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Wolverhampton Wanderers 2017/18 financial results covered a successful season, when the club was promoted to the Premier League as champions after a six-year absence, led by head coach Nuno Espirito Santo under the ownership of Fosun International. Some thoughts follow #WWFC
#WWFC loss shot up from £23m to a breathtaking £57m, largely due to increased expenditure on players and wages plus an estimated £20m on bonuses and additional transfer fee payments following promotion.
#WWFC revenue rose 11% (£2.6m) from £23.8m to £26.4m, as commercial increased £1.4m (15%) to £10.6m and gate receipts were up £1.3m (20%) to £7.8m, but broadcasting was flat at £8.0m. Profit on player sales was £5.9m higher at £8.1m.
However, the revenue growth was eclipsed by substantial cost growth, as wages shot up 80% (£22.5m) from £28.2m to £50.7m and player amortisation/impairment increased by £8.6m to £16.1m, while other expenses more than doubled from £10.8m to £22.4m.
In fairness, almost all Championship clubs lose money, but #WWFC £57m loss is by far the largest of the clubs that have reported to date in 2017/18. However, worth noting that both Wolves and the next highest, Cardiff City £39m, were both impacted by hefty promotion bonuses.
That said, #WWFC £57m loss is the highest ever reported in the Championship, unless we exclude the £60m boost to #QPR 2013/14 accounts for the write-off of a shareholder loan (challenged by the EFL for FFP purposes), which would mean their loss would have been higher at £70m.
#WWFC figures were boosted by £8m profit on player sales, including Dicko to #hcafc, Edwards to Reading & Evans to #SUFC. This is not bad, but is significantly lower than the large profits clubs relegated from the Premier League made from this activity: #NCFC £48m & #HCAFC £31m.
Under former owner Steve Morgan #WWFC were very prudent, making profits 6 times in 7 years. Fosun have a very different strategy, namely “strong investment into developing the squad”, leading to £70m combined losses in the last 2 years – but the gamble paid-off with promotion.
Previous #WWFC results were impacted by a £27.5m player restructuring provision booked in 2013 following two successive relegations with 2014 & 2015 accounts benefiting from provision releases of £10.2m & £6.7m respectively. If excluded, there would have been losses those years.
#WWFC profit from player sales has been very consistent, averaging £5-6m over the last decade with only 2013 and 2016 contributing more than £10m. The club stated that £12.2m has been earned from this activity since the balance sheet date, i.e. included in 2018/19 accounts.
#WWFC EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation), a proxy for cash operating profit, as it strips out player sales and non-cash items, fell from £(15)m to £(27)m, excluding estimated £20m promotion bonuses. Down from a peak of £21m in the Premier League.
To be fair, few Championship clubs manage to generate positive EBITDA, but #WWFC’s £(27)m has only been “beaten” by two clubs that have reported to date in 2017/18, namely Birmingham City £(30)m and Aston Villa £(27)m.
#WWFC revenue has basically halved following relegation from the PL in 2012, falling by £34m from £61m to £26m in 2018, though Wolves can anticipate revenue of around £145m this season with the new TV deal. Balanced revenue mix: commercial 40%, broadcasting 30% & match day 30%.
Despite the increase, #WWFC £26m revenue was still miles below leading Championship clubs, e.g. £30-40m less than clubs recently relegated from the top tier: #AVFC £69m, #Boro £62m, #NCFC £62m & #hcafc £56m. Only below 2 clubs without parachute payments: #LUFC £34m & #DCFC £29m.
Championship revenue is hugely influenced by Premier League parachute payments with 8 clubs benefiting in 2017/18, led by #Boro, #hcafc & #SAFC £42m, then #AVFC & #NCFC £34m, and #CardiffCity, #FFC & #QPR £17m. This makes life very difficult for others – unless they spend big.
#WWFC TV income was unchanged at £8.0m, including PL solidarity payment £4.5m and £2.3m EFL central distribution. The huge amounts received in the top flight (£150m for 1st place, £95m for 20th) help explain why Wolves “went for it” in pursuit of that prize.
So #WWFC can look forward to much higher TV income in 2018/19. There have been two new three-year TV cycles since they were last in the top flight, massively increasing the central distributions. If they secure 7th place, they would be in line to get £128m (based on 2017/18).
#WWFC gate receipts increased by £1.3m (20%) from £6.5m to £7.8m, as average attendances were up by a third from 21,572 to 28,298, “because of successful on-pitch performance.”. This was still a fair bit lower than #AVFC £12m.
In fact, #WWFC last season’s average attendance of 28,298 was almost as high as the Premier League peak of 28,366 in 2009/10, which is a real change in fortune after the steady decline under the previous ownership.
