• The 2014 Albion Financial Review

    On the day that Deloitte published the football rich list, revealing that all the clubs in the Premier League last season are in the top 40 richest clubs in the world (and that included the likes of Palace), we've got out our magnifying glasses and taken a long look at the Albion accounts published last week.

    The Argus billboard heading of a 76% rise in profits may have had a few of you scratching your heads, given that the reported losses were in excess of £10 million, but I'll return to that particular paradox later.



    Income

    Clubs generate money from three main sources: fans, sponsors and TV.



    2014 2013 Movement 2012 Movement
    £'000 £'000 2013-14 £'000 2012-13
    Income
    Tickets 10,398 9,497 9.5% 9,066 4.8%
    Sponsors 4,896 4,204 16.5% 3,941 6.7%
    Football League 4,926 4,791 2.8% 5,695 (15.9%)
    Other 3,805 4,897 (22.3%) 2,698 81.5%
    Football Income 24,025 23,389 2.7% 22,193 5.4%

    During last season, which now seems light years away (you may recall..........Oscar Garcia, Bridders sulking, Ashley Barnes, THAT goal at Forest and the spanking given by Derby) the Albion did pretty well in terms of generating money.


    Ticket sales

    The club did well to increase gate receipts. An average attendance of 27,283 was an increase of 4%, (the transport levy contributed to overall ticket income rising by 9.5%), but I suspect we have hit our ceiling (to paraphrase someone whose name escapes me) in terms of attendance in this division. A figure in the balance sheet notes indicates that money from advance season tickets is down about 10%.

    We are currently averaging an attendance of 25,321 this season (and that includes the many no-shows, which anecdotally seem to be much higher than in previous years), so the club will have to work very hard to prevent a significant decrease in revenue from this area, especially in terms of season ticket renewals for next season.



    Sponsors

    The Albion have done well here, there has been the benefit of some of the old deals, signed when we were at Withdean expiring, and these have been renegotiated in the context of being able to offer sponsors association with the more plush surroundings of the Amex. Credit should be given to the club these negotiations. However, there is limited scope for further double digit increases in this area, unless we are promoted.



    Football League

    The Football League give out money to clubs from two main sources, a distribution of 'solidarity payments' from the Premier League (this is separate from parachute payments to those clubs who have been relegated) and TV monies from the Sky deal.

    The main reason why this sum (£4.9 million) is lower than in 2012 is that Sky negotiated a much lower price with the FL when they renewed their coverage in 2013. It's unlikely that this sum will go much higher, I can't see BT Sport, Eurosport or anyone else coming in with some serious bids, as all the attention (and ratings) are focussed on the Premier League.

    The club with the lowest payout last season in the PL (Cardiff) still trousered over £62 million (and our unpopular rivals a whopping £73 million), which is why the Championship is a truly bonkers division, with losses likely to be over £250 million for the whole of the division last season, as clubs chase the rainbow of the Sky/BT TV riches available if they go up.

    Expect this difference between the two divisions to rocket even further in 2017, as it appears that there will be even more competition for live matches, from the likes of Discovery Channel (who own Eurosport) and possibly the Qatari owned Al Jazeera.


    Other income

    Retail income was slightly down, this could be due to fans choosing to not buy as many new replica kits as it was the last year of the Errea deal, the club have reported that the Nike kits have sold well, so there is potential for increased revenue here in 2014/15. It will take a huge effort to increase the volume of sales to that of the first season at the Amex, when all the start were in alignment in terms of wanting to have an Albion shirt and other merchandise (I still have my Billy Paynter duvet cover, for example).

    Catering is difficult to analyse properly. This is because, as has been discussed elsewhere, the club moved from being a direct supplier of food and drink to outsourcing to Sodexo, after the complications and ultimate sacking of Azure. In theory (according to the Argus) this is a £25 million five year contract. I presume this is the gross income involved.

    It seems to me to be an ambitious sum, as it works out as an average spend of £8 per person per match on catering products. I just hope that Sodexo don't use their global background to bully local suppliers such as Piglets Pies and Harveys, are replace them with slop and fizz from cheaper but less enjoyable alternatives, as I suspect it will result in lower sales (especially of pies!)


