An Interesting Twitter Thread on the Club's Recent Finances (PT "

Thanks for the clarification

 

Really? Wheres that from? Hadnt seen a figure

 

@Red Rain sent me this financial analysis previously and is happy for me to share with those interested:

The Financial Statements for the 2017/18 Season (Part 1)


My task when interpreting the Financial Accounts covering last season is a hard one. First of all, I must tell readers what their meaning is in relation to last season, our relegation season. The second thing that I must do is try to predict how they affected thinking in relation to this season, and the third thing I must do is try to relate that logic to the logic of SCMP, which as I have said in the past, has more relevance to the way that we have traded this season than does our financial position and stability.


2018/19 Season and SCMP


You see, SCMP does not care how much cash a club has in the bank, or how financially secure it is. It cares only about levelling the financial playing field. It evens out the game at League 1 and League 2 level, even if that means that clubs will struggle to compete should they win promotion to the Championship. It tries to achieve that by limiting spending on player wages to 60% of turnover. The Financial Statements are more detailed this year, and in theory at least, they provide us with more information. For example, the Turnover is broken down this year


2018 2017


Football League Distributions 7,881,071 7,034,853

Match Day 3,618,506 3,662,028

TV & Broadcasting 278,581 214,500

Merchandise 720,423 670,103

Sponsorship & Advertising 509,976 401,799

Other Turnover 969,643 518,152


Total 13,978,200 12,501,435


The first problem that we have when trying to work out what SCMP allows for the total wages figure for the 2018/19 season, is that we need to arrive at an estimate for turnover for that season. Firstly, the figure for Football League Distributions is automatically reduced because of our relegation. In the recent Supporter Liaison Meeting, Paul Conway said that whilst other income had held up quite well, there was a £6m reduction in Football League Distributions. This immediately reduces turnover from close to £14m to nearer to £8m. That is not all though, because SCMP Turnover on things like match day entertaining is net of food costs and directly attributable staff wages, and merchandising is net of the cost of the merchandise and wages directly attributable to the club shop. I honestly do not know what the net figures will be reduced by in order to properly account for the cost attributable to these sales, so I will have to guess. My guess is £0.5m. Feel free to apply your own guesses. That gives a turnover figure of £7.5m. The next thing that we must do is to add the transfer profit on the sale of players during the season. That figure will not be known at the start of the season, so some basic assumptions will have had to be made, and remember, we are not talking about the selling price of the player sold or the cost price of the player purchased. We are talking about transfer cash actually received in the season net of transfer cash actually paid out. To that figure, we must add the cash received in respect of players sold in previous seasons, less cash paid in respect of players bought in previous seasons adjusted for any interest retained in future transfers by the selling clubs. My guess is that for SCMP purposes we broke even on Knasmullner, made a small cash surplus on Bradshaw less Woodrow and a significant cash injection because of the first instalment of the Potts transfer. As for the figure to be added in respect of prior year player trading, I’m afraid it requires too many guesses to be useful, but the Balance Sheet claims that we were owed £2.5m and owed £1.3m in respect of past transfers, and it would not seem unreasonable to expect to have received most of the net sum (£1.2m) during this season. I am going to assume a figure of £1.5m, but once again, there is no actual basis for that figure, so feel free to make your own guesses.


The purely arbitrary figure that I have arrived at in respect of SCMP Turnover is £9.0m.


Quite helpfully, another figure given in the Financial Statements this year is that for pay. The total (inclusive of Social Security and pensions) is £10,598,821 (£8,641,233). However, only some of that sum will be attributable to the SCMP calculation. On the basis of the staff analysis given, Administrative and Commercial Staff and Matchday Staff will not be included. But the actual calculation refers only to the Matchday squad, say only 23 of the 173 listed under the heading Footballing Activities. Nevertheless, although the accounts list a total of 240 employees, and SCMP is interested only in approximately 23 of them, those 23 will account for the majority of the £10m wages cost. However, we also know that the players’ contracts built in an automatic reduction for relegation to League 1. The question is, does that reduction make the club SCMP legal. I have guessed SCMP turnover for season 2018/19 at £9.0m including all adjustments. That would allow us to spend just over £5m on wages in respect of our first team squad in order to comply with SCMP rules. So the question is, how much will the 23 players first team squad have cost this season, and is that figure less than £5m. I must confess that I have no idea, but as a broad brush, I reckon that a player is paid at a rate of 50% pa of his transfer fee/notional transfer value. On that basis, the question we need to ask is whether the squad of 23 has a transfer value of more or less than £10m.



