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The Championship FFP Thread (Merged)


Mr Popodopolous
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On 30/08/2021 at 15:56, Mr Popodopolous said:

Looking at this prompted me to have (another) look at Reading's finances- not done this enough of late! ūüôÉ

It's possible that they have the best possible outcome out of a pretty bad bunch, by Club results 2017/18, Consolidated thereafter. This enabled the sale and resale and leaseback of the Stadium. Least bad might be a better term!

2017/18 Results

Reading FC- and estimated Allowances based on a variety of sources.

Loss

£20,952,868

This was inclusive of a £6,518,222 Profit on the 'Disposal' of the Stadium to Renhe Sports Management Limited (more on whom later). By which I mean they lost approaching £21m despite the Sale and Leaseback.

They also seem not to bother adding such Transactions to the Land Registry either- nothing registered for most if not all, though I think this one might have been for a bit 2-3 years after the event (late June 2018). That's possibly beside the point though. Might be exemptions if sold aboard/to a foreign owner or company whatever.

Allowances:

  • Depreciation- Listed as ¬£1,702,369
  • Women's Football- Says they made a loss of ¬£841,577- so let's go with that.
  • Community Trust/Spending etc- Dunno if I should go with Total Resources Expended or Expenditure on Raising Funds, or on Charitable Activities- Restricted, Unrestricted or Total. Anyway the quickest answer is probably Total Expenditure- ¬£1,197,394.
  • Category 1 Academy- Safe bet between ¬£2.5-3m per season?

Doesn't seem to list Impairment of Goodwill or other Intangible Assets or Amortisation on the Club Accounts- they could always dip into the Consolidated and use those as the basis from 2017/18, but that's a loss which is £9m higher...

...Okay then, it's the EFL under their management at the time- let's add real cake and eat it territory shall we...£1,619,666 in Amortisation of Goodwill for the season.

Best case scenario is therefore for 2017/18, an FFP loss of £12,519,862- out of £39m.

2018/19 Results

Renhe Sports Management Limited- this is the company that is the top UK based company in the Group, since Reading's takeover 4 or 5 years ago. Consolidated basically.

Loss

£11,753,640

Allowances:

  • Depreciation- Listed as ¬£689,619
  • Women's Football- Says they made a loss of ¬£1,208,750- so let's go with that.
  • Community Trust/Spending etc- Dunno if I should go with Total Resources Expended or Expenditure on Raising Funds, or on Charitable Activities- Restricted, Unrestricted or Total. Anyway the quickest answer is probably Total Expenditure- ¬£1,252,779.
  • Category 1 Academy- Safe bet between ¬£2.5-3m per season?
  • Amortisation of Goodwill- ¬£1,619,666.
  • Also mentions ¬£500k of Impairment under Fixed Asset Investments- not sure how that's treated for FFP?

People might wonder how their losses fell drastically when their expenditure did not. Wonder no more!

I say 'sold', probably mostly if not entirely offset against loans but they cover the cash losses too, the owners- equity etc.

  1. Stadium resold, this time for £37.5m- that's a boost to the profit and no mistake...£11m rise in a year eh!? I say sold, it was to the owner's Chinese/HK company.
  2. The old Training Ground. Another company of the owner.
  3. Residential land- same overseas company who got the ground. Could be the land around the Stadium as was.
  4. Sone Aluko...£3m loan fee to the owner's Chinese club- oddly this was put through not Profit on Transfers and not even in the Consolidated but only the Club, as its own category- "Loan Fees Receivable". These are usually included in Profit on Transfer etc- was classed as Turnover but maybe that's an irrelevant consideration.

Best case scenario is therefore for 2018/19, an FFP loss of £3,488,826.

More significantly though, the underlying loss is enormous- the Accounts suggest that this was despite and including a Profit on Disposal of Tangible Assets totalling £29,929,818 plus the aforementioned £3m on the Aluko loan- seems strange that the Consolidated Accounts don't make a separate category for the £3m loan fee...you can find it by scrolling down to the RPT Notes but it's not exactly clear and obvious.

