Stoke City have endured a tumultuous couple of seasons, firstly being relegated from the Premier League in 2018 which ended a ten-year stay in the division. Hopes were high of gaining promotion straight back to the top flight, however Gary Rowett (replacing Paul Lambert) was unable to deliver despite large spending, and was replaced by Nathan Jones in January 2019 who has also been unable to revive fortunes.
This led to Stoke finishing in a disappointing 16th position with the club staring mid-table obscurity (or worse) this season once again leading to Nathan Jones being sacked during the 2019/20 season.
Off the pitch, Stoke have begun acclimatising to being back in the Championship, recording a loss of £16m, which is an improvement on the record £32m loss recorded in 2017/18. Stoke successfully managed to control costs knowing that revenue was due to plummet following relegation.
Let’s delve into the numbers.
Revenue Analysis
Stoke saw their revenue nearly halve from £127m to £71m (45%) on the back of relegation, showcasing the huge costs of relegation and why Stoke and their peers fight so hard (and sack so many managers) in a bid to survive in the Premier League.
Matchday revenue
Stoke saw their matchday revenue fall from £7.7m to £6.4m (17%) following relegation due to falling attendances and ticket prices.
Average league attendance fell from 29,280 to 25,200 (14%) as fans, unhappy with performance and their new Championship status, chose to stay at home more often.
With performances arguably even poorer this season and the club in the midst of what appears to be a relegation battle, it is likely that matchday revenue will fall even further as attendances decline.
Broadcast revenue
Broadcast revenue was the big mover, plummeting from £101m to £51m (49%) showing the huge financial gap between the Premier League and Championship.
The figure is only this high because of parachute payments, which will fall over the next two seasons before ending. Therefore, Stoke are going to see another large (but smaller than this year) drop in revenue during the 2019/20 season as parachute payments fall.
Commercial revenue
Stoke’s commercial revenue also nearly halved, falling from £14.3m to £7.8m (45%) after relegation meant they lost lucrative commercial partnerships while others likely had relegation related clauses which saw their payments fall in the case of relegation.
It is unlikely that Stoke will see another major drop in commercial revenue at this point, however it is likely to fall slightly again with Stoke unlikely to challenge for promotion and hence have little to bargain with when it comes to securing new commercial deals.
Other revenue
Stoke City’s other revenue increased from £4.4m to £5.1m (16%). No further details was disclosed by the club on what this consists of.
What does the future hold?
Stoke are looking very likely to remain a Championship side at best next season with the club languishing in 21st at the time of writing.
This therefore means that all three revenue streams are once again likely to deteriorate with revenue likely to drop below the £50m mark. With revenue once again dropping, Stoke will need to be frugal with their costs in order to avoid large losses accumulating which will cause significant financial fair play issues and possible financial difficulties.
Expenses Analysis
Stoke knew their revenue was going to plummet following relegation and took the necessary steps to reduce their costs. This was successfully done and operating costs fell from £180m to £104m (42%), largely in line with revenue and hence profitability was largely unaffected.
Amortisation
Amortisation fell from £56m to £31m (45%) after a smaller number of impairment adjustment than following their relegation. With players underperforming and hence their value depleted after relegation, Stoke impaired the value of their players to the tune of £29m following relegation, a figure that was only £2m this year, explaining the large drop.
Interestingly, following an expensive summer, actual amortisation charges increased from £27m to £29m, which is unusual for a club following relegation.
Net interest income/expense
Stoke City have no interest bearing debt and hence no interest expense. The club does however earn a small amount of interest from the bank of £0.2m on their cash reserves.
Wages
The biggest drop in costs for Stoke is their wages, which fell from £96m to £58m (40%) as relegation wage drop clauses kicked in and high-earners departed for new pastures.
This wage drop saved Stoke roughly £735k a week in wages, a huge sum, showcasing the vast difference in the costs of competing in the Premier League and Championship.
These costs are likely to fall further in 2019/20 as more high earners depart with the club unlikely to gain promotion.
What does the future hold?
Stoke will have to reduce costs once again with revenue likely to drop significantly following their second phase of parachute payments.
This means the club will have to offload players who are straining the wage budget, which may lead to further struggles on the pitch if not adequately replaced.
Transfers Analysis
Stoke had a busy transfer season, interestingly spending more this season than in their final Premier League season.
In came Afobe (£12.2m), Ince (£10.1m), Vokes (£7.2m), Woods (£6.5m), Etebo (£6.5m), Clucas (£6m), McClean (£5m) and Batth (£3.1m) for a combined £56.6m.
Departing Stoke were Shaqiri (£13.2m), Sobhi (£5.9m), Muniesa (£4.5m), Grant (£1.5m), Wimmer (Loan – £1.4m) and Ndiaye (Loan – £0.7m) for a combined £27.1m.
This meant their net transfer spend actually increased significantly from £20.3m to £29.5m (45%) despite relegation, showing a renewed ambition to return to where they believe they belong.
Things did not pan out, with the new signings failing to settle and perform despite all seeming to be sound signings at the time of purchase. It was judged that the problem lay with the manager Gary Rowett who was replaced with Nathan Jones. However, things have not improved under his tutelage and he has promptly been sacked himself.
The sale of of the likes of Shaqiri and Sobhi led to Stoke recording a profit on player sales of £18m which contributed to their losses halving to £16m. With no notable departures to date this season, losses are likely to be significantly larger in 2020.
Transfer debts
In debt terms, Stoke are owed £13m in transfer fees. However Stoke owe an alarming £44m in transfer fees, a net creditor position of £31m which will limit future transfer plans and put further stress on their finances going forward.
Stoke also have contingent transfer fees of £3m which may become payable if certain conditions are met, although this amount isn’t a big concern due to its size.
Cash
In cash terms, Stoke spent actual cash of £51m on transfers during 2018/19, while only receiving £27m, a net cash outlay of £24m, a significant outlay that required funding from their owners (see net debt analysis).
Net Debt Analysis
Stoke have in recent history required significant owner funding to operate and compete, an amount that has steadily increased over their ten years in the Premier League.
Cash levels have traditionally been relatively healthy, with cash reserves averaging £16m over the previous seven seasons. This changed in 2018/19 with cash levels falling to £6m after significant transfer spending and the club’s falling revenue levels following relegation.
This meant that once again the Coates family had to inject Stoke with cash to avoid further stress on their finances. The owners plunged another £19m into the club, following a £47m injection in 2018.
This led to debt levels rising from £161m to £180m (12%). All of the debt is from the owners and is interest free so should be more of a worry for the Coates family then it should be to Stoke fans despite its unpleasant reading.
With a Premier League return seemingly far away currently, Stoke are likely to continue to require cash injections which will burn a further hole in their owner’s pockets and may make them question their continued involvement in the club.
As a result of the above, Stoke saw their net debt increase from £139m to £174m (25%), painting a picture of the worsening financial state of Stoke which looks likely to get worse before things improve.
Stoke need to return to the Premier League swiftly, something which isn’t looking likely currently. With promotion out of the question this season, Stoke only have next season before their parachute payments cease and they return to the revenue levels of a normal Championship side (£20-30m). At this revenue level it will be increasingly hard for Stoke to gain promotion, while i Financial Fair Play issues may arise with the club already above the £39m three-year, cumulative losses allowed. Their relegation means they have a grace period to resolve their finances, however as time goes on, they will come under increasing scrutiny if their finances fail to improve.
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