Tuesday, April 14, 2015

Tottenham Hotspur - The Bottom Line

Being a Tottenham supporter must be a pretty good test of whether you are a glass half-full or glass half-empty type of person. On the one hand, the club is consistently at the higher end of the Premier League, memorably qualifying for the Champions League in 2010 and only missing out on a technicality two years later (due to Chelsea’s European victory); but on the other hand, it’s often a case of “close, but no cigar”.

This was once neatly summarised by Chairman Daniel Levy: “We have come far in the last decade – we have raised our expectations from a club  aiming to be in the top half of the table, to competing in Europe each season – to the point at which we find ourselves disappointed if we don't make Champions League.”

Tottenham’s search for success in recent times cannot have been helped by the constant management upheaval with the club parting company with Harry Redknapp, André Villas-Boas and “tactics” Tim Sherwood in the past three seasons, before settling on the current incumbent Mauricio Pochettino. It will not have escaped the supporters’ attention that all this tinkering at the top has only resulted in worsening league positions: 4th in 2012, 5th in 2013, 6th in 2014 and (currently) 7th in 2015.

Off the pitch, it’s a different story, as Tottenham reported record revenue of £181 million in the 2013/14 season plus an astonishing pre-tax profit of £80 million, which is not only the best ever for Spurs, but also the highest ever recorded in the Premier League (I believe). This was mainly thanks to unprecedented profits on player sales of £104 million, largely due to Gareth Bale’s bumper sale to Real Madrid.

In fact, the profit before tax surged £76 million from £4m in the previous season to that £80 million. After including a £15 million tax charge, the post-tax profit was down to £65 million, still a substantial increase on the £1.5 million profit recorded in 2012/13. Obviously the vast majority of the increase was due to the £78 million increase in player sales profits from £26 million to £104 million, but revenue also rose £33 million from £147.4 million to £180.5 million, almost entirely due to the new Premier League television deal.

Against that, operating expenses were £13 million higher, including a £4 million increase in the wage bill, which broke through the £100 million barrier for the first time. Player trading costs also rose £23 million (player amortisation £13 million, impairment of player values £10 million), while the club booked £5 million of exceptional items for redundancy costs (AVB and his coaching staff) and onerous employment contracts.

In addition, there were a few technical movements, as depreciation fell £8 million, largely as the previous year included a £5 million write-off for certain professional fees associated with the Northumberland Development Project (NDP), but also a £6 million profit from property sales (the northern end of the NDP site). Net interest payable was £4 million lower, as this year included higher notional interest on deferred receipts for player sales.

The higher TV money has significantly improved profitability in the Premier League in the 2013/14 season with 15 of the 20 clubs that have published their accounts to date reporting profits, but Tottenham sit on top of the pile with their £65 million post-tax profit, ahead of Southampton £33 million, Everton £28 million, Manchester United £24 million and Newcastle United £19 million.

Of course, making money is nothing new at Spurs with Levy commenting, “Tottenham Hotspur have always been run on a rational basis. It’s one of the few clubs that has been consistently profitable.” In fact, Tottenham have reported profits in eight of the 10 years since 2005, normally just above break-even, but sizeable returns of £28 million in 2007 and £33 million in 2009.

Clearly much of that solid financial performance is down to player sales with Tottenham making an incredible £267 million from that activity over the last nine years. That’s more than a quarter of a billion as Levy’s tough negotiation skills have certainly reaped large financial rewards, albeit at the cost of weakening the team.

Tottenham’s last significant profit of £33 million in 2009 was also largely due to profits on player sales of £56 million with Dimitar Berbatov moving to Manchester United and Robbie Keane to Liverpool.

The last two seasons have included a couple of mega money sales to Real Madrid (Bale £85 million and Luka Modric £30 million), but also highlight Tottenham’s ability to get good money for most sales, e.g. in 2013/14 Steven Caulker’s was bought by Cardiff City for £8 million, Tom Hudllestone went to Hull City for £5 million, while the moves of Clint Dempsey and Jermain Defoe to MLS generated around £12 million.

Unsurprisingly Tottenham’s £104 million profit on player sales was the highest in the Premier League in 2013/14 with only a couple of other clubs (so far) reporting more than £10 million profit from this activity: Chelsea £65 million and Everton £28 million. When Southampton publish their detailed accounts, they will also probably include high player trading profits, but nothing like Tottenham’s level.

