With apologies to those of you with accounting training, I've included a quick treatise on statutory accounts, since the analysis doesn't make sense without some basic knowledge. ACA's, ACCA's or regular readers of financial press (you know who you are, you sad b*stards) please skip, otherwise you may find the deliberate errors. Ditto anyone who waded through the verbiage last year.
I'll keep this as short and simple as I can - OK, here we go:
Financial accounts split into five parts:
| 1 Directors statement | The directors telling
the shareholders how the company has done. This is a load of pants in the
best run companies. Basically, the company must be either 'having another
successful year' or 'struggling through difficult trading conditions' because
the alternative, that the directors are crap, is not one that they are going
to put down on paper about themselves.
The U's accounts statement is better than most and need concern us no further, except when it comes to talking about directors’ shareholdings (see below). |
| 2 Auditors report | The auditors' opportunity to tell us if the company's bust or the directors are crooks - traditionally this opportunity is only exercised when it is too late, but the fact that anyone is looking at all helps keep the bad guys good (or at least makes them be a bit more subtle). Again, nothing interesting here, which is a GOOD thing ... |
| 3 Balance sheet | V. important. This is a snapshot, at a particular date (31 May 1999 for the U's) of the financial health, or otherwise, of the company. The balance sheet splits up into 5 bits: |
| - Fixed assets | Things owned by the
company which it uses to do business: Normally buildings, machinery, computers, etc.; these are put in the accounts at the lower of what they cost and what they are worth. Assets which get thrown away after a while (cars, PCs, etc) have this value reduced each year, land generally stays at cost. |
| - Current assets |
Money, or things which can be turned into money quite quickly (debts, club shop stock – OK, maybe not - etc.) |
| - Current liabilities |
Amounts borrowed (think overdraft, credit cards) or amounts you owe to someone in the next year (think pub slate!) Confusingly this can also include money people have paid you early (imagine your lodger pays you a year's rent in advance - OK, OK, unlikely, but you've not really earned that money yet, in theory they could ask for some of it back, so it's not really yours..... makes sense?) |
| - Long-term liabilities |
Amounts borrowed which you don't have to repay for at least a year (think mortgage or an HP agreement) |
| Add the first two categories, then subtract the last two and you get a measure of what the company is worth - this is called 'shareholders' funds'. | |
| - Capital and reserves | The shareholders funds split between the amount they paid for their shares ('share capital'), life to date profits of the company ('profit and loss account') and any reserves. |
Balance sheets don't give any real idea of what a football club is worth, since the most valuable assets are the ground and the players; the ground will not be in at true market value, and the players' valuations won't be in at all. (Well, a few Premiership clubs include them, but we’re hardly at that level)
| 4 Profit and Loss (P&L) account | A record of how much profit the company made (or how much it lost) over the last year 1 June 1998 to 31 May 1999). This is a measure of performance over a period (remember the balance sheet was a snapshot at the end of that period). Income is divided into turnover (all types of income except interest), operating expenses (all types of expense except interest), interest income and expense, and tax. This is corporation tax on the profits of CUFC, not VAT or anything like that. |
| 5 The Notes | The really interesting bit - provides lots of detail behind the raw numbers in balance sheet and P&L. Most of my comments are based on reviewing the notes. |
OK, so enough theory, what do the accounts show?
Firstly the P&L for the year, with 97/98 for comparison (all in £'000), as listed in the notes to the accounts:
| 98/99 | 97/98 | ||
| Gate money | 723 | 437 | League, FA Cup, Coca Cola, Auto Windscreens, friendlies |
| Football league pool | 274 | 226 | |
| Commercial | 343 | 267 | Lottery, shop sales, programmes, sponsorship, ground boards, etc. |
| Catering | 145 | 101 | Takings from snack bars, club bar, etc. |
| Donations | 24 | 12 | Mostly Vice Presidents' Club donations |
| Other income | 40 | 53 | Mostly TV and radio money |
| Youth development grant | 85 | - | Annual grant from Sport England for approved youth training schemes. Started this year. |
| Promotion insurance | 99 | - | Reg put a bet on us being promoted - Smart guy ... |
| Total trading income | 1,732 | 1,096 | |
| Player sales | 433 | 833 | For 98/99 sell-on for
Granville, appearance money for Craddock, plus Beall’s fee. For 97/98 this includes Micah Hyde, Jody Craddock, Paul Raynor, those kids nicked by 'Boro and maybe some sell-on that wasn't published? |
| Total income | 2,165 | 1,930 | |
| Playing costs | 1,248 | 973 | Salary and other costs of players, coaches, youth development, etc. |
| Matchday | 147 | 109 | Police, stewards, gatemen, St Johns, etc. |
| Ground | 120 | 107 | Groundsmen, stadium maintenance |
| Commercial costs | 237 | 165 | Shop staff wages, cost of gear sold in the club shop, promotional staff’s costs, etc. |
| Catering costs | 110 | 70 | Catering staff wages, costs of bacon and rolls, etc. |
| Admin | 179 | 144 | Admin staff, all office costs (stationery, printing tickets, etc.) |
| Audit fee | 3 | 3 | ‘Nuff said |
| Depreciation | 36 | 19 | The decrease in value of our physical assets over the year - doesn't mean much |
| Amortising player costs | 15 | 6 | Under new rules, the cost of players bought (Butler and Duncan for the purposes of these accounts) gets spread over the term of their contracts. |
| Leasing charges & other | 3 | 3 | |
| Total trading expenses | 2,098 | 1,599 | |
| Interest paid less earned | 7 | 17 | |
| Profit/(loss) | 60 | 314 |
OK, there's a lot of info here:
First up, the analysis has changed from last year.
