Football Finances

[Stu]

nice to see a thread properly argued and not descend into the pit as so many do on here

 

Shut up, you saddo.

[AyeDubbleYoo]

I will try and illustrate what I mean by amortisation skewing the picture with an example.

 

A player comes through the academy and is sold by the club in the Summer for £20m cash up front. The club goes out and buys 2 players for £10m each, cash up front, on 5 year contracts. The club has broken even over those transactions, there is no cash to pay or be paid in the future. This is the reality of the situation.

 

The accounts however at the end of that year will show for those transactions that the club made a £16m profit. Every subsequent year, assuming the players are retained the accounts will show a £4m loss even though no cash was paid out in those years. There are no £4m cheques being written to amortisation FC or the office of amortisation.

 

Anomalies like this are why I think it is far more relevant to focus on the cashflow. If a player is paid for up front, that is reflected in the cash flow and will result in a larger debt in that year. If a player in paid for in instalments that is reflected in the cash flow for each year you are paying those instalments. This is surely a much better reflection of how a club is doing financially year to year.

 

In 2007, turnover was £87.1m, the cash flow was -£5m. In 2008, turnover increased to £99.4m but the cash flow was -£34m! That's an extra £41.3m of outgoings in 2008. That has nothing to do with amortisation, that's additional cash going out of the club in 2008 compared to 2007. There will be exceptional items and takeover costs which may account for some of those additional costs, but personally I consider that an astonishing figure and would hope those who are looking at those accounts would be trying to work out the causes of that and explaining where the massive increases came from. Unfortunately I have never even seen that pointed out let alone explained as sadly it seems things like the extra shares in the club that Hall and Shepherd took in 2005 is far more worthy of analysis and criticism.

 

But doesn't a business have to be managed according to the balance sheet as well as the cash flow?

 

Obviously we're not actually writing cheques for the amortisation, but they are costs to the business that have to be taken into account. I was always taught in business studies that cash flow is essential to the ongoing health of the business, but never that you could ignore the wider picture as long as you had some short-term cash to hand.

 

May have misunderstood, I'm basically a mong as far as finance is concerned.

[quayside]

I will try and illustrate what I mean by amortisation skewing the picture with an example.

 

A player comes through the academy and is sold by the club in the Summer for £20m cash up front. The club goes out and buys 2 players for £10m each, cash up front, on 5 year contracts. The club has broken even over those transactions, there is no cash to pay or be paid in the future. This is the reality of the situation.

 

The accounts however at the end of that year will show for those transactions that the club made a £16m profit. Every subsequent year, assuming the players are retained the accounts will show a £4m loss even though no cash was paid out in those years. There are no £4m cheques being written to amortisation FC or the office of amortisation.

 

Anomalies like this are why I think it is far more relevant to focus on the cashflow. If a player is paid for up front, that is reflected in the cash flow and will result in a larger debt in that year. If a player in paid for in instalments that is reflected in the cash flow for each year you are paying those instalments. This is surely a much better reflection of how a club is doing financially year to year.

 

In 2007, turnover was £87.1m, the cash flow was -£5m. In 2008, turnover increased to £99.4m but the cash flow was -£34m! That's an extra £41.3m of outgoings in 2008. That has nothing to do with amortisation, that's additional cash going out of the club in 2008 compared to 2007. There will be exceptional items and takeover costs which may account for some of those additional costs, but personally I consider that an astonishing figure and would hope those who are looking at those accounts would be trying to work out the causes of that and explaining where the massive increases came from. Unfortunately I have never even seen that pointed out let alone explained as sadly it seems things like the extra shares in the club that Hall and Shepherd took in 2005 is far more worthy of analysis and criticism.

 

I can explain some of that if you want to go there, although there is only a limited amount of specific detail avaialble. There is potential for this to be confusing.

 

Rather than looking at the structured debt part of the answer lies in the club's ordinary trade debtors and creditors. These sums would include any money due by the club or to the club for player transfers, although the accounts don't say exactly how much of these amounts relate to player trading. Any other sums due to or by the club for day to day stuff would also be included.

 

At year end 2007 trade debtors were £6 million

At year end 2008 trade debtors were £13 million

 

That is a cash flow hit of £7 million

 

At year end 2007 trade creditors were £55 million

At year end 2008 trade creditors were £40 million

 

That is a cash flow hit of £15 million

 

Add the two together and you have accounted for £22 million, due to more creditors being paid and less debtors paying us year on year. Bear in mind most of these transactions would have set timings for payment.