    Costs


    I've split the costs into some broad headings as follows


    2014 2013 Movement 2012 Movement
    Costs £'000 £'000 2013-14 £'000 2012-13
    Admin 12,125 16,655 (27.2%) 15,846 5.1%
    Football 20,739 19.886 4.3% 13,136 51.4%
    Depreciation 3,480 1,062 227.7% 911 16.6%
    Profit on player sales (3,800) (1,583) (512)
    Player amort 2,085 2,671 (21.9%) 2,132 25.3%
    Total 34,629 38,691 (10.5%) 31,513 22.8%


    Admin costs

    Here the Albion hierarchy have really gone to town, and have targetted non-football related costs. The relaxed attitude to spending in the first year at the Amex, which led to bloodletting at high levels of the club when Tony Bloom saw the largesse in some areas, has paid dividends. Every pound spent on administration is a pound that can't be spent on the playing budget.

    It has been grim though for some at the club, the number of non-football staff has fallen by 10%, and matchday staff levels have fallen by the same level. The reduction in non-football costs of £4.5 million is the main reason why overall losses have been reduced, whilst managing to comply with FFP (more of which later).


    Some of you will have noted the pay of directors has shot up, and the highest paid recipient, no name is given in the accounts, but I strongly suspect the initials 'P' and 'B' may be involved, received over £652,000, a rise of 36%. It's a lot of money, and a big rise, at a time when many people can't recall their last pay rise.

    Ultimately the pay is determined and underwritten by Tony Bloom, and to get the best people, in an industry in which there is a very shallow talent pool of experience, you pay the going rate, or risk losing talented staff. Those of you who know about Tony Bloom's Blue Lizard operations will be aware that TB has always been happy to reward those who deliver, and if the recipient can deliver savings of £4.5 million then effectively his remuneration pays for itself.



    Football costs

    Grumbles from fans about the lack of signings last season, and the alleged cutbacks on the playing side of the club, appear to be misguided. Football related expenditure was effectively ring-fenced as a result of the cuts elsewhere, and the bloodletting in the late part of the 2013 accounting period, in terms of staff redundancies allowed Oscar a modest increase on wages, in what is a nightmare division for negotiators, due to the distortions caused by parachute payments for a third of the division.


    We did well to sell Liam Bridcutt, Ashley Barnes (and Adam El Abd!) for a combined profit of £3.8 million. The figures don't include the sales of Leo Ulloa and Will Buckley, for an initial estimated £10.5 million, as these transactions took place after the 30 June accounting year end.

    One figure that is hidden away in the footnotes to the accounts is that the Albion could potentially receive a further £4.3 million from the sales of the above players (including Leo and Will) dependent upon Leicester, Sunderland and Burnley staying up, and each making a minimum number of appearances. More reason, not that any should ever realistically be needed, for Palace to be relegated, as it will be to the benefit of the Albion if the those clubs are not relegated.



    Depreciation

    The reason why depreciation costs (which are mainly ignored for FFP purposes) are so much higher, is that work on the Amex was completed at the end of 2013, and therefore the stadium is now being written off over 50 years starting in 2014.



    FFP

    The FFP target for the Championship for 2012/13 was a maximum loss of £8 million (after taking into account a £5 million injection from Uncle Tony). This is of course less than the £10.6 million loss announced by the club.

    However, some costs are excluded for FFP costs, specifically stadium related expenditure/depreciation and youth development. Whilst the latter is not available from the accounts, I've estimated a figure here of £2.5 million, (based on a quick Google search), and the Albion's very impressive achievement of being granted Category 1 academy status.

    Based on these estimates we cleared the FFP target with some ease last season, although had neither of Bridders nor Barnes been sold, it would have been squeaky bum time, and a potential transfer embargo for the current window.



    2014 2013 Movement
    £'000 £'000 2013-14
    Operating loss per accounts (10,604) (15,302) (30.7%)
    Depreciation 3,480 1,062
    Youth Development 2,500 2,500
    FFP Loss (4,624) (11,740) (60.6%)


    Conclusion

    You can't make money in the Championship and have a realistic chance of challenging for promotion. Even clubs with parachute payments have crippling losses to deal with as they have to service wages agreed in the Premier League.

    The Albion appear to have got to grips with a problem within non-football costs, which is where the Argus 76% profit rise figure comes from, but I can't see them breaking even in this division unless the objective at the start of the season is merely to avoid relegation. Until then, it's a case of getting out the begging bowl to Tony Bloom each season, and hope that he's still as blue and white through and through as he has always been to date.


