Thread by @SwissRamble

Although Derby County’s fans will be bitterly disappointed after losing to Aston Villa in the 2018/19 Championship play-off final, it might still be worth looking at their 2017/18 accounts to show how the club is trying to meet its financial challenges. Some thoughts follow #DCFC

#DCFC went from a £7.9m loss to £14.6m profit, mainly due to £40m from selling & leasing back Pride Park Stadium. Revenue was only up £0.6m (2%) to £29.6m, though this was the club’s highest in the Championship without parachute payments. Profit on player sales fell £12m to £4m.

Main reason for #DCFC revenue increase was an away FA Cup game at Manchester United, which meant match receipts were up £0.5m (5%) to £9.1m. Broadcasting also rose £0.2m (2%) to £8.1m, due to higher Premier League solidarity payment, but commercial was down £0.1m to £12.4m.

#DCFC wage bill shot up £5.9m (17%) from £34.6m to £40.5m, while player amortisation also rose £1.6m (31%) to £6.6m, as did other expenses, up £0.5m (5%) to £10.0m. However, net interest payable was £0.8m lower and club received £1.9m compensation from Stoke for Gary Rowett.

A review of #DCFC finances is complicated by the structure, where a holding company, Sevco 5112 Ltd, owns The Derby County Football Club Ltd plus 3 other companies: Club DCFC Ltd (catering & hospitality), Stadia DCFC Ltd (commercial & sponsorship) and Derby County FC Academy Ltd.

Furthermore, Sevco 5112 Ltd has been owned by another holding company, Gellaw NewCo 203 Ltd, since 28 June 2018. The arrangement brings to mind Winston Churchill’s famous quote, “a riddle wrapped in a mystery inside an enigma”, but to be clear there’s nothing untoward here #DCFC

Sevco 5112 Ltd made a loss of £1.1m, which is £15.7m worse than the £14.6m profit reported by the football club, mainly due to wages (£6.4m higher at £46.8m) and other expenses (£8.6m higher at £18.6m), though interestingly revenue was £0.5m lower at £29.1m.

The newly created companies have effectively moved out costs with the revenue remaining in the football club. Despite these differences with the holding company, most of the following analysis is based on The Derby County Football Club Ltd accounts (as presented by #DCFC).

#DCFC £15m profit was 3rd highest in the Championship, only behind #HCAFC £24m and #NCFC £18m. Only 5 clubs reported profits in this division. Largest losses made by the promoted clubs, adversely impacted by hefty promotion bonuses: #WWFC £57m, #FFC £45m and Cardiff City £39m.

#DCFC only had £3.7m profit on player sales, mainly Cyrus Christie to #Boro plus a contingency payment for Tom Ince’s prior year sale to #HTAFC. Few Championship clubs make big money from player trading, except those relegated from the Premier League: #NCFC £48m & #HCAFC £31m.

#DCFC sold their stadium to one of owner Mel Morris’s companies for £81m (independent valuation), which gave a £40m gain over the £41m value in the books. If this transaction were excluded, they would have reported a large loss: football club £25m, holding company £41m.

The last time that #DCFC posted a profit before 2018 was way back in 2008, when they were in the Premier League. They then had 9 successive years of losses, amounting to £80m, before last season’s “fancy footwork” took them back into the black.

#DCFC also benefited from £12m loan settlement in 15/16 and £16m profit on player sales in 16/17 (Hendrick, Ince & Hughes). Otherwise, not really made much from player trading. Indeed, accounts note that there will be a £1.1m loss in 18/19 (£11.7m sales less £12.8m book value).

#DCFC EBITDA (Earnings Before Interest, Depreciation and Amortisation), which strips out player sales and non-cash items to give underlying profitability, fell from £(15)m to £(21)m, though this was not quite so bad as £(22)m in 2016.