2019/20 Results

Renhe Sports Management Limited

Loss

£45,032,971

Allowances:

  • Depreciation- Listed as ¬£497,367
  • Women's Football- Says they made a loss of ¬£1,174,279- so let's go with that.
  • Community Trust/Spending etc- Dunno if I should go with Total Resources Expended or Expenditure on Raising Funds, or on Charitable Activities- Restricted, Unrestricted or Total. Anyway the quickest answer is probably Total Expenditure- ¬£1,236,491.
  • Category 1 Academy- Safe bet between ¬£2.5-3m per season?
  • Amortisation of Goodwill- ¬£1,619,666.
  • They don't quantify Covid losses to June 2020 but ¬£2-3m? Let's split the difference maybe and go with ¬£2.5m, once factoring in likely cost savings vs Revenue loss, use of furlough etc.

A possible best case scenario is therefore for 2019/20, an FFP loss of £35,051,168.

Remember however, it halves for Covid so it might look a bit like...and this is a rough calculation at this stage.

FFP loss before taking the other half of the combined average to 2020/21 might be £33,511,272 and counting.

They must have exceeded to 2021 and be facing a further battle to comply to 2022...surely??

I'm going on best case scenario in parts ie including Goodwill in 2018 vs the fact it was only in the Consolidated and not Club Accounts or pushing Academy Expenditure up to the higher end and perhaps the Covid losses too.

Here we go.

Part 2. I am and have been pretty generous- perhaps erroneously so- with my interpretations in places, ie a Stadium Profit from Club to Holding then Holding to other company in successive seasons, inclusion of the Goodwill even though it's only in Renhe rather than Reading FC for 2017/18.

Renhe Sports Management Limited

Starting point is a £35,051,168 FFP loss in the season just gone- and remember I'm assuming that the Academy Spend=£3m per season, that the Covid losses in 2019/20 were £3m.

Sadly there is no way of quantifying for sure without the actual data but can only go on searches online with guesstimates of wage savings for individuals who left. Transfer Profit remains about the same but Meyler was paid off in 2019/20 so that we can lop off- Accounts says that cost £1,186,500.

Bowen left, possible years salary payoff or remaining on the payroll too.

Possible savings:

  1. Remaining Amortisation on Barrow- think he went for £1.5m, final year of deal so that means that it's about the same as 2019/20. Say £10-15k per week in wages as well.
  2. I read somewhere that Marc McNulty's weekly wages were £45k per week?? Seems fanciful though, would Dundee United cover the full whack in a Pandemic season for that? Or 10 months worth anyway, I dunno- say £1-2m.
  3. Mannone was finally released- fee around £2m, 3 year deal- so say £667k per year in Amortisation and I've read £17k per week in wages. £884,000 there.
  4. Read that Popa was on £15k per week- £780k per year, released Summer 2020. Is less than clear where he was in 2019/20 though. Joined on a free, left on a free so no Amortisation as such.
  5. Blackett listed as £12k per week at Reading. £624,000 per year therefore. Joined for £1.62m according to one source, hence £405k per year in Amortisation.
  6. Adam left on a free, joined on a free- £15-20k per week perhaps?
  7. Osho and Obita as Academy Products have zero book value but they did have wages- £1,200 and £12,000 per week respectively according to a quick search.
  8. McCleary- one site said £21,000 per week.
  9. Gunter- much the same, another site said £22,000 per week.

Further possibles:

  1. Pele- £31,000 per week on loan.
  2. Ejaria- Loan wages listed as £7,800 per week.
  3. Miazga- One site suggested £12,750 per week, maybe that was the contribution of Reading.
  4. Masika- was there for 5 months, suggested £8,500 per week.
  5. Boye- No idea. One site suggests £8k per week.
  6. Virginia- Suggested he is on £10k per week, who knows how much Reading paid.

Total theoretical cost reductions and savings:

£14,702,600

I am possibly at the high end with some of the wages- Barrow, Adam to name 2.

However there are a few factors to consider as well...

New loanees added

  • Gibson- One site suggests ¬£5k per week.
  • Semedo- One site suggests ¬£4,500 per week.
  • Esteves- One site suggests ¬£2,600¬†per week??

