Tuesday, May 19, 2015

Middlesbrough - Take Me To The River

Having stormed past Brentford in the Championship play-off semi-finals, Middlesbrough are tantalisingly close to a return to the Premier League. If they manage to overcome Norwich City in the final, they will be back in the top flight after six long years, which would be a fine reward for owner Steve Gibson, who has been supporting the club (in both senses of the word) for so long.

Boro spent eleven consecutive seasons in the top division before relegation in 2009, winning the League Cup and reaching the UEFA Cup Final during this period, but promotion has to date proved elusive. They just missed out on the play-offs in 2012/13 when they finished 7th under Tony Mowbray, but a poor start to the 2013/14 campaign led to “Mogga” being replaced by Aitor Karanka, a former Spanish defender and assistant coach at Real Madrid.

This marked something of a departure for Boro, who had previously invested in a long line of British managers including Bryan Robson, Steve McClaren, Gordon Strachan and Mowbray. Although Boro only finished 12th in Karanka’s initial year, they have done much better in the Spaniard’s first full season.

Of course, for those with longer memories it is great news that Boro are still around to mount a challenge, given that they were minutes away from permanently folding in 1986, when they experienced severe financial difficulties, so much so that the gates to Ayresome Park were padlocked and they had to call in the provisional liquidator. The club was saved by a consortium led by then board member and current chairman Steve Gibson, who has continued to finance the club through good times and bad.

This can be seen in the 2013/14 accounts, where Boro reported a £20.4 million loss before tax (£15.6 million after tax once a tax credit of £4.9 million is taken into consideration), which was £2 million worse than the previous season’s loss of £18.5 million.

The higher loss was largely driven by a £3.1 million reduction in profit from player sales, but turnover also decreased 10% (£1.4 million) from £14.2 million to £12.8 million. Gate receipts were £0.8 million lower, in line with a reduction in the average attendance; income from cup competitions fell £0.4 million, as Boro were beaten at the first opportunity in both the FA Cup (to Hull City) and the Capital One Cup (to Accrington Stanley); and money from sponsorship and commercial deals also fell by £0.3 million.

This was offset by a 22% (£4.5 million) cut in the wage bill to £16.3 million and a net £0.8 million reduction in player trading costs (player amortisation £1.2 million lower, impairment in player values £0.4 million higher), though other expenses were £2.8 million higher.

It is worth noting that the operating loss, i.e. excluding player sales, improved by £1.2 million, though it was still pretty large at £21.1 million.

To be fair, almost all clubs in the Championship lose money and are reliant on owners’ funding. In 2013/14 losses were reported by 21 of the 24 clubs – in stark contrast to the Premier League where the new TV deal, allied with wage controls, has led to a surge in profitability. The only clubs to make money in the Championship were Blackpool (and their model is not one to be recommended), Wigan Athletic and Yeovil Town.

That said, Middlesbrough’s pre-tax loss of £20 million was one of the highest in the league, only surpassed by three clubs: Blackburn Rovers £42 million, Nottingham Forest £23 million and Leicester City £21 million.

This is nothing new for Boro, as they have consistently operated at a loss with the last few years being a sea of, well, red. In the last four reporting periods alone, they have made aggregate pre-tax losses of £71 million. As the accounts drily observed, “The Company operates in a challenging business environment and market sector where revenue streams can fluctuate significantly depending upon team performance on the pitch and costs can be unrelated to income generated.”

As a technical aside, Boro changed their accounting date in 2011, moving from a December year-end to a June close in line with other football clubs. This meant that the 2011 figures covered 18 months (the second half of season 2009/10 and the full 2010/11 season), while there were no accounts published for 2010.

The smallest loss registered by Boro recently was £0.3 million in 2009, which was not only the last time Boro were in the Premier League, but was also due to high profits on player sales of £17 million, largely from the transfers of Stewart Downing, Robert Huth and Tuncay Sanli.

This was a fairly profitable activity for Boro while they were in the top tier with the club earning £44 million between 2008 and 2011, also making good money from the sales of Jonathan Woodgate, Luke Young, Lee Cattermole, George Boateng, Adam Johnson, Brad Jones and David Wheater in this period.

However, since relegation there has been a steep reduction in profits from player sales. In fact, the club specifically noted that the widening of the 2013/14 loss was largely because they did not make as much money from player sales.

Again this is hardly unusual in the Championship with only two clubs (Wigan Athletic and Bournemouth) making more than £5 million from player sales in 2013/14. Actually only seven clubs made more than £2 million. That said, Middlesbrough’s £684,000 was among the lowest in the division.

Boro’s revenue has declined dramatically since relegation to the Championship, falling by 78% (£45 million) from the £58 million peak in 2008 to £13 million in 2013/14. Most of this decrease (£34 million) is due to the far lower TV deal in the Championship, but there have also been sharp reductions in commercial income (£6 million) and gate receipts (£5 million).

