SPFL Premiership Stress Testing - Clubs’ finances under the microscope

Begbies Traynor recently released a report on the financial health of the clubs in the SPFL that was as light on detail as it was light on relevance. However, it immediately put me to thinking - what can we tell about clubs’ financial states from the accounts they publish and can we forecast revenues ahead of time.



Without going into detail, the entire point of my profession away from this admittedly time-consuming hobby of a blog is to do exactly that. I get paid to predict the market and to budget multiple million pound businesses to show where and when our revenue is coming in. Much as I fall into the category of “if anyone’s anal enough to collate TV viewing figures statistics and try to build cogent business plans out of it, it’s me”, I also fall into the category of “if anyone has a chance of being able to predict where and when football clubs’ revenues may fall, it’s me”. That isn’t a statement of blowing my own trumpet, it’s a statement that this sort of thing is what I do for a living and I like to think I’m quite good at it.

Of course, however good I may be is irrelevant if clubs don’t actually give you much in the way of detail as to where their money comes from and where it goes. This leads us to lesson one of this entire endeavour, and undoubtedly the most important takeaway in general from this entire piece - clubs need to be uniform in how they announce their accounts, what details they publish and how much scrutiny they allow. As you will see from the spreadsheet attached to this piece, what clubs publish and how they categorise things varies wildly - while the difference between a Celtic and an Aberdeen who publish the same details but with different segmentation may be minimal, the difference between a Celtic and a Dundee United (whose entire accounting appears to be in a press release alone and don’t seem to publish a detailed breakdown) is massive.

This is a matter for the SPFL to sort out. No-one is going to demand to know how much Peter Lawwell spent on Ginster’s pasties, but there are basic elements every club should have to publish and do so in a (fairly) uniform manner. Clubs should be compelled to publish, in my eyes, the following details:

Revenue

Gate Receipts

Merchandising/Residual spend (programmes, etc)

Sponsorship/Advertising

Prize Money

TV Money

Expenditure

Staff Costs

Depreciation

Other

Those details aren’t asking for the veil to be lifted totally, but they are all useful figures in seeing exactly how financially stable a club is and, for the sake of transparency, those details (as a minimum) should be released by all clubs.

As you may be able to tell by me focusing on that before ever getting into any number crunching, that is a frustration and some clubs are really deficient in the details they publish. Some clubs produce professional documents, some just have what goes to companies house, some try not to publish them at all and while accounts are (fairly) easily retrievable from websites like Company Check, that doesn’t mean they have the information one wants or, for that matter, needs to do this sort of thing. Special mention must, therefore, go to Hamilton Accies who, of the Premiership, appear to be the worst offenders in not having easily traceable accounts.

The second important issue is that of how transfer revenue is published. Dundee United are the best example of this. An operating loss of £114k becomes a net profit of £1.2m when you add in transfer fees. Fortunately, it seems clubs are at least uniform on this in that transfer revenue is accounted for separately and I have followed that - the numbers you see all exclude player transfers and it’s worth bearing in mind that “selling a couple of players” is a tactic clubs can use.

This doesn’t make it impossible to forecast accounting, just more difficult. Key is transparency and the SPFL must make this a priority as it also helps ensure financial fair play - something that is in the interest of all clubs.

So, without further ado, just how financially secure is your club? I’ve looked at three scenarios - a best case, a worst case and a realistic case to show the full range of where clubs can go between now and mid-2016. The end results may surprise you.

If I could start with a note on Hamilton and Ross County. Neither seem to do accounting - I managed to get their 2013 figures, which doesn’t feature turnover or expenditure. As one can imagine, this is wholly useless for the purposes of this investigation. All I can garner is that Accies are, according to the BBC, debt-free and one can imagine that this season, they will have a much higher turnover than last year. Aside from that, I’d actually need some figures to go from as it becomes far too much like guess work for my liking (although I’m fairly sure their income will be somewhere in the region of £1.8m this season with about £600k of that in gate receipts - if you’re reading this and you’re from the club, give me a sign to let me know if I’m right!). In terms of Ross County, they are funded by their benefactor but they are well known for having a unique approach to playing staff and while it would be interesting to know their wage breakdown, it would also be unpredictable to say the least considering how they manage to get players out of the woodwork time and time again.