#WWFC had the 3rd largest crowds in the Championship with their 28,298 average only surpassed by #AVFC 32,097 & #LUFC 31,525. Wolves’ attendance was actually higher than 7 Premier League clubs. Ticket prices frozen in 2017/18, but are up 30% in the PL in some areas of Molineux.
#WWFC commercial income rose 15% (£1.4m) from £9.2m to £10.6m, due to increases in merchandising £0.6m, sponsorship and advertising £0.4m and corporate hospitality £0.4m. Still below 5 Championship clubs: #LUFC £16m, #AVFC £13m, #NCFC £13m, #DCFC £12m & Bristol City £12m.
#WWFC commercial income will increase in 2018/19 via a raft of new deals: shirt sponsor W88 (“the largest in the club’s history”), kit supplier Adidas and sleeve sponsor CoinDeal, while the owners, Fosun International, will sponsor the training ground.
#WWFC wage bill surged 80% (£23m) from £28m to £51m, though this included promotion bonuses and “settlement costs of the outgoing management team”. This means that wages have nearly tripled since Fosun’s arrival. It is actually £12m more than the last time in the Premier League.
As a consequence, #WWFC £51m wage bill is the second highest in the Championship, though still a long way below #AVFC £73m – even though Villa’s figure obviously did not include any promotion bonuses.
To place the #WWFC £51m wage bill in context, it is the 7th highest ever reported in the Championship, but miles below #NUFC £80m in 2016/17and #QPR £75m back in 2013/14.
#WWFC wages to turnover ratio increased from 119% to 192%, up from 67% just two years ago, highlighting the more aggressive policy under Fosun. Incredibly, this is not the worst in the Championship, as #BCFC 202% and Reading 197% are even higher.
#WWFC player amortisation, the annual charge to write-down transfer fees over the life of a player’s contract, increased from £7.6m to £13.0m. This has risen from just £2.9m two years ago “driven by investments in the first team squad”. Club also booked £3.1m player impairment.
After this increase, #WWFC player amortisation of £13m was the 5th highest in the Championship, but it was still only around half of big-spending Middlesbrough and Aston Villa, both £24m.
#WWFC splashed out £25m on players in 2017/18, including Ruben Neves, Roderick Miranda, Rafael Mir & Barry Douglas. This was the second highest in the Championship, though massively outspent by #Boro £66m and was also less than their previous season’s £32m spend.
#WWFC gross transfer spend has tripled since Fosun’s takeover, and is actually more than they spent when they were last in the top flight. The accounts note that they have since spent an amazing £110m this season, including Castro, Traoré, Patricio, Jota, Boly, Afobe & Moutinho.
#WWFC gross debt rose £48m from £27m to £75m. All of this is owed to Fosun with no interest charged and no fixed repayment date. In addition, the club owed £23m for transfers and had £9m of contingent liabilities (depending on appearances and success on pitch).
After the increase in #WWFC debt to £75m, it was the 3rd highest in the Championship (with Sunderland and Bolton still to report 2017/18 accounts), only behind #Boro £101m and #ITFC £89m. In reality, the debt is not an issue – so long as Fosun continue to provide support.
Although debt is high in the Championship, most is provided by owners who charge little or no interest, e.g. #WWFC paid just £2k in 2017/18. while the highest was #HCAFC with only £3.1m. The owners converted £5.7m interest payable into equity in 2016/17.
#WWFC broke-even from a cash perspective in 2017/18, but only because Fosun increased their loan by £48m. This was primarily used to cover a £28m loss from operating activities, while spending £18m (net) on player purchases plus £3m on infrastructure.
In the last 10 years #WWFC had £95m of available cash with the vast majority (£75m) provided by funding from Fosun. Most of this (£41m) has either been spent on infrastructure (stadium redevelopment + Compton Park Academy) or £40m on players (net) with £14m on covering losses.
As #WWFC have been promoted to the Premier League, their issues with the EFL Profit & Sustainability rules are to an extent moot. However, it should be noted that FFP losses exclude academy, community & infrastructure (estimated at £6m a year) plus £20m of promotion bonuses.
Over the 3-year monitoring period for 2017/18, #WWFC FFP losses were £37m against the £39m limit. However, this limit depends on owner injecting equity to cover losses. As this does not seem to have happened, maximum loss would be only £15m, which would imply a failure.
In the accounts #WWFC do not clearly state that they were compliant with FFP, only that the directors ensure that the financial forecast is consistently monitored and updated “to mitigate the risk of sanctions by maintaining a confortable headroom position.”
There is no doubt that Fosun have transformed #WWFC. They took big financial risks, but would argue that the ends justify the means, as their prospects look very good in the Premier League. Whether this strategy is the right one for other Championship clubs is more debatable.
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