The near 60% decrease in gate revenue from £8.8 million to £3.8 million was described by Boro as “the financial effect of the team’s performance”, which was fair comment after languishing in mid-table in the Championship for a number of seasons.

The 2008 reporting period included half of the 2007/08 Premier League central TV distribution of £35 million and half of the 2008/09 distribution of £31 million. Boro’s revenue was subsequently enhanced by parachute payments from the Premier League (£12 million in 2009/10, £15 million in 2010/11 and £4 million in 2011/12), but, as the club said, it “failed to benefit from the on-field investment” enabled by those payments.

It is also worth noting the impact that a good cup run can have, most notably in 2006, which included the impressive achievement of reaching the UEFA Cup final, the FA Cup semi-final and Carling Cup quarter-final.

Boro’s progress this season is all the more striking when their relatively low revenue is considered. In 2013/14 their £13 million was only the 17th highest in the Championship, being around one-third of the top three clubs: QPR £39 million, Reading £38 million and Wigan Athletic £37 million.

Money often talks in football, so it is no surprise that two of the four clubs with the highest revenue were promoted that season: QPR and Leicester City. The exception to the rule was Burnley, who had the 11th largest revenue, but even they generated £7 million more than Boro with £20 million.

Of course, those total revenue figures are heavily influenced by the parachute payments received when clubs are relegated from the Premier League. If these were to be excluded, a slightly different picture emerges with Leicester City on top of the pile with £31 million, followed by Leeds United £25 million, Brighton £24 million and Derby County £20 million.

Boro’s revenue is fairly evenly split between the three main revenue streams: commercial 36%, broadcasting 34% and match day 30%. If Boro do secure promotion, then the mix would significantly change with a much greater share being contributed by broadcasting.

In 2013/14 Boro’s broadcasting revenue fell from £4.7 million to £4.4 million, including cup competitions. In the Championship most clubs receive the same annual sum for TV, regardless of where they finish in the league, amounting to just £4 million of central distributions: £1.7 million from the Football League pool and a £2.3 million solidarity payment from the Premier League.

However, the clear importance of parachute payments is once again highlighted in this revenue stream, greatly influencing the top eight earners, though it should be noted that clubs receiving parachute payments do not also receive solidarity payments. Other money is dependent on whether a team reaches the play-offs, cup runs and the number of times a club is broadcast live.

Looking at the Premier League television distributions, the massive financial disparity between England’s top two leagues becomes evident with Premier League clubs receiving between £62 million and £98 million, compared to the £4 million in the Championship. In other words, it would take a Championship club more than 15 years to earn the same amount as the bottom placed club in the Premier League.

Obviously there is never a good time to be relegated, but Middlesbrough’s timing was really bad, given that the Premier League distributions have significantly increased since their time away via two new three-year contracts, which have basically doubled the revenue, e.g. last place has gone up from £31 million to £62 million – and that’s before the recent blockbuster deal commences in 2016.

The financial prize for returning to the Premier League would be immense for Boro. Even if they were to finish last in their first season and go straight back down, their TV revenue would increase by £58 million (£62 million less £4 million) and they would then receive a further £63 million in parachute payments, giving a total increase of £121 million. If gate receipts and commercial income were to rise to previous Premier League levels, that would be worth another £11 million, giving a grand total of £132 million. That’s an awful lot to be effectively riding on one match, i.e. the Championship play-off final.

The parachute payments are linked to the size of the TV deal, specifically to the equal shares received by Premier League clubs for both the domestic and overseas deals: 55% in year 1 (£24.1 million), 45% in year 2 (£19.3 million) and 25% in each of years 3 and 4 (£9.7 million).

These payments will surely increase as part of the new 2016/17 deal, so the potential upside following promotion would be even higher – especially if Boro could survive in the top flight for more than one season. Little wonder that Steve Gibson said, “We want promotion as quickly as realistically possible.” The size of the prize explains why so many Championship clubs push the boat out in an attempt to reach the highly lucrative Premier League.

Of course, Boro would also have to spend more to improve their playing squad, but the net impact on the club’s finances would undoubtedly be positive, as can be seen by the clubs that were promoted in 2012/13 (Cardiff City, Hull City and Crystal Palace). All three of them significantly increased their expenses, particularly the wage bills, but still substantially improved their operating profits due to the huge revenue growth.

Crystal Palace are probably the closest to Boro in terms of finances and they turned a £12 million operating loss into a £23 million operating profit, as revenue rose from £15 million to £90 million, while wages went up from £19 million to £46 million.

Obviously promotion is by no means a fait accompli, but the club apparently has a financial “plan B” if this does not happen. The accounts of Gibson’s holding company stated, “(Boro) are hoping to mount a serious challenge for promotion to the Premier League with all the attendant benefits, but with a clear cost management plan in place in the event of the club continuing to perform in the Championship.”