In fairness, only four Championship clubs managed to achieve positive EBITDA in 2017/18, but #DCFC £(21)m is still one of the worst in the division, only surpassed by three clubs: #BCFC £(30)m, #AVFC £(27)m and #WWFC £(27)m.

Of course, #DCFC will not be worried about these losses if they reach the Premier League. In 2017/18 the three promoted clubs saw an average operating loss of £51m in the Championship significantly improve to a £17m profit in the top flight.

Although #DCFC revenue only rose slightly (2%) in 2017/18 to £29.6m, it has grown by almost a third in the last two seasons from £22.6m in 2015/16. The £7.1m growth was driven by commercial £3.7m (43%), broadcasting £2.5m (44%) and match receipts £0.8m (10%).

#DCFC £30m revenue was 10th highest in the Championship, though less than half of #AVFC £69m, Sunderland £64m, #Boro & #NCFC £62m. As CEO Stephen Pearce said, “Before you even sell a ticket, a pint or a pie, a club that has just come down from the PL has a £45m head start.”

This disparity is due to Premier League parachute payments with 8 clubs benefiting in 2017/18, led by #Boro, #HCAFC & #SAFC £42m, followed by #AVFC & #NCFC £34m, then #CardiffCity, #FFC & #QPR £17m. This makes life really difficult for clubs like #DCFC.

If parachute payments were excluded, #DCFC £30m would have been the 4th highest revenue in the Championship, only £2m below #NCFC £32m, though around £10m behind #LUFC £41m and #AVFC £39m.

#DCFC TV income rose £0.2m to £8.1m, as PL solidarity payment increased to £4.5m. Most Championship clubs only receive £8m TV money, including £2.3m EFL distribution, so the huge amounts in the top flight (£95-150m) explain why so many clubs spend big in pursuit of that prize.

Despite fewer home games at Pride Park, #DCFC match day income rose by 5% (£0.5m) to £9.1m, thanks to reaching the play-off semi-final plus their share of the FA Cup tie at Manchester United. This was the 5th highest in the Championship, only £2.7m less than #AVFC £11.8m.

#DCFC average attendance fell from (restated) 27,885 to 27,175 in 2017/18. Crowds have dropped around 5,000 (16%) from over 32,000 in the Premier League, though they are a fair bit higher than the 23,000 low in 2012/13.

Nevertheless, the 27,175 attendance meant that #DCFC were one of the top 5 best supported teams in the Championship (actually better than 7 clubs in the Premier League). After season ticket prices were frozen for 3 years in a row, the club announced small increases for 2019/20.

#DCFC commercial income was flat at £12.4m, comprising sponsorship £5.0m, commercial & hospitality £4.1m, merchandising £0.3m and other receipts £3.0m. This was the 4th best in Championship, just below #AVFC & #NCFC, though £10m below Leeds. Also more than 6 Premier League clubs.

#DCFC shirt sponsor was Avon Tyres in 2017/18, replaced by 32 Red in 2018/19. The have had a kit deal with Umbro since 2014, running to 2022. The iPro stadium naming rights were canceled in November 2016.

#DCFC wage bill rose £5.9m (17%) from £34.6m to £40.5m, so has more than tripled since £12.3m in 2013. The number of employees has fallen from 251 in 2016 to 153, following the move to other companies (Sevco holding company headcount increased from 265 to 330).

#DCFC Sevco holding company wage bill increased from £39.8m to £46.8m. Excluding £1.1m pure Sevco Company wages, as this is not related to the football club, gives an adjusted total of £45.8m and a wages to turnover ratio of 155% (compared to football club £40.5m and 137%).

Even if we take the lower #DCFC football club £40m wage bill, this was still the 8th highest in the Championship, though it was a long way below play-off rivals #AVFC £73m. Morris said it would “go down substantially next year”, as many players out of contract would leave.

#DCFC wages to turnover ratio of 137% might sound terrible, but is actually only the 6th highest (worst) in the Championship, with over half the clubs in that division having ratios above 100%. For some context, it’s much lower than #BCFC 202%, Reading 197% and #WWFC 192%.

