Stoke City - You Better You Bet

Year after year Stoke City make it clear that the club’s primary objective is to “maintain its Premier League status” and that was duly achieved in 2013/14, as they finished in a comfortable 9th position. This means that Stoke are now in their seventh consecutive season in the top league.

Once again, the support of the Coates family’s investment in Stoke City through their company bet365 was critically important, as they provided an additional loan of £15 million to fund further investment in the playing squad, increasing the club’s debt to their owners to £57 million.

For a long time the owners have been “committed to reducing the club’s reliance on bet365 and, over the medium term, to make it self-sufficient” and the latest financial figures make this seem a lot more likely than before.

In 2013/14 Stoke improved their bottom line by an impressive £35 million, converting a £31 million loss the previous season into a £4 million profit and reporting record revenue of £98 million, up 48% (£32 million) from £66 million.

The £35 million profit improvement was almost entirely due to the new Premier League television deal £31 million plus an £8 million reduction in player amortisation/impairment, partly offset by a £3 million increase in other expenses.

This was the first time that Stoke had made a profit since 2008/09, when they registered a small surplus of £0.5 million in their first season back in the top flight. In fact, in the eight seasons leading up to 2013/14 the club had made cumulative losses of £64 million. In fairness, nearly half of that (£31 million) came last year as Stoke invested heavily to ensure that they remained in the Premier League in order to benefit from the new TV deal.

Revenue increased £31.8 million (48%) from £66.5 million to £98.3 million in 2013/14, the major reason being broadcasting, up £30 million (65%) from £46.2 million to £76.2 million, driven by that new PL TV contract. Although the other revenue streams also increased, the growth was much smaller: commercial income up £1.6 million (12%) from £12.8 million to £14.4 million and gate receipts up £0.2 million (4%) from £7.5 million to £7.7 million.

This is nothing new. In fact, apart from TV money, the other revenue streams have essentially been flat since 2011: in that period commercial income has risen by only £0.8 million (6%) from £13.6 million to £14.4 million, while gate receipts have actually fallen £0.8 million (9%) from £8.5 million to £7.7 million.

To be fair, 2010/11 was arguably the most successful campaign in Stoke’s history, as they reached the FA Cup final for the first time and qualified for Europe as a result, because the eventual winners Manchester City went into the Champions League. In financial terms, that success boosted gate receipts and merchandising sales in that season. The following year was then inflated by £4.5 million generated from the Europa League run.

The increase in TV money means that Stoke’s turnover is now even more reliant on this revenue stream, increasing from 70% to 77%. Commercial income is down to 15%, while gate receipts only contributed 8% of total revenue in 2013/14.

Stoke’s achievement in staying in the Premier League for so long is really placed into context when you compare their revenue to other clubs. In 2012/13 Stoke’s revenue of £66.5 million was the 17th highest in the top tier, only above QPR, Reading and Wigan, i.e. the three clubs that were relegated that season.

Although Stoke’s revenue significantly increased in 2013/14, every other club will report similar growth, as they all benefit from higher distributions from the new Premier League TV deal. Furthermore, the leading clubs enjoy massively higher revenue, e.g. Manchester United’s £433 million is more than four times as much as Stoke’s £98 million.

Stoke’s share of the TV deal increased by an amazing 70% (£31 million) from £45 million to £76 million, not just because of the new deal, but also partly due to a higher merit payment, as they finished 9th compared to 13th the previous season.

It should be noted that the majority of the money is distributed equally among all Premier League clubs (50% of the domestic deal and 100% of the overseas deals), but there are different payments depending on where a club finishes in the league table (merit payment) and how many times the club is shown live on TV (facility fees).

Some critics have derided Stoke’s rather rudimental playing style, which (rightly or wrongly) might help explain why Sky broadcast them so infrequently. Each club is guaranteed a minimum facility fee based on 10 live games, but Stoke were only shown seven times in 2013/14.