Gate receipts dropped 18% (£0.8 million) from £4.6 million to £3.8 million in 2013/14 following a 1,000 fall in the average attendance. This is a concern, as chief executive Neil Bausor explained, In the absence of Premier League TV money, the main income stream for Championship clubs is gate receipts.”

Boro’s £3.8 million is the 14th highest in the Championship, but to put this in perspective only three clubs generate more than £7 million (Brighton £10.4 million, Leeds United £8.6 million and Nottingham Forest £7.2 million).

Boro’s average attendance of 15,800 was mid-table in last season’s Championship, a fair way behind clubs like Brighton (27,283), Leeds United (25,088), Derby County (24,933) and Leicester City (24,916).

Clearly Boro’s attendances have fallen significantly in the Championship, exacerbated by the tough economic climate in the North East. The 2013/14 attendance was down 44% on the 28,400 achieved in the last Premier League season in 2008/09 and even more from the 2004/05 high of 32,000, though this season’s resurgence has brought some of the crowd back with the average rising to 19,562. Not bad, but that still leaves a lot of gaps at the Riverside, which has a capacity of just under 35,000 seats.

It is to Boro’s credit that they did not increase the prices for season cards for nine consecutive seasons (while also introducing an offer of a free drink at each home game), though there was a £2 rise in the match day rates for the 2013/14 season. As Bausor noted, “We recognise that the support of the people of Teesside is of paramount importance if we are to achieve our ambitions.”

However, the club has just announced that they will raise prices for the 2015/16 season by 6-7% (though it will be higher for over-65s and under-18s). Although such moves are never going to be universally popular, it is understandable that the club needs to somehow generate more money if Boro are to compete at a higher level and their prices would still be among the lowest in the Premier League.

Commercial revenue decreased by 5% (£0.2 million) from £4.9 million to £4.7 million. This comprises sponsorship and commercial income £3.4 million and merchandising £1.25 million. That’s not too bad and is actually the 9th highest in the Championship. It may be a long way behind Leicester City £19 million (boosted by a major marketing deal with Trestellar Limited) and Leeds United £12 million, but no other clubs manages to earn more than £8 million.

Boro have a five-year shirt sponsorship deal with Ramsdens, the UK’s largest independent pawnbrokers, running until the end of the 2017/18 season. The financial terms have not been divulged, but it is reportedly worth “seven figures”. Since 2009 the kit supplier has been Adidas, who replaced the previous deal with Errea, which ran for 15 seasons.

The wage bill was slashed by 22% (£4.5 million) from £20.7 million to £16.3 million, reflecting the club’s attempts to cut costs. This reduced the wages to turnover ratio from 146% to 127%, which is still unsustainably high. The last time that this ratio was at a reasonable level was in the Premier League (59% in 2008 and 75% in 2009). Even though the club has focused on cost reduction since relegation with “player wages reducing season on season following transfer sales of players on expensive Premier League contracts”, it has not proved possible to cut wages at the same rate as the revenue decline.

Almost every club in the Championship has a dreadful wages to turnover ratio with 10 of them being more than 100%, meaning that the revenue is not enough to cover the wage bill, let alone any other costs. Even so, Boro’s 127% is the 5th highest in the division with the only clubs “boasting” a worse ratio being QPR 195%, Bournemouth 172%, Nottingham Forest 165% and Millwall 132%.

However, that does not mean that Boro have one of the highest wage bills, but is more a reflection of their relatively low revenue. In fact, their 2013/14 wages of £16 million were actually only the 13th highest in the Championship. Obviously QPR’s £75 million was a ridiculous sum for England’s second tier, but Leicester’s £36 million was more than twice as much as Boro. Perhaps it is not surprising that these two clubs ended up gaining promotion, but the fact that Burnley achieved the same on a budget of £15 million should give some encouragement to less wealthy clubs.

It is likely that Boro’s wage bill will have risen in 2014/15 following the arrival of players like Kike, Adam Clayton and Emilio Nsue, not to mention three season long loan signings for Patrick Bamford, Jelle Vossen and Ryan Fredericks.

Although Boro have not gone overboard in terms of spending, it is clear that Gibson has sanctioned some significant investment in the playing squad in their latest bid to escape the Championship. During their stay in the Premier League the club had frequently spent big, though not always wisely (the heavyweight purchases of Alfonso Alves and Mido come to mind), but it had to turn the taps off after relegation, leading to £30 million of net sales in the four years between 2009 and 2013.

However, in the last two seasons Boro have had a net spend of £8.9 million. That might not sound much, but it is in fact the 5th highest in the Championship in this period, only behind Fulham, Cardiff City, Norwich City and Nottingham Forest.

To be fair, this comparison has to be treated with some caution, as the figures are distorted by clubs that were in the Premier League the previous season, either because of high spend when they were in the top flight or large sales following their relegation. Furthermore, many deals are “undisclosed” in the Championship, so might have no reported value. That said, it is clear that Middlesbrough have had one of the highest net spends in the Championship and have “gone for it” this season.

