Watford FC’s 2018 Finances

Watford completed their third successive season in the Premier League and will enter their fourth in the Premier League after a successful campaign ended in Premier League survival after a 14^thplaced finish.

Following a great start to the season under Marco Silva, a hostile approach from Everton for their manager’s services derailed their season severely and ultimately led to his sacking and replacement in Javi Garcia who has since steadied the ship and led Watford to an impressive 2019 to date.

Off the pitch, rising costs and the lack of player sales saw a profit of £8.1m in 2017 turn to a huge loss of £30.7m in 2018. The sale of Richarlison at the end of last season should reverse this figure.

Let’s delve into the numbers.

Revenue Analysis

Watford saw a slight rise in revenue in 2018, as revenue increased from £123.9m to £127.4m (3%).

Matchday revenue rose from £7.6m to £8.0m (5%) as fan attendance rose at the club, and although failing to progress far in the cups, were afforded two home ties in their short campaigns in both which boosted revenue.

Broadcasting revenue increased from £105.4m to £108.8m (3%) after finishing 3 places higher than the higher season. A poor cup campaign stopped revenue from rising even further.

Commercial revenue rose well, increasing from £9.3m to £10.6m (14%) after Watford managed to renegotiate their main sponsorship deal with FxPro on more lucrative terms.

Other revenue halved from £1.6m to £0.8m (50%).

Looking ahead, Watford should see a decent rise in revenue next year with a top half finish looking likely and further progression in the cups then in previous years. Matchday revenue will increase due to more home games, while commercial revenue should increase if their commercial team has managed to capitalise on their growing stature and popularity. 

Costs Analysis

Watford saw a bigger rise in costs then revenue, hurting profitability. Costs rose from £138.8m to £157.7m (14%).

Amortisation was the main driver of this rise, increasing from £28.6m to £41.5m (45%) as Watford invested significantly in their playing squad as they looked to consolidate their Premier League status.

The effects of Brexit were felt slightly as Watford recorded an FX loss of £331k.

Watford saw a large increase in their interest costs, rising from £3.5m to £5.2m (49%) on the back of an increase in interest-bearing loans to their owners.

Watford also saw a sizeable increase in wage costs, rising from £74.8m to £85.9m (15%) after a sizeable investment on new, higher-earning players as well as rewarding existing players with new contracts.

The wage rise worked out at a noticeable extra £213k a week, which although sizeable for Watford at the time, is not unusual for a Premier League club.

Watford’s director saw their pay increase from £571k to £631k (11%) after a good season.

Looking ahead, Watford would expect costs to rise further as wages continue to rise with the times while further investment will see amortisation rise. Revenue should increase to a greater extent next year, so Watford will be hoping profitability improves next season.

Transfers Analysis

Watford were fairly busy spending on transfers last season, bringing in 10 players while 5 left.

In came Gray (£18.4m), Richarlison (£11.2m), Cleverley (£8.4m), Hughes (£8.2m), Chalobah (£5.7m), Lukebakio (£4.5m), Dahlberg (£3.5m), Zeegelaar (£2.7m), Deulofeu (Loan – £0.9m) and Carrillo (Loan – £0.9m) for a combined £64.3m.

Out went Berghuis (£5.9m), Kums (£5.9m), Agbo (£2.3m), Juanfran (£0.9m) and Zarate (Loan – £0.2m) for a combined £15.1m.

This led to a net spend of £49.2m, a 360% increase on the prior year and the fourth consecutive net spend Watford have recorded.

The majority of the signings were a success. Richarlison was a home run, while the home-grown signings of Cleverley, Hughes and Chalobah were shrewd additions. The only blots were potentially Lukebakio and Dahlberg while Gray has been disappointing when considering the fee but a useful addition nonetheless.

None of the departures were particularly missed.

The player sales did not help Watford in recording a profit as they only led to a profit on player sales of £2.9m. This will be completely different next year after the sale of Richarlison who Watford should record a profit in excess of £25m on.

In cash terms, Watford spent a relatively high £51.0m on transfers and received £19.3m (receiving some fees due from earlier seasons). This led to a net cash spend of £31.7m, a lot lower than their actual net spend of £49.2m.

Watford are also owed a further £13.3m in transfer fees, of which the majority (£12.1m) is owed this year.

In contrast, Watford owe an eye-watering £90.4m in transfer fees, of which a staggering £64.0m is due this year.

This means Watford owe a net £77.1m, a huge amount for a club the size of Watford that may complicate future transfer plans and lead to the sale of key players (such as Doucoure).

Watford also could potentially have to pay a further £21.2m due to contingent transfer fees should certain clauses be met, although this is unlikely to all be payable, if any.

Debt Analysis

Watford saw a slight fall in cash levels, falling from £10.0m to £8.2m (18%), its lowest levels since promotion after increases in player investment and costs, plus a £5.4m in their stadium and training facilities. This was in part funded by new loans of around £30m.

Watford saw their debt levels balloon after an increase in investment and ambition, rising from £48.9m to £83.4m (71%) as new loans of £36.7m were taken out with their owners, while £7m was repaid (net result of £29.7m).

Of this debt, £80.5m is from their owners with the remainder being external debt. The £80.5m attracts varying rates of inters from 4.5% to 6% depending on when it was received. Other loans in contrast attract rates of between 1.5% and 3%.

Watford were probably due a bit more investment from their owners and it was needed after a close shave the previous year after finishing 17^thin the Premier League. Such investment shows the owner’s intention to build the club as a top-half Premier League club.

Watford hence saw net debt rise from £38.9m to £75.2m (93%) after the large investment.

Watford are on financial solid foundation which will remain that way as long as the club remain a Premier League club. After a solid season so far in 2019, this looks likely to be the case for some time. A couple more years of shrewd signings and good decisions should go a long way to making Watford a self-sustaining club.

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