The whole purpose of going through this calculation was not to complete the club’s SCMP declaration, it was to illustrate that SCMP has had more effect on policy than anything else this season. Of course, there is a mechanism whereby rich owners can avoid all the consequences of breaking SCMP regulations. They can make donations or they can make additions to share capital. Both make notional increases to the turnover figure for SCMP purposes and therefore, the amount that can be paid out in player pay. Patrick Cryne made a donation of £400k for that very reason during our last promotion season. The club will still have plenty of cash in its Balance Sheet and owed in instalments of past transfer fees. That was not the limiting factor in respect of January transfer activity, the reason that the club did not sign the players it needed in order to negate the risk of injury and loss of form. On the contrary, it could have easily afforded the fees involved. The problem was probably that the wages of those additional players would have taken the club beyond the Salary Cap, and the new owners were not willing to bridge that gap via the donations/share capital route. Indeed, Mr Conway suggested that our new owners believe in fair play, and class financial overspending as cheating. Just do not mention that to the Wolves owners. Wolves’ promotion reportedly cost £57m, but I am sure that their owners now regret it, languishing as they are in the top half of the Premier League.


Whilst there has been a trend to sign players on longer contracts as many thought they should, this was not really the reason for our January demise in 2016/17. The real reason was that too many of our better players had contracts that matured at the same time, meaning they either they all had to be sold, or all their value would be lost in June, when their contracts terminated. The new owners have no real answer to this conundrum, and they have stated that players in the final year on their contracts, who refuse an offer to re-sign, will be sold. Exactly the same policy as that enacted by Mr Cryne, for which he received bitter criticism. The real thing that has changed is that the players being signed to longer contracts are younger. Not only is this a riskier strategy, because a player’s promise has not been confirmed by consistency of performance yet, but also because in many cases, these players are not yet ready for first team football, so there is a gap in the availability of cover for the first team squad. Nevertheless, because these younger players are paid much less as compared to their older team-mates, they offer a promising strategy to control pay growth. Because they have focused on tomorrow, the board has taken its eyes away from today. The first team squad is not deep enough, not strong enough, and does not offer enough options tactically.


To be honest, the impression that the publicity surrounding our new owners gave was of a group with very deep pockets indeed. OK, they said that they were not going to do anything “crazy”, but since they took charge, it has largely been the opposite. They inherited a very strong Balance Sheet, but since they took power, we were relegated in their first 6 months reducing turnover by £6m, we have continued to sell players, even players not approaching the end of their contracts (Potts) and we have left ourselves with no cover for injuries for the 2018-19 season run in. We even allowed a new signing to play out his loan period at Bradford City because it did not seem like value for money to pay back his loan fee. It all looks like penny pinching to me. Our coach has few options to make changes from the bench and even fewer as regards system changes.

 

The Financial Statements for the 2017/18 Season (Part 2)

2017/18 Season – Following the Cash


When people are presented with a set of Accounts, the question at the forefront of most minds will be, “Where has all the cash gone?” And yet, most people are bored before they get to the place where that question receives its answer. In fairness, last year, there was no Cash Flow Statement, or Movement of Funds Statement, as it was called in my day. I had to make my own up, and because some of the figures that I needed were not there, there were a few fudges. This year, we have the luxury of a Cash Flow Statement as part of the Accounts pack, so it would seem that I have no work to do. Well, the presentation of the Cash Flow Statement is laid down in law, but in the case of Barnsley FC, it hides some of the more interesting detail, so I am going to use a hybrid system in order to give people more information. More fudges!