    Comments 8 Comments
    1. seagullsovergrimsby's Avatar
      seagullsovergrimsby -
      Al Jazeera run their sports channels under the beIN Sports brand
    1. Dick Knights Mumm's Avatar
      Dick Knights Mumm -
      Good man El Pres.
    1. Rugrat's Avatar
      Rugrat -
      Very nice summary, thanks
    1. Peter Grummit's Avatar
      Peter Grummit -
      Thanks EP, some very clear analysis.

      A couple of supplementary observations:

      The savings in admin costs presumably include the outsourcing of catering costs to Sodexo, and as such are a one-off saving, in part balanced by the reduction in gross catering income. Any idea how much of the saving is due to this?

      Depreciation will be higher again next year now the Training Ground becomes liable at 20% pa - although this won't contribute to FFP losses and is largely a paper exercise since Tony has already funded it - it will increase the headline loss. Again, do we know what this will be?

      Cheers, PG.
    1. El Presidente's Avatar
      El Presidente -
      Quote Originally Posted by Peter Grummit View Post
      Thanks EP, some very clear analysis.

      A couple of supplementary observations:

      The savings in admin costs presumably include the outsourcing of catering costs to Sodexo, and as such are a one-off saving, in part balanced by the reduction in gross catering income. Any idea how much of the saving is due to this?

      Depreciation will be higher again next year now the Training Ground becomes liable at 20% pa - although this won't contribute to FFP losses and is largely a paper exercise since Tony has already funded it - it will increase the headline loss. Again, do we know what this will be?

      Cheers, PG.
      You're right in relation to costs not quite lining up with previous years, but the catering is a nightmare to compare, because there is the sacking of Azure, the inhouse running of the operation, and Sodexo coming in too. Costs in 2013 also included redundancy for staff too, but I don't have access to the actual numbers. I don't think the redundancy figures will be too high, as most of the staff had not been in employment long enough to be entitled to a large settlement, as Withdean was run on a shoestring.

      Lancing has cost about £34 million to date, assuming it is being written off over 50 years (same as the stadium) the depreciation charge will be about £700k.

      The one other significant piece of expenditure will be in relation to the hotel, should it be approved.
    1. Peter Grummit's Avatar
      Peter Grummit -
      Quote Originally Posted by El Presidente View Post
      Lancing has cost about £34 million to date, assuming it is being written off over 50 years (same as the stadium) the depreciation charge will be about £700k.
      The accounts notes (policy 1.6) say that Land and Buildings are depreciated at 2% (50 years) but Training Ground improvements at 20% (5 years). This is net of residual value, so I don't think we can take the full £34m x 20% (accounts say £32m), but it could nevertheless be a hefty charge and addition to headline losses for the next 5 years.

      PG
    1. El Presidente's Avatar
      El Presidente -
      Quote Originally Posted by Peter Grummit View Post
      The accounts notes (policy 1.6) say that Land and Buildings are depreciated at 2% (50 years) but Training Ground improvements at 20% (5 years). This is net of residual value, so I don't think we can take the full £34m x 20% (accounts say £32m), but it could nevertheless be a hefty charge and addition to headline losses for the next 5 years.

      PG
      Fair comment. I'm not sure which heading Lancing will fall under though. I think the improvements heading is for something else.
    1. Uter's Avatar
      Uter -
      Good analysis. It’s worth noting that Category 1 academies receive an annual grant towards their running costs (I think this is currently £750,000) so the academy running costs might conceivably be slightly lower. That said, judging it on appearances alone, it is highly possible that the reverse is true, so £2.5 million seems reasonable with little to go on.

      I expect there is probably some scope for further more modest reductions in admin costs as they still seem a little higher than most similarly sized clubs, but most of the easier cost savings have presumably already been made so there might be some tough choices ahead.

      Long term I suspect the strategy to close the gap further is two-fold:

      Firstly, should it go ahead, the new hotel will boost conferencing income (I suspect we are talking hundreds of thousands, rather than millions however). I have got the impression that the hotel itself will remain separate from the club so any income and expenditure directly related to this project can probably be discounted.

      Secondly, the academy should, if all goes well, a) reduce the need to pay transfer fees, b) boost the general playing standard of the squad without an increase in wages, and c) increase transfer income through sales of
      some academy graduates. Of course unless the benefits from the academy amount to at least than 2 or 3 million a season it will be a net drain on resources.

      Having said all that, as you mention, there is little scope to increase income in this division so we can expect that to flat-line without promotion (or relegation), or even dip a bit. Even with the academy and hotel and further admin savings it’s hard to see them squaring the circle whilst we remain in the Championship so I agree with your conclusion, although I do think that the gap could be narrowed by a few more million.