Although gate receipts increased from £7.5 million to £7.7 million, this remains one of the lowest in the Premier League. At the other end of the spectrum, Manchester United and Arsenal both earn more than £100 million of match day revenue, which works out to around £3.5 million a match. In other words, they generate almost as much as Stoke’s annual gate receipts in just two matches.

Stoke have secured planning permission to expand the 27,700 capacity of the Britannia Stadium to around 30,000, but those plans are apparently on hold for the moment, as the club seemingly prefers to invest any available funds into their training facilities and youth academy.

This may also be due to attendances falling, as the average league attendance has dropped by over 1,000 in the last two years: 2011/12 27,216; 2012/13 26,922; and 2013/14 26,134.

Commercial income rose 12% (£1.6 million) to £14.4 million, largely due to sponsorship and advertising revenue increasing by 25% (£1.5 million) from £6.2 million to £7.7 million. The other streams were relatively flat: conferencing and hospitality £3.4 million, retail and merchandising £2.1 million and other operating income £1.3 million.

Again, Stoke’s commercial income of £14 million is dwarfed by the leading clubs, e.g. the two Manchester clubs significantly grew their commercial revenue again in 2013/14: United to £189 million and City to £166 million.

Stoke’s current shirt sponsorship with (you guessed it) bet365 is worth £3 million a season. This 3-year deal was signed in 2012, replacing the long-standing agreement with Britannia, who became Stoke’s official banking and community partner while also retaining naming rights for the stadium. Of course, this deal is a long way behind the “big boys”: United – Chevrolet £47 million, Arsenal – Emirates £30 million, City – Etihad Airways £20 million, Liverpool – Standard Chartered £20 million.

From the 2014/15 season Stoke’s kit deal is with Warrior, the US manufacturer most closely associated with Liverpool, who have succeeded Adidas.

The wage bill appears to be virtually unchanged, rising just 0.4% from £60.3 million to £60.6 million, though it is possible that the previous season’s figure includes the £2.85 million paid to Tony Pulis and his coaching team following their departure (the club only said that it was included in “operating expenses”).

Either way, Stoke’s wages to turnover ratio has improved from 91% to 62%, thanks to the significant revenue growth. This is the lowest since the 56% reported in 2008/09, the first season back in the Premier League.

Stoke have generally performed to expectations based on their wage bill. For example in 2012/13 they had the 12th highest wage bill and finished 13th. Once all the 2013/14 accounts are published, it is likely that they will be seen to have outperformed last season by finishing 9th, given that there is normally a very close correlation between wages and success on the pitch. For example, the top four wage bills in 2013/14 were Manchester United £215 million, Manchester City £205 million, Chelsea £193 million and Arsenal £166 million.

Although it is clearly a major challenge for Stoke to compete on wages, Chairman Peter Coates is very aware of its importance, being quoted in one set of accounts thus: “The football club's main risks and uncertainties centre around the ability to train, acquire and develop players to sufficient standard to retain and improve its position in the Premier League.” In simple terms, that is only possible by paying players a decent salary to attract them to the Brittania.

Since Stoke’s return to the Premier League they have invested heavily in player recruitment. In just five years between 2008/09 and 2012/13 they had a net spend of £88 million, as they built a competitive squad, splashing out on the likes of Peter Crouch, Kenwyne Jones, Wilson Palacios and Cameron Jerome.

However, they have not been so expansive in the last two seasons, making a number of free transfer signings (Phil Bardsley, Steve Sidwell, Mame Biram Diouf, Stephen Ireland and Marc Muniesa), resulting in a net transfer spend of just £5 million. This is lower than all but three Premier League clubs: Burnley, Southampton and Tottenham – and the last two clubs’ figures are a little misleading, as they are only so low due to hefty player sales, which have then funded numerous acquisitions.

The modified change in approach towards player signings is reflected in player amortisation (the annual cost of writing-down transfer fees), which rose significantly from £0.3 million in 2005 to peak at £22.2 million in 2013, before falling back to £16.3 million last season.