The other side of the player trading coin is player amortisation, namely the annual cost of expensing the transfer fee of purchased players, which is written-off evenly over the length of the player’s contract. As an example, Roberto Soldado was bought from Valencia for £26 million on a four-year contract, so the annual amortisation is £6.5 million.

This increased from around £25 million in each of the previous two seasons to £40 million in 2013/14 “due to the continued investment in the playing squad”. The total cost was actually £50 million, as there was also £10 million for impairment with the value of certain players in the club’s books being reduced. Although there are clear accounting criteria for impairment, it is a little bit of a grey area, so it makes sense for Tottenham to book such charges in a year of such high profits.

Even though player trading (and particularly profits from player sales) have such an important impact on Tottenham’s bottom line, they are still profitable from their core business. This can be seen by looking at the club’s EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation), which can be considered a proxy for the club’s profits excluding player trading, as this is solidly positive year after year. After two years of decline, it rose from £19 million to £39 million in 2013/14.

That is not bad at all, but still a fair way behind the top five clubs: Manchester United £130 million, Manchester City £75 million, Arsenal £62 million, Liverpool £53 million and Chelsea £51 million. This is despite the far higher wage bills at those clubs, so goes a long way to explain Tottenham’s greater reliance on a player sales business model.

Nevertheless, revenue rose £33.1 million (22%) from £147.4 million to £180.5 million in 2013/14, almost entirely due to the additional money from the Premier League TV deal, which helped increase broadcasting revenue by £32.5 million (52%) from £62.3 million to £94.8 million. Match day revenue also rose £3.7 million (9%) from £40.2 million to £43.9 million, but commercial income fell £3.1 million (7%) from £44.9 million to £41.8 million.

Note that I am using the Deloitte Money League revenue split here, which is different from the categorisation in the club accounts, in order to ensure comparability with other clubs’ figures. The main difference is corporate hospitality, which is included in commercial income in the club accounts, but match day in Deloitte’s numbers.

The importance of TV money to Tottenham’s revenue growth is clear: 83% (£55 million) of the £66 million increase since 2008 from £115 million to £181 million has come from broadcasting. In the same period, commercial income rose only £8 million from £34 million to £42 million, while match day income grew by just £4 million from £40 million to £44 million.

The major increases occurred in 2011 and 2014 in line with the new three-year cycles of the Premier League TV deals. The rise to £164 million in 2011 was also boosted by £37 million from the Champions League (prize money and gate receipts).

One problem with this is that all Premier League clubs are increasing their revenue off the back of the central TV deal, while the leading clubs are also reporting high growth in their commercial operations. In this way Tottenham’s 2013/14 revenue growth of £33 million has been eclipsed by the top five clubs: Manchester City £76 million, Manchester United £70 million, Chelsea £60 million, Arsenal £55 million and Liverpool £50 million. Mind the gap, indeed.

So Tottenham’s revenue of £181 million is the 6th highest in England, but is a long way behind the other leading clubs: Manchester United £433 million, Manchester City £347 million, Chelsea £320 million, Arsenal £299 million and Liverpool £256 million. After Tottenham’s recent loss to Aston Villa, Mauricio Pochettino commented, “It is difficult to fight for the top four. We need to be realistic.” This was probably in reference to their current league position, but could just as easily apply to the huge financial disparity.

That said, Tottenham are in turn a fair way above the next clubs (Newcastle United £130 million and Everton £121 million), so they could be considered to some extent to be “The Inbetweeners” of the Premier League, struggling to reach the highest echelon, but comfortably beyond the chasing pack.

Tottenham actually rose one place in the Deloitte Money League to 13th, ahead of Schalke 04, Atletico Madrid, Napoli and Inter, but their problem is that there are five English clubs ahead of them. In many ways, it would be better to have less income, but be higher placed in the domestic league, as the competition in England is much tougher from a financial perspective. From this season 14 of the Premier League clubs are in the top 30 worldwide by revenue, while all 20 clubs are in the top 40.

Broadcasting now contributes more than half of Tottenham’s total revenue, rising from 43% to 53% in 2013/14. Match day income is down to 24%, while commercial income falls to 23%.

Despite finishing a place lower in 6th, Tottenham’s share of the Premier League TV money increased by £34 million from £56 million to £90 million in 2013/14 as a result of the new three-year deal. In fact, they received more than 5th place Everton, as they were shown live more often, which resulted in higher facility fees (25% of the domestic deal).