Ejaria was in the region of £3m though Reading seem to suggest no fees paid in Post balance Sheet. £3m/4=£750k in Amortisation to be added plus another site suggests that his permanent deal=£14k per week.

Oh and Aruna joined end of Jan- 20 weeks wages, whereas his weekly wage stated at £5,000 per week...another possible £160,000 to add back.

Total theoretical costs to add back to the subtraction- plus the unknown such as Paunovic and Bowen:

£2,267,200

Seems remarkable that they should or could theoretically have cut costs by £12m and then surged to playoff contenders from bouncing around the bottom and lower midtable for 3 seasons.

All the same and despite this, I believe that they have breached ie exceeded the Upper Loss Limit in other words, the question is by how much- and there are some fairly generous interpretations in there such as Club and then Consolidated, enabling inclusion x 2 of Stadium Profit, inclusion of Goodwill in Club for 2017/18 to offset even though only in Renhe.

Ah plus the significant Covid costs of course, but then I imagine that they will cancel each other out- ie not even considering them much, but if say £10m hit in Revenue to Covid, add it on and cancel out.

Is an utter farce though, that even with my generous interpretation in 2017/18 and all those assets sold- Stadium and then Stadium again, old Training Ground, land around the Stadium and the 'privilege' of Aluko- £3m kerching, for a year/season, that a club should be anywhere near breaching the Upper Limits??

Edited by Mr Popodopolous
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Some of the comments by Mel Morris are quite interesting about the wider FFP landscape.

  1. He references the Marriott extension annulment and refers to another club who could not extend a player that they could have made millions on- both kill the P&S. I assume he means Richards at Reading, who went to Bayern on a free.
  2. Suggests that all but two clubs who got promoted failed P&S in the year of their promotion?? I'm unsure about that, is he perhaps looking at the headline figure and not excluding Promotion Bonuses- Promotion Bonuses are excluded because they are not costs that would otherwise be incurred in the event of non-promotion.

Either way if that is close to true, it really makes a mockery- Point 2 I mean- of the "Projected Accounts" Regs, submitted in March etc.

Edited by Mr Popodopolous
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On 02/09/2021 at 17:46, Mr Popodopolous said:

Yeah fair enough, suppose I'm a bit impatient- I'll wait a while and hopefully news

John Percy

@JPercyTelegraph

·

49m

#ReadingFC set for heavy deduction of up to 9 points after breaching financial rules. Like Derby, Reading are in talks with the EFL over an "agreed decision" as per regulation 85.

 

That should make your day!

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Birmingham City's results for 2020/21 are due tomorrow- at the Hong Kong end.

Probably look properly Friday, don't anticipate any P&S issues given Bellingham and Adams profit plus varied other moderate sales but it will give an early indicator as to what kind of revenue % hit we can expect when ours are out either later this year or early in 2022.

You can actually release accounts fairly quickly for the season just gone- it's just that clubs choose not to often, until a good chunk if not all of their 9 months are up and maybe a bit longer.

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Regarding Sheffield Wednesday, feels like there are some blurred lines.

Their new top company is Sheffield 2 Limited of course and it took me a while to work out but it seems that their accounting period for that not that it is stated clearly, is from incorporation date to end of reporting period although it should cover the 2019/20 season, it perhaps covers a bit of 2018/19- as IIRC it was founded at CH on June 21st 2019.

There's a few bits that I wonder about...

Sheffield Wednesday- 2019/20- August 1st 2019-July 31st 2020.

image.png.d0d75c9112a7ae8ee6cc87b7312d41e9.png

About £15m in Profit on players/employees in those 2 seasons- I assume that the Confidential settlement payment could be the Bruce money, although surely that could come under profit on disposal of players/employees. This is the August 1st 2019-July 31st 2020 period and the same for the season before.