The second note is about cup runs - they are used in the forecasting as to the best case scenarios. In terms of value that one can attribute to a cup run, if we take Kilmarnock’s League Cup winning side, that had an impact of about £1.2m on their finances. As for, say, St Johnstone, their Cup win brought them £750k in TV money alone, ticketing would have likely brought another £400-600k and that is before one takes into account the residual impact on attendances. A Cup final run, therefore, would bring a club somewhere in the region of £1.2-1.5m as prize money is negligible.

To view the figures themselves, click on this link to take a look, my analysis follows: https://docs.google.com/spreadsheets/d/1pUuSUcmhhcJmqI6x1wzt2tiBxLI_5vcMyUiQVtlvB3A/edit?usp=sharing

Aberdeen are the perfect example of what a club should release in terms of detail - clear, concise and easy to forecast from. The real headline figure for them is that, even this year where they have done so well in the league, they are unlikely to break even. It shows where success lies for them - at it’s present costs base (and with some expansion to deal with maintaining 2nd), the club needs a level of European revenue and also 13,000 plus average attendance to keep doing what they’re doing. Crucial next season will be getting a Europa League group spot - the profit one season in the Europa League would fund Aberdeen in their attempts to solidify themselves as Scotland’s second team for 3-5 seasons: one big gain to fund several small losses isn’t a perfect business plan, but it would be one that allows first team expansion to continue.

Edit - Thanks to Thom Watt at STV for pointing out Aberdeen will be making a substantial saving in interest this season. As per their accounts, this should be around £300k. This shouldn’t change their forecast much as they made a similar saving from 2012 to 2013 yet costs rose overall. So while it’s fair to expect costs to continue to rise, as has been the trend, it’s important to note that this rate of cost inflation will slow.

Celtic, of course, vary wildly and are the only side for whom I’ve placed a Rangers caveat in as the reintroduction of Rangers into the top flight next season would make an immediate and noticeable upswing in attendances as, rather than being supported by 5 European games a season, gate receipts would be swelled by additional week to week fans and also 2 guaranteed full houses per season. In addition, Europe plays a massive role and it’s clear from the projections that these two elements have an impact in just how much money Celtic make, especially considering UEFA broadcasting revenues - one season in the Europa League more or less costs Celtic £14m compared to Champions League takings. From the projections, it’s clear Celtic can absorb this for a couple of seasons before making cuts but can’t absorb a season out of Europe altogether and, were that to happen, August 31st would be a very busy day. Assuming Celtic get into the Champions League groups next season (which is a 50-50 chance), then they will make a sizeable profit. Much like Aberdeen, one season of Champions League revenue can fund a couple of seasons in the Europa League.

Dundee are the first (but not the last) of the “don’t publish anything like enough detail” club. One surprise to many will be how small their revenues are for what is a relatively big club. A decade or more ago, when the club were at their most recent peak, attendances were 1,000 higher and that, in the main, is why the club are as they are - relatively stable. The primary driver for future revenue for the club is driving fans through the gates as there is little sense in driving costs any higher or lower than they are now. The impact of a significant cup run would make a lasting difference though but the most realistic scenarios have the club, more or less, breaking even over the next couple of seasons.

Dundee United, before one fully contemplates their figures as they are, have transfer income separate to this. It is easy to assume that their wage bill will stay static as they replace the young talent sold with other young talent occasionally supplemented by a Ciftci or a Fojut, who have slightly more in the way of pedigree. So while our worst case scenario may run with Dundee United making a £500k loss, that will be more than made up in transfer surplus. Regardless, the structure of the club is built to always break even unless things come off the rails. In terms of them being subject to stress, the club certainly have the resolve to ride out any short term issue thrown at them.