The only other variable element in the Premier League distribution is the merit payment (also 25% of the domestic deal), which depends on where you finish in the league. All other elements are equally distributed among the 20 Premier League clubs: the remaining 50% of the domestic deal, 100% of the overseas deals and central commercial revenue.

Of course, this is just the first year of the current Premier League TV deal and there will be even more money available when the next three-year cycle starts in 2016/17 with the recently signed extraordinary UK deals with Sky and BT producing a further 70% uplift. My estimates are that a club finishing 6th will receive around £138 million a season, which would represent an additional £48 million for Spurs.

Given the equitable nature of the Premier League TV deal, the real differentiator for the leading English clubs is in fact the Champions League. In 2013/14 Tottenham were more or less the same as the top five domestically, but their total broadcasting income of £95 million was easily surpassed by Chelsea £140 million, Manchester United £136 million, Manchester City £133 million and Arsenal £123 million, thanks to their Champions League receipts.

Although Tottenham earned €5.9 million prize money (£9.2 million including gate receipts) for reaching the last 16 of the Europa League, this was much lower than the Champions League, where the four English clubs earned an average of €38 million, ranging from Manchester United’s €45 million to Arsenal’s €27 million.

In 2010/11 Tottenham’s run to the Champions League quarter-finals before being eliminated by Real Madrid generated €31 million of prize money (£37.1 million including gate receipts). It must have therefore been really galling when they finished fourth in the Premier League in 2012, which would normally have guaranteed a place in the Champions League qualifying round, only to be deprived following Chelsea’s unlikely victory against Bayern Munich.

The importance of qualifying for the Champions League has been further emphasised with the new deal from the 2015/16 season that will increase the prize money by around 50% with further significant growth in the TV (market) pool. Europe League payments will also rise, but it will still be very much the poor relation.

Tottenham’s match day revenue rose £3.7 million (9%) from £40.2 million to £43.9 million, but they were still overtaken by Manchester City £47 million. This is not going to change any time soon, following the decision to freeze ticket prices for 2014/15 season. Importantly, Tottenham generate less than half of the revenue of their rivals Manchester United and Arsenal, who both earn more than £100 million a season in their far larger stadiums.

In fact, Tottenham have only the 11th highest attendance in the Premier League with around 36,000, behind Sunderland, Everton and Aston Villa, but this is effectively full capacity with the club selling out all Premier League home games. This underlines the need for a new, larger stadium, which would satisfy a waiting list that has risen to over 45,000.

Levy is fully aware of this issue: “We cannot stress strongly enough how critical the new stadium is over the long term. We have the smallest capacity stadium of any club in the top 20 clubs in Europe, let alone the current top-four Premier League clubs, and given we now operate within UEFA Financial Fair Play rules, an increased capacity stadium and associated revenues is fundamental to supporting the future ambitions and consistent achievement at the top of the game.”

After numerous delays and rejected options, including a possible move to the Olympic Stadium in Stratford, now that the courts have rejected the legal challenge from Archway Sheet Metal Works, the club can finally press ahead with its plans for a new 56,000 capacity stadium next to White Hart Lane. This will be a massive project, costing hundreds of millions (estimates range from £250 to £400 million) that requires Tottenham to ground share in the 2017/18 season (Wembley and Stadium MK being the most likely candidates), with the objective of moving in August 2018.

The cumulative spend on the Northumberland Development Project is up to £41 million in the 2014 accounts. If the project were not to go ahead for any reason, then many of these professional fees would have to be written-off. Assuming that the stadium is completed, then Tottenham’s depreciation will increase, as the asset will be capitalised once it results in a probable economic benefit.

Tottenham will hope to emulate Arsenal’s model when constructing the Emirates Stadium in two ways: (a) fund some of the cost by selling naming rights – there has been talk of a £150 million 10-year deal, but these are notoriously difficult to secure; (b) profit from residential development because of property the club has purchased in the area.

The other area that Tottenham need to do something about is commercial income, which fell £3.1 million (7%) from £44.9 million to £41.8 million, despite merchandising sales rising 13% to £11 million. This is one of the lowest in the Deloitte Money League, just below Inter and Galatasaray. Obviously Paris-Saint Germain’s £274 million is artificially boosted by their €200 million deal with the Qatar Tourist Authority, but Bayern Munich (£244 million) and Real Madrid (£244 million) demonstrate the size of the problem.