Remember that these figures are arrived at by comparing the figures in the Balance Sheet for this year to that of the previous year. In most cases, a detailed analysis of the changes would give even more information. The Cash Flow Statement looks at the differences in overview, and consequently, much of the detail is lost. I also believe that it makes more sense to begin with the difference between the opening and closing bank balances, and to reconcile individual movements to this figure. So that is where I will start.


The balance that the club holds at the bank remained virtually unchanged for the year (£5,608,304 v £5,691,387), but that does not mean that the club has hoarded its cash away. On the contrary, it was very busy in the transfer market. However, the cash that it needed to fund its transfer activity came from other sources.


Cash Flow Statement


Opening Balance at Bank 5,691,387

Closing Balance at Bank 5,608,304


Cash Used in the Year (net) -83,083


Cash Generated

Reduction in Trade Debtors (see note 1) 3,123,327

Increase in Trade Creditors (see note 2) 656,158

Increase in Other Creditors 25,331


Cash Generated (Balance Sheet movements) 3,804,816

Cash Generated from Player Sales (net) (see note 7) 3,805,375

Less Cash used in Trading Operations -1,582,740

Net Cash Generated from Trading (see note 3) 2,202,635


Total Cash Generated 6,007,451


Cash Used

Increase in Stock -24,069

Increase in Other Debtors -35,936

Increase in Prepayments and accrued income (see note 4) -337,779

Decrease in Accruals & Deferred Income (see note 5) -261,302

Loan Repayment (see note 6) -24,025

Purchase of Intangible Fixed Assets (see note 7) -5,207,096

Purchase of Tangible Fixed Assets (see note 8) -200,327


Total Cash Used -6,090,534

 

The Financial Statements for the 2017/18 Season (Part 3)

Notes:


1. When we sell a player, the sale proceeds are often paid in instalments. The full proceeds are accounted for in the Income Statement, even though only a proportion of the agreed fee has actually been received in cash. The unpaid proportion is kept in Trade Debtors. At the start of the year, Trade Debtors amounted to 5,927,700 of which £5,644,145 related to amounts owing to the club for unpaid transfer fees. At the end of the year, those figures were £2,804,373 and £2,565,557. In other words, the amount due on unpaid transfer fees had been reduced by £3,088,588. This figure may include new unpaid balances for players sold during the 2017/2018 season. We are not privy to the detail, just the net effect, which is that reduction in Trade Debtors brought in a net cash inflow of £3,123,327 in total.


2. Just as players purchased from Barnsley FC are subject to payment by instalments, so players bought by Barnsley FC are also purchased on similar terms. Also, sometimes the purchase agreement for a player includes a sell on clause to the selling club. When a player is sold, the sell on clause is paid according to the same payment terms as the rest of the sale. Those unpaid instalment will also appear here. The total increase in Trade Creditors was £656,158. Of this amount, £560,000 relates to an overall increase in instalments on transfer fees due for payment at a later date. This too represents a source of cash.


3. Although the reported loss for the year was £176,331, this has become a positive contribution to cash balances of £2,202,635 on the Cash Flow Statement. How is that possible? Well some of the expenses written off to the P&L Account for the year and included in the reported loss do not involve a movement of cash. For example, amortisation of transfer fees (Intangible Fixed Assets) over the term of the players’ contract does not involve a movement of cash and has to be ignored in the Cash Flow Statement. The figure for amortisation of Intangible assets is £2,234,872. Since this accounts for the great majority of the difference, I will not bore readers with other details. The reported loss includes net cash generated from the sale of players during the year (£3,805,375.



So together these three sources represent cash generation amounting to £6,007,451. Next, we will look at how that cash was spent.


4. My guess, and in this case it is no more than a guess, is that this is part of the Football League distribution due for the season, but which was not received until after the end of the accounting year.


5. The club actively encourages season ticket holders to renew early through discounting prices prior to the end of the season. This is income that relates to the following accounting year, and which must be accounted in that year, so it is prepaid. Because the club was relegated, many season ticket holders did not wish to commit as early as in the past, and indeed, many did not renew. At the year end, the income prepaid by season ticket holders reduced by £261,302, although it was still £2,161,179. By providing the club with an indication about its Match Day Income for the following season, season ticket holders allow the club to forward plan with some degree of confidence. If the club is to produce accurate plans for spending, it is first important that it has good indications about the expected level of its turnover.


