Thread by @SwissRamble

Liverpool’s 2017/18 financial results covered a season when they finished 4th in the Premier League and returned to European competition with a bang by reaching the Champions League final, where they were defeated by Real Madrid. Some thoughts in the following thread #LFC

#LFC profit before tax increased from £40m to £125m, as profit on player sales surged £86m to £124m and the impressive Champions League run helped drive revenue up £91m (25%) to a record £455m. Profit after tax improved from £39m to £106m.

All three #LFC revenue streams increased: broadcasting was a substantial £66m (43%) higher at £220m, due to Champions League participation; match day climbed £7m (10%) to £81m, while commercial rose £18m (13%) to £154m, also largely linked to European success.

On the other hand, #LFC’s success came at a price with high cost growth: investment in the squad saw the wage bill shoot up £55m (27%) to £264m and player amortisation rise £19m (32%) to £77m; while other expenses increased £14m (17%) to £97m and depreciation was up £2m to £9m.

#LFC £125m profit before tax is not only a record for the club, but is the highest profit reported to date in the 2017/18 Premier League, a long way ahead of #AFC £70m and #CFC £67m. Three clubs have posted losses: #WatfordFC £32m, #SCFC £30m and #EFC £13m.

In fact, #LFC £125m profit before tax is actually the highest ever registered in the Premier League, £33m more than LCFC 2016/17 £92m. However, COO Andy Hughes cited, “the one-off elements in this set of results – namely selling Coutinho and reaching the Champions League final.”

It is indeed evident that £124m profit on player sales, including Coutinho, Sakho, Lucas & Stewart, has had a major impact on the #LFC bottom line. If excluded, profit would have been just £1m. Some other clubs registered similar high sums: #AFC £120m, #CFC £113m and #EFC £88m.

That said, #LFC £124m profit on player sales is actually the highest ever made by an English club, ahead of #AFC 2017/18 £120m, #CFC 2017/18 £113m and #THFC 2013/14 £104m. It is more than twice as much as Liverpool’s previous best: £56m in 2014/15 (Luis Suarez to Barcelona).

A core part of #LFC business model is that they have become a club that sells well. In the last 4 years, they made a hefty £261m from this activity with only #CFC £272m ahead of them. For more context, #AFC, #MCFC and #MUFC only made £158m, £108m and £43m respectively.

#LFC have made a profit 4 times in the last 5 years, amounting to £204m over that period. The preceding 5 years (2009-13) saw total losses of £176m, so there has clearly been “a stable and sustained improvement in the club’s financial position over recent years.”

#LFC recent profitability has also benefited from the absence of exceptional charges in the last two years. These had increased costs by £113m in the decade up to 2016, mainly (unsuccessful) stadium development expenses £61m and compensation for sacked managers £47m.

As we have seen, profit from player sales is having an increasing influence on #LFC. Between 2009 and 2014, Liverpool averaged just £9m profit here, but this has shot up to £65m in the 4 years since then. Hughes again: “Financial results do fluctuate depending on player trading.”

That said, #LFC EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation), which can be considered as a proxy for cash operating profit, as it excludes player sales and exceptional items, has risen from £35m in 2016 to £95m in 2018, the highest in Liverpool’s history.

As Hughes said, “What’s clear in these latest results is the further strengthening of our underlying financial footing.” Nevertheless, #LFC EBITDA of £95m is still only around half of #MUFC’s £177m, due to United’s amazing ability to generate cash, and also behind #MCFC £125m.

Andy Hughes: “We’ve seen continuous revenue growth since FSG acquired the club in 2010.” In fact, #LFC revenue has more than doubled since 2013 and is up by 50% in the last 2 years alone. Most (£96m) driven by TV, but also impressive growth in commercial £39m and match day £18m.

#LFC significant revenue growth to £455m means that they now have the third highest revenue in England, having overtaken both #CFC £443m and #AFC £388m. They’re within striking distance of #MCFC £500m, but still a long way behind #MUFC £590m.

