Thread by @SwissRamble

Sheffield Wednesday have finally published their accounts for the 2017/18 season, when they finished 15th in the Championship. Manager Carlos Carvalhal left the club by mutual consent in December, to be replaced by Jos Luhukay. Some thoughts in the following thread #SWFC

As a technical point, it’s worth noting that #SWFC have changed their accounting close date from May 31st to July 31st, so the 2017/18 accounts covered a 14 month period, meaning a small £1.2m increase in turnover, but an additional 2 months of expenses.

#SWFC swung from a £20.8m loss to a £2.6m profit, entirely due to £38m once-off profit from selling the Hillsborough stadium. Revenue was only up £1.8m (8%) to £25.2m, while expenses surged £18m (41%) to £63m. Profit on player sales rose £1.7m to £2.3m.

The main reason for #SWFC £1.8m revenue increase was extending the financial year by 2 months, which was worth £1.2m. Match day rose £0.6m (6%) to £10.5m, broadcasting was up £0.7m (10%) to £7.6m and commercial was £0.6m (9%) higher at £7.1m.

Note that #SWFC do not separate match day and broadcasting in their club accounts, but only report an increase of £1.3m (8%) from £16.8m to £18.1m in “match receipts & associated turnover”, so I have estimated these based on previous years’ figures and those of similar clubs.

#SWFC wage bill shot up £13.1m (45%) from £29.3m to £42.4m, while player amortisation also rose £4.8m (77%) to £10.9m, reflecting significant investment in the playing squad. Depreciation increased £0.4m (39%) to £1.3m.

As a result of their fancy financial footwork, #SWFC were one of only 6 Championship clubs to post a profit. Not only is this a loss-making division, but no fewer than 9 clubs lost more than £20m, including huge losses at the promoted clubs: #WWFC £57m, #FFC £45m & Cardiff £39m.

#SWFC only made £2.3m profit on player sales, though, in fairness, few Championship clubs make big money from player trading, except those relegated from the Premier League, who have better players to sell: #NCFC £48m and #HCAFC £31m.

#SWFC sold their stadium for £60m, which gave a £38m gain over the £22m value in the books. If this transaction were excluded, they would have reported a large £35m loss. Similar to #DCFC: £40m profit, based on higher £81m valuation of their stadium.

It is not completely clear who bought the #SWFC stadium, but it must have been one of the owner’s companies, based on £61.3m income in the Related Party transactions note. No cash received yet with all money shown in Debtors (£7.5m within a year, implying payment over 8 years).

#SWFC have consistently lost money, only reporting a profit once in the preceding nine seasons. Underlying losses have been rising since the arrival of owner Dejphon Chansiri, aggregating £66m over the last 3 years: 2016 £10m, 2017 £21m and 2018 £35m (excluding stadium sale).

As Chansiri explained, “Normally a business will think of profit first, but if we want to stay in this division and also have a chance of promotion, this is impossible.” In fact, before 2018 the last time #SWFC made money was 2011, only due to the former owner waiving £21m debt.

Profit on player sales can also improve the bottom line, but this has not been a big money-spinner at #SWFC. While the 2018 profit of £2.3m was the highest since 2008, these were the only 2 occasions in the last 11 years that they reported profits from this activity above £2m.

Of most concern is #SWFC EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation), which strips out player sales, exceptional once-off revenue and non-cash items to give underlying profitability. This has steadily declined from £(4)m in 2015 to £(25)m in 2018.

In fairness, only four Championship clubs managed to achieve positive EBITDA in 2017/18, but #SWFC £(25)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.

#SWFC revenue rose £1.8m (8%) from £23.4m to a record £25.2m in 2018, though £1.2m of the increase was due to extending financial year by 2 months. This is 69% (£10.3m) higher than £14.9m in the first season back in the Championship in 2013 with growth in all 3 revenue streams.

Despite the increase, #SWFC £25m revenue was still only 13th highest revenue in the division, i.e. mid-table. To place this into perspective, they were around £40m below the leading Championship clubs, such as #AVFC £69m, Sunderland £64m, #Boro & #NCFC £62m.

As Chansiri observed, “The Championship is incredibly competitive and gets stronger and stronger each year with the parachute money from the Premier League clubs.” This leads to a huge revenue disparity with 8 clubs benefiting in 2018, led by #Boro, #HCAFC and #SAFC £42m.

If parachute payments were excluded, #SWFC £25m would have moved up to the 9th highest revenue in the Championship, around the same level as #SAFC, #WWFC, #FFC and #BCFC. However, they would still be around £15m behind #LUFC £41m and #AVFC £39m.

#SWFC (estimated) TV income rose £0.7m (10%) from £6.9m to £7.6m, due to higher central distributions (PL solidarity payment £4.5m, EFL payment £2.3m). The huge amounts in the top flight (£95-150m) explain why so many clubs spend big in pursuit of that prize.

#SWFC accounts do not separate match day income, but this can be estimated at around £10.5m, which would be £0.6m (6%) higher than 2017. Although average attendance fell by 5%, there were 3 more home games. This was 3rd highest in the Championship, only below #AVFC and #LUFC.

#SWFC average attendance fell from 27,306 to 25,939, but this was still the second highest since 1999 (when they were in the Premier League). There was a steep increase in #SWFC ticket prices in 2015/16 “to help achieve our ultimate aim of promotion”, but frozen for last 3 years.

#SWFC had the 8th largest crowds of 25,939 in the Championship in 2017/18, as #AVFC 32,097 and #LUFC 31,521 led the way. In fact, their attendance was actually higher than no fewer than seven Premier League clubs.

#SWFC commercial income rose 9% (£0.6m) to £7.1m, partly due to the benefit of two additional months in the accounting period. However, this is no great shakes in the Championship, i.e. a third of #LUFC £22m and around half of #AVFC and #NCFC £13m.