Although net debt only increased by £2 million from £36 million to £38 million, this was largely due to cash balances rising £13 million from £7 million to £20 million, and gross debt was actually up £15 million from £42 million to £57 million. The good news is that this is all owned to Stoke City Holdings Ltd, which is ultimately owned by bet365 (under the control of the Coates family). In other words, Stoke City have no external debt with banks, but an “in house” debt to their owners in the form of interest-free loans with no fixed repayment term.

The accounts highlight the importance of bet365’s ongoing investment and support. Although cash flow from operating activities is positive, the money required to fund investment in players has only been covered by frequent loans from the owners. In fact, since bet365 took control in May 2006, they have put in nearly £100 million (£95 million of loans and £2 million of share capital).

Although the Coates family might be keen to reduce their (financial) support, up to now they have still needed to sign some big cheques, advancing additional loans of £33 million in the last two seasons alone (£15 million in 2013/14 and £18 million  in 2012/13). Not only have they provided this funding, but they have also written-off £32 million of it by converting some of the loans to equity. In fairness, they can probably afford it, as the Sunday Times Rich List revealed that they had become the UK’s first betting billionaires.

However, the additional money from the 2013/14 Premier League TV deal, together with the adoption of the new Premier League financial fair play rules, which essentially prevent most of that higher revenue being used to increase wages (as has traditionally happened with previous TV deals), means that Stoke’s business model may well change to self-sufficiency.

Of course, this will only be the case if Stoke manage to extend their stay in the lucrative Premier League. There are encouraging signs that Mark Hughes’ team is more than capable of doing this, but the reality is that it will be even more of a dog fight in the bottom half of the table in future, as many clubs will do their utmost to stay at the top table for the very same reasons.

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Chelsea - Hey Hey, My My (Into The Black)

By the standards of most clubs, Chelsea’s 2013/14 season was pretty good, as they finished 3rd place in the Premier League and were semi-finalists in the Champions League, but it must have felt a little disappointing after capturing silverware in each of the previous two seasons: the Europa League in 2012/13 and, most memorably, the Champions League and FA Cup in 2011/12.

However, this did not stop their progress off the pitch, as they reported record revenue of £320 million, up 25% on the prior year, and profit of £19 million (before tax), compared to a loss of £51 million in 2012/13. Equally importantly, given Chelsea’s history of being bankrolled by their owner Roman Abramovich, these results ensured that “UEFA’s break-even criteria under the Financial Fair Play (FFP) regulations continue to be satisfied.”

Chairman Bruce Buck was keen to note that the club’s new focus on its finances had not dramatically impacted their performance on the pitch, “while improving our financial figures, we remained competitive in football’s toughest competitions.”

In 2013/14 Chelsea improved their bottom line by £70 million, as they managed to convert a £51 million loss before tax to a £19 million profit. After tax, the figures improved from a £49 million loss to an £18 million profit.

The £70 million profit improvement was mainly driven by significantly higher profit on player sales (Luiz, Mata and De Bruyne), which increased by £51 million to £65 million, and revenue growth, including £39 million from the new Premier League TV deal and £29 million from sponsorship and merchandising income. This was partially offset by higher player costs with the wage bill up £20 million, amortisation (cost of expensing transfer fees) up £14 million and impairment (writing down player values) of £19 million.

This is the second profit Chelsea have made in three years and the largest since Abramovich became owner of the club in 2003. When they were making large losses, the club famously predicted that they would break-even one day and this has now become a reality, albeit a few seasons after they hoped to achieve this milestone. It should be noted that the £1.4 million profit registered in 2011/12 was largely due to £18.4 million profit on the cancellation of preference shares previously owned by BSkyB.

Of course, Chelsea have been making substantial losses in the Abramovich era, amounting to £631 million in the eight years up to 2011, including a hefty £140 million loss in 2005, as the owner poured money into the club to build a competitive squad.

Part of this is due to so-called exceptional items, which have increased costs by £121 million in the last decade, due to compensation paid to dismissed managers £61 million, impairment of player registrations £28 million, the early termination of a former shirt sponsor £26 million and tax on image rights £6 million.