In fact, #LFC £153m revenue growth in the last 2 years is only surpassed by #THFC £170m (from a much lower base). Others much smaller: #CFC £114m, #MCFC £109m, #MUFC £75m and #AFC £38m. As well-known small-cap investor Jim Slater once said, “elephants don’t gallop.”

#LFC moved up 2 places in Deloitte Money League to 7th, the club’s highest position since 2009. That’s clearly good news, but worth noting they are still miles behind the Spanish giants, Real Madrid £665m & Barcelona £612m. Also £100m lower than CL opponents Bayern Munich £557m.

In fact, #LFC enjoyed the highest revenue uplift of any top ten Money League club with a £91m increase, ahead of Real Madrid £85m and #CFC £80m. The £93m increase at NUFC followed promotion from the Championship to the Premier League.

#LFC earned the most broadcasting income in the world (along with Champions League winners Real Madrid) with £223m, followed by four English clubs benefiting from the huge Premier League TV deal: #MCFC £212m, #CFC £204m, #MUFC £204m & #THFC £201m

#LFC Premier League TV money unchanged at £146m, including £33m facility fees for being shown live 28 times (equal highest with #MUFC & #AFC). Owner John Henry partially succeeded in securing more overseas TV money for Big Six from 2019/20 (any increase split on league position).

#LFC earned €81m for reaching the Champions League final, which represented pure growth, as they did not qualify for Europe the prior season. This was only behind CL winners Real Madrid €89m and Roma €84m (as Italian TV pool was split between only 3 clubs).

#LFC Champions League revenue was restricted by finishing 4th in the 2016/17 Premier League, as this meant that they only got 10% of the first half of the TV pool, but they still received more than other English clubs: #CFC €65m, #MCFC €64m, #THFC €61m and #MUFC €40m.

The importance of Champions League qualification is underlined by the revenue earned by English clubs in the last 5 years. #LFC received €153m, despite twice missing out on Europe. However, this is lower than #MCFC €279m, #AFC €219m, #CFC €217m and #MUFC €172m.

Champions League revenue is 54% higher in 2018/19, though a new UEFA coefficient payment (based on performances over 10 years) will benefit traditional big clubs like Real Madrid and Barcelona at the expense of clubs from countries with large TV pools, i.e. England and Italy.

#LFC match day income rose £7m (10%) to £81m, mainly due to 4 more home games and increased Champions League hospitality sales. Revenue was £62m before main stand expansion. This is 3rd highest in the PL, only behind #MUFC and #AFC, and compares to £43m when FSG bought the club.

#LFC average attendance of 53,049 was the 6th highest in the Premier League. The board is considering expanding Anfield Road End at an estimated cost of £45m for 5,000 additional seats to bring capacity to around 60,000. Ticket prices have been frozen since 2015/16.

#LFC commercial revenue up 18% (£13m) to £154m, mainly due to 8 new partnerships, including shirt sleeve sponsor Western Union £5m, plus higher merchandising (including record sales of 125th season celebration kit) and catering, plus bonuses for reaching Champions League final.

#LFC £154m commercial income is the 4th highest in England, close to #CFC £165m, but a long way below #MUFC £276m and #MCFC £232m. Since 2016 they have grown by a third (£39m), but less than #MCFC £54m, #CFC £49m and #THFC £45m.

The #LFC board is therefore very focused on commercial opportunities. The Standard Chartered shirt sponsorship has been extended to 2022/23 with an increase from £30m to £40m, while there is talk of improving kit deal from £45m to £75m when New Balance agreement ends in 2020.

#LFC wage bill shot up £56m (27%) from £208m to £264m, though basically in line with 25% revenue growth, so wages to turnover ratio only slightly increased from 57% to 58%. Will have included sizeable Champions League bonuses, while headcount up from 744 to 837.