The club might argue with some justification that this is an unfair comparison, given those clubs’ pre-eminence in their countries, but it is worth also considering the growth from this revenue segment of the top six English clubs. Since 2009 Tottenham have the lowest growth, both in absolute and percentage terms, with an increase of only £19 million to £42 million. As a painful comparative, in the same period Arsenal have grown by £29 million to £77 million (excluding the new Puma deal which started in July 2014) – and that’s nothing compared to Manchester City £148 million, Manchester United £119 million, Chelsea £56 million and Liverpool £44 million.

The 2013/14 season is the last of Tottenham’s innovative dual shirt sponsorship arrangement with Hewlett-Packard on the shirt front for Premier League matches and AIA for cup matches (both domestic and European), which they had first pioneered with Autonomy (subsequently acquired by HP) and Investec. From 2014/15 AIA, an insurance services provider, will be the sole sponsor in a five-year deal worth around £16 million a season. That’s not bad at all, but still much lower than Manchester United’s £47 million Chevrolet deal or (for that matter) Arsenal’s £30 million Emirates deal, while Chelsea have recently signed a £38-40 million agreement with Yokohama Rubber.

It’s a similar story with Tottenham’s kit supplier, Under Armour, who have a five-year deal worth a reported £10 million a year, running until the end of the 2016/17 season. Again, that’s pretty good, but it pales into significance next to match Manchester United’s “largest kit manufacture sponsorship deal in sport” with Adidas, which is worth an average of £75 million a year from the 2015/16 season or even Arsenal’s Puma deal worth £30 million a year.

Tottenham’s wage bill rose £4.3 million (4%) from £96.1 million to £100.4 million, reducing the wages to turnover ratio from 65% to 56%. The wages have only risen by a cumulative £9.3 million in the last four years, though there was a substantial increase from £67 million to £91 million in 2011. This was partly due to the club “augmenting its squad of players to be able to compete both at home and in Europe”, but also an attempt to retain core players on long-term deals with higher, competitive salaries.

Despite the growth, which took Tottenham’s wage bill above £100 million for the first time, this is still much lower than the top five clubs: Manchester United £215 million, Manchester City £205 million, Chelsea £193 million, Arsenal £166 million and Liverpool £144 million. Since 2005 the gap to Arsenal has literally doubled from £33 million to £66 million.

It’s worth noting the 46% increase in directors’ remuneration from £2.5 million to £3.6 million with Daniel Levy receiving £2.2 million (up from £1.7 million), around the same as Arsenal’s chief executive Ivan Gazidis.

There has been a fairly dramatic turnaround in Tottenham’s transfer activity in the last four seasons with net sales of £39 million, compared to net spend of £131 million in the previous eight seasons. In fairness, there has been over £200 million of gross spend in this period, but on the whole Spurs have been a selling club in recent times, only splashing the cash after a player has been sold. As Levy explained, “Tottenham is not a club that can consistently pay £50 million for a player. We have to make our players.”

In fact, every other club in the Premier League has spent more than Tottenham in the last four seasons. It is particularly telling how much more Spurs’ rivals for a Champions League place have spent in this period: Manchester United £260 million, Manchester City £212 million, Chelsea £196 million, Liverpool £135 million and even the traditionally frugal Arsenal £88 million.

It’s difficult for Tottenham to keep up with that sort of financial firepower and the concern must be that there will be even less cash available to spend in the transfer market while the new stadium is being built. Although Levy has promised to ring-fence a percentage of cash for buying new players, Tottenham fans need only look at their North London neighbours to see the impact while a new stadium is being financed.

The club has moved from net debt of £54.8 million the previous year to net funds of £3.2 million, as gross debt was reduced from £58.0 to £35.4 million, while cash increased from £3.2 million to £38.5 million. The debt comprises a £14 million Investec bank facility repayable over five years tracking LIBOR, a £1.2 million bank loan tracking the Bank of England base rate and £20.2 million of 7.29% secured loan notes repayable in equal instalments over 16 years from September 2007.

The accounts also reveal how much of the transfer fees are paid in stages with Tottenham still owing other clubs £51 million, while being owed £73 million – though Spurs have received £33 million of the Bale fee from Real Madrid since the balance sheet date. Similarly, Tottenham have contingent liabilities of £15 million, which are potentially payable based on the success of the team and individual players, but also a contingent asset of £18 million.

