It’s that time of year again – the Club’s Annual Report. Over seventy pages of content, although the real fun doesn’t start until 50 pages in with the financial statements.
If you’re like me, not an accountant, there’s a tendency to look at just the headline numbers. In this instance, another loss. This time £27.292m.
For context, the scale of the loss is equivalent to an eyewatering £525,000 per week, but it’s also following on from a £17.849m loss in 2022, which covered a season in the Premier League.
A detailed analysis beyond the headlines is probably best left to those with accounting knowledge. If you haven’t already seen it, I’d thoroughly recommend this review by Kieran Maguire from The Price of Football.
That said, there are still a few observations worthy of mentioning.
First, while the recorded loss isn’t unexpected, as most Championship clubs are loss-making, relegation from the Premier League always amplifies the problem, irrespective of your funding model. This is primarily because media revenues always take a massive hit after relegation – in this instance, it’s nearly £60m less than the previous financial year.
For context, that’s the equivalent of over £1m per week loss in revenue, compared to the previous reporting period.
As an aside, those advocating the scrapping of parachute payments (I’m looking at you, Rick Parry) clearly don’t appreciate the scale of the existing chasm between the Premier League and the Championship. Widening it, by removing these payments, would, in my opinion, make bridging the gap between both leagues virtually impossible. But that’s a debate for another day.
City’s other revenue streams – gate receipts, plus other commercial income, derived primarily though catering and sponsorship – are consistently around £28m each year, which is actually comparatively high in the Championship but is dwarfed by a significant number of other clubs at the top level.
Looking at the opposite side of the equation – costs. In football, these are primarily wages.
The previous reporting period saw wages top £118m in the year, so a reduction of £56m, on the face of it, seems positive progress. However, it’s worth remembering that the previous year’s wages also include loan fees and you’d assume that Billy Gilmour, Brandon Williams, Ozan Kabak, and MathiasNormann would have commanded sizeable loan fees, certainly in comparison to their replacements last season – Isaac Hayden, Aaron Ramsey and Marquinhos.
Of course, relegation clauses in players’ contracts would also have made a big contribution to the recorded reduction in wages, but last season’s figure, £56m, is still unsustainable, at least long term in the Championship. Further reductions are essential going forward and, although it pains me to say it, having Teemu Pukki, plus others, out-of-contract at the financial year end will help going forward.
Overall, staff costs, as a percentage of revenue, fell from 88% to 75% during the reporting period. This is positive although there’s still some room to go in terms of the revised FFP regulations on the horizon.
Again, a topic for another day.
There’s also another big ‘but’ to consider. And, in NCFC’s case, staff costs, plus amortisation (the actual costs transfer fees paid for assembling your squad, less the write-down of their contract values) once again exceeds 100% of total revenues – hence the ongoing losses being incurred, and certainly unsustainable at current levels. More potential pain is on the horizon.
The other aspect to consider is player trading.
This is an emotive one for NCFC fans, not least because it’s the often-cited reason by the club for player sales in the context of self-funding.
But, if we depersonalise it for a moment, there’s a basic principle in football that holds true, irrespective of your funding model.
The quickest way to make a profit in football is through player trading. But, also, the quickest way to lose money in football is through player trading.
Player trading is like a coin – two sides. Do it well, you’re a hero, but do it badly, and you’re seen as a villain in the eyes of the fans.
And, it’s worth highlighting that all clubs are involved in player trading, even in the money-no-object Premier League.
So, how have City done recently?
Well, in the current reporting period, not so well, as there was only one significant sale, Pierre Lees-Melou, following relegation from the Premier League. But there is more positive news in the post-year-end notes, with the sales of Max Aarons, Andrew Omobamidele, Milot Rashica, and Bali Mumba for over £21m, while the replacements, at least from a financial perspective, costing significantly less at just over £3.4m.
The judgment on the incomers, at least in my view, remains out.
Finally, and this is the most interesting aspect of the accounts, is debt. Having ridden the self-funding, debt-free mantra for a number of years, it’s something of a revelation to discover that Mark Attanasio has loaned the club some £36.6m in the past twelve months, which is in addition to the £10m C-preference share investment previously.
There’s a whole host of reasons for that, some good, some less so, but it’s a completely new dynamic for City going forward, one that will probably result in numerous comments below.