Financial results 20-21

 Financial results 20-21

Palace vs Arsenal 19 May 21

Quick Summary

•  The club made a loss of £42.8 million before tax

•  Would have made a loss even if COVID didn’t happen

• As the club estimated it reduced income by £13 million

•  Wages and amortisation of 121% of turnover,

•  UEFA replacement of FFP wants clubs to lower that down to 70%

• Other costs are 17% of turnover

• To make a break-even the club would need to sell £52 million worth of player registrations

• The net book value of players registrations is down to £35 million, due to low spending in recent seasons,

• Net book value is the cost of transfer fees not yet hit the P&L.

• This cleared space on P&L for a spending spree last summer

• Still waiting for WBA numbers but only two teams in Premier League made a profit 

• Total Revenue Palace are 4th or 5th Bottom

• 11th on wages in the Premier League

• Take that with a pinch of salt as Palace are reporting on 11 months and other are reporting 12 months.

• P&L is not cash in the bank

Statutory Accounts

Now for some details. Palace like to wait until the last minute before publishing company accounts. I worked for a company that would release these reports soon as possible if they were good news and release them as late as possible if they were bad news. I do wonder if the club had great results if Palace would still be one of the last to release them. Statutory accounts are helpful to outsiders to gain knowledge of another company. This information is one of the sources to create the club's credit score. Companies also have a credit score; a bad score can lead to shorter payment terms and less likely to get discounts or favorable terms, especially if it's a new relationship.   Football clubs are high-profile businesses so this is less important. Also, side note if you're going for an interview download the company accounts. If it's a finance job then I would drop into the interview conversation that I know they will be busy during the year-end month. 

Other football clubs can use statutory account information to create benchmarking exercises. They can compare transfer spending and wage costs. That will be used to measure prior performance. Even clubs like Forest could use our wages data as a guide to creating their budget for next season.

Harris and Blitzer

This is the last set of results before Textor's investment. So the Harris and Blitzer Palace era has lost £149 Million over 5 years. An average loss of just under £30 million each season. Just under £25 million of those losses are related to Covid according to Palace estimates. Since they investest Palace hasn’t had a season when the wages and amortisation were lower than turnover. That makes it very difficult for the club to break even. This means that to break even all other costs must be covered by transfer fees. 

Cpfc Hold co	20-21	19-20	18-19	17-18	16-17	Total	Average
Gate Receipts	247	8,574	10,602	10,235	10,609	40,267	8,053
Sponsorship and advertising	10,722	12,107	10,895	9,438	6,432	49,594	9,919
Broadcasting	117,344	112,830	124,368	121,154	116,928	592,624	118,525
other commerical activities	2,890	6,213	7,231	6,441	5,449	28,224	5,645
other income	3,180	2,623	2,308	3,078	3,317	14,506	2,901
Turnover	134,383	142,347	155,404	150,346	142,735	725,215	145,043
Amortisation of player	36,454	43,386	49,852	46,034	34,059	209,785	41,957
Amortisation of goodwill	1,092	1,289	1,190	1,190	1,190
Impairment			2,341			2,341	2,341
Depr of tangible fixed assets	2,649	3,477	3,593	4,049	3,736	17,504	3,501
Staff Costs	127,002	132,643	119,295	117,328	111,801	608,069	121,614
Other operating charges	17,097	21,548	19,627	20,690	21,330	100,292	20,058
Total operating exp	184,294	202,343	195,898	189,291	172,116	943,942	188,788
Profit on disposal	9,571	539	46,181	2,437	8,026	66,754	13,351
Other operating income					7,918	7,918	7,918
Operating P/L	-40,340	-59,457	5,687	-36,508	-13,437	-144,055	-28,811
Interest Receivable	12	95	49	11	14	181	36
Interest Payable	-2,497	-1,725	-3,110	-1,666	-1,559	-10,557	-2,111
Profit / Loss before Taxation	-42,825	-61,087	2,626	-38,163	-14,982	-154,431	-30,886
Taxation	144	351	-17	2,296	2,709	5,483	1,097
Total comprehensive income for the year	-42,681	-60,736	2,609	-35,867	-12,273	-148,948	-29,790

Also very similar when looking at the percentage of wages over turnover which was 95%. UEFA says it’s a red flag if your club has over 70%. If we use adjusted turnover to remove covid-related reductions from turnover. This makes the statistic 86%. Back before covid in 18-19 season; only three clubs were in the 80's% and none of them were as high. Little unfair as that season Palace was 76% and the league might be increasing as a whole. As so many senior players have left I would expect this number to be reduced for the season just gone. 