Although the cash flow has it down as follows...‚¨áÔłŹ

Proceeds from disposal of players/employees.

image.png.ab1bb01b8e4a33d92a2596f91dbab131.png

Sheffield 2 Limited headline bit- made up to 31st July 2020

image.png.8e32d378bd10bf2a793dbd708c74259f.png

I hope that the EFL have noticed a risk of double counting. Because that incorporates a bit of the 2018/19 reporting period ie the final month and 10 days or so...clearly we disregard impairment of goodwill but it looks to me that yes there is a bit of extra income and expense by dint of the reporting periods not overlapping and one or two other bits to be reconciled, but they must not be allowed to double count that profit because it appears that there could be a risk of it- hope the EFL make the relevant adjustments for P&S.

Cash Flow for the relevant period

image.png.3d4e993336c9195958a1cdc4716506b1.png

Where are those proceeds of intangibles coming from? Why the approaching £9.5m gap- is it a risk of accounting for bits of it twice, certainly seems to be only player registrations shown as disposed of in the relevant section.

As a curious aside, the accounts appeared to be signed off after the due date.

image.png.2df0ba0115c9ddd3b710b46bdbc01f6d.png

Well may have been from the 28th June 2019, anyway.

image.png.0361a3970dc0c2c9f5a875744d9b871f.png

 

Like I say signed off/approved on 10th September 2021, when the accounts were due on 31st July 2021.

On a side note, those Sheffield 3 Limited accounts are overdue. Relevant as that is the company which 'purchased' Hillsborough and still no sign of the clearing of the loan or partial payment to New Avenue Projects secured against Hillsborough- maybe it's been done and just not updated. :dunno: If it rolls over, does it update?

Edited by Mr Popodopolous
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Posted (edited)

I said I would look at Birmingham and now I will. Had a quick look the other day.

They made a profit in 2020/21, albeit mainly through the sale of Bellingham. The overall BSH made a loss but the segmented results saw a profit- less clear is the basis for the claim by their now former CEO that the wage bill was slashed. £18m was one estimate I read, but again less than sure...

I might add they got their results out on time, in a mere 3 months- it can be done. It's quite hard to follow their results financially in the consolidated format. It's  in HK$...

Their income seemed to be only 60% or thereabouts of what it was in 2019/20. The bottom line is that they seem to have made a profit and when you add in Covid allowances it's a bigger profit, then added in is P&S allowances it gets better still.

image.png.0b8ac144cfb7e5ded603989050148e02.png

As we can see, that's mostly Bellingham- cutting the amortisation cost also helps from a profit and loss POV albeit irrelevant cash wise in terms of ongoing costs. (Although less amortisation=less fees paid which can also help with cash in the long run potentially).

We can also see that the segmented results show a clear profit.

image.png.584c41361cc5361a39fd837fd7248647.png

Revenue appears to be down in terms of HK$ for the football club about HK$76,971,000. Assume that a good chunk of that would be attributable to Covid.

The bit about Other Income- and it's related to the football club- confuses me. Is it added to the revenue from external customers or included within.

Nothing dodgy or substantial about it, merely unsure how to account for it.

image.png.0751f8f08facb2ac709913d945b7e99e.png

image.png.db76f1e19297bc9c38d6bacc660c19b5.png

The bit about wage bill for the club having plummeted- well anyway they seem like they should be fine with FFP for a couple of years but have to wonder about that claim that I mentioned earlier in the post.

image.png.c569890d5e960096e83e41dabec181c8.png

Gone up a bit, if anything. Bear in mind though that is for the entire group but last time ie 2019/20, the wage bill of the club was a good chunk of the entire group wage bill.

https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0930/2021093002012.pdf

Better analysis than mine too below. Not really mentioned FFP though his one but about the accounts more widely.

https://almajir.net/2021/10/04/bsh-accounts-analysis-end-of-year-june-2021/

Edited by Mr Popodopolous
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Posted (edited)

Hull made a loss of £8.5m albeit in League One and in a Covid season.

Some fans must have left ST cash in the club as I wasn't aware that they were open for games or at least not enough to make some revenue- anyway they have plenty of issues but FFP appears not to be one. The fans and ownership are at loggerheads, have been for some time- and there was talk of a possible takeover for Hull a while back. The club also seem to be repaying the ownership their loans or some of them at least!