However, it is profit from player sales that is having an increasing influence on Chelsea’s figures. In the seven years between 2005 and 2011, Chelsea made £73 million from this activity, but have made £108 million in just three years since then, most notably £65 million last season (up from £14 million), largely due to the sales of David Luiz to Paris Saint-Germain, Juan Mata to Manchester United and Kevin De Bruyne to Wolfsburg. In particular, Chelsea would have made a loss of £46 million instead of a £19 million profit without these sales.

Chairman Bruce Buck played this down, “we financed player purchases from sales”, but there’s a lot more to it than that. The strategy is to acquire young talent and develop it in a cost-effective way, making extensive use of the loan system, notably at Dutch club Vitesse Arnhem, which appears to be an unofficial feeder club for Chelsea.

On a few occasions, a player will succeed in establishing himself in Chelsea’s first team, one example being goalkeeper Thibaut Courtois, but most players are effectively being developed for future (profitable) sales, while being placed in the shop window at the same time. Not every player will bring in big money, of course, but the strategy only needs a couple of lucrative sales to be successful. Although it will be far from easy to sustain these profits, we already know that next season’s accounts will also be boosted by the £28 million sale of Romelu Lukaku to Everton.

This approach has been questioned by some commentators, especially as an incredible 30 players have left Chelsea on loan this season, but the Blues are by no means the first club to adopt such a “buy low, sell high” strategy with Udinese having done similar for many years. Complaints would include treating players like stocks and shares, not to mention ensuring other clubs cannot buy this promising talent, but there are no rules against it – yet.

It is undoubtedly a smart strategy in the FFP era, as the club had to wean itself off its reliance on its Russian owner to cover its operating losses. Basically, any investment in a youth academy can be excluded from the FFP break-even calculation, while profits made from player sales are included in the analysis. Furthermore, if the players are loaned, then most of the wages are covered by the loanee clubs.

It remains to be seen whether more academy players make it at Chelsea, though there are high hopes for Ruben Loftus-Cheek, Lewis Baker and Izzy Brown in particular, but either way Chelsea’s new trading strategy has helped drive the improvement in their financials.

For this purpose, it is important to note how clubs account for player trading. When a club buys a player, it does not show the full transfer fee in the accounts in that year, but writes-down the cost (evenly) over the length of the player’s contract. So, if Chelsea splash £32 million on a new player with a 4-year contract, the annual expense is only £8 million (£32 million divided by 4 years) in player amortisation (on top of wages).

However, when that player is sold, the club reports the profit on player sales, which is essentially sales proceeds less any remaining value in the accounts. In our example, if the player were to be sold 3 years later for £35 million, the cash profit would be £3 million (£35 million less £32 million), but the accounting profit would be £27 million, as the club would have already booked £24 million of amortisation (3 years at £8 million).

Up to now, this has surely only interested accountants, but it’s become very relevant for FFP. Furthermore, any players developed through a club’s academy have zero value in the accounts, so in these cases any sales proceeds represent pure profit. Chelsea are clearly highly aware of this accounting treatment. In fact, their annual report notes that the club has valued its playing staff at £353 million, while the accounts value is only £226 million.

Even Jose Mourinho has commented on Chelsea’s revised strategy: “We are making money to be able to spend money. In every transfer window Chelsea is losing players, is selling players. In the winter one we sold Mata; in the summer one we sold David Luiz and Lukaku. So Chelsea in this moment is not a spender – Chelsea in this moment is making more money in transfers than the money we spend.”

As well as player trading, Chelsea have significantly increased their ongoing revenue, which was up £64 million (25%) from £256 million to £320 million, driving through the £300 million threshold for the first time. Both broadcasting and commercial grew substantially, broadcasting up £35 million (33%) from £105 million to £140 million and commercial up £29 million (37%) from £80 million to £109 million, while match day was flat at £71 million.

In fact, since 2009 match day revenue has fallen 5% from £75 million to £71 million, while commercial more than doubled from £53 million to £109 million and broadcasting grew 77% from £79 million to £140 million.

Chelsea’s revenue of £320 million remains the 3rd highest in England, only behind Manchester United £433 million and Manchester City £347 million, though still ahead of Arsenal £299 million (in 4th place, natch).