Firstly the commercial number used to be reported as a single lump, after costs. Now it’s split between commercial and catering, and the split between income and cost is also reported - this gives a lot more information, though it’s not happy reading.
Also, the club have started to capitalise players’ contracts. That is, if we pay £20,000 for Duncan on a four year contract, we charge £5,000 per year to the accounts, not £20,000 straight away as in the old method. From an accountant’s point of view this is a better way to do it, but may lead to a false picture of the club’s position if we start buying expensive players (OK, so not a problem right now ...)
Overall, before player trading, we made £1,732,000 and spent £2,098,000, a gap of £366,000 - this is on crowds of 4,500 average and with a cup run netting £50-75,000 net of expenses. This puts the break even crowd at around 7,500 - 8,000, about 500 higher than the previous year.
However, that is actually a bit of a rosy picture. There are two really worrying things here:
First, this profit was achieved with £99,000 ‘insurance’ - sure this covered bonuses, etc which are also in the costs, but playing costs were up £275,000, and matchday by another £38,000. In reality the gap between playing income (gate receipts plus FL pool) and playing expenses (playing costs plus matchday costs) only shrank from £419,000 to £398,000, even though we had a very successful season. As we've often said, without player sales the U's are just not viable, even in a very good year. The worry is that the gap isn’t closing.
Secondly, although we had a great year on the pitch, and commercial income was sharply up, it was all swallowed up in higher costs. There was no extra profit to support the team, although by rights it should have been a money-spinning season. The cost/income ratio (the measure that most commercial companies use to determine their performance) rose from 62% to 69% (commercial) and 69% to 76% (catering) when it should have gone down. This is really bad news - it suggests that the commercial side of the club is not being well run.
In detail:
Income:
Gate money - up in proportion to the higher attendances and on the back of the cup games.
The Football League pool, we shared in a general increase - this will also increase again now we are in Division 2.
Commercial - this is one number that needs to keep going up and hasn’t. 97/98 was a real improvement on 96/97, but last year stalled badly. We need this to be at least enough to cover administrative and ground costs.
Other income looks a bit low but I’m not sure we got much TV revenue last year.
Expenses:
Playing costs are up £275,000 - remember TT had let lots of players go to the end of their contracts, getting them to renew will have meant upping their wages, also our first team squad grew a bit and we put more money into youth development. Finally promotion bonuses should be in here.
Matchday costs - this is a pretty low figure in comparison to our competitors, but is going up unpleasantly fast; larger crowds will have pushed up costs here. BTW, this is why we get to meet so many lovely stewards at away games - they are so much cheaper than rozzers!
Also, somewhere in here are the costs of renting Brookfields, the youth hostel, from Reg Smart (£16,200 per year) and the Corona site from Reg, Mr Summerfield and Enterprise Scrap (£19,784 per year).
