Manchester City following in Pompey’s footsteps

Manchester City’s financial results, published earlier this week (1), were generally reported uncritically earlier this week, notwithstanding the key loss of £121m, with the exception at least of The Sun (2), where there was some attempt to look beyond the positive headlining provided by the club.

According to the club, the financial highlights could be summarised in large font size thus:

We have reported revenues in excess of £100m with a 44% rise in turnover to £125.1m…
Corporate partnership revenue increasing by £25.9m to £32.4m…
Ticket revenues increasing by £2.8m (18.6%) to £18.2m…
Season ticket revenues up by £0.9m to £9.6m…
Television rights fee income increasing by £5.7m (11.8%) to £54m…
Matchday hospitality revenue growing by 0.7m (13%) to £6.1m…
Retail sales and merchandising revenue increasing by £2.9m (60%) to £7.9m

Excellent news indeed, but then we find in much smaller font size that the club is report ing a net loss (and there was me beginning to think they had forgotten about costs) of £121.3m. Apparently “there have been significant increases in both player and non-player wage costs which have only been partially offset by substantial growth in the club’s commercial and other revenues”

Or to put it another way, the club itself can’t afford the players but its benefactor can.  Search the report for the word ‘debts’ and you will be out of luck however.  Sheikh Mansour is following the Abramovich route and converting debts to equity, and on a scale that invites comparison with Chelsea:

The financial foundations upon which the Club operates have been strengthened with the conversion into equity of £304.9m in shareholder loans.  A further £135.8m of new equity was issued during the financial year and post year-end a further £53.2m of new equity was issued. As we continue to invest in all areas of the Club, we do so virtually debt free – with only £36m of long term commercial bank debt following the conversion of shareholder loans into equity during the year.

So, there you have it – well over £400m injected with a loss of £100m.  Not quite so encouraging then.

In the smaller print financial data towards the back of the report we find that the aggregate payroll costs have risen from £82.6m to a rather worrying £133.3m – or, as the club like to present data, a rise of 61%.  Turnover had risen from £87m to £125m, meaning that the wages/revenues ratio had risen from 94.9% to 106.6%.

Which is where the reference to Portsmouth comes in.  Deloitte point out that for the Premier League clubs en masse the wages /revenues ratio has risen to a worrying 67% (3), but this rather hides the variance individual clubs have.  Here are the ratios over five seasons:

		04/05	05/06	06/07	07/08	08/09	5 seasons’ Average	Ratio for whole 5 seasons
Manchester Utd.		48.3	50.9	43.5	47.1	44.2	46.8	46.4
Tottenham		47.0	54.8	42.5	46.7	55.4	49.3	49.2
Arsenal		57.4	62.4	50.5	48.4	46.4	53.0	51.7
Liverpool		52.5	56.6	57.9	55.1	58.0	56.0	56.2
Bolton		47.9	52.1	60.2	66.1	68.9	59.0	59.4
Everton		51.4	63.6	74.7	58.8	61.6	62.0	61.5
Middlesbrough		55.7	n/a	79.6	72.5	58.7	66.6	66.0
Sunderland		64.0	44.1	90.1	58.3	76.7	66.6	65.6
West Bromwich		57.4	57.3	73.4	79.9	65.4	66.7	65.4
Manchester City		61.9	55.6	63.9	65.9	94.9	68.4	70.3
Newcastle Utd.		57.7	62.8	65.1	78.6	85.2	69.9	70.2
West Ham Utd.		63.7	51.9	75.8	79.7	91.1	72.4	74.7
Aston Villa		64.2	78.1	81.9	66.7	83.7	74.9	75.2
Chelsea		73.1	74.6	69.7	80.6	80.1	75.6	76.0
Hull City		57.3	61.7	76.7	129.0	65.8	78.1	74.0
Fulham		85.8	80.4	88.6	73.3	69.0	79.4	77.9
Blackburn		75.8	76.9	84.8	70.3	90.6	79.7	79.5
Stoke City		65.2	88.6	88.1	105.9	55.6	80.7	68.6
Portsmouth		69.5	66.0	89.6	76.4	108.8	82.1	83.9
Wigan Athletic		208.3	58.3	100.3	88.3	89.9	109.0	87.5

[Developed from data in Appendix 7 of Deloitte (2010); annual values of over 100% highlighted]

Only five clubs have been operating within the 60% limit generally advocated as good practice.  These include three of the so-called ‘big four’ of English football (Arsenal, Liverpool and Manchester United, but not Chelsea), who have the highest wages and revenues, thus skewing the average for the whole league.  Just over half the clubs have wages. revenues ratios of over 70%, with worst practice at Wigan Athletic, with a five-seasons ratio of 87.5%.  Among the data are some particularly worrying examples of ratios above 100% – Wigan with 100.3% in season 2006/07, Stoke with 105.9% in 2007/08, Portsmouth with 108.8% in 2008/09, Hull with 129.0% in 2007/08, and Wigan again with an amazing 208.3% in 2004/05.

Such figures are clearly unsustainable without the ‘bankrolling’ of a benefactor, and by any interpretation constitute financial doping.

[Normal service should now have been resumed.  I’ve moved office and buildings, and largely unpacked.  My laptop has been sorted with a new hard drive – all data recovered, but still some non-standard software to install.  Fingers crossed, and on a new back-up schedule!]