22nd February 2021

Blog -7

22nd February 2021

Around this time of year, our thoughts typically turn to the first jottings in the planning and production of the next (6th) edition of ‘We’re So Rich Its Unbelievable! The Illusion of Wealth Within Football’ which is our annual review and comment on the finances and economics of the beautiful game. 

Usually by February, we have a reasonably good idea of what we are going to write and the key themes that have driven football’s precarious financial path towards further turmoil. However, this ‘year’ is rather unusual in that many clubs are later than normal in publishing their annual numbers largely as a result of the three-month Companies House filing extension as a result of the COVID-19 pandemic.

At the time of writing, we have the 2019-20 accounts from 10 Premier League and EFL Championship clubs from a total of 44. A small number perhaps but contained therein are a number of clues as to just how bad things are even though the pandemic has ‘only’ affected 4 months of the 2019-20 financial year for the vast majority of clubs.  

In addition, we have the near-real time data from Manchester United which, by virtue of its listing on the NYSE, has to provide quarterly updates on its financial performance which are usually two months or so behind the actual events themselves.

Finally, we have the historical financial accounts from the clubs concerned from which a number of educated guesses can be made in terms of, for example, lost matchday revenues etc.

Therefore, this financial triangulation at least provides an early if somewhat incomplete insight into the further deterioration of what was an already significantly weakened financial position.

There is one aspect of the 2019-20 accounts that stands out from the previous year and which captures attention. In 2018-19 we saw the level of invested capital on Premier League club balance sheets increase significantly from £5.58bn to £6.79bn ie 21.6%. Indeed, since 2016-17 which was the first year of the then-record breaking TV deal and bumper pre-tax and economic profits in the Premier League, the level of invested capital has increased by £2.1bn.

On a historical basis, the vast majority of the ‘capital flow’ was driven by the Big 6 clubs (see below). However, 2017-19 has seen that flow, in percentage terms at least, reduce as the mid-ranking Premier League clubs such as Everton and Leicester City expand their horizons.

The reason for bringing this to your attention is that in 2018-19, the favoured but woefully incomplete business performance measure of Pre-Tax profit/loss on clubs balance sheets showed a relatively tolerable collective £169m accounting loss for Premier League clubs. However, the economic profit/loss performance for Premier League clubs in 2018-19 which covers all the costs incurred by the business including all of the costs of invested capital (financed by equity and debt capital) sitting on the balance sheet came to a record £599.54m loss. Club owners had been busy pouring money into loans and converting some of those loans into more shares thus expanding their invested capital numbers.

The early indications from the 2019-20 accounts already in circulation reflect the operational pressures that the clubs have faced since March 2020 when the first pandemic restrictions were put in place.  When we look at the year-on-year comparison between those Premier League clubs that have released their 2019-20 accounts, we can clearly see that the Pre-Tax number has almost doubled in percentage terms whereas the economic performance number has increased by a lesser though still worrying 40%.

Thus 2019-20 club balance sheets, based on the evidence so far, appear to be withering with operationally-driven cash-in/cash-out measures highlighting the areas of strain. Given the restrictions on crowds etc. this is an expected outcome and one that can now be identified against the background of a record-breaking previous year (2018-19) for economic losses.

Meanwhile, the economic profit/loss number continues to grow as it includes the operational losses together with the burgeoning cost to owners as they try to shore up their club balance sheets with even more loans and equity. In particular, the adoption of short-term finance from entities such as MSD Holdings and Macquarie comes with an expensive price tag. With the cost of money currently running at around 4% for those Big 6 clubs that have already drawn down on their available credit lines, the remaining clubs are forced to pay more. Southampton pays 9.14% on its MSD loan. A clear case of ‘haves’ and ‘have nots’.

The true economic loss for the 7 Premier League clubs with 2019-20 accounts in the public domain has already reached £530m which is not that far behind the total economic losses for all Premier League clubs in 2019-20 of £599.54m – a record in itself.

Of course, values may go up or down as clubs continue to release accounts but let us return to the near-real time data (or drama) of Manchester United. The club’s second quarter performance for 2020-21 financial year is imminent. The two previous quarters ie Q4 2020 and Q1 2021 have by our calculations have achieved economic losses of £49m each. The total economic loss achieved by the club in 2019-20 was £77.89m.

If Manchester United is an early bellwether for what is to come in terms of the accounts for 2020-21, then 2019-20 will be comfortably surpassed.

Measure for measure, the picture is very bleak indeed.


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