One club even better set are Inverness. Having gone through their downsizing and rebudgeting prior to the demise of Rangers, the club have turned a small profit the past two years (due, in part, to accounting tricks). Being stable in the top six has undoubtedly helped and it is hard to see why things would change - the budget is well under control and the only fluctuations in income will be due to performance more than anything.

It would be a lie to say that Kilmarnock weren’t the biggest challenge to forecast. They would likely have been easier to look at had they simply not submitted accounts at all. The reason for this is that in their last published accounts (2013), they split the hotel from the football club so for any forecast, one has to determine exactly how much the hotel contributed to the costs as, while the income it brought in was segmented, the costs were not. It is plausible to make an educated guess at wage costs and operating costs, but even then, they are vague approximations. Regardless of this, there is a real chance that Kilmarnock have been turning and are about to turn large losses until costs are totally under control. While Kilmarnock have previously had large turnovers, consistent underperformance in the league has driven attendances down and done this more rapidly than costs could be cut. Based on costs with as good an approximation of the hotel cut out, Kilmarnock still need to be cutting £1m to come close to turning a profit unless attendances recover rapidly. Considering that attendances haven’t recovered, significant loss making must be the most likely scenario unless the hotel separating has reduced costs more than it reasonably should.

Motherwell, much like Kilmarnock, have issues. Having been second for the past two seasons and still making a modest loss, this season where performance on the pitch has gone through the floor while it is unlikely that football budget has followed it that way leaves them on course to make a significant loss this season and require significant austerity next season.

Partick Thistle are, honestly, a bit of a puzzle. Some costs on promotion should be expected to rise but for wages to double yet with the same size playing staff, albeit to a still small budget, is still somewhat surprising. Wages will surely not rise above that level meaning Partick will continue to operate on one of the smallest budgets in the league. This small budget means that any losses will be small but it requires Partick to keep attendances 4,500 or higher but to do that on a consistent basis will likely require investment. They sit not as a yo-yo club but as a club who are uncomfortably sized - too big to make massive cuts but too small to make an investment to try to turn a profit. This is entirely manageable for now but they require something to change - be that more TV money, a cup run to a final or making cuts to the playing budget and hoping for the best.

Edit - as explanation for the jump in wages, thanks to Wap1971 on reddit who advised that in the first division, Partick’s wage structure was capped weekly wages with a good bonus scheme. Promotion resulted in the removal of this cap which resulted in such rapid expansion of the. Wage budget.

St Johnstone are an interesting case as they have been turning a profit but likely will not this year solely because they have reinvested the money from their cup win back into facilities at the club in terms of floodlight upgrades and training ground improvements. This is part of a longer term plan to reduce costs gradually while making the most of the long term impact on attendances. It is hard to see a scenario next year where St Johnstone don’t make a profit as, like Inverness, much of the cuts needed have already been made and so profitability and stability are almost a given.

Finally, St Mirren. A clear reflection of their state was shown in the sale of Kenny Maclean. They have, by now, submitted to relegation and, as such, have to submit also to a serious bout of austerity otherwise losses will quickly build up. As a company who has been unprofitable recently anyway, relegation could be catastrophic unless there are massive cutbacks.

The fact is that the entire point of this exercise shows us not that clubs are fragile but that, by and large, most clubs are stable except for a few exceptions, all of whom have clear reasons as to why they are in the state they are in - St Mirren for relegation, Kilmarnock from past business practices - but this is the minority. Most club are table, have a clear direction, have carried out almost all necessary trimming of the fat and, assuming the more random elements of football (like who has a cup run) happen evenly to sides, here is little reason to fret. It paints a picture of a Premiership that is, dare one say it, healthy and that, should the league get it’s act together in terms of improving the TV deal and getting a sponsorship deal, what is just stability now will be strength in a couple of seasons.

Stress testing clubs is objective. Forecasting is less opinion, more presenting projections and allowing you, the reader, to draw conclusions as to what is and is not stability or instability. For myself, interpretations are secondary to numericals and it is the numbers that tell our story for us.