All clubs in the Premier League have grown their revenue in the 2013/14 season, as they all benefit from the new TV deal, but the two Manchester clubs have increased their revenue by more than the others: City are £76 million up, United £70 million up, while Chelsea grew by “only” £60 million. In this way, the gap is getting bigger.

Chelsea had the 7th highest revenue in the world in 2012/13 with £260 million, according to the Deloitte Money League, which is obviously far from shabby, but was still a long way below the Spanish giants, Real Madrid £445 million and Barcelona £414 million, and Bayern Munich £370 million.

We will not know whether Chelsea’s position will change in the 2013/14 version until PSG publish their accounts, but the gap will close, partly due to Chelsea growing at a faster rate (23%) than Madrid (6%), Barca (0%) and Bayern (13%). This trend is exacerbated by the strengthening of Sterling with the exchange rate against the Euro improving from 1.1668 to 1.25.

As match day revenue barely changed in 2013/14, while both broadcasting and commercial grew significantly, its share of Chelsea’s revenue has dropped from 28% to 22%. Broadcasting is up from 41% to 44%, while commercial is up from 31% to 34%.

After finishing 3rd in the Premier League, Chelsea’s share of the new Premier League deal was £94 million, up £39 million (71%) from £55 million. All PL clubs get an equal share of half of the domestic deal and all of the overseas deals. The remaining 50% of the domestic deal is allocated based on a merit payment for finishing position and a facility payment based on number of games shown live.

Chelsea also received €43 million for reaching the semi-final of the Champions League, which was slightly higher (at least in Euro terms) than the €42 million they received from Europe the previous season: €31 million from the Champions League, despite elimination at the group stage, and €11 million for winning the Europa League, when they overcame Benfica in the final. Of course, it is not as high as the €60 million earned in 2011/12 when Chelsea beat Bayern Munich in a dramatic final to win the Champions League.

The new Champions League deal from the 2015/16 season will further increase the prize money with UEFA recently advising the European Club Association that clubs could expect a 30% increase in revenue. The uplift may be even higher for English clubs, as BT’s exclusive acquisition of UK rights is double the current arrangement.

It’s worth exploring how the TV (market) pool is allocated. Chelsea’s share of the UK market pool is dependent on both how far they progress (compared to other English clubs) and their finishing place in the previous season’s Premier League. In this way, Chelsea (€18.5 million) earned less than Manchester United (€23.8 million), even though they progressed one stage further (semi-final compared to United’s quarter-final), as they only finished 3rd in the previous season’s Premier League, while United finished 1st.

Commercial revenue rose £29 million (37%) from £80 million to £109 million, partly due to increases in the Samsung shirt sponsorship from £13.8 million to £18 million and an extension in the Adidas kit supplier deal until 2023, which increased the annual payment from £20 million to £30 million. In addition, the club signed new partnerships with Rotary, Hackett, Coral, William Lawson’s, Indosat and Guangzhou R&F Football Club.

However, Chelsea are unlikely to improve on their 9th place in the Money League, as every other leading club is also focused on growing this revenue stream. In particular, Bayern Munich have managed to increase commercial income from £203 million to £233 million, more than double Chelsea. PSG’s numbers are inflated by their €200 million deal with the Qatar Tourist Authority.

To reinforce this point, in England Manchester United have increased commercial income by 171% (£119 million) to £189 million, which is better than Chelsea’s 106% (£51 million) over the same period – and that’s before United receive the full benefit of their massive new Chevrolet and Adidas deals. Similarly, Manchester City is now up to £166 million, driven by their Etihad sponsorship. Chelsea are still way above Arsenal, though the Gunners’ PUMA deal only starts from the 2014/15 season.

Time will tell whether former Liverpool managing director Christian Purslow, who has been recruited as head of commercial activities, will manage to bring in new sponsorship deals, though he certainly talks a good match (as seen in countless TV and radio appearances).