Tottenham have generated a lot of cash in recent years, though this would have been even higher if clubs had paid for transfers upfront, as we can see from the cash flow difference in player purchases compared to the actual fees. A lot of the surplus cash is being invested in fixed assets, essentially the plans for the new stadium and the new training centre in Enfield.

As the club put it, “this huge investment has been funded through equity contributions and long-term debt financing”, including a £40 million interest-free, unsecured loan from ENIC that was converted into non-voting, preference share capital in 2013/14. However, it should be noted that around £50 million of borrowings have been repaid in the last two seasons, including £22.6 million on the Bank of Scotland loan facility in 2014.

There have been some rumours of an approach from US private investment company Cain Hoy to buy the club on behalf of a group of American businessmen, but this seems to have fizzled out. There might be more interest in the future, as overseas investors will be attracted by the booming TV rights, but they might be scared off by the price asked by owner Joe Lewis and the investment required to finance the new stadium.

"Christian Eriksen - Danish dynamite"

With apologies to Spurs’ supporters, the current situation still brings to mind the quote from the wonderful film “In Bruges”, where the character played by Colin Farrell muses, “Purgatory's kind of like the in-betweeny one. You weren't really shit, but you weren't all that great either. Like Tottenham.”

Given the club's position it is perhaps understandable that Daniel Levy operates in such a prudent manner and his understated reaction to the latest results was typical: “It has been rewarding to see the progress and growth now being made on and off the pitch and we look ahead with realistic optimism.”

In the long-term Tottenham’s financial future will be dictated to a very large extent by what happens with the stadium development, though they would obviously be greatly helped if they could again qualify for the Champions League. The new stadium is indeed an exciting opportunity, but as the old English proverb says, “there’s many a slip ‘twixt the cup and the lip.”

It might seem strange to sound a note of caution after such superb financial results, but the challenge for Levy is how to drive the club forward to the next level without continually selling the club’s talent and fans will already be concerned that the irrepressible Harry Kane might be the next star to exit stage left in order to boost the bottom line.

Monday, March 30, 2015

Sunderland - Distant Sun

These are tough times for Sunderland. Last season was also difficult, but finished on a high with an appearance in the Capital One cup final and the “great escape” as a run of late victories avoided relegation.

However, the club is currently just outside the relegation zone, leading to the sacking of Gus Poyet. As chairman Ellis Short explained, “Sadly, we have not made the progress that any of us had hoped for this season and we find ourselves battling, once again, at the wrong end of the table. We have therefore made the difficult decision that a change is needed.”

It remains to be seen whether former Dutch national team manager Dick Advocaat is the right man for the job, but it is clear that the club is completely focused on retaining its Premier League status, especially with the blockbuster new television deal on the horizon.

Sunderland’s financials for the 2013/14 season emphasise how important the club’s top flight status is to its future, as their loss widened from £13 million to £17 million. Although revenue rose by £29 million (38%) to a record high of £104 million, this was more than offset by a £26 million increase in expenses and £6 million lower profit on player sales.

The revenue growth was very largely driven by an additional £28 million from the new Premier League television deal plus £3 million higher gate receipts, while the expenses growth came from increases in the wage bill (£12 million) and transfer costs (£10 million) via player amortisation and impairment. Profit from player sales fell £6 million from £11 million to £5 million.

Sunderland’s £17 million loss is the second worst announced to date in the Premier League for 2013/14, only behind big spending Manchester City’s £23 million. In fact, of the 17 clubs that have so far published their accounts, only four of them have reported losses with the other 13 making profits, largely due to more revenue being distributed from the central Premier League TV deal. Sunderland are the only loss-making club whose results actually worsened in 2013/14.

Of course, this is nothing new for Sunderland, as the last time that the club made a profit was way back in 2006. Since then they have accumulated total losses before tax of £145 million, averaging £18 million a season.

In fairness, the deficits have improved over the last two seasons compared to the £32 million loss reported in 2012, though this was largely due to higher profits from player sales (£11 million in 2013 and £5 million in 2014). This also explains why the loss was “only” £10 million in 2011, as the figures were boosted by £26 million from selling players with Jordan Henderson moving to Liverpool, Darren Bent to Aston Villa and Kenwyne Jones to Stoke City.