Their total wage bill was stated as £8,443,408 last year and £17,751,492 in 2019/20. Total club wage bill, inclusive of tax and all employment costs.

Amortisation also plummeted- from £7,819,444 in 2019/20 to £2,085,214 in 2020/21.

There seems to be headroom if a) They get a new owner b) If they get an investor or c) If the current ownership have a change of heart and decide that they want to start spending again.

Possible too that the club are now paying rent to their ownership for some or more than some of their fixed assets, but I've not really looked at that in depth.

Edited by Mr Popodopolous
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On 29/09/2021 at 17:50, Mr Popodopolous said:

Where are those proceeds of intangibles coming from?

This is the group cash flow, so includes proceeds for the football club as well as the parent.  A rough reconcilliation of the £16 million could be:

Football Club 2019 accounts  £3.5 million

Football Club 2021 accounts  £6.7 million

'Brucie Bonus'                          £6.5 million

Total                                        £16.7 million

On 29/09/2021 at 17:50, Mr Popodopolous said:

Relevant as that is the company which 'purchased' Hillsborough and still no sign of the clearing of the loan

The football club accounts show the receipt of two tranches of £7.5 million in deferred consideration for the stadium sale.

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Posted (edited)
8 hours ago, Hxj said:

This is the group cash flow, so includes proceeds for the football club as well as the parent.  A rough reconcilliation of the £16 million could be:

Football Club 2019 accounts  £3.5 million

Football Club 2021 accounts  £6.7 million

'Brucie Bonus'                          £6.5 million

Total                                        £16.7 million

Yeah, kinda agree once I looked into it a bit further I saw it as parts of 2019 and the 2019/20 accounts into one...the main thing I guess is that the EFL don't allow double counting to slip by for P&S as I assume that the new reporting entity will be Sheffield 2 Limited for P&S- although simpler still would be if the club was used in this instance for P&S at least until 2019/20.

8 hours ago, Hxj said:

The football club accounts show the receipt of two tranches of £7.5 million in deferred consideration for the stadium sale.

Ah think we might be cross purposes- the loan I mean is the charge against Hillsborough, Sheffield 3 Limited- Chansiri though seems to be paying up in 8 instalments and that's the first 2 so far, the deferred consideration as you say.

Edited by Mr Popodopolous
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Posted (edited)
1 minute ago, Hxj said:

Ah yes - but as the debt on the stadium is from a third party then to me it doesn't really matter in the same way.

If Chansiri doesn't pay it or roll over, he loses ownership surely? I assume that scenario won't happen btw. From a P&S angle it seems of little significance anyway.

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Posted (edited)

Saw this on my Twitter feed.

Reading and FFP, small update.

https://star-reading.org/wp-content/uploads/2021/10/STAR-STRUCTURED-DIALOGUE-MEETING-4.pdf

  1. Points deduction- still being negotiated, the term significant comes up in conjunction with this. The club do accept that rules were broken and having to change course as a result which possibly helps their cause- likely that they've been quite cooperative as well. Mentions something about an EFL statement relatively soon.
  2. They believe that they will be fine this season but that next could pose an issue.
  3. Obviously limitations on wages that they can offer. No block on contract extensions but unclear if that vs wages on offer for them or say taking up a year option could clash.
  4. Said that they sold some land from Bearwood for housing to create funds.
  5. They have said in their view that Parachute Payments now too high, create too big a gap etc.

Point 4, bit of devil in the detail. Sold when? It is/was classed as a tangible fixed asset in the most recent accounts and if it was post June 30th 2021 then it needs excluding from P&S. Not from a cashflow POV but certainly the Profit and Loss account.

The fact that their owner owns all of their fixed assets, in a part of the country where land value is at a premium that could be great for him if he ever turns, gets bored- or has to liquidate relatively quickly for his other business interests (if he has any).

Could even take out loans on them, and default if he wanted a relatively swift out. If he defaulted the assets revert to lender and he could get the cash? Caveat there is in that scenario he no longer cares about Reading or his UK business interests.

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