#DCFC player amortisation rose £1.6m (31%) to £6.6m, reflecting recent increase in transfer spend. Since 2016 Derby have considered residual values in amortisation calculation, which reduces this annual charge. This is a valid accounting treatment, but rare in world of football.

As a result, #DCFC player amortisation of £6.6m is in the bottom half of the table in the Championship, around the same level as Bristol City. For more perspective, it was less than a third of (relatively) big-spending clubs like #Boro and #AVFC, both £24m.

#DCFC had £15m player purchases in 2018, the 9th highest in the Championship, though they were significantly outspent by #Boro £66m, #FFC £31m. #LUFC £28m & #WWFC £25m. Included Lawrence, Wisdom, Huddlestone, Jerome and Davies. Spend has been reducing: 2016 £30m, 2017 £21m.

#DCFC transfer spend has greatly grown since the Mel Morris takeover, more than quadrupling from £4m annual average 2008-15 to £18m in the last 3 years. The increase in net spend is restricted by sales also increasing. 2018/19 £18.5m spend includes Waghorn, Marriott & Jozefzoon.

There is only £3m debt in the #DCFC football club for a bank loan, which is the lowest for many years (as high as £34m in 2013). The Holding Company debt fell from £144m to £54m following the stadium sale, mainly £49m owed to Morris (plus £23m received after accounts closed).

#DCFC £3m debt was one of the smallest in the Championship, as club is largely financed by share capital increases. This was miles below Middlesbrough £101m and Ipswich Town £95m, though similar to #AVFC £6m. However, they do owe £12m to other clubs for transfers.

In addition, #DCFC contingent liabilities have risen from £16.6m to £19.2m and are up from just £3.2m in 2014. This is split between £13.0m for promotion and appearances and £6.2m for signing and other bonuses due to players under terms of their contracts.

Although debt is high in the Championship, most of this is provided by owners who charge little or no interest, so it is a little misleading. In this way, #DCFC did not pay any interest in 2017/18.

Although Mel Morris did not inject new capital or loans in 2017/18, he did provide £81m funding to #DCFC via the stadium purchase, which was required for a cash break-even. Added to £96m share capital, this means the owner has put in £177m plus £23m after accounts, giving £200m.

Since relegation from the Premier League in 2008, #DCFC have received nearly £240m funding from owners. Two-thirds (£162m) has been used to cover operating losses, £40m (net) on players, £18m infrastructure investment, £14m loan repayments and £7m interest payments.

#DCFC accounts state that additional financing is required to fund the club’s business plan, which will come from the owner. As CEO Stephen Pearce explained, “Our turnover for the year is £29m. Everything over and above that has to come out of Mel’s pocket.”

#DCFC have confirmed that they have met EFL’s FFP rules, though they provide “a significant challenge”. It is not always clear what can be included and excluded in the calculation, but club says it is “assessed on the basis of all football related activities within the group.”

FFP allows a maximum £39m loss over 3-year period, while #DCFC reported losses are much lower at £8m, even before allowable exclusions for academy, community & infrastructure. After excluding 2015/16 £12m gain on loan settlement, Derby would be comfortably compliant.

However, it would be a different story for #DCFC without £40m profit on stadium sale. The board said this “difficult decision” was taken “after consideration of the club’s Profitability & Sustainability position”. Appears to be permitted, even if against the spirit of the rules.

In fairness, #DCFC have been very close to winning promotion several times in the last few years, so one last push is perhaps understandable, especially when competing against teams receiving substantial parachute payments. Other clubs may not be so convinced of this approach.

#DCFC have qualified for the play-offs 4 times in the last 6 seasons, but it has been a case of “so near, yet so far”. Promotion would be a game changer, but they will have to spend at least another year in what Morris has called “the unholy mess that is Championship football.”