 

There was also a £10 million difference in cash flows from operating activities, this does not include anything to do with player trading but is the day to day income and expenditure. Although the income increased by the time you look at the final wage bills for the two years there was an £18 million difference, since Allardyce got paid off in 2008 and we received compensation for Owen in 2007.

 

So you have more or less got £32 million of cash flow hit there year on year. 

[Taylor Swift]

I will try and illustrate what I mean by amortisation skewing the picture with an example.

 

A player comes through the academy and is sold by the club in the Summer for £20m cash up front. The club goes out and buys 2 players for £10m each, cash up front, on 5 year contracts. The club has broken even over those transactions, there is no cash to pay or be paid in the future. This is the reality of the situation.

 

The accounts however at the end of that year will show for those transactions that the club made a £16m profit. Every subsequent year, assuming the players are retained the accounts will show a £4m loss even though no cash was paid out in those years. There are no £4m cheques being written to amortisation FC or the office of amortisation.

 

Anomalies like this are why I think it is far more relevant to focus on the cashflow. If a player is paid for up front, that is reflected in the cash flow and will result in a larger debt in that year. If a player in paid for in instalments that is reflected in the cash flow for each year you are paying those instalments. This is surely a much better reflection of how a club is doing financially year to year.

 

In 2007, turnover was £87.1m, the cash flow was -£5m. In 2008, turnover increased to £99.4m but the cash flow was -£34m! That's an extra £41.3m of outgoings in 2008. That has nothing to do with amortisation, that's additional cash going out of the club in 2008 compared to 2007. There will be exceptional items and takeover costs which may account for some of those additional costs, but personally I consider that an astonishing figure and would hope those who are looking at those accounts would be trying to work out the causes of that and explaining where the massive increases came from. Unfortunately I have never even seen that pointed out let alone explained as sadly it seems things like the extra shares in the club that Hall and Shepherd took in 2005 is far more worthy of analysis and criticism.

 

That's quite easily explanable if you consider the fact that we were selling players up front and buying players on installments. So it's easily possible for our cashflow to be fine for a couple of years (because we were getting money from selling players up front) but then our cashflow would have to deteriorate quite astonishingly when the money went out for the players we bought on installments.

 

So actually, the -£5m probably masked our financial problems. The club was losing money each year (as shown in the accounts). The fact that only -£5m went out that year can probably be attributed to getting money in earlier than it was due (like getting the sponsorship money paid early, or selling players up front), but then obviously the opposite would happen in the years after i.e. instead of our cashflow showing a reasonable number, it'd show a seriously worrying number. I know there have been comments coming from the new regime that many of the transfers were still being paid off, which fits in with the story that I've described.

 

quayside has also explained it well in the post above. Our trade creditors declined, meaning that not as many people owed us money (meaning cash was being paid up front, or we re-negotiated some installments, asking for early payment and probably giving those clubs a discount) while our trade debtors increased (meaning we were paying in installments). What quayside describes also fits in with the comments coming out from the regime that we were operating on a sell up front, buy in installments model. That's actually technically the best way to maximise your present value of money, but it's only all right when you're not making a substantial loss year in year out because in the end you don't have money to pay for stuff. We were heading in that direction.

[Consortium of one]

This isn't relevant to Ashley's running of the club, so I wont labour the point, but I have a mortgage on my house. That doesn't mean I can't take out a higher mortgage on it. The club WAS able to secure a major refinancing project, so I'm not sure why you keep trying to insist that it wouldn't be able to.

 

you could take put a higher mortgage on it if there was equity on it, alternativly you could take out a mortgage on more favourable terms....like i have done several times.

 

 

Yes, but also if you had a load of other debts and your financial position was constantly worsening, the bank would be unlikely to agree to any refinancing.

you'd think so wouldn't you, however i've been doing a lot of reading on why the economy f***ed up with things like derivitives, SIV's, credit default swaps etc and the standard rules of credit seemed to have been thrown out of the window for a few years there. I also remember reading about portsmouth that they had been allowed to keep borrowing long after they should've been stopped.

 

Bingo

 

Monay managers got stupid and/or lazy and began to believe that the money pot would never get empty.  Loans were being made and fees were charged and interest on those loans were expected with little to no thought of the loan ever being repaid.  Imean if loan "A" couldn't be repaid, just make loan "B" to repay "A" and it's all good!  In reality most of the financial ventures were little more than Ponzi schemes in their own right.