Boro’s gross debt increased slightly to £77 million, though this is entirely owed to Steve Gibson’s company. It is repayable on demand, but is unsecured and interest-free. In 2012 all the bank debt was repaid and replaced by inter-company loans to the owner. This has saved Boro a lot of money in terms of interest payments, e.g. interest payable was £4.0 million in 2011 and £5.1 million in 2009.

Furthermore, Gibson has effectively written-off £55 million in the last three years by converting this amount from loans to equity capital. This was split between £50 million in 2012 and £5 million in 2014 (the maximum permitted under Financial Fair Play regulations). As chief executive Neil Bausor put it: “The club continues to hold the enviable position of being without any external debt and with a very stable ownership.”

Of course, many clubs in the Championship have built up substantial debt with Boro’s £77 million only the 6th highest behind Bolton Wanderers £195 million, QPR £185 million, Brighton £131 million, Ipswich Town £86 million and Blackburn Rovers £80 million.

The accounts emphasise the owner’s financial commitment to sustain the club’s ambition to return to the Premier League: “The going concern basis of the company depends on funds from The Gibson O’Neill Company Limited, the ultimate parent undertaking, who will continue to provide financial support for the company for the foreseeable future.”

Without Gibson it is difficult to imagine how Boro could possibly compete in the Championship, as he essentially puts around £1 million into the club every month to cover its losses. He could potentially sell up at some stage, but realistically Boro would not be the most attractive option to overseas investors – though that might change if they do indeed reach the promised land of the Premier League with its fabulous TV money.

Nonetheless, Gibson cannot simply buy success, as Boro now need to comply with the Financial Fair Play (FFP) regulations. As the chairman explained: “Balancing the books for FFP is challenging, but we continue to provide the maximum level of funding for the first team squad that we are able to.”

"Don't push me, cause I'm close to the Edge"

Under the existing rules, clubs are only allowed a maximum annual loss of £8 million (assuming that any losses in excess of £3 million are covered by injecting equity). Boro confirmed that the 2013/14 “losses were compliant with the Football League FFP requirements, as a significant proportion of them were allowable as Exceptional Items under those rules.”

It should be noted that FFP losses are not the same as the published accounts, as clubs are permitted to exclude some costs, such as youth development, community schemes, promotion-related bonuses and depreciation on fixed assets.

The current rules will continue to apply for the 2014/15 and 2015/16 seasons (though the maximum allowed loss is increased to £13 million from the second season), but will change from the 2016/17 season to be more aligned with the Premier League’s regulations, e.g. the losses will be calculated over a three-year period up to a maximum of £39 million.

FFP encourages clubs to invest in youth development, which is an area of focus for Boro, whose academy under Dave Parnaby is regarded as being one of the most productive in England. Gibson is rightly proud of its achievements, including the awarding of the important Category One status.

"Spanish Bombs"

This has been a trying time for Boro supporters. As Gibson said: “The last few years have been challenging for all of us. When we dropped out of the Premier League we wanted to bounce straight back up and that hasn't yet happened.”

Karanka sounded the battle cry at the beginning of this season: “I know where we deserve to be – in the Premier League. It's my job to make sure that happens, and step by step we are building a new future for our club. The club is ready, the players are ready and the supporters are ready.”

There are no guarantees in football and Boro could yet fall at the final hurdle, but they are now very close to achieving that dream. After all the financial struggles and the many frustrating years, when Gibson’s support has been so vital, that would really be something.

Tuesday, May 12, 2015

Crystal Palace - I'll Fly For You

Just five years ago Crystal Palace were in administration and the South London club’s prospects looked bleak before they were rescued by a consortium of wealthy businessmen, known as CPFC 2010 and fronted by Steve Parish. They purchased the club and, importantly, also managed to convince the bank to sell them the freehold of the ground.

Since those troubling times, which included a deduction of 10 points, the club has prospered, gaining promotion from the Championship only three years after its rebirth and enjoying two seasons in England’s top flight. The journey has not been completely smooth, as Palace have had to replace their manager three times in the Premier League, though even these changes proved very timely.

First, after a slow start on Palace’s return to the Premier League, Ian Holloway, the man who had guided the team to promotion, was sacrificed for the highly experienced Tony Pulis, who steered the team to safety with a strong finish to the season. After Pulis left just before the 2014/15 season commenced, the reins were handed to former manager Neil Warnock, but a poor run of results led to Alan Pardew’s arrival in January 2015. The former Palace player has repeated the previous season’s magic and Palace are again safe from relegation.

"Mile High"

This is a far cry from their previous woes. Let’s not forget that the club had also plunged into administration during the 1998/1999 season under owner Mark Goldberg before being saved by the flamboyant Simon Jordan. After some initial success, Jordan’s tenure went the same way in 2010 as the club built up significant debts and he failed to find a new buyer. Both these owners were Palace fans, but in itself this quality was no guarantee of success.