There has been a clear improvement in money made from this activity (£38 million in the last four years compared to £11 million in the previous four years), though this is not a strategic objective according to chief executive Margaret Byrne, who outlined the club’s thinking a couple of years ago: “We’ll be reporting another big loss this year. We don’t want to do that, but we’ve taken a decision not to sell our best players. We had lots of offers in the summer that would certainly have put us in a much better position, but Ellis said that we’re not selling them. Of course you could be a profitable club and sell your best players, but it’s a relegation model. We want to keep our assets and not sell them.”

The other aspect of player trading that has had a disproportionate impact on Sunderland’s bottom line is player amortisation, which is the method that football clubs use to account for transfer fees. Indeed, the club accounts actually note that “the amortisation of transfer fees increased the loss.”

This is a little technical, but transfer fees are not fully expensed in the year a player is purchased, as the cost is written-off evenly over the length of the player’s contract – even if all the fee is paid upfront. As an example, Steven Fletcher was bought for £12 million on a four-year deal, so the annual amortisation in the accounts for him s £3 million for four years.

Essentially high player amortisation is the result of high spending on player recruitment. Sunderland have spent a fair bit of money bringing players into the club, which has been reflected in player amortisation rising from just £2 million in 2006 to £30 million in 2014 (including £3 million of impairment costs).

Not only is this a sizeable part (24%) of Sunderland’s total expenses of £124 million, but it is also one of the highest in the Premier League, only surpassed by the really big spenders: Chelsea, Manchester City, Manchester United, Liverpool and Arsenal (and probably Tottenham when they publish their accounts).

In fact, if we were to exclude non-cash expenses such as player amortisation and depreciation, then Sunderland’s financials would look a lot better. This can be tracked by looking at EBITDA – or Earnings Before Interest, Tax, Depreciation and Amortisation. On this metric, the club has been basically breaking even in the last few seasons with EBITDA surging to £13 million in 2014.

So everything is hunky dory then? Not so fast, big boy. As the famous investor Warren Buffett once memorably cautioned: “References to EBITDA make us shudder. It makes sense only if you think that capital expenditure is funded by the tooth fairy.” And that’s the point, as money still needs to be found for player purchases and investment in other assets (like stadium and training ground improvements).

Sunderland’s cash flow statement highlights this very clearly. Although the club’s hefty operating losses are brought into line once non-cash items like player amortisation and depreciation are added back, that still does not provide any surplus funds for capital expenditure.

Since 2007 Sunderland have made net cash payments of £144 million on players, invested £10 million in new assets and made £21 million of interest payments on loans. This has been largely funded by £132 million of borrowings either from the owner or a bank loan guaranteed by the owner. As Margaret Byrne put it: “Because we’re not producing profits, every time we buy a player, Ellis (Short) is virtually buying that player for the club himself. We’re really lucky to have his backing and support.”

One of Sunderland’s underlying problems is a lack of revenue growth – except for the centrally negotiated Premier League television deals. Since the club’s first season back in the Premier League in 2007/08, revenue has increased by £41 million (64%), but almost all of that (£36 million) has come from new TV deals, hence the rises in 2011 and 2014. Commercial income and gate receipts have each only grown by around £2 million (16-17%) in the same period.

Before the new TV deal in 2013/14, Sunderland’s revenue had actually declined in the last two seasons from £79.4 million in 2011 to £78.0 million in 2012 and £75.5 million in 2013.

Of course, Sunderland’s revenue did rise by an impressive £29 million to £104 million in 2013/14, but as that man Buffett said, “A rising tide floats all boats” and all Premier League clubs have seen similar increases thanks to the new TV deal. In fact, Sunderland have been overtaken by Southampton in 2013/14, which should leave the Black Cats in 12th place in terms of Premier League revenue.

Breaking the £100 million barrier is a fine achievement, but it still leaves Sunderland a long way behind the “big boys”. Five Premier League clubs generate more than a quarter of a billion of revenue: Manchester United £433 million, Manchester City £347 million, Chelsea £320 million, Arsenal £299 million and Liverpool £256 million. In other words, Manchester United earn more than four times as much as Sunderland.

Nevertheless, it might come as a surprise that Sunderland’s revenue is the 27th highest in the world, according to the Deloitte Money League, with the club only just behind the legendary Benfica. Domestically, this does not cut much ice, as the huge TV money has propelled 14 Premier League clubs into the top 30 (with all 20 in the top 40).

The higher Premier League TV deal means that broadcasting now accounts for 69% of Sunderland’s total revenue, up from 59% the previous season. Commercial income’s share has fallen from 24% to 16%, while match day has similarly dropped from 17% to 15%. Put another way, broadcasting revenue of £72 million is 4.6 times as much as match day income of £16 million.