[jdckelly]

villa suffer £37m loss with wages of almost £80m last season

http://www.mirrorfootball.co.uk/news/Aston-Villa-suffer-37m-losses-as-owner-Randy-Lerner-seeks-to-cut-costs-article709389.html?utm_source=twitterfeed&utm_medium=twitter

[Dave]

Presumably they'll cease to exist.

[AyeDubbleYoo]

This isn't relevant to Ashley's running of the club, so I wont labour the point, but I have a mortgage on my house. That doesn't mean I can't take out a higher mortgage on it. The club WAS able to secure a major refinancing project, so I'm not sure why you keep trying to insist that it wouldn't be able to.

 

you could take put a higher mortgage on it if there was equity on it, alternativly you could take out a mortgage on more favourable terms....like i have done several times.

 

 

Yes, but also if you had a load of other debts and your financial position was constantly worsening, the bank would be unlikely to agree to any refinancing.

you'd think so wouldn't you, however i've been doing a lot of reading on why the economy f***ed up with things like derivitives, SIV's, credit default swaps etc and the standard rules of credit seemed to have been thrown out of the window for a few years there. I also remember reading about portsmouth that they had been allowed to keep borrowing long after they should've been stopped.

 

Bingo

 

Monay managers got stupid and/or lazy and began to believe that the money pot would never get empty.  Loans were being made and fees were charged and interest on those loans were expected with little to no thought of the loan ever being repaid.  Imean if loan "A" couldn't be repaid, just make loan "B" to repay "A" and it's all good!  In reality most of the financial ventures were little more than Ponzi schemes in their own right.

 

That's what I meant in my post too, that nobody was considering that at some point the supply of easy/cheap credit would dry up.

[Punk77]

villa suffer £37m loss with wages of almost £80m last season

http://www.mirrorfootball.co.uk/news/Aston-Villa-suffer-37m-losses-as-owner-Randy-Lerner-seeks-to-cut-costs-article709389.html?utm_source=twitterfeed&utm_medium=twitter

 

It's quite shocking really.. It's when I'm reading such articles that I'm actually glad that MA is our owner..

[Dave]

[AyeDubbleYoo]

Presumably they'll cease to exist.

 

[quayside]

Presumably they'll cease to exist.

 

I haven't looked at their latest accounts but according to that article Lerner has put in £90 million of loans. If they owed all of that debt to a bank and were in a position where they couldn't pay wages, taxes, player transfer fees etc they would be at least as much at risk as Portsmouth were.

[ToonTastic]

Has anyone got a link to the last set of results please ? I know it was a while ago now, search just brings up chronicle story and 2006 results.

[Guest Roger Kint]

Has anyone got a link to the last set of results please ? I know it was a while ago now, search just brings up chronicle story and 2006 results.

 

http://www.newcastle-online.org/nufcforum/index.php/topic,69123.0.html

[ToonTastic]

ta

[madras]

Presumably they'll cease to exist.

do you think they'll keep on going as they are ?

[Guest Wearside]

villa suffer £37m loss with wages of almost £80m last season

http://www.mirrorfootball.co.uk/news/Aston-Villa-suffer-37m-losses-as-owner-Randy-Lerner-seeks-to-cut-costs-article709389.html?utm_source=twitterfeed&utm_medium=twitter

 

Very interesting,I presume Villa are now close to administration as some posters on here claimed Sunderland were a few weeks ago?

 

An 88% wages to turnover ratio aswell and that's before you account for them signing Bent and Makoun and I don't think many have left Villa.

[quayside]

villa suffer £37m loss with wages of almost £80m last season

http://www.mirrorfootball.co.uk/news/Aston-Villa-suffer-37m-losses-as-owner-Randy-Lerner-seeks-to-cut-costs-article709389.html?utm_source=twitterfeed&utm_medium=twitter

 

Very interesting,I presume Villa are now close to administration as some posters on here claimed Sunderland were a few weeks ago?

 

An 88% wages to turnover ratio aswell and that's before you account for them signing Bent and Makoun and I don't think many have left Villa.

 

Presumably Ellis Short is able to carry on funding any losses you lot incur, in the same way Lerner does at Villa. So there is no danger for either of you then.

[AyeDubbleYoo]

I suppose nobody who is in debt to their owner is in danger, as long as the owner is around and prepared to fund the losses personally.

