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Some more detailed thoughts on the accounts and also how we compare against other Championship clubs:
http://ln.is/wordpress.com/G81VJ … #lufc
http://linkis.com/wordpress.com/G81VJThe 2015/16 Leeds United Football Club Ltd accounts were published yesterday, and provided an interesting insight into the financial performance of the club, the first full year of accounts for the man “driving the busâ€.
Turnover has increased over the period by 23.5% (£24.4m to £30.15m) driven by the termination of the Compass catering contract which allowed for an additional £4.8m of revenue.
Cost of Sales increased by 38.4% (£3.9m to £5.4m) driven presumably predominantly by bringing the catering contract in house.
Administrative Expenses remain very high, albeit marginally reduced from £33.3m to £32.4m (-£900k) driven by a reduction in the wage bill of £1.75m. Wages (including non-playing staff) now stand at £16.3m, which if removing the £460k related to redundancy and ex-gratia payments equates to £15.8m. This compares to £16.7m in 2015 on a like for like basis. It is also worth noting that the playing staff numbers have decreased by 20% over the same period. (41 vs 52 in 2015).
Remaining administrative expenses are therefore still ca. £16m which is exceptionally high in a Championship context (more later).
The operating loss position is therefore better than previously (-£7.1m vs -£12.6m in 2015 (+£5.5m) which is predominantly (again) driven by the catering revenue moving back in house.
The other key item to note in the accounts was the termination of the Macron contract, which equated to a one-off hit of ca. £3.5m driven by £1.15m of stock write down and £2.4m to terminate the contract (and presumably associated legal costs). Player disposals is strongly down (no sale of Ross to boost the books) with £2.8m booked for 2016 vs £9.8m previously. Overall our loss position is therefore worse, albeit driven by one-off factors and the absence of significant revenue from player sales.
In terms of the balance sheet, not much to note of interest aside from the fact that no share capital was injected into the club over the 2016 financial year. The most interesting element is the restructuring of the GFH debts which moved the obligations owed to GFH from a staged repayment contingent on promotion to staged payments over a 12 year period but with an interest coupon. Its unclear as to what that interest coupon will be but it could well put pressure on cashflow going forward. Given the challenges that Leeds United have faced raising capital historically and the limited assets available, the coupon payable could well be relatively penal. This needs to be understood in greater detail. It is also worth reflecting that this is a consequence of Cellino’s purchase of Leeds United, i.e. the future owners are effectively saddled with a 12 year interest bearing loan.
Leeds United vs. the Championship
In order to really understand how our financial position stacks up in a Championship context, I have sought to provide some comparisons of various metrics with other Championship clubs. Owing to account timings, this is a mixture of 2014/15 accounts and 2015/16 accounts (Leeds United and Birmingham City only) but it still in my view provides some interesting trends and observations.
Turnover
Leeds United remains one of the largest clubs in the Championship, even ahead of what has been an impressive average attendance over the course of the 2016/17 season. This can be seen in the chart below with Leeds recording the largest turnover within the Championship.
The size of Leeds’ turnover vs. a number of our competitors is enlightening. The size of turnover vs Bournemouth and Watford (promoted last year) is also illuminating. It has to be questioned why a club generating a turnover at the level we have consistently achieved, has historically struggled to compete.
Breakdown of Turnover
A breakdown of our revenue can be seen above, namely that Leeds United have the largest share of commercial revenue by a significant margin, driven by bringing the catering revenue back in-house, alongside continued strong sales in terms of merchandise.
Match day revenue remains a crucial component of Leeds United’s income, with Leeds being 3rd in terms of revenue behind Norwich and Brighton. It is worth reflecting however that this is based on a season where Leeds managed average attendances of 21,667 versus current average attendances of 26,929 this season (24% higher) which would bring us in line with Norwich City. In revenue terms, we are therefore promotion contenders.
Wages
The key expense of any club is the wage bill. Whilst a club willing to spend more on player wages is not necessarily indicative of performance, it is a guide as to competitiveness. Over the last few seasons, expenditure on wages has consistently been mid table at best. This is again borne out in terms of wage expenditure in 2015/16:
Leeds based on the above figures are 15th, very indicative of the league performance over the past few years. Leeds’ performance this season needs to be seen and understood in this context. Arguably this has become more pronounced following the relegation of Aston Villa and Newcastle.
Wage to turnover is also an important metric, namely how much the wage bill is as a proportion of turnover. Whilst it is frankly unsustainable for a business to run consistently with a wage bill larger than turnover, the competitive nature of the Championship (with effectively the prize of ca. £160m on offer with promotion) has led to a situation where a number of clubs will seek to spend significant sums on players in order to compete effectively. This has increased further with the increase in TV revenue as part of the Premiership TV rights.
Again, Leeds United are in the bottom tier of this metric. Whilst this leads to a sustainable club in the medium term, Leeds are punching below their weight on a competitive basis.
Other Expenses
Based on a top tier turnover, and a lower table wage bill, Leeds United should be one of the few profitable Championship clubs. This is however undermined by a significant amount of expenditure outside of the wage bill as can be seen below:
Leeds have the highest bill in terms of other expenses, notably driven by the leases on Elland Road and Thorpe Arch amongst other things. Brighton are close behind, albeit again this is driven by the high cost of running the Amex Stadium (including a ca. £1m bill for match day transport). Reducing this remains critical in order to provide for a profitable and stable Leeds United.
Conclusions
A stable financial footing still remains outside the grasp of Leeds United. Stripping back the financial position indicates that outside of the benefit of the catering contract, there is still a significant loss position being driven by a high proportion of expenditure on “other expensesâ€. Conversely, the wage expenditure remains significantly below the majority of Championship clubs, highlighting the achievements of Gary Monk this season based on the constraints of the squad. Its clear that in order to compete over the medium term, increased wage expenditure and investment in the squad is likely to be crucial, especially if the club is unable to achieve promotion this season.
Overall, getting to grips with the structural issues over the club, namely the ownership of our stadium and training ground, plus reducing other expenses, is going to be critical in order to deliver financial stability and growth over the medium term. Fingers crossed Andrea Radrizzani can step up to the plate and deliver.