#LFC have had the highest wages growth of the “Big Six” in the last 3 years with their £98m just outpacing #MUFC £93m. Their increase is three times as much as #AFC £31m, which may help explain the divergent fortunes on the pitch since 2015.

So #LFC £264m wage bill is now the 2nd highest in England, only behind #MUFC £296m, though some will argue that #MCFC £260m is under-stated, due to their innovative corporate structure (i.e. the use of City Football Group Ltd). Now a fair way ahead of #CFC £244m and #AFC £223m.

#LFC wages to turnover ratio has improved from 70% in 2011 to a healthy 58% in 2018, but that is still higher than the other leading clubs: #AFC 58%, #CFC 55%, #MCFC 52%, #MUFC 51% and #THFC (2016/17) 41%. The club describes this as “investment on the pitch”.

The extent of FSG’s investment is shown by #LFC player amortisation doubling from £37m in 2013 to £77m. This is the annual charge to write-down transfer fees. As Hughes explained, “When you buy a player, the cost of the acquisition is spread across the life of the contract.”

Despite the increase, #LFC player amortisation of £77m is still only the 5th highest in England, significantly less than big-spending #MUFC £138m, #MCFC £134m, and #CFC £124m though it will again rise in 2018/19 after the high expenditure in last summer’s transfer window.

Other expenses also rose 17% (£14m) from £83m to £97m in 2016/17 without any real explanation beyond Hughes noting, “Costs in football continue to rise year on year.”. This cost category has more than doubled from £46m in 2012.

#LFC made record player purchases of £195m (including Salah, van Dijk, Robertson, Oxlade-Chamberlain and Solanke), significantly more than the previous season’s £76m, though it is actually much less than #MCFC £328m and #CFC £290m, and also below #MUFC £243m and even #EFC £215m.

On a cash basis #LFC annual net spend rose to £46m in last 4 seasons, only £15m more than 2009-14 £31m. However, gross spend almost doubled from £62m to £112m, offset by increase in sales from £31m to £66m. Net £181m payable for 18/19, including Keita, Fabinho, Alisson & Shaqiri.

#LFC gross debt fell £27m to £155m. FSG stadium loan cut by £10m to £100m, while the club has used £55m of the £150m credit facility, having repaid £17m. Accounts do not separate transfer fees debt, but this is likely reason for increase in trade creditors from £76m to £148m.

Following the decrease, #LFC £155m is the 6th highest debt in the Premier League, way behind #MUFC £496m even after all the Glazers’ re-financings, and now also below neighbours #EFC £224m. Worth noting that contingent liabilities have risen from £21m to £41m.

Although interest rate on FSG loan increased from 1.24% to 2.44%, #LFC only paid £1.8m, which is much lower than #MUFC £19m and #AFC £12m. #WHUFC £13m is interest accrued on owner loans over past 6 years. #THFC interest will significantly rise from £6m as stadium debt increases.

#LFC cash balance is only £10m (up from £4m), significantly less than #MUFC £242m and #AFC £231m, but this is nothing to worry about, as Hughes explained, “We have been reinvesting all of our profits back into the club.” #THFC £200m (in 2016/17) is loan advances for new stadium.

#LFC generated an impressive £103m cash from operations in 2017/18, allowing them to spend £49m on player purchases (net) and £16m on infrastructure, as well as paying down £30m of debt and £2m interest. Focus is on the new £50m training ground at Kirkby.

Since FSG acquired the club, the club has had £578m of available cash: £361m from operations, £158m from owner loans and £50m from bank loans. £337m went on players (net), £181m capital expenditure, £38m stadium loan repayment and £23m interest payments.

The club summarised the approach as follows: “With the continued support of our ownership group, performance on the pitch and maintaining our priority of reinvesting back into the squad, we remain focused towards fulfilling all our football ambitions.”

#LFC amazing 2017/18 £125m profit has clearly significantly benefited from the hefty Coutinho sale and reaching the Champions League final, but there’s still much to admire in the Reds’ turnaround, both on and off the pitch.