Thread by @SwissRamble

Southampton’s 2018/19 financial results covered a “second consecutive difficult season” when they finished 16th in the Premier League. Manager Mark Hughes was replaced by Ralph Hasenhüttl in December 2018. Some thoughts in the following thread #SaintsFC

#SaintsFC went from £35m pre-tax profit to £41m loss, a swing of £76m, mainly due to profit on player sales decreasing by £48m from £69m to £21m (Virgil van Dijk sale prior year). Revenue also down £3m (2%) to £150m, while expenses grew £25m. After tax, £29m profit to £34m loss.

#SaintsFC £3m revenue fall was driven by broadcasting’s £4m (4%) decrease from £117m to £113m, mainly due to fewer Premier League shown live. Match day was also down £2.2m (11%) from £19.2m to £17.0m, but commercial rose £3.4m (21%) from £16.4m to £19.8m.

#SaintsFC wage bill was £2m (2%) higher at £115m, but player amortisation/impairment rose £17m (45%) to £53m. Other expenses were £5m (16%) higher at £38m and net interest payable was up £1.3m to £1.7m.

#SaintsFC £41m loss before tax is actually the third highest to date in the 2018/19 Premier League, only surpassed by #EFC and #CFC, but their numbers were significantly worse (over £100m). It is true that half the clubs in the top flight lose money, but this is not great.

The main reason for #SaintsFC decline in profitability is profit on player sales falling from £69m to £21m, mainly Gabbiadini to Sampdoria, Tadic to Ajax & Targett to #AVFC. This was still 7th highest in the Premier League, though only around a third of #CFC £60m and #LCFC £58m.

#SaintsFC managing director Toby Steele explained, “This year we wanted to sell a few more players. The fact is we have five players out on loan that we couldn’t sell, but had we managed to do that before the end of the year, then that profit would have been perfect.”

Player trading has been a key part of the #SaintsFC business model. In the last 5 years, they made a hefty £205m profit from this activity with only #CFC £332m and #LFC £306m ahead of them. For more context, #AFC, #MCFC and #MUFC only made £170m, £147m and £69m respectively.

#SaintsFC loss in 2019 came after five consecutive profitable years, worth £126m in total, including £42m in 2017 and £35m in 2018. Between 2006 and 2013 they reported (smallish) losses in League One, the Championship and the first season back in the Premier League.

From 2014 #SaintsFC have averaged £39m a year from player sales, mainly selling to Liverpool (van Dijk, Lallana, Lovren, Lambert, Clyne & Mané) and Man Utd (Shaw & Schneiderlin). Next year will be lower, only including Sam Gallagher and Charlie Austin to date.

#SaintsFC EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation), which can be considered as a proxy for cash operating profit, as it strips out player sales and exceptional items, slumped from £6m to £(4)m, though this has improved from £(16)m in the Championship.

Following this decline to £(4)m, #SaintsFC are one of only three clubs in the Premier League to report negative EBITDA, only “beaten” by #EFC £(15)m and #LCFC £(6)m. For some perspective, #MUFC generated an incredible £186m here.

#SaintsFC revenue has now fallen two years in a row from the £182m peak in 2017 to £150m in 2019, mainly due to less TV money (absence of Europa League £13m and lower finishing position in Premier League), though match day has also dropped £5m (24%).

#SaintsFC revenue of £150m is 13th highest in the Premier League, just behind #CPFC £154m, though the gap to the Big Six is enormous - almost a quarter of a billion to 6th placed #AFC.

#SaintsFC have dropped out of the top 30 in the Deloitte Money League, which ranks clubs globally by revenue. They were 23rd the previous year and as high as 18th in 2016/17. That said, they were only £4m below the 30th placed club.

#SaintsFC Premier League TV money fell £3m from £107m to £104m, largely due to £7m lower facility fee, as only shown live 8 times against 16 in 2017/18 (though paid for minimum 10). Partly offset by £2m higher merit payment (finished 1 place better) and £2m more overseas rights.

Although a substantial 75% of #SaintsFC revenue came from TV (£113m out of £150m), this is far from unusual in the top flight and is only the 10th highest reliance in the Premier League. Furthermore, it should be noted that no fewer than 13 of the 20 clubs are above 70%.

#SaintsFC match day revenue fell £2.2m (11%) from £19.2m to £17.0m, their lowest since 2013, as they had 1 home game less and attendances dropped from 30,794 to 30,139. Income is now 10th highest in the Premier League, overtaken by #BHAFC last season.

#SaintsFC average attendance of 30,139 was 14th highest in the top flight, though this is the lowest crowd since the club were last in the Championship in 2011/12. The club has tried to address this by reducing ticket prices for two-thirds of season ticket holders in 2019/20.