There have been numerous reports of Chelsea switching shirt sponsors from Samsung to Turkish Airlines next season, which would increase the value from £18 million to £25 million. This would be more in line with the £25-30 million deals that most other elite clubs have (Arsenal – Emirates, Real Madrid – Emirates, Barcelona – Qatar Airways, Bayern Munich – Deutsche Telekom), though still a long way short of Manchester United’s Chevrolet deal of £47 million (depending on US$ exchange rate).

Match day income rose slightly by £0.3 million (0.5%) from £70.7 million to £71.0 million. This was no surprise, as the club explained, “with Stamford Bridge filled to capacity year after year there was no scope for significant financial growth in this area. General admission ticket prices remain frozen at 2011/12 levels.” This revenue stream peaked at £77.7 million, thanks to the success in the Champions League and the FA Cup.

Chelsea’s match day revenue is around £30 million lower than Manchester United, Arsenal, Madrid and Barca, as they have much bigger stadiums. This explains why the club has spent so much time searching nearby locations for a new stadium, but they were outbid for the Battersea Power Station and have ruled out moves to sites in Earls Court and Old Oak Common. The club now appears to be focusing on expanding Stamford Bridge’s capacity form 42,000 to 55,000, though this would be a tricky, lengthy exercise, so revenue is unlikely to meaningfully increase here for many years.

Wages increased by £20 million (12%) from £173 million to £193 million, though the wages to turnover ratio lowered from 67% to 60% following the 25% revenue growth. This ratio has improved every year from the recent 82% peak in 2010. Note that these wage figures have been adjusted for exceptional items, e.g. in 2013/14 the reported staff costs of £190.6 million have been adjusted for a £2.1 million credit for the release of a provision for compensation for first team management changes.

Chelsea therefore still have the third highest wage bill in England of £193 million, behind Manchester United £215 million and Manchester City £205 million, but ahead of Arsenal £166 million.

In Euro terms, Chelsea’s €241 million is just behind Real Madrid €250 million and Barcelona €248 million, but ahead of Bayern Munich’s €215 million – though this depends on the exchange rate used (1.25 here, as this is likely to be the 2013/14 Deloitte Money League rate).

Although Chelsea are still spending big in the transfer market, e.g. this summer saw the arrival of £32 million Diego Costa from Atletico Madrid and £30 million Cesc Fabregas from Barcelona, net spend is declining, thanks to equally big money sales, such as David Luiz £40 million and Romelu Lukaku £28 million (and, by the way, major kudos to whoever secured so much money for those sales).

That said, if we look at the last three seasons, only Manchester United have outspent Chelsea: £231 million against £137 million. Both Chelsea and Manchester City £128 million have clearly been impacted by the advent of FFP, so much so that Arsenal and Liverpool are now spending at similar levels.

Even though Chelsea still report substantial operating losses in the P&L, the operating cash flow has been positive for the last two seasons after adjusting for non-cash flow items, such as player amortisation and depreciation, and working capital movements. Nevertheless, Chelsea still require funding from the owner to cover player purchases and other investments, resulting in £51 million net financing in 2013/14.

However there is no debt in the football club, as this has all been converted into equity by issuing new shares. That said, the club’s holding company, Fordstam Limited, does have around £1 billion of debt (£984 million as of June 2013) in the form of an interest-free loan from the owner, theoretically repayable on 18 months notice.

Given Chelsea’s several years of heavy financial losses, many observers had believed that they would fall foul of FFP, but that has not been the case, as confirmed by the club: “The latest financial results combined with those from the previous two years mean that for the second monitoring period for FFP we will fall comfortably within the limits set by UEFA, who measure expenditure against the income from football-related activities. Chelsea also complied with FFP criteria over the first monitoring period.”

The club has taken advantage of some of the allowable exclusions for UEFA’s break-even analysis, namely youth development, infrastructure and (for the initial monitoring periods) the wages for players signed before June 2010. As we have seen, FFP is now being addressed by the new player trading model, but it is clear that this legislation has been at the forefront of Chelsea’s thinking.