Now the balance sheet:
| 98/99 | 97/98 | ||
| Assets: | |||
| Player’s registrations | 22 | 37 | |
| Ground | 1,230 | 1,235 | The £5,000 change is the reduction in value of the stands - the land itself is valued at £1m. |
| Cars, PCs, etc. | 100 | 77 | Could be cars, but also medical, pitch and office equipment |
| Stock | 13 | 12 | Club shop goods, snack bar stock, etc. |
| Investment property | 105 | - | I guess this is one or more houses bought so their gardens could be used as part of the redevelopment, where the club plans to re-sell the house. |
| Cash | 294 | - | This is brilliant - cash in the bank, tho’ why have cash and an overdraft I don’t know.... |
| Debtors (money owed to CUFC) | 191 | 264 | May include the transfer levy of 5% which we get back when we carry out ground improvements. This would explain it going up last year when we had lots of transfers. |
| Total assets | 1,955 | 1,625 | |
| Short term (<1 year) liabilities: | |||
| Bank loans and o/draft | 109 | 47 | Bank overdrafts are very expensive, so this is not quite so good. |
| HP, etc. payments due in 99/2000 | 8 | 9 | |
| Tax and social security | 126 | 70 | Not good to let this go up - the Inland Revenue are quick to wind up failing clubs (e.g. Chester) |
| Other loans | 6 | 9 | |
| Other creditors | 209 | 183 | Not sure exactly what this is- maybe someone from the club can enlighten us? |
| Deferred income | 233 | 113 | Mostly early season ticket sales and sponsorship - this is great as it reduces the overdraft. It’s up because our advance sales were very good this year. |
| Total short term liabilities | 690 | 431 | Short term liabilities are up sharply, apart from the deferred income category this is bad news. |
| Long-term (>1 year) liabilities: | |||
| Bank Mortgage | 156 | 163 | Borrowed from the bank at 9.75%, paid off in 2012, we're paying around £17,000 interest on this each year, plus around £7,000 principal |
| HP, etc. due after 98/99 | - | 5 | |
| Directors loans | 134 | 160 | These carry no interest that I can see - the directors are subbing the club through this about £10 grand per annum between them. Very interesting is that they have gone down, I’ll explain why when we look at shareholdings later. |
| Other loans | 13 | 18 | |
| Total long term liabilities | 303 | 345 | |
| Net assets | 962 | 848 | Total assets less short term and long term liabilities |
| Shareholders funds | |||
| Shares at cost (50p) | 235 | 179 | 111,120 shares issued, 52,000 to the directors (by 'capitalising' £26,000 of Director’s loans) and 59,120 from other shareholders, i.e. fans, who wanted to invest in the club. The more share capital the better, especially from non-directors, as it reduces the chance of anyone unwanted taking over the club. |
| Accumulated loss | -277 | -340 | In any normal business this number has to be positive! |
| Reserve re ground revaluation | 1,004 | 1,009 | The ground was revalued in the early 90's - this goes in reserves as it is not a trading profit. |
| Total shareholders' funds | 961 | 848 |
Ok, so what does all this lot mean?
Well, in a perfect world, your short-term assets (stock, cash debtors) would equal your short-term liabilities - that way you can always meet your bills.
Similarly, your long-term assets would equal your long-term liabilities plus shareholders funds, i.e. those assets you can't sell easily are paid for out of share capital, profits or long-term borrowings.
So, how does CUFC stand?
Well, our short term assets don't quite match short term funds, but if you assume folks aren't going to ask for their season ticket money back we're pretty much OK.
As regards longer term assets, things aren't quite so good; although borrowing off the directors is pretty safe, we look like we're relying on about £190,000 of short term borrowings to fund our fixed assets. Basically the extra money we raised this year went into buying the investment property, so until we sell that we’re not much better placed than last year.
In order to get the books straight we need to generate around £200,000 more capital, either by making a profit, issuing shares or getting more long-term loans from the directors. Thereafter we need to raise any money that the club has to provide toward the new stands.
Since 1993 we've raised around £800,000 to pay off accumulated debts; to finish putting the club straight and pay for the redevelopment we need to raise at least twice that. In an ideal world we'd also own the Corona site and the youth hostel as well. These accounts don't suggest any easy way of paying for any of this.
One bright spot is that the directors make clear that the Corona site will be sold to the club at cost, i.e. at no profit to the current owners (Messrs Summerfield, Smart and whoever owns Enterprise Scrap Metals Ltd). I know this won’t satisfy the conspiracy theorists out there, but there is no evidence that the directors are taking any money worth speaking of out of the club, at least in these accounts. On the other hand, there’s no evidence that they’re putting any in either.
As an overall summary:
We’re just about solvent but not much more can be said. The value of our facilities is very low (as we know every week coming to the ground) and hasn’t improved in years. We’re not about to go bust, but the business is miles away from being sustainable, and we’re making a pretty poor showing on the commercial side.
Sorry this is so long; for those of you who slogged it out this far, I hope it was interesting. Feel free to 'mail me if any of this doesn't make sense, you want to correct the deliberate mistakes, or just want to discuss something!
Nick
nick.pomery@barclayscapital.com
"This review is based purely on the information within the published Financial Statements, together with a rudimentary knowledge of the game's financial structure and a liberal amount of guess-work. No commitment whatsoever is given as to the accuracy of figures or comments, and no responsibility is accepted either by the author or web site owner for any financial or consequential loss arising as a result of relying on any element of this review"