Thursday, 10 February 2011

Deloitte “Football Money League” – vanity vs. sanity day

Accountants Deloittes today published their annual Football Money League (“FML”) look at club football. The press love the FML and there will no doubt be much comment about who the “richest club” is, who is on the up and who is heading down.

Deloitte’s work is pretty thorough and their numbers are useful for people like me who look at football finance, especially when examining those clubs whose disclosure is poor (hello Chelsea). It is worth remembering however that the FML focus solely on revenue. The “riches” it lists take no account of any of the costs of running a football club. Revenue is not a major problem for participants in Europe’s main leagues, the financial problems of the game are on the cost side.

As the famous business saying goes:
“Revenue is vanity, profit is sanity, cash is reality.”
To help maintain some sanity on FML day, here are some figures for 2009/10 for the seven English clubs who appear in the Top 20 of the FML.

* Arsenal turnover excludes property development
** Liverpool figures assume flat costs on 2008/09 and are proforma to exclude all interest payments (to reflect pay down of debt)
*** Villa figures assume flat costs on 2008/09

So there you can see the real picture of England’s biggest clubs. Only one makes a pre-tax profit (although United would do excluding non-cash goodwill amortisation and last year’s exceptional finance costs).

In total the clubs only make EBITDA of around £149m, a paltry 12% margin. The big loss makers obviously have wealthy owners to bankroll them, but in aggregate, for all the talk of resilience through the recession, English football remains systemically loss making and the only people getting rich are players, managers and agents.



Mr Parker's Dogbite said...

I know financial disclosure is even worse on the continent but it would be very interesting to see the comparative position of the other clubs in the top 20 - especially Madrid, Barcelona and Bayern along with the Italian clubs. Not sure if that's possible.

John Beech said...

It's a pity that no-one at Deloittes seems to have read David Copperfield or heard of Mr Micawber. I'm tempted to send them a copy.
They can certainly be accused of an abuse of language with the way they have redefined the word 'rich'.

Anonymous said...

@Anders. You've given the vanity and sanity figures. How about the reality ones??

andersred said...

Hi Anonymous @ 12.26,

Cash flow before financing for those clubs who have reported 2009/10 results.

Arsenal +£163.2m
United +£8.1m
Chelsea +£3.8m
Spurs -£33.0m
City -£255.5m

Some stark contrasts! Arsenal's huge inflow is due to the c. £145m of cash coming in from developing Highbury (which is mainly used to pay down debt).

Both Chelsea and Arsenal saw net cash inflows from transfer (£18.2m and £16m respectively).

City and "reality" are strangers of course...


Anonymous said...

Hi Anders, is there a way to look at non-english club finances like those of la liga or bayern?

andersred said...

Anonymous @ 15.34

Disclosure is poor in a lot of other leagues (we have English company law to thank for transparency in English football). I've looked at Real and Barca myself, but I'd recommend:

for stuff on other European clubs. He's the main man on that subject.


Anonymous said...

@Anders. Big gulf in cash then so.
Looks like United had only 8m left after paying interest/bond issue costs totalling 58m and spending 44m on new players like Valencia, Hernandez and Bebe.

andersred said...

Anonymous @ 16.07

Spot on. In fact United's cash generation will be weak for the next few years as the swap loss is paid and the Aon prepayment unwinds. "Free cashflow" after interest is not impressive.

Worth remembering the club has £150m in the bank though.

The fact is that none of "big clubs" generate much cash pre-transfers.


Anonymous said...

Fine work Anders as usual.
I have a few questions about collective media rights:
Is the PL deal that determines how domestic tv rights are distributed separate from the deal that determines how international tv monies are split? Or are they one and the same?
Does the collective agreement also apply to other media? For instance mobile and internet rights are sold both domestically and internationally by the FAPL; but are they bundled into the same collective agreement?

Anonymous said...

"EBITDA makes sense only if you think capital expenditures are funded by the tooth fairy." Warren Buffet.

The bottomline is simple, money in money out, if you spend more than you make, you do not belong in any rich list.

Cash is king, free cash flow is the principle determinant of value.

Free Cash Flow is the after tax and interest cash flow less any capital expenditures the company needs to make. Ignoring any of these (interest, taxes and capital expenditures) is pure and simple folly, at least where valuation is concerned.

Analysed the books of most of the so called big clubs in Eurpe. You will find many have millions on pounds in EBITDA cash flow. But these clubs are heavily leveraged with huge interest charges for a total negative net cash flow.

What you will also find with most of them is, their negative cash flow, they are still spending and wasting millions player purchases and salaries.

We all know what happened to Leeds and Portsmouth.

andersred said...

Anonymous @ 18.22
The international money is distributed differently from domestic with more going on parachute payments and "solidarity" payments to the Football League etc.

The collective deal applies to other media, inc radio, Internet etc. Clubs get to show their games on their own stations a certain number of days after they're played.

Anonymous @ 18.26
Spot on. EBITDA is a crap measure for football clubs because players depreciate and need replacing all the time.


Mike Dimmick said...

Anonymous @ 10/2 18.22: The division of money among the clubs is spelled out in the Premier League Handbook.

Rules C.34 onward - page 90 of the Rules section. Basically, half of the UK TV contracts, plus all of the international contracts, plus the money from Barclays as the title sponsor, makes up the Basic Award Fund. This is split up among the clubs: each PL club gets the same share, and parachute payments come out of this fund too (a lesser share than a PL club gets).

One quarter of the UK TV money makes up the Merit Award Fund: this is paid based on the club's performance. It's divided by 210 and the top club gets 20/210 (about 9.5%), the second club 19/210, 3rd 18/210, down to 18th 3/210, 19th 2/210 and 20th 1/210 (about 0.47%).

The final 1/4 of the UK TV money goes to the 'facility fees', paid to each club when they appear on TV - highlights now count, but I think the Sky Four will still tend to get more than clubs that aren't selected for live matches.

PL-wide sponsorship deals, other than the title sponsorship, and national radio contracts, are split equally, but don't go into the parachute payment pot. Local radio deals go to the club and aren't split.

The actual amounts aren't stated and I don't think anyone apart from the broadcasters and the PL actually knows how much comes from each source. Any figures you see in the press are guesstimates from the few press releases the PL issues when a contract is signed.

Anonymous said...

Hi Andersred

Where did you get the numbers with the EBITDA and the pre-tax profit/loss from?

Best regards
Morten Årstoft