Broadcasting revenue rose 60% (£27 million) from £45 million to £72 million, almost entirely down to the Premier League distribution. Most of this is shared evenly between the 20 clubs, namely 50% of the domestic deal and 100% of the overseas deals. However, 50% of the domestic deal depends on other factors: (a) merit payments – 25% depends on where a club finishes in the league with each place worth around £1.2 million; (b) facility fees – 25% is based on how many times a club is broadcast live.

So Sunderland have enjoyed the benefit of the 2013/14 increase, but there will be even more money available when the next three-year Premier League cycle starts in 2016/17 with the recently signed extraordinary UK deals with Sky and BT producing a further 70% uplift. My estimate is that a club that finishes 15th in the distribution table (as Sunderland did last season) would receive around £108 million a season, which would represent an additional £36 million.

Clearly, Sunderland’s big fear is that they will be relegated and therefore miss out on this amazing prize. As Ellis Short noted in the accounts: “The directors consider the major risk of the business to be a significant period of absence from the Premier League.”

Even though Sunderland would be protected to some extent by the parachute payment of £24 million that is added to the £1.9 million given to all Championship clubs from the Football League’s own TV deal, they would still have to contend with a £46 million cut in TV money. That’s a significant reduction to absorb, even if their players have a 40% wage reduction clause in their contracts, as has been widely reported. This disparity will become absolutely colossal once the new 2016/17 TV deal kicks in, e.g. around £71 million, even with an increase in the parachute payment.

Gate receipts were up a healthy 25% (£3.1 million) from £12.6 million to £15.8 million, largely due to good cup runs in both domestic competitions with Sunderland reaching the final of the Capital One Cup and the quarter-finals of the FA Cup. This was despite freezing or even cutting season ticket prices for the 2013/14 season.

This still places Sunderland in the lower half of the Premier League table when it comes to match day income and importantly is significantly less than the elite clubs, e.g. both Manchester United and Arsenal earn over £100 million here (or nearly seven times as much as Sunderland). Realistically, this is always going to be the case, as Sunderland’s ability to charge higher ticket prices and earn from corporate hospitality is far lower than major clubs. As Byrne said, “You have to look at the area. A restaurant in London is more expensive than a restaurant in Sunderland.”

No blame can be attached to Sunderland’s supporters, as their average attendance of just over 41,000 was the 7th highest in the Premier League, only behind the usual suspects. Byrne again: “Our attendances have been steady, we’re still averaging 40,000 a game. We’re way up on other clubs.”

In fact, as at the end of March 2015, the attendances are actually up 4.5% to nearly 43,000 this season, which is an incredible statistic considering the quality of football on display.

Commercial revenue fell by 7% (£1.2 million) from £18.0 million to £16.8 million, comprising £8.4 million sponsorship & royalties, £7.5m conference, banqueting & catering and £0.9m other. Even more disappointing is the fact that Sunderland have now been overtaken by rivals Newcastle United, whose commercial income rose from £17.1 million to £25.6 million. Clearly, it is also significantly lower than the top six clubs. For example, Manchester United’s commercial revenue is up to £189 million, more than 11 times as much as Villa, followed by Manchester City £166 million, Chelsea £109 million, Liverpool £104 million, Arsenal £77 million and Tottenham £45 million.

 The disparity is most evident when comparing the shirt sponsorship deals. Sunderland have a deal with Bidvest, one of the largest food services companies in the world, which is worth £5 million a year and runs until the end of the 2014/15 season. This looks very low compared to the major clubs, who continue to increase their deals, e.g. Manchester United and Chelsea have both announced huge new deals recently, United for £47 million with Chevrolet and Chelsea for a reported £38-40 million with Yokohama Rubber.

It’s a similar story with Sunderland’s kit supplier, Adidas. Although this deal is a long-term partnership, extended until the summer of 2020, it’s unlikely to be worth more than £1-2 million a season, compared to, say, Manchester United’s Adidas deal, which will be worth an astonishing £75 million a year from the 2015/16 season.

In fairness, most clubs outside of the absolute elite have struggled to secure such massive deals and Sunderland would have to enjoy a sustained run of success to substantially improve their commercial deals.