6. It looks like Patrick Cryne took back a very small part of his loan during the year (£24,025). In the figures produced by the club auditors, the write off of the rest of the loan has been treated as a movement of cash. I have not done so because the loan (£6,288,071) simply moved from “Loan” to “Share Premium”. The question is, “Why was it done this way”. Well, if Mr Cryne had simply written off the amount he was owed, that amount would have been written back to the Income Statement. Effectively, the club would have made a profit of over £6m for last year. But it only has tax losses brought forward of £912,079, so over £5m of the profit would have incurred Corporation Tax, almost £1m at the current rate of 19%. By including the sum as Share Capital (Share Premium), Mr Cryne locks up the sum for ever and it enables the club to avoid a Corporation Tax charge. His final gift if you like. Of course, we do not know for certain what the new owners paid for the club, though it was reported as £2.5m, but by locking the loan up in Share Capital, Mr Cryne also increased the amount that he paid for the club and mitigated any possibility of Capital Gains Tax charge (15%) on the difference between the cost (amount paid to the Administrator of Barnsley FC Ltd plus loan capitalised to Share Premium) and the amount received, assuming of course that the cost is lower than the amount received.


7. The heading, “Purchase of Intangible Assets”, is a fancy way of saying Player Transfer Fees Paid. I must first explain how the Financial Statements account for Player Transfer Fees. The full fee payable for each player, including intermediary and agent fees, is capitalised, even though part of the fee may still be payable in instalments that have not yet fallen due for payment at the date of the year end. The full fee is then written off against profit over the term of each individual player’s contract. E.g. a fee of £1.5m for a player who signed a 3 year contract is written off at £500k per year. The place where the remaining balances not yet written off is kept is called “Intangible Assets”. When a player is sold before his contract terminates, the amount of the original cost, and the accumulated amortisation are written out of Intangible Asset balances. Thus, the original cost of £200, 833 and the amortisation relating to that cost of £186,515 (£14,318 net) relate to player or players sold during the year. Note 7 of the club accounts tells us that the club made profits on player trading of £3,791,057 (£3,805,375 gross cash received net of deductions of agents fees and sell on clauses payable to player’s previous club). See also note 3 above. I am sure that there will be some who wish to attach names to the fees, but my head hurts. The additions during the year (the transfer fees for players bought in the year) was £5,207,096. I am sure that there are those who would want to attribute names and individual fees to that figure as well, but as I say my head already hurts from typing this stuff, without getting in to that analysis as well. Its time you lot did some work anyway.


8. The club bought other fixed assets with a total value of £200,327. That is broken down as follows:


Plant & Machinery £176,836

Fixtures & Fittings £6,291

Motor Vehicles £17,245



So that explains where all the cash came from, and where it went. All that is left to do is to note anything else of interest in the accounts.




Other Points of Interest



1. First of all, there is no Director’s Remuneration, no Share Dividends and no other way for the new owners to take money out of the club other than through properly documented expenses claims. Mind you, those would not be insignificant given the director’s current domiciles and cost of flying in for matches/meetings.


2. The club pays £150k per year to least the ground from Oakwell Community Assets, the company owned 50% by the Cryne family and 50% by Barnsley MBC.


3. Share Capital (excluding Share Premium (see note 6 above)) amounts to just £2, but this is split into 2,000 shares of 0.001p each.


4. The notes prepared by Gibson Wilkinson contain some errors. None of them are material, but nevertheless, they should have been picked up in the checking process. See note 20, note 25 and note 26. I will be asking questions later.


5. The ultimate holding company of Barnsley Football Club (2002) Ltd is BFC Investment Company Ltd, a company registered in Hong Kong. I have tried to look at information on file for this company via the internet. I am particularly interested in the shareholders, because they are ultimately the shareholders of Barnsley FC via that company. So far, I have failed to access that information and Mr Conway ducked the question when it was tabled before the last Supporter Liaison meeting.



Well that is me done. It is a long time since my head hurt so much. I hope that I have brought a deeper understanding of a very complex area, but sadly, I doubt it.