Wolves FC’s 2018 Finances – Financial Fosun Play

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

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

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

Let’s delve into the numbers.

Revenue Analysis

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

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

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

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

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

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

Costs Analysis

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

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

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

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

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

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

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

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

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

Transfer Analysis

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

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

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

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

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

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

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

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

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

Debt Analysis

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

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

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

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

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

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

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

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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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March 23, 2018

Wolves Financial Review 2018

Wolves have embarked on a exciting new period, their new owners are committed to investing heavily into the club while their intriguing relationship with super agent Jorge Mendes has led to some of Europe’s most promising talents plying their trade at the Molineux.

This new era started poorly however. A disappointing 15th placed Championship finish left the club in mid table obscurity despite their lofty promotion ambitions at the beginning of the season.

This season has been more as expected, the foundations put in place last season have come to fruition with the side leading the Championship for most of the season to date.

Their promotion charge has come at a short term costs, with a loss of £23m, a swing of over £28m from last year’s profitable position.

This article analyse the finances of the soon to be Premier League club.

Revenue Analysis

Revenue fell this year, falling to £23.7m from £27.3m (13.7%) after the club finally stopped receiving parachute payments from the Premier League.

This led to Broadcasting revenue (where the payments are categorised) falling from £13.9m to £8m, a huge 42.4% drop in revenue.

Elsewhere revenue rose, firstly in Matchday income, rising from £5.4m to £6.5m (20.4%). This was due to an increase in attendance as optimism within the cub grows. This was helped in part ironically by lower season ticket sales, as these on average work out cheaper than the purchase of single matchday tickets, hence maintaining attendance while lowering season tickets yields higher revenue.

Commercial revenue also rose on the back of their new links and investors, rising from £6.9m to £7.6m (10.1%).

Other revenue which consists of income not categorised in the above rose as well from £1.1m to £1.6m (45.5%)

Revenue will be on the rise again next season , a top placed finish is expected at this stage which will yield a considerable increase on prize money after last season’s 15th placed finish while the club have featured more heavily on TV which will also boost broadcasting revenue. A FA Cup run to the fifth round this time round will also boost prize money winnings.

Commercial revenue will also rise due to the increased attraction of the club as they prepare for Premier League life again.

Matchday revenue should also increase as attendance rises as well as prices while progression in the FA Cup may also add to matchday earnings.

The rise will not be massive as Premier League revenue will not come into effect until the year after where revenue will rise by over £100m.

Expense Analysis

The investment by the new owners becomes more apparent when looking at operating expenses which have seen a huge increase in costs.

Operating expenses rose from £31.3m to £48.5m, an incredible 55% increase in costs with this rise primarily due to player investment.

Amortisation costs rose from £2.9m to £7.6m, a huge 162% increase showcasing a huge investment in the Wolves squad as detailed in the next section.

Finance costs also rose from £54k to £635k as their debt rose from next to nothing to a relatively sizeable amount.

Wages rose significantly from £18.2m to £28.2m (54.9%) as the club’s marquee signings boasted huge wages, working out at an eye-watering £192k extra a week, unheard of rises for a Championship club.

The club paid no tax due to their loss making status currently, having built up losses a return to profit will still cause next to no tax being payable.

Operating expenses will continue to rise after the club spent heavily again last summer buying players, while the club will spend even greater sums in the coming summer to prepare the club for the Premier League. We here at FFN expect costs to easily break the £10m wage barrier next year while total costs will be close to £70m.

Transfers Analysis

Wolves continue to dominate the Championship transfer market with exotic purchases made possible by super agent Jorge Mendes.

In came Costa (£13.5m), Cavaleiro (£7.2m), Saiss (£3.6m), Bodvarsson (£2.9m), Ohiangue (£2m), Gladon (£1.8m), Marshall (£1.3m) and Lonergan (£0.3m) joining Wolves for a combined £32.5m.

Leaving the club was much less exciting with McDonald (£1.4m), Van La Parra (£0.8m), Bryne (£0.5m) and Sigurdarson (Free transfer) departing for a combined £2.7m.

This left the club with a net spend of £29.8m, up a huge amount on last year where the club made a £5.2m profit on player sales, continuing to show the upward trajectory under their ambitious new owners.

As expected then, profit on player disposal was significantly down, falling from £10m to £2.2m a huge 78% drop in income from this source, which has proven worthwhile with income set to blow in a big way once a Premier League return is confirmed.

Asset/Liabilities Analysis

Wolves received a financial boost from their owners who pumped £27m into the club during the year. This inevitably increased debt levels, with football owners never ones to give a free lunch and will expect a return on their investment at some point in the future.

Wolves kept some of their cash spare, as £3.2m remained in their bank compared to being £4.5m into their overdraft the previous season.

Net debt levels hence rose from £4.5m to £23.8m a huge 453% increase. Debt levels should continue to rise as the owners look to give the club the finance it needs to be successful in the Premier League which may still be required despite the new riches the Premier League brings.

Wolves continues to invest in it’s infrastructure with a further £450k committed to improving training facilities.

Wolves also saw an increase in contingent transfer fees, moving from £7.4m to £11.6m (56.8%) as the club’s transfer fees rise so do their respective clauses.

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