Even the self-proclaimed “Special One” has got involved, though not without a degree of irony: “Chelsea is working in relation to Financial Fair Play, but I think it is a contradiction, because it was to put teams in equal conditions to compete and what happened really with the Financial Fair Play is a big protection to the historical, old, big clubs, which have a financial structure, a commercial structure, everything in place based on historical success for years and years and years.”

Hence, Chelsea’s new focus on living within its means. That will mean using a combination of profits from player development (and sales) and further increases in commercial income. As Bruce Buck put it, “Going forward, we have ambitious plans to build a pioneering global commercial programme, partnering with innovative and market-leading organisations from around the world. In the era of FFP, we must progress commercially to continue the circle of success to invest in the team and get results.”

In the meantime, Chelsea’s 2013/14 results are maybe best summarised by the wonderful Neil Young, “out of the blue and into the black”, as they have demonstrated that it is possible for them to remain successful while also balancing the books.

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West Ham - Stadium Arcadium

Although West Ham had some trials and tribulations during the 2013/14 season, they finished up in a comfortable 13th position in the Premier League and also reached the semi-final of the Capital One Cup. In the process, the Hammers reported the highest revenue and profit in the club’s history, leading vice-chairman Karren Brady to comment, “2013/14 was a satisfactory year for the club both on and off the pitch.”

To add to the good news, the club also signed an agreement to sell their Boleyn Ground in preparation for the move to the Olympic Stadium for the 2016/17 season.

West Ham’s profit before tax of £10 million was a significant £14 million improvement on last year’s loss of £4 million, as revenue rose £25 million (28%) from £90 million to £115 million. The profit growth was almost entirely attributable to the £25 million extra income from the new Premier League TV deal, partially offset by increases in player costs: the wage bill was up £8 million, while player amortisation was £4 million higher.

The last time that West Ham managed to make a profit was £6 million in 2005/06. In the intervening seven years, they made cumulative losses of £144 million before moving into the black in 2013/14. In fairness, the small £4 million loss in 2012/13 already represented a step in the right direction, as the club had been averaging £23 million annual losses before then.

Although Brady commented, “most areas of income increased”, it is clear that the £25 million growth in 2013/14 is very largely due to the new TV deal, as broadcasting revenue rose £23.6 million (46%) from £51.8 million to £75.4 million. Match receipts increased £1.5 million (8%) from £18.0 million to £19.5 million, while commercial income was actually virtually unchanged at £20.0 million.

Since 2009, West Ham’s revenue has grown 51% (£39 million) from £76 million to £115 million. Again, the majority of this growth is down to TV money, which rose £31 Million (71%) from £44 million to £75 million, though commercial income did grow £6 million (40%) from £14 million to £20 million and match day was up £2 million (11%) from £18 million to £20 million.

The impact of relegation to the Championship is evident from the £34 million decrease in 2012 with all revenue streams being adversely impacted.

Around two-thirds (66%) of West Ham’s revenue now comes from Broadcasting, up from 58% the previous season with Match Day and Commercial both contributing 17%.

Despite significant growth, West Ham’s 2014 revenue of £115 million is still a lot lower than the Premier League elite, e.g. Manchester United’s £433 million is over £300 million higher. On the other hand, West Ham did have the 8th highest revenue in the Premier League (and indeed the 29th highest in the world) in 2012/13.

As famous investor Warren Buffett once said, “A rising tide lifts all boats”, and in this way it is clear that all Premier League clubs will benefit from the new TV deal. In fact, we already know that Everton have overtaken West Ham in 2013/14 with their revenue increasing to £121 million, largely due to Everton’s TV money increasing at a faster rate.

Although West Ham’s Premier League TV distribution rose by £25 million from £49 million to £74 million, their increase was slightly dampened by the lower league position (dropping from 10th to 13th). Everton’s share increased by £33 million, boosted by a higher finish (5th place compared to 6th the previous season) and more live televised matches (16 compared to 14). Looking forward, West Ham’s share should be higher in 2014/15 if they maintain a better league position.