After a significant decrease the previous season, the wage bill rose 20% (£11.7 million) from £57.9 million to £69.5 million on the back of a substantial rise in headcount from 991 to 1,102 (administration/operations +71, football +22, match day staff +18). The increase reflected the large number of players recruited by Paolo Di Canio in his six-month reign, though it is possible that the wages will come back down in the 2014/15 figures, following numerous departures in the summer.

It is unclear how much has been included for the pay-outs to Di Canio (or indeed to Martin O’Neill in the previous season’s accounts, but this factor has presumably also inflated the reported wage bill.

Despite the higher wage bill, the important wages to turnover ratio was actually reduced from 77% to 67%, which is the lowest it has been at Sunderland for some time. Nevertheless, this is still the second worst in the Premier League (of those clubs that have published their accounts), so there is still work to do here.

This will be a tough challenge, though it should be noted that the 2013/14 increase has taken the wage bill above both Everton and Stoke City. Clearly, Sunderland’s wages are significantly lower than the likes of Manchester United £215 million, Manchester City £205 million and Chelsea £193 million, but it should be enough for them to be in a comfortable mid-table position, as opposed to being involved in a relegation battle.

Since they returned to the Premier League in 2007, it feels like there have been three distinct phases in Sunderland’s transfer activity: first there was significant net spend of £73 million in the first 3 seasons in order to strengthen the squad; then the taps were partly turned off with £9 million of net sales in the next two seasons; finally a lot of money was needed to fund the plans of O’Neill and Di Canio with net spend of £38 million in the last three seasons.

This recent spending is described by the club as “significant investment” in the accounts and it does not look too bad compared to other Premier League clubs in the same period. Obviously, it is far below the money shelled out by the elite clubs, but it is in the same ball park as Southampton (£44 million), who have flourished this season.

No, Sunderland’s basic problem is they have bought badly with a vast quantity of bang average players arriving for inflated fees (Jack Rodwell, Ricky Alvarez, Jozy Altidore, etc). Former football agent, Robert De Fanti, had a fairly disastrous record in player recruitment, but this has been an issue at the Stadium of Light for many years. Current Sporting Director Lee Congerton will hope to do better than his predecessors, but only time will tell whether this year’s model will succeed where others have failed.

Debt has risen by £15 million from £79 million to £94 million following a similar increase in the owner loans to £28 million. The majority of the debt is external with an overdraft of £39 million (under-written by Ellis Short) and a bank loan of £28 million (secured on the stadium, interest at LIBOR plus 3%). The bank loan was repayable on August 2014 and has since been refinanced.

Debt has almost doubled from £48 million in 2009 and this is a sizeable burden for a football club of Sunderland’s size, so it is likely that much of the extra TV money will be used to reduce this to a more manageable level. This was more or less confirmed by Byrne: “This TV deal gives the club a chance to get our books in order.”

More encouragingly, the net amount owed on transfer fees to other football clubs has significantly reduced from £20.6 million to £8.1 million, as have the contingent liabilities (potential payments that depend on number of appearances, surviving in Premier League, etc) from £10.1 million to £8.1 million – and the club states that “some of these are extremely remote”.

If Sunderland do manage to stay up, then they will benefit from the Premier League’s new Financial Fair Play legislation, which ensures that the majority of the increased money from the new TV deal remains within the club and does not simply go to higher player wages (and agents’ fees), as has invariably been the case with previous increases. Ellis Short was apparently one of the prime movers behind the rule that states that clubs whose player wage bill is more than £52 million will only be allowed to increase their wages by £4 million per season for the next three years.

"You gotta fight for your right to party"

However, this restriction only applies to the income from TV money, so any additional money from the higher gate receipts, new sponsorship deals or profits from player sales can still be spent on wages, which does place more pressure on the club’s commercial arm to deliver the goods.

Something needs to be done to reduce the club’s reliance on Ellis Short, who has owned the club outright since May 2009, since when he has injected nearly £130 million of free funding into Sunderland. The accounts show that he has capitalised around £100 million of loans (£48.5 million in 2009, £19.0 million in 2010 and £33.4 million in 2013) and provided a further £27.7 million of unsecured, interest free loans with no set repayment date.

This will be largely linked to whether Sunderland achieve the immediate objective of avoiding relegation. If they do, then the new Premier League TV money should allow them to reduce their debts, but it will be up to the club to show that they have learnt from their previous mistakes, in terms of both player recruitment, which has hit them hard both on and off the pitch, and managerial upheaval. As a wise person once said, “Just because everything is different doesn’t mean anything has changed.”
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