The Palace under the Americans is not built to break even. They have been at the club for five full seasons that we have access to statutory accounts. If you want to criticise them for Chelsea bid then that’s fair, but looking at the accounts for over the last five seasons. I cannot criticise them for being tight or not spending money. When they first arrived the club spent more than its means. In one season Palace spent £104 million. That caused problems later on as the cost was spread over the contract of the players. Without player sales (how Chelsea used to handle this issue) the club has to reduce transfer spending to stay within FFP. If want to read more about this follow this link

If they thought buying a football club was a good way of making money then it would be Apollo and Blackstone that would be investing in sports teams. The way that I see their funding Palace is like a rich man's gambling account. If there is football on and I don't have any stake in the game I would put a bet for one team to win to make it more interesting. They buy a stake in Palace and now going to Selhurst's padded seats is more interesting than just attending without a stake. Textor has mentioned weekly conference calls to discuss the club and put across ideas but that was before the Chelsea drama. I am sure like Gambling they hope to make money. Even though there has been large losses they can still get a profit as the price of a Premier League team increases.

Sponsor and advertising

One part of turnover that has increased solidly. Is the “Revenue from all sponsors, Partnerships, and other advertisements”.The first season was £6 million and peaked in 19-20 with £12 million. If it was not for COVID this would probably still be growing. Doubling in four years. A large chunk of this will be gambling shirt sponsors. ManBetX became the shirt sponsor in 17-18. That year saw a £3million increase. I am going to assume that Cinch is not going to pay as much as W88. But I think it would be unfair to say that it’s only from shirt sponsors that this revenue line has increased so much. The Palace has improved a lot as a commercial entity. Look at all the partnerships on the main club website when you scroll all the way to the bottom. Feels like they add a new one every month or so. 

Covid

When I did my first blog I estimated the impact of Covid for the 19-20 season. I was estimating a much harsher reality. I am a financial accountant, so I always expect the worst and estimate costs high. The Premier League has done well to keep the rebate as low as £8 million for Palace. I had an estimated £11 million domestic and £5 million international. I think that extra games for the domestic TV providers really helped. Lockdown football was rubbish but might pushed subscriptions as fans where desperate for some thing to watch. That said pubs wouldn’t be open and pay on average 15k a year for subscriptions. 

TV Spots

In a normal season being selected for domestic TV means that receive an extra payment as part of the TV deal. These are call facility fees and are worth around £1.2 million per match. The reason I am mentioning this is that in that season it was 14 games which three games fewer than season before. In the last weeks of the season, people like to mention the difference in positions. But Palace lost 3.6 million Year on year due to being selected less. Sky and BT know that Palace are now fun. The season just finished the club was Monday night box office. Now going forwards we should be on TV more regularly. That should increase the clubs broadcast revenue.

Contingent Transfer Fees

Right the geekiest thing that we are going to look into in this article. £2 million was reduced from the total cost of players. This was a reversal of contingent transfer fees. Let's take a step back. In accountancy when it comes to costs you have be prudent. So if it’s probable that a cost will happen then it should be reported in the P&L for that year. So what happened was a cost related to transfer fee was probable in 19-20 and unlikely or impossible in 20-21. So they reverse out that £2 million. I do wonder which transfer deal this was. This transfer-related cost could be related to milestones so the player playing X number of games or something similar. But what it cannot be is a percentage of transfer profit as that is reliant on transfer happening and that is not probable. Another thing there is a note on the accounts are possible add-on fees that are not probable. It was £6 million in 20-21. I do wonder if any of those are for qualifying for Europe or player winning ballon d'Or. I hope there are some outlandish ones.

On the last thing almost; in 19-20 Palace expected to earn £5 million in addons for players that left. As this income then to be prudent they can only report it’s certain that your receive that income. There isn’t a figure like that for 20-21 so I hope that it happens and was included in the 10 million profit on disposal. That’s the thing with statutory accounts. It raises more questions and curiosities. I now want to dig into the detail but I cannot.

Future

The Palace has been running at a loss for a while. Part of that is the need to stay in the league. If I was running a football club I would be looking to break even. I would run at something like 20 million lost a year but sell an average of £20 million each year. (Hopefully a £60 million player every 3 years). Palace has a bit of a clean slate now the amortisation is down and I would assume the wages are lower currently than before as the marquee signings have left. This off-season ownership could play it cautiously; plan to only lose a little. They could double down and chuck money at the squad again and try for Europe. But if they fail it could put Palace in a sticky position like when Roy took over.