Parachute softens relegation blow, but with strings attached
CARDIFF City’s ride in the Premier League lasted only one season, narrowly being consigned to relegation in their penultimate game of the campaign, writes Glen Williams.
Then-manager Neil Warnock splashed out on a number of key signings ahead of the campaign, but ultimately it wasn’t enough to keep the Bluebirds afloat.
Financial accounts Cardiff City have just released highlight the astronomical surge in income but, with that, comes a dramatic rise in operating costs and player wages.
Here, we look at the key takeaways from the club’s latest accounts...
REVENUES
FOLLOWING promotion, the Bluebirds’ income almost quadrupled to £122.5m (£32.8m in 2018), such is the financial pull of the Premier League.
Cardiff raked in the vast majority of that, £107m, in broadcasting and commercial distributions, another sharp rise from the £21.5m they earned in 2018.
Gate receipts and match-day income also rose to £7.9m (£5m in 2018) across the course of last season. Of course, broadcasting revenues and gate receipts – the average attendance being roughly 10,000 lower each game – will fall dramatically once again for this current season in the Championship.
However, chairman Mehmet Dalman alludes to the fact that parachute payments this year – this is worth 55 percent of broadcasting revenue, so roughly slightly over £40m, it is thought – will cushion the blow of relegation to the Championship.
“We will undoubtedly face challenges following our return to the Championship in balancing the change in our revenue,”he said.“Albeit softened by the receipt of parachute receivables, with our aim to challenge for an immediate return to the Premier League.”
FINANCIAL LOSS
THE Bluebirds recorded a gross profit of £2.6m, which, after tax, equated to an overall net loss of just £755,000, a seismic improvement on the £36m net loss for the 2018 year.
Crucially, however, the slight loss recorded for 2019 includes a £19.5m provision for the purchase of Emiliano Sala, which the club are confident they will end up not paying, as the legal dispute between them and Nantes rumbles on, meaning we could consequently see an improvement in reported financial results.
Should Cardiff’s appeal, which is set to be decided by the Court of Arbitration for Sport, be successful, it would see them surge into profit for last year.
“The 2018-19 season will always be remembered for the tragic death of the young and talented player Emiliano Sala,” Dalman said.
“His death has shaken the football world and has posed many questions around the safety aspects of the football industry. Our thoughts are with Emiliano’s family and the unimaginable pain they must be suffering.”
It should also be noted that the club’s 2018 loss was greatly slashed to just £9m after accounts were filed following a £27m revaluation on the club’s Cardiff City Stadium. Consequently, the above loss means the club’s net liability worsened slightly from £10.7m to £11.5m.
But, with both the stadium revaluation and the Sala provision in mind, it highlights the importance of the Premier League’s financial clout for Championship clubs.
The Premier League season also saw the Bluebirds’play-related wage bill rise drastically from £31.2m to £42.5m, as can be expected with the larger wage packets in the top flight.
The rise in the wage bill came after some big-money signings, which included permanent deals for Josh Murphy, Bobby Reid, Greg Cunningham, Alex Smithies and Leandro Bacuna, while loan signings Harry Arter, Oumar Niasse and Victor Camarasa will have propped up the wage bill further.
That would have been marginally offset by the few players, such as Matty Kennedy, Lee Camp and Anthony Pilkington leaving ahead of the season, but those numbers would have been negligible. One would think that now that £42.5m wage will have been dramatically reduced once again. Reid has left, while Arter, Niasse and Camarasa did not sign new deals at City.
Neil Harris has also greatly reduced the squad size, allowing seven players to leave in January, including a termination of Gary Madine and Lee Peltier’s contracts, likely two hefty earners, whether they be permanent moves or loans, and brought in three players on short-term loan deals.
We have also learned that eight academy players will leave the club at the end of their current deals, too, which will reduce the wage bill going forward.
PLAYER TRADING
AS was expected, the Bluebirds made a huge loss on player sales during the last financial year.
They invested £38m into the squad in both the summer and winter windows during the Premier League season, on the players mentioned above, making next to no profit on any players sold.
In fact, every Cardiff City sale during that time was a free transfer, while a number of players went out on loan.
Expenditure on new players this season has been £23.1m, too, with Robert Glatzel, Aden Flint, Will Vaulks, Marlon Pack, Joe Day, Gavin Whyte and Curtis Nelson all coming in during last summer’s window. But the numbers are expected to even out slightly when the next accounts are published, with the sales of Kenneth Zohore, Bobby Reid,
Bruno Manga greatly helping in clawing back that expenditure.
We are likely to see a further reduction in players in the summer, too, to go along with Peltier, Madine, Armand Traore and Brian Murphy’s permanent exits in January.
AMORTISATION AND IMPAIRMENT
CARDIFF’S transfer market dealings were reflected in the club’s annual amortisation charge rising by £10m from 2018 to £15.2m.
Amortisation is the non-cash charge clubs use to reflect the purchase of assets that have a long shelf life – like the contract.
The cost of acquiring players is spread out over the contract and recognised in an annual‘charge’every year that is unrelated to the actual cash need to buy the contract.
City’s £10m rise in amortisation costs is largely due to player acquisition costs being far higher in recent years than in previous seasons. That figure, of course, is a direct result of the big-money signings mentioned above and will almost definitely be far lower when the next set of accounts are published.
Meanwhile, the Bluebirds also recorded a non-cash impairment charge of £11.6m, the accounting process of recognising that the value of a player on a club’s books is not recoverable to some or full extent.
This was a dramatic decline on the previous season when the impairment charge was zero. This figure would, for example, include an allowance for the termination of Madine’s contract.
Overall, amortisation and impairment costs rose dramatically to £27m, compared to those of just £5m in 2018.
LOANS, OVERDRAFTS AND FUNDING
CARDIFF’S debt now totals £114m, of which £40.1m is reported to be due to owner Vincent Tan, with £32.3m of his debt having apparently been repaid during the year. He was shown to be owed £72m in the 2018 accounts.
This debt reduction due to him was seemingly replaced by other loans totalling £39.5m from other parties who are not shareholders or directors.
The loans to be paid to those parties are stated to be secured by guaranteed income streams, most likely meaning they will be repaid by broadcasting fees which have not yet been paid, which would have to have been consented to by the creditors.
THE CONCLUSION
SO, from a footballing standpoint, what does this all mean?
The Premier League promotion was very clearly good business for the club, but everyone knew that. City earned a profit of around £22m before tax, which was obviously reduced in the official accounts due to the £19.5m Sala provision. The club appear to be in a relatively stable position, with the £40m worth of parachute payments set to ensure the club’s transition back into the second tier is not felt too harshly. Further parachute payments, albeit reduced, will be forthcoming next year, too, unless the club secure promotion back up into the top flight, the chances of which, at present, looks extremely slim.
But the full scale of the club’s operating costs must be appreciated.
The club simply cannot spend the volume of cash it has, especially on player transfers, in recent seasons.
■ FORMER Bluebirds boss Neil Warnock has been linked with making a return to football with Ipswich Town, where current boss Paul Lambert is under pressure.