Given West Ham’s enterprising start to this season, it is interesting to note how much money they might make from qualifying for Europe. Last season, English clubs in the Europa League earned an average of €4.6 million (Tottenham €5.9 million, Swansea City €4.0 million and Wigan Athletic €3.8 million), while English teams in the Champions League (an unlikely, but not impossible objective) earned an average of €38 million. On top of that, there would be additional gate receipts and higher commercial income (based on contract clauses).

This money will be even higher from the 2015/16 season when the new Champions League deal commences. UEFA recently told the European Club Association that clubs could expect a 30% increase in revenue, but the uplift may be even higher for English clubs, as BT’s exclusive acquisition of UK rights is apparently double the current arrangement.

Match Day receipts rose 8.5% (£1.5 million) from £18.0 million to £19.5 million. Even though the average league attendance fell 2% from 34,720 to 34,007, match day revenue still rose in 2013/14, largely due to season ticket price rises plus money from the Capital One Cup run.

West Ham’s match day revenue of £20 million is a long way short of leading clubs, e.g. both Manchester United and Arsenal generate more than £100 million, though a more reasonable comparative might be Tottenham, who earn twice as much (£40 million) as the Hammers.

This weakness should change with the move to the Olympic Stadium for the 2016/17 season, which is a major financial coup for West Ham. Even though the total cost of the stadium is more than £600 million, the club will only pay a once-off fee of £15 million for stadium conversion plus an annual rent of around £2.5 million. Note: the accounts include Olympic Stadium project costs in Exceptional Items: 2013/14 £0.5 million, 2012/13 £1.4 million.

This will create a number of commercial opportunities, including premium hospitality packages, where Brady has stated, “we will not have enough seats to fulfill demand.” That said, it will be interesting to see whether the club will be able to fill the 54,000 capacity stadium, but there should certainly be an increase in revenue.

Commercial revenue was essentially unchanged at £20 million. Even though retail and merchandising rose 3% (£0.2 million) to a record high of £6.3 million, other commercial activities fell 2% (£0.3 million) to £13.7 million.

Even though Brady proudly proclaimed that West Ham are “officially recognised as one of the world’s leading football brands by Brandfinance, placing us again in the top 9 of Premier League clubs in the world’s most valuable football brands”, the fact remains that their commercial income pales into insignificance compared to heavyweights such as Manchester United, who generate £189 million from this activity. That comparison might be unfair, but it is worth noting that Tottenham earned £45 million and Aston Villa £25 million (in the 2012/13 season).

West Ham’s shirt sponsorship with global foreign exchange broker Alpari is worth £3 million a season for three years until the end of the 2015/16 season. This is more than they earned from their previous sponsor SBOBET, who were signed in the 2008/09 season (on a reduced fee) as a replacement for XL.com, who went into administration and defaulted on their sponsorship. The club’s kit supplier deal is with Adidas, who replaced Macron in 2013, until the end of the 2014/15 season with a value estimated at £2 million a year.

Given the greater exposure afforded by the Olympic Stadium, the value of the next deals for shirt sponsor and kit supplier should both be considerably higher.

Wages rose 14% (£8 million) from £56 million to £64 million, but the wages to turnover ratio improved from 63% to 56%, the lowest ratio “since this was first calculated 15 years ago”, following the 28% revenue growth. Interestingly, wages have actually fallen £3 million (4%) since the peak of £67 million in 2009, while revenue has increased by £39 million in the same period.

The amount paid to the highest paid director, believed to be Brady, fell from £1.6 million to £636,000 in 2013/14, presumably as last season included a hefty bonus for securing the Olympic Stadium.

West Ham’s wage bill of £56 million was only the 14th highest in the 2012/13 season, almost exactly in line with their league placing the following season. Even though this has increased to £64 million, to place this into context, it is around a third of the two Manchester clubs (United £215 million and City £205 million), while Arsenal’s wages are over a £100 million higher at £166 million.

West Ham’s improved performance on the pitch should perhaps be no surprise, given the recent “major investment in the first team squad”, as evidenced by the increased activity in the transfer market. In the decade up to the 2011/12 season, West Ham was somewhat of a trading club with a net spend of zero, but they