[quayside]

Don't we currently have a loan of £235m though interest free and no payments currently have to be made to it.

 

The loan, the last time it was reported, was about £138 million. It has been interest free to date, and it is up to Ashley what he wants to do about getting it back.

 

The larger number that sometimes gets quoted includes what he paid for the club and that would be another £138 million or thereabouts, making his total investment stand at about £276 million.

[ToonTastic]

Don't we currently have a loan of £235m though interest free and no payments currently have to be made to it.

 

The loan, the last time it was reported, was about £138 million. It has been interest free to date, and it is up to Ashley what he wants to do about getting it back.

 

The larger number that sometimes gets quoted includes what he paid for the club and that would be another £138 million or thereabouts, making his total investment stand at about £276 million.

 

Sorry I deleted the post decided I shouldn't get involved however the number I quoted was from the Chronicle so could include that I guess.

[Stu]

Presumably they'll cease to exist.

do you think they'll keep on going as they are ?

 

You'd think he didn't have an axe to grind.

[ToonTastic]

Makes interesting reading as well http://blog.emiratesstadium.info/archives/6016

[Sifu]

http://www.bbc.co.uk/news/business-13679632?utm_source=twitterfeed&utm_medium=twitter

 

 

The proportion of income that Premier League clubs spend on wages hit a record 68% in 2009-10, a report into football finances by Deloitte says.

 

While Manchester United spent 46% of its revenue on pay, rivals Manchester City splashed out a massive 107%.

 

Chelsea again topped the wages bill, as they have done every season since 2002-03, at £174m.

 

"This new high is worrying, something Uefa's financial fair play rules should address," said Deloitte's Dan Jones.

 

'Middle tier'

 

Mr Jones said there were signs of wage discipline in clubs near the bottom of the Premier League, while those near the top earned such large revenues that it helped them keep the wage ratios down.

 

"The problem is with the middle tier of clubs, those who are neither chasing a Uefa place or facing relegation," said Mr Jones.

 

"And of course Manchester City and Chelsea are going to need to get wages under control for the financial fair play rules."

Revenues of Europe's leading football leagues

 

http://news.bbcimg.co.uk/media/images/53313000/gif/_53313826_euro_leagues_464.gif

 

Those rules, which encourage football teams to balance revenues and costs, will start taking account of club's finances from next season.

 

To obtain a Uefa licence to play in the Champions League or Europa League, a club has to meet those break-even financial requirements.

'Business challenge'

 

The Deloitte report shows Premier League revenues increased by 2% to exceed £2bn for the first time in the 2009-10 season.

 

"While football's revenue performance has been spectacular, sustainably managing its costs remains football's primary business challenge," Mr Jones added.

 

Continue reading the main story

 

TOP PREMIER LEAGUE WAGE BILLS 2009-10

 

    Chelsea - £174m (£167m)

    Man City - £133m (£123m)

    Man Utd - £132m (£123m)

    Liverpool - £121m (£107m)

    Arsenal - £111m (£104m)

 

Source: Deloitte, 2008-09 wage bills in brackets

 

But the "relentless growth in wages" has resulted in operating margins in the top division falling from 16% to 4% over the lifetime of the Premier League.

 

And other challenges remain - including debt, warnings from the government about football governance, and continued interest from tax and revenue authorities.

 

Meanwhile, the overall operating losses for the top four divisions in England now outstrip the Premier League's profits.

 

The 92 league clubs as a whole lose money on their day-to-day operations - and at the pre-tax level, losses have continued to grow, hitting £600m in 2009-10.

 

Meanwhile, collective club debts stand at around £3.5bn.

 

'Credit challenge'

 

There are many challenges in the divisions below the Premier League, where Deloitte says the Championship is "a league of real contrasts".

 

Relegated clubs from the top tier receive the financial cushion of parachute payments, but many others in their league are feeling the pain of the tough financial environment.

 

http://news.bbcimg.co.uk/media/images/53314000/gif/_53314130_five_leagues_464.gif

 

Revenue growth of Europe's leading football leagues

 

Matchday and commercial revenues are already reducing, and from 2012-13 the value of the new domestic TV deal will be about a quarter less than the present one.

 

"Given the ongoing debt situation, and with credit continuing to be a major challenge, clubs will need to quickly adapt to their prospective trading environment," says Mr Jones.