However, it can certainly be an advantage, so long as the strategy is the right one. Importantly, the current owners, who are also Palace supporters, have focused on the right things, leading to solid progress in all areas. As Parish said, “We continue to restore the club to health both on and off the pitch.” This has resulted in a new-found stability, which is a welcome relief for a club that nearly went out of business twice in the last 15 years.

The owners have provided funding in the form of loans and share capital that have allowed Palace to invest in the squad and the club’s infrastructure, both of which had unsurprisingly been somewhat neglected after the forced administrations. That’s not to say that Palace are by any means big spenders in the rarified air of the Premier League, but they have managed to consistently punch above their weight, defying expectations that they would rapidly return to the Championship.

Instead, the Eagles have soared, making good use of the financial benefits available after promotion. The massive turnaround can clearly be seen by the impressive £23.0 million profit before tax that the club reported for the 2013/14 season (£17.9 million after tax), which was a hefty £21.4 million improvement over the previous season’s £1.6 million profit. As Pardew commented, “The club is on a great financial footing.”

Following promotion to the Premier League, revenue increased by £76 million from £14 million to £90 million, largely due to the far higher broadcasting money, which was exacerbated by 2013/14 being the first year of a new TV deal.

However, this was partly offset by a £46 million increase in expenses, comprising higher wages, up £27 million to £46 million; player trading costs (amortisation and impairment of player values), up £6 million; and other expenses, which were £13 million higher. As the club stated: “The income and expense patterns change quite radically between the Championship and the Premiership and, although the income levels are high in the Premiership, so are the outgoings.”

In addition, profits from player sales were negligible in 2013/14, so were £14 million lower than the prior season. Against that, the club paid £5 million in promotion bonuses in 2012/13.

Since CPFC 2010 came into existence, Palace have been steadily improving their profitability with losses reducing in the first two years (2011 - £9 million, 2012 - £2 million), followed by increasing profits in the next two years (2013 - £2 million, 2014 - £23 million).

As a technical aside, it should be noted that the 2011 figures were restated to reflect the full impairment of goodwill (excess of the purchase price compared with the fair value of net assets acquired) following the acquisition of the club.

Going forward, Parish has observed that “The size of last year’s profit is unlikely to be repeated as first-team wages rise and we continue to strengthen the squad”, though he added, “However, I do expect a small profit this year.”

Nevertheless, it is striking that a club the size of Crystal Palace produced the 5th highest profit before tax in 2013/14 with their £23 million only surpassed by Tottenham Hotspur £80 million, Manchester United £41 million, Southampton £29 million and Everton £28 million. Although promotion to the top tier has undoubtedly helped Palace, they have still performed much better than the other two clubs that came up that season, namely Hull City (£9 million profit) and Cardiff City (£12 million loss).

What is also interesting is that Palace have achieved these high profits without the benefit of profits from player sales, which were worth less than £100,000. In contrast, three of the clubs that reported higher profits than Palace made substantial money from this activity: Tottenham £104 million (thanks to Gareth Bale’s transfer to Real Madrid), Southampton £32 million and Everton £28 million.

This is very different from the previous season’s financials, where Palace made £14 million profit from player sales, mainly Wilfred Zaha to Manchester United and Nathaniel Clyne to Southampton, which the club rightly described as “a great testament to our continued investment in the Academy.” If the £5 million once-off bonus payment arising from promotion were also excluded, the reported profit before tax of £1.6 million that year would have instead been a £7.7 million loss.

If similar adjustments are made over the last few years, then we can see that the underlying losses were actually increasing in the Championship from £1.6 million in 2011 to that £7.7 million in 2013. However, no such factors were present in 2014, highlighting the significant improvement in profitability following promotion.

There will be at least one exceptional item in the 2014/15 accounts, as Palace will then book the £3.5 million compensation payment made to Newcastle United to secure Pardew’s services. This has to be considered money well spent, given the positive results achieved by “Pards” since his arrival, which have arguably avoided a costly relegation.

It is also possible that the exciting winger Yannick Bolasie might be sold. Even though Pardew would be loath to lose such an attacking talent, it would be difficult to refuse an offer in the region of £20 million.

Steve Parish observed that “the improved (2013/14) profit stemmed mainly from increased broadcasting income, combined with prudent financial planning and management.” That cautious approach is underlined by Palace having the highest operating profit margin in the Premier League of 25%, way ahead of the next best club, Manchester United 14%.

Operating profit margin is calculated as operating profit (i.e. profit before tax excluding player sales and interest payable) divided by revenue and is a measure of a club’s underlying profitability. What this shows is that Crystal Palace have successfully managed their cost base and are operating in a genuinely sustainable manner.

One reason for Palace’s impressive profitability is relatively low player amortisation, which is the annual cost of expensing player purchases. To clarify this point, transfer fees are not fully expensed in the year a player is purchased, but the cost is written-off evenly over the length of the player’s contract – even if the entire fee is paid upfront. As an example, Scott Dann was bought from Blackburn Rovers for a reported £1.5 million on a three-and-a-half-year deal, so the annual amortisation in the accounts for him is £429,000.

