While I wait with anxious fear to hear we have sold our crown jewel players I though I would have a look at our accounts and how much we would need to sell. I’m not an expert on sports team accounts (in fact never looked at any before), but they seem fairly straightforward , also the accounts are for 2019 as 2020 not out yet. 1st thing I noticed is we are a lot more profitable than you would think we are we making about 10m a year (6% ish of turnover) , however if you remove player trading adjustment we are making about 22m we turnover 147m a year and our wage cost is 84m which means staff to income ratio is 57% Bournemouth turnover 138m but have a wage cost of 110m meaning there ratio is 80% Leed turnover 49m with staff costs of 46m with a ratio of 94% Southampton turnover 144m with staff costs of 111m with a ratio of 77% you can see from the above the disparity between championship and PL income , a good 100m a year , but you can also see from the above that by the time we have added in parachute payment we are not that far off being able to operate at break even / small loss. Bournemouth on the other hand need to reduce wages by around 26m more than us , assuming a star player makes 80k a week (4.2m per year) need to loose 6 before they are even at our level Essentially anybody thinking we are having a fire sale doesn’t understand how the club is run. clearly this info is open to interpretation and others will see it differently
???? ??? We made 10m after 22m of player trading profit? So it’s a loss before that. Comparables 2018 are loss of £31m and gain of £3m.
Badly explained by me , we make about 22m a year from normal activities (playing matches / paying staff etc) , we lost 12m on player trading (which I think is basically depreciation of assets / profit / loss from sale of players ) giving us a total profit of 10m. What this essentially means is that we are make a healthy profit from the actual activity of football.
This completely ignores the financial cost of COVID. We’ve been without matchday/ corporate revenue since March, will have to reimburse already spent season ticket and some TV revenue and will probably also lose some sponsorship money. And that’s this season. Who knows when fans will be allowed back next season. Let’s not kid ourselves. Sarr will have to be sold as he’s the only asset in our squad worth anything substantial.
We made £22m in 2019 from player trading due to the Richarlison sale. We made an operating loss of £6m. We also had to pay £7m in interest. We are not profitable.
Financial security of the club >>> premier league status. There's a case for selling nobody this year and if we don't go up the clear out happens next year. Our 5 year contract policy might mean in a years time we dont lose fees on players running down a contract. Average age of squad might be more of an issue in this regard. But there's a few players who frankly need a kick start that a transfer would give them and there's one or two that need binning and rolling a new or "been on loan" player into the mix.
We have plenty of players who will be sellable assets. Sarr is probably the most high profile. Doucs, Pereyra, Femenia, Capoue, GD, Kabs, Cathcart, Deeney, Gray, Penaranda, Success when fit. Plus the South Americans who have value. Then you have loans with possible values. There is plenty of money to be made without the need to sell Sarr. The higher earners with less future value to the club, should and probably will be, eased out before . The trimming of the squad is already happening with some out of contract players going, Whelan not getting a renewal. There will be some even leaving by mutual consent probably. I believe our main priority is the right guy in charge and Giraldi having less impact on matters. Give Hughes the Captaincy and clear out the obvious bad eggs from within.
Can any accountants confirm, doesn’t it make sense to report minimal to small/ no profit to minimise corporation tax?
We have £53 million of trading losses to carry forward. Even if we made £50m next year (which is never happening) then corporation tax remains zero.
their are 2 aspects to the sale of a player from a financial aspect. 1st is to reduce weekly wages, 2nd is create more money to spend elsewhere. the 1st directly affect the profitability of an organisation , the 2nd indirectly. If you look at our balance sheet the player value is massively understated. This is because players are deprécate as a fix asset and as per the accounts not revalued for the accounts. So Deeney who has been with us for a long time will be shown on the balance sheet with a value of near zero as his contract will be almost fully depreciated , if we sell him for 5m that would add 5m to the i&e. Sarr was purchase last year So most of his value will still be on the balance sheet , so if we sell him for 30m, we may only add 3m to the I&E. Clearly this is theoretical as they don’t identify the make up of the balance sheet down to player level. if you can sell Sarr for £50m and add £20m worth doing, but if you can only add £3m , best thing to do is loan out and sell later.
I sort of am (finance is under my control where I work ) and although not an accountant I have a very good understanding of cash flow / i&e , balance sheets etc (although no real idea if sports group accounts). 1st thing is cash is king and in 18/19 we generated £32m , this means we brought in 32m more than we spent, the trick then is to make it look like you earned nothing , to avoid paying tax. You can see from previous accountants that the ponzzo basically buy a lot of players (investing cash earned into new players) to avoid large profits. Depending on when players are sold and how much they are sold for it may not be possible to reinvest in new players before the end of the accounting year. And as per above lots of technical things about previous year trading losses , one thing you can guarantee is that WFC accountants will be looking to minimise profit where possible.
Why would you not include player depreciation in P&L? If you buy a player for £20m on a 4 year deal you take a £5m P&L hit per year over the life of the contract to reflect the cost of the purchase. It's like a company buying machinery and getting capital allowances (i.e. they can't offset the full purchase price against P&L in year 1). If you subsequently sell a player then the profit(or loss) against his remaining balance sheet value comes in here. If you don't include player depreciation in your view of profit then essentially you are ignoring transfer fees. EDIT: Oh I think I see what you are doing now. Remove all aspects of player transfers and show profit/loss after that adjustment. I'm not sure that really shows the full picture though - we've already spent those transfer fees historically so you can't just ignore the fact that player depreciation is going to hit us year after year going forward.
I agree in a real world you cant just ignore depreciation, if you buy a computer for 5k and it has a shelf life of 5 years you need to put 1k a year for 5 years to replace it. with football it seems a bit different, buy a player like Sarr for 27m , depreciate the purchase over 5 years , but in 4 years sell him for 50m (Or in the case of gray buy for 18m depreciate him to zero then give him away on a feee transfer) it seems to me that the real business of the pozzo’s is buying and selling players (which you can only do now if you own a club) and that Watford was purchased as playing in England (particularly the prem) was a big draw to new talent. I don’t have a problem with this as it means that the value of Watford being in the prem to the Pozzo’s isn’t the TV money it’s the ability to recruit better quality players which have a bigger potential sell on. The Pozzos want us to be as big a club as possible as every move up in status opens a new door for them.
In football it makes more sense to treat purchases of players as an expense and sales of players as income. This "depreciation" idea is dreamed up by fantasy accountants in ivory towers who think it's more important that accounts should be logical rather than useful. In 2019, Watford had income of £151m, with wages payable of £84m, general expenses of £38m (which seems unusually high, more than double what Burnley's is), and interest payable £7m. Operating profit before buying or selling players, £22m. Then (this is where I would diverge from the published accounts) you look at buying and selling players. You paid £21m to sign players and earned £38m from selling them (Richarlison, presumably). A note in the accounts (note 28) tells us that in the first transfer window summer 2019, you spent £39m on new players and earned £19m on sales.
Ever buy a sofa on credit. Or paid for a car on finance? I imagine transfer finances are actually a bit more complicated than x + y =
No, never needed to. All credit does is delay payment. Paying today or paying tomorrow have the same effect on the net balance sheet and (apart from interest) make no difference to the profit and loss account. It's the depreciation that distorts the accounts. There is a relevance to the HP, I suppose, in that when you buy a sofa or a player you can decide to pay it out of income for the next year or three. Which is a bit of a beggar when income drops like a stone.