Continue reading the main story

 

 

PREMIER LEAGUE FINANCES 2009-10

 

    Increased revenues to nearly 2.5bn euros, 800m euros ahead of second highest revenue earning league, the Bundesliga

    Broadcasting revenue up 7% to £1,004m - the first £1bn revenue stream of any domestic football league

    Arsenal, Liverpool, Manchester United and Tottenham generated profits

    Large losses at Chelsea and Manchester City

    Pre-tax losses after financing and player trading hit record £445m

    Debt at £2.6bn, down from £3.3bn

    Non-interest bearing "soft" loans account for 38% of net debt

 

Source: Deloitte

 

Down the decades, the report observes, there have been many football funding models - investment from the City, then media companies, and now many clubs are owned by wealthy individuals.

 

"A 'trophy asset' model - requiring ongoing investment in losses and delivering returns only in the form of capital growth on changes of ownership - remains prevalent as competitive pressure to win outweighs any desire to limit wage costs," it adds.

 

However, the report says that professional football has proved itself to be robust - having in the past decade overcome the collapse of ITV Digital and Setanta, as well as come through the recent economic downturn.

 

In fact, no Football League club has gone out of business since Maidstone in 1992.

 

"Despite the challenges, English football has never been so popular," says Mr Jones.

 

"Football clubs elsewhere in the world would no doubt be glad to trade their position for those of similar-sized English clubs, while other domestic sports look at football enviously."

[Rob W]

ttp://www.deloitte.com/view/en_GB/uk/industries/sportsbusinessgroup/sports/football/index.htm for downloads

 

Still crazy out there

 

Europe’s premier leagues

• Despite significant economic headwinds, the European football market grew by 4% to €16.3 billion in 2009/10.

The ‘big five’ leagues’ revenues grew by 5% to €8.4 billion, with all five leagues demonstrating revenue growth. Broadcasting revenue was the main driver of

growth (up 8%) and now stands at over €4 billion.

 

• The Premier League increased its revenue to almost €2.5 billion in 2009/10. The gap to the second highest revenue generating league, the Bundesliga, now

exceeds €800m.

 

• The Bundesliga’s revenue grew 6% to €1,664m, driven by an impressive increase in commercial revenues, and the largest average attendance (42,700) in European football.

 

• La Liga revenues grew by 8% to €1,622m, the highest absolute and relative growth of any of the ‘big five’ leagues. Much of the growth was driven by Real

Madrid and Barcelona (whose collective revenues increased by €69m).

 

• Serie A’s revenues increased by 3% to €1,532m leaving it in fourth place of the ‘big five’ leagues, ahead of Ligue 1 whose clubs’ revenues grew by 2%

to reach €1,072m. UEFA’s decision to hold Euro 2016 in France provides a significant opportunity for French clubs to refurbish stadia to increase attendances and

revenue. Whilst Italy lost out, it still needs to invest to improve its outdated stadia.

 

• Football’s greatest business challenge remains cost control, with the ‘big five’ leagues’ wages increasing by over €400m (8%) to exceed €5.5 billion in 2009/10. In

Italy and France wages growth exceeded the absolute level of revenue growth, while in England and Germany revenue and wages both grew by similar amounts.

In Spain aggregate wages excluding Barcelona and Real Madrid fell and the overall wages/revenue ratio of 60% represented a ten year low.

 

• The Premier League and the Bundesliga were the only ‘big five’ leagues to achieve operating profits in 2009/10, with the Bundesliga (€138m) remaining ahead of the

Premier League (£83m (€101m)). Losses in Ligue 1 increased to €102m and while Serie A clubs marginally reduced their losses these still exceeded €100m.

• Outside of the ‘big five’ countries, The Netherlands (€420m), Turkey (€378m) and Russia (€368m) have the largest revenue generating leagues. Commercial

revenue is typically the most lucrative area for non ‘big five’ leagues.

 

• For many years it has been evident that the temptation to invest in playing talent in search of improved performance on the pitch has been outweighing the

need to balance budgets. Intervention, being led by UEFA on a pan-European basis, provides the opportunity to deliver a long awaited improvement in football’s ability to more sustainably control its costs.

 

 

 

also

 

 

Matchday revenues fell by 7% in 2009/10, primarily due to the change in mix of clubs, in particular the relegation of Newcastle United, and a £22m reduction

in matchday revenues from the clubs which competed in the UEFA Champions League, all of whom exited the competition earlier than in the previous season.