As a rule, low player amortisation normally reflects low spending on player recruitment, so the higher investment in the playing squad recently has increased the annual amortisation charge from £1 million to £7 million (including impairment).

However, despite this growth, Palace’s player amortisation is still one of the smallest in the Premier League. As might be expected, it is miles lower than big spending clubs like Chelsea £91 million, Manchester City £76 million and Manchester United £55 million, but it is also only around a third of clubs like Stoke City and West Ham, both around £18 million. However, this expense will certainly increase in the next accounts following further outlays on player purchases.

As player trading (and particularly profits from player sales) have had a limited impact on Palace’s figures, the improvement in their bottom line is very largely due to the profitability of their core operations. This can be seen by looking at the club’s EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation), which can be considered a proxy for the club’s profits excluding player trading. This was slightly declining (and negative) in the Championship, but has shot up in the Premier League, jumped from minus £6 million to £30 million in 2013/14.

The growth is pretty good, but what’s particularly impressive is that Palace’s EBITDA is actually the 9th highest in the Premier League, around the same level as West Ham. Obviously, they are a long way behind the top five (Manchester United £130 million, Manchester City £75 million, Arsenal £62 million, Liverpool £53 million and Chelsea £51 million), due to their significantly higher revenue generating capacity – despite the far higher wage bills at those clubs.

Palace’s revenue has grown by more than 600% from £12.7 million to £90.4 million since 2011, the first year as CPFC 2010 Limited. This is almost entirely as a result of promotion to the Premier League, which has contributed £76 million of the £78 million growth over this period.

The main reason for the increase in 2012 was a successful Carling Cup run where Palace reached the semi-finals, beating Manchester United on the way.

Even after the massive revenue growth, Palace’s 2014 revenue of £90 million was still only the 17th highest in the Premier League, ahead of just three clubs: WBA £87 million, Hull City £84 million and Cardiff City £83 million. They were also just behind Fulham £91 million and Norwich City £94 million, both of whom ended up being relegated, which really underlines the magnitude of Palace’s achievement in evading the drop. In fact, they did much better than that, outperforming their revenue to such an extent that they actually finished 11th.

Of course, Palace’s revenue is still miles below the English elite, e.g. Manchester United’s £433 million is nearly five times as much, while four other clubs earn more than £250 million: Manchester City £347 million, Chelsea £320 million, Arsenal £299 million and Liverpool £256 million.

Parish argues that this is just another barrier to overcome: “You have to infect the whole thing with a belief system. The people who say, ‘well, they’ve got more money than us, so we will lose’ are weak.” Stirring words, but while it’s good to avoid defeatism, history tells us that the sheer size of the financial disparity undoubtedly gives those clubs a major advantage on the pitch.

In the Championship Palace had a fairly typical, evenly balanced revenue mix with match day contributing 42% (£6.2 million), commercial 31% (£4.4 million) and broadcasting 27% (£3.9 million), but this has substantially changed in the Premier League where TV is king. As a result, broadcasting is now worth an astonishing 82% (£74.2 million) of total revenue, with match day down to 10% (£9.3 million) and commercial falling to 8% (£6.9 million).

Perhaps unsurprisingly, no club is more reliant on TV than Crystal Palace, though half of the clubs in the Premier League depend on TV for more than 70% of their turnover.

Palace’s TV revenue shot up from £4 million in the Championship, comprising payments from the Football League pool and Premier League solidarity payments, to an amazing £74 million in the top flight, almost entirely due to their share of the Premier League TV money of £73.2 million.

The distribution methodology is fairly equitable with the top club (Liverpool) receiving around £98 million, while the bottom club (Cardiff City) got £62 million. The lion’s share of the money is allocated equally to each club, which means 50% of the domestic rights (£21.6 million in 2013/14), 100% of the overseas rights (£26.3 million) and 100% of the commercial revenue (£4.3 million). However, merit payments (25% of domestic rights) are worth £1.2 million per place in the league table and facility fees (25% of domestic rights) depend on how many times each club is broadcast live.

In this way, Palace’s climb up the league table really helped boos their revenue. For example, if they had only just escaped relegation (by finishing 17th), their merit payment would have only been £4.9 million, compared to the £12.4 million they actually received. It is therefore still worth battling for position as the season draws to a close. However, Palace were held back a little by only being broadcast live 10 times, which is the contractual minimum, receiving £8.6 million, compared to, say, Aston Villa’s £13.1 million for being shown live 16 times.

Of course, there will be even more money available when the next three-year cycle starts in 2016/17 with the recently signed extraordinary UK deals with Sky and BT producing a further 70% uplift. My estimate is that a club that finishes 13th in the distribution table (as Palace did in 2013/14) would receive around £111 million a season, which would represent an additional £38 million.

