with Allardyce triggering a clause having moved to another club after his resignation in the summer, supposedly to retire.

Santander Banks Champions League Deal

The Santander Bank is to become an official sponsor of the UEFA Champions League from the 2018/19 season for 3 years, joining Heineken and Nissan as part of commercial sponsorship process currently ongoing for the next 3 seasons. This is a change in sporting direction for Santander, with the deal ending their 11 year association with Ferrari in F1 racing.

West Ham, There is a New Mayor in Town…

And we are not talking about Moysey! Sadiq Khan will from this week take control of the operation of the London Stadium in a bid to get a grip with the stadium’s finances. The London Stadium deal agreed with West Ham under the former Mayor Boris Johnson’s watch, looks set to cost taxpayers £24m in 2017-2018, with West Ham paying just £2.5m-a-year to rent the 60,000 seater stadium. More analysis to follow…

Thai Airways Fly to EFL

The English Football League (EFL) have announced a season-long sponsorship deal with Thai Airways, giving the airline a large stadium presence for the EFL Play-off finals at Wembley, as well as the Carabao Cup final. No figures have yet to be announced as the EFL continue to build their presence overseas. More analysis to follow…

Celtic Looking to Invest Down Under

Scottish Champions Celtic are interested in purchasing an Australian top flight club, with Brisbane Roar and Central Coast Mariners both mooted as possible targets. The move signals a change in business strategy for Celtic as they look to build their global presence by investing in Australia and gaining first-option on any bright young players to come out of the club they acquire. More analysis to follow…

Puma pounce to sign Manchester City

Manchester City have agreed a huge £50m a year deal to replace current kit supplier Nike with Puma. The new deal represents another commercial win for the Premier League leaders, dwarfing their current £20m-a-year deal with Nike agreed in 2012. The Nike deal expires at the end of the current season and Manchester City have moved quickly to exploit their growing global presence after a strong start to the season. Further Analysis to follow…

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