#SWFC owner Dejphon Chansiri provided £1.266m sponsorship “relating to the club shirt and certain areas around the stadium”, up from £1.2m the previous season. Wednesday manufacture their own kits under the ‘Elev8’ brand owned by Chansiri.

One striking aspect of the #SWFC accounts is the huge increase in the wage bill, which shot up 45% (£13m) from £29m to £42m with the number of employees up 28 to 302. Even if we adjust wages from 14 to 12 months, there would be a £7m (24%) increase to £36m.

Based on the reported figure of £42m, #SWFC had the 7th highest wage bill in the Championship (10th if we use the pro-rated 12 months £36m). Either way far below #AVFC £73m and #Boro £49m. The promoted clubs (#FFC £54m, #WWFC £51m & Cardiff £48m) included large promotion bonuses.

#SWFC wages to turnover ratio increased from 126% to 168%, which was the 4th highest (worst) in the Championship. Although over half the clubs in this division have ratios above 100%, this is clearly not great (though lower than #BCFC 202%, Reading 197% and #WWFC 192%).

My expectation is that #SWFC will have similar issues with their wage bill in the 2018/19 accounts, but have started to do something about it this summer by releasing some high earners, e.g. Pudil, Boyd, Abdi, Matias, Jones and Hooper, albeit for no transfer fees.

#SWFC total directors’ remuneration increased from £152k to £201k, the 10th highest in the Championship, though a long way below #SAFC £2m, Cardiff £1.4m, Reading £1.4m and #FFC £1.2m. Presumably shared between John Redgate and Katrien Meire (from January 2018).

#SWFC player amortisation, the annual charge to write-down transfer fees over the life of a player’s contract, rose 77% from £6.2m to £10.9m. This has shot up from less than £1m in 2015, as the club has splashed the cash in an attempt to win promotion to the Premier League.

Following this growth, #SWFC player amortisation of £11m was the 7th highest in the Championship, though still les than half of (relatively) big-spending clubs like #Boro and #AVFC, both £24m.

#SWFC spent £13m on players in 2018 (mainly Jordan Rhodes and Joost van Aken), though they were significantly outspent by #Boro £66m, #FFC £31m. #LUFC £28m and #WWFC £25m. Owls’ change of strategy shown by £37m spent in last 3 years compared to just £4m in preceding three years.

On a cash basis #SWFC gross transfer spend has really increased since Chansiri’s takeover, rising from £1.3m annual average in the 4 years up to 2015 to £9.3m in the last 3 years. However, since then spending impacted by soft transfer embargo imposed by EFL for breach of rules.

#SWFC gross debt increased by £41m to £79m, almost all (£77.7m) owed to Chansiri, as opposed to banks, with “no set repayment or interest terms”. Previous debt was cut by converting £23m into share capital in 2015 and former owner waiving £21m in 2011.

In addition, #SWFC would have to pay £5.9m loyalty bonuses to certain players if they are still at the club on specific dates, which makes it more difficult to sell these players to raise funds. Another £1.3m would become due if the club is promoted before 31st May 2021.

Following the steep increase, #SWFC debt of £79m was the 3rd highest in the Championship, only surpassed by #Boro £101m and #ITFC £95m. The debt has steadily risen from less than £5m just 3 years ago.

In fairness, the debt is not an issue – so long as Chansiri continues to provide financial support. Like most Championship clubs, no interest has been charged, so #SWFC (lease) interest payment was only £73k in 2018. In fact, only 5 clubs paid more than £1m that season.

#SWFC cash balance was largely unchanged at £2.1m, firmly in the bottom half of the Championship. That said, only 4 clubs held more than £4m cash: #NCFC £16m, #SAFC £11m, #FFC £9m and Barnsley £6m.

#SWFC made a cash loss of £27m in 2018, as no money was received for the stadium sale, then spent a further £13m net on player purchases. This was covered by Chansiri increasing his loan by £40m.

Since Chansiri bought #SWFC from Milan Mandaric in February 2015, he has provided £103m of funding. This has been mainly used to cover £51m operating losses, while £26m was spent on players, £17m paid off old loans and £4m invested in infrastructure.

So Chansiri has pumped around £107m into #SWFC, comprising loans £78m, share capital £26m and sponsorship £3m, plus £60m commitment for the stadium sale. In addition, £21m of shares was issued in September 2018 as part of new Holding Company, though unclear if cash transaction.

#SWFC met the EFL’s FFP rules, but only after including the £38m profit on stadium sale. Previously, Chansiri had advised a fans’ forum, “We didn’t just break (the rules) a little, we broke them a lot – eight figures.”

FFP allows a maximum £39m loss over 3-year period. #SWFC reported losses were much lower at £18m, after allowable exclusions for academy, community & infrastructure. However, if £38m stadium profit were excluded, the FFP loss would have been £17m.

While #SWFC creative accounting (within the rules, to be clear) solved FFP for 2017/18, this might just be deferring the problem. If we assume same level of losses in 2018/19, adjusted for stadium sale and 14-month accounting period, they would be close to the limit (£3m below).

#SWFC auditors noted material uncertainty about club’s ability to continue as going concern, though Chansiri confirmed financial support for at least next 12 months. Basically, the club will be OK if he keeps putting in cash.

However, there are some questions about #SWFC ownership, as Chansiri said that he was putting the club up for sale in December 2018. In June 2019, the club became a wholly owned subsidiary of Sheffield Wednesday Holdings Limited, registered in Hong Kong, though owned by Chansiri.

#SWFC have twice reached the play-offs in the last four seasons, but this was built on Chansiri’s funding. In fairness, this approach is understandable, given the difficulties of competing with clubs benefiting from parachute payments, but it has caused problems with FFP.