Gate receipts have also grown in the Premier League, rising by 51% (£3.2 million) from £6.2 million to £9.3 million, largely thanks to the average attendance increasing from 17,278 in the Championship to 24,114 in the top flight. Although season ticket prices went up by an average of 21%, they had been frozen for fans purchasing up until the end of the previous April – and they are still among the cheapest in the division.

This is obviously an area of focus for the owners, as Palace’s match day revenue is one of the lowest in the Premier League. To place their £9 million into context, both Manchester United and Arsenal generate over £100 million a year from this revenue stream, which means that they earn more from three matches than Palace do in an entire season.

In fact, Parish emphasised this in the first set of accounts the club published post-administration: “Off the field the key aim is to increase income, the best way to do this is by increasing attendances. To support this we have invested in the match day experience.” Importantly, he added that bigger gates would also be attracted by a “better quality of football”, which has proved to be very astute, as attendances have increased by nearly 10,000 from less than 15,000 in the administration season, as the club has progressed up the league table.

Nevertheless, Palace’s average attendance was the second lowest in the Premier League in 2013/14, only above Swansea City, partly due to the low capacity of Selhurst Park, which only holds around 26,000 seats. The redevelopment of the stadium, possibly starting with a new main stand, is essentially a necessity for the team to be able to compete on a long-term basis.

The challenge will be to modernise the ground without losing the vocal, intimidating atmosphere that is part of the Palace ethos. As Parish put it, “Not having a sanitised stadium where you are religiously enforcing sitting down in every part of the stadium, where you allow the fans to express their opinions – as long as they are not offensive.”

The other area where Palace need to improve is commercial income. Although this increased by an impressive 55% (£2.4 million) from £4.4 million to £6.9 million in 2013/14, this is still the second lowest in the Premier League. Clearly, clubs like Manchester United £189 million and Manchester City £166 million are out of sight, but a more realistic aspiration might be to match the commercial revenue of clubs like Stoke City £14 million, Fulham £12 million and WBA £11 million.

In fact, Palace’s shirt sponsorship deal with Neteller (a service from online payments provider, Optimal Payments) is the lowest in the top tier at less than £1 million. Continued success in the Premier League should help drive a more lucrative deal, as the accounts noted, “the visibility of the club and the sponsors does get a very wide coverage in UK and across all the footballing world where Premiership matches are televised.” That said, it will not match the sponsorship deals at the top end, e.g. Manchester United’s Chevrolet deal is worth £47 million, while Chelsea have recently signed a new agreement with Yokohama Rubber for £40 million.

Palace also signed a new kit supplier deal for the 2014/15 deal with Macron, who replaced Avec, a subsidiary of Nike, as a sign of their more elevated status.

Given Parish’s commercial background, it is hardly unexpected that the owner is keen to “create a brand position for the club” that could be the source of future sponsorship income, based around qualities like its South London identity, a magnificent crowd atmosphere and player development. Parish himself noted that “over-achieving and ambition, a bit of showbiz and excitement, a certain style of playing – with wingers – have been part of our DNA, our brand for many years.”

The wage bill more than doubled, rising £27 million from £19 million to £46 million in 2013/14, but the important wages to turnover ratio was reduced from 129% to 51%, due to revenue growth (though the prior season also included £4.6 million of promotion bonus payments). In addition, the number of full-time players, managers and coaches increased from 57 to 88, reflecting the fact that “the depth of the squad is bigger than in the Championship” in order to have enough cover to cope with the more challenging requirements of the Premier League.

Palace's wages to turnover ratio is actually one of the best in the Premier League, only beaten by Manchester United's 50%, but is considerably lower than other clubs, e.g. WBA 75%, Fulham 75% and Sunderland 67%.

That is because (and stop me if you’ve heard this one before) Palace have one of the lowest wage bills in the Premier League, only ahead of Hull City, which goes a long way to explaining their high operating profits. To place this into context, recent opponents Manchester United’s wage bill of £215 million is nearly five times as high as Palace’s £46 million. While this might be an unrealistic comparison, it is worth noting that no fewer than nine clubs have a wage bill in the £60-70 million range, which highlights Palace’s test.

However, Parish has observed that “Just because a player is being paid 10 times more does not mean he is 10 times better than another professional footballer.” This point has some merit, as can be seen by the three clubs relegated in 2013/14 all “boasting” higher wages than Palace: Fulham £69 million, Cardiff City £53 million and Norwich City £50 million.

That said, there is normally a strong correlation between a club’s wage bill and sporting success, so Palace will have to somehow increase revenue to fund wages growth (assuming that they do not abandon their sustainable approach). Indeed, Parish has already indicated that the wage bill is likely to rise again this season, as the squad is strengthened.

One group that has not increased the wages is the directors and owners, as they have not taken any salaries from the club and have provided their services and guidance free of charge.