#SaintsFC commercial income rose £3.4m (21%) from £16.4m to £19.8m, mainly due to higher sponsorship and more revenue from non-match day conferencing and events. Less than a fifth of sixth-placed #AFC £111m, but also way below clubs like #WWFC £28m and #LCFC £36m.

#SaintsFC have signed a club record shirt sponsorship deal (reportedly £7.5m a year) with Chinese company LD Sports in 2019/20, replacing Virgin Media, who remain sleeve sponsor. They also have a 7-year kit supplier partnership with Under Armour, which started in 2016.

#SaintsFC wage bill slightly increased by £2m (2%) to £115m, though this disguised a reduction in underlying wages, as bonuses based on final league position rose. Wages have grown by less than £3m in last 2 years, but wages to turnover up from 62% to 77%, due to revenue fall.

#SaintsFC £113m wage bill is 11th highest in Premier League. Steele observed, “We have underperformed in terms of the salaries we have been paying”, e.g. 7th placed #WWFC wages were £23m lower. Unclear whether wages include compensation paid to Mark Hughes after his sacking.

The increase in #SaintsFC wages to turnover ratio to 77% means that this is the 5th highest (worst) in the Premier League of clubs that have reported to date, though a fair way below #EFC 85%, #AFCB 85% and #LCFC 84%. However, it is above UEFA’s recommended 70% maximum limit.

#SaintsFC directors remuneration doubled from £1m to £2m with the highest paid director, presumably former chairman Ralph Krueger, seeing his pay increase from £636k to £728k. Relatively low for the Premier League, especially compared to #THFC £7m and #MUFC £3.2m.

#SaintsFC player amortisation, the annual charge to write-down transfer fees over the life of a player’s contract, rose by £14m (39%) from £37m to £51m, up from just £3m in the Championship in 2012. Also a £2.3m impairment charge to reduce the value of certain players.

Despite the steep increase, #SaintsFC player amortisation of £51m is around mid-table in the Premier League, just behind #WHUFC £57m. For some perspective, it is less than a third of big-spending #CFC £168m.

#SaintsFC spent £67m on player purchases in 2018/19 (including Armstrong, Elyounoussi, Gunn, Vestergaard and Ings), which means £338m in total over last 5 years. Still firmly in bottom half of Premier League table, way below likes of #CFC £281m, #LFC £223m and #EFC £146m.

On a cash basis, #SaintsFC have averaged £6m annual net sales in last 4 seasons, compared to net spend of £24m in the previous 3 seasons. This is mainly due to average sales significantly increasing from £13m to £63m, while gross spend only rose from £36m to £58m.

#SaintsFC gross debt was cut from £37m to £32m, comprising £20m drawn from £35m working capital facility (fully repaid after the accounts) and £12m bank loan repayable in 2 equal instalments. The previous shareholder loan was converted to equity in the prior season.

#SaintsFC £32m gross debt is one of the lowest in the PL, which Steele described as “really healthy”, especially as 9 clubs owe more than £100m: #THFC £658m lead the way (new stadium), followed by #MUFC £511m, #EFC £337m, #BHAFC £280m and #AFC £209m.

#SaintsFC paid £2.0m interest, up from £1.2m. This was nowhere near the highest in the Premier League, though many owners do provide their clubs with interest-free loans. The working capital facility has a 3.9% interest rate, while the bank loan is at 1.065%.

Worth noting that #SaintsFC also owe £90m transfer fees (stage payments), of which £47m is due in less than a year. There is £26m owed by other clubs, so net payable is £64m. In addition, £26m contingent liabilities potentially payable, mainly dependent on player appearances.

#SaintsFC generated £9m cash from operations, then spent £8m (net) on player purchases, £3m on capital expenditure (including new floodlights and LED boards at the stadium) and £2m interest, while repaying £6m of bank loans.

As a result, #SaintsFC cash balance fell from £57m to £47m, the 5th highest in the Premier League, only below #MUFC £308m, #AFC £167m, #MCFC £130m and #THFC £123m. However, this was partly due to the timing of transfer fee payables, which were made after year-end.

No owner funding for #SaintsFC in the last 4 years, which is a big change. Instead, generated £48m from operations and £22m from (net) player sales. Invested £17m in infrastructure, repaid £13m owner loans and made £9m interest payments. Cash balance rose £32m.

Owner Gao Jisheng has not invested any money into #SaintsFC, as he wants it to be self-sustaining. There were media reports that the Chinese businessman was interested in selling the club, but he has denied this, “I am not treating Southampton as a pig to be fattened and sold.”

#SaintsFC have reacted to the COVID-19 crisis by the first team, coaches and board deferring 10% of their salaries for 3 months (April, May and June). Other staff will continue to receive full pay until end-June.

On the pitch, there have been encouraging signs under Hasenhüttl, but these financial results highlight how much #SaintsFC business model has been reliant on player trading. Almost all of the huge swing from profit to loss was due to lower player sales and higher amortisation.