After many years of net sales, including some forced player selling as a result of administration, Palace have made net transfer expenditure of £52 million in the last two years (per the Transfer League website).

Incredibly, this is the 6th highest in the Premier League over that period, only behind the usual supsects (Manchester United, Manchester City, Arsenal, Chelsea and Liverpool). However, in many ways this is simply the logical result of promotion, as the club explained, “We had to assemble a team to compete in the Premiership in a reasonably short window”, adding “It is the intention of the board to strengthen the squad further to give the club the best chance to compete at the very top level.”

Palace have managed to do this without taking on any external bank debt. The only debt that the club has is £10.7 million of interest-free shareholder loans, split between the four owners: £3.0 million from each of Steve Parish, Stephen Browett and Jeremy Hosking plus £1.7 million from Martin Long. In fact, once £27.2 million of cash is considered, the club actually has net funds of £16.5 million.

In addition, £2.7 million is owed to other football clubs for transfer stage payments, while Palace also have quite high contingent liabilities of £10.4 million. As well as the usual supplementary transfer payments dependent on things like number of appearances, there is a specific sum of £5.1 million set aside for if the club retains its Premier League status. Palace have made good use of such self-financing incentive schemes in the past, both for avoiding relegation and winning promotion.

Given Palace’s previous flirtations with bankruptcy, their new prudent approach to debt is a breath of fresh air, as Parish explained: “We are not going to mortgage the future of the club, it is as simple as that. It is important we have a football club to support and we don’t put ourselves through the things we have been through in the last few years. That is the primary objective, to stay in business.”

This attitude is evident from looking at the cash flow statement, which includes no external funding since the club exited administration. Instead, the owners have provided £14.7 million of financing, split between the £10.7 million of debt and £4.0 million of new share capital. In fact, the club has not needed any additional funding since 2012.

The impact of promotion to the Premier League is particularly striking as Palace generated an impressive £49 million from operating activities in 2013/14, spending £20 million on player purchases (net) and £6 million on capital expenditure, while putting £24 million into the bank account.

The capex was used in many areas, including the purchase of the training ground at Copers Cope Road in Beckenham for £2.3 million, new bar and restaurant facilities in the stadium, improvements to the retail catering areas and a new pitch with undersoil heating (though on recent evidence the pitch still leaves a lot to be desired).

That is a lot of investment for a club of Palace’s size, but Parish believes that it is absolutely necessary: “We had been under-invested for various reasons for 20 years – that was when we last had any major infrastructure addition – so there’s a lot to do.” More positively, this is also aimed at changing the psychology of people: “infrastructure, training ground, stadium – we can make it the best it can be.”

Interestingly Palace’s cash balance of £27 million was only a little below Newcastle’s £34 million, but the two sets of supporters have greeted the news very differently, as there is an expectation from Eagles fans that their board will invest the money (and invest it well), while Mike Ashley is not trusted to do the same. To that point, Palace’s accounts note that the club has spent £13 million on purchasing new players since 30 June 2014, while only receiving £1 million proceeds from player sales.

There has been much media speculation about some sort of new investment to take Palace “to the next level”, specifically mentioning American private equity investor Josh Harris, who owns the Philadelphia 76ers basketball team and the New Jersey Devils in ice hockey, but Parish is at pains to say that “it has to be right” for him and his three co-owners.

It is not hard to see the appeal on both sides. Investors would be attracted by Palace’s recent progress and (especially) the blockbuster Premier League TV deal, while the club would secure the funding it needs to improve its facilities. As Parish put it, “I need to move the club forward as quickly as I can without taking risks and diverting money from the playing side to do the infrastructure.”

He was swift to allay supporters’ concerns: “Nobody is going to take this football club over and put it in debt and ruin five years of work that we’ve put in.” So investors would only be brought in if they were right for the club. The key word here is “investors”, as opposed to buyers, with Parish still running the club on a day-to-day basis.

"Game, set and match to Murray"

In the meantime, Crystal Palace have come a long way (baby) since the days of administration. As Parish said, “The first thing we needed to do was pull some rabbits out the hat, get to the Premier League and stay there. We have achieved that in a financially prudent way.”

Mission accomplished, but now it is all about building an established Premier League side “whilst continuing to minimise financial risk”. That is a tough challenge and the possibility of relegation in future seasons must still be a concern, given Palace’s meagre financial resources. Then again, under the new ownership this club has outperformed for the past few seasons and would prefer to look forward rather then behind them.

Their manager Alan Pardew neatly summed up the club’s current position: “We have got a good base of players here and with three or four additions to the group in the summer, we could be strong candidates for the top ten. But we need to recruit well. It is the key to progressing in the Premier League.”

Obviously, that is easier said than done, but it will be interesting to see if the Eagles can continue flying high. It has certainly been enjoyable following Palace’s Phoenix-like rise from the ashes, but the Premier League can be an unforgiving place, and only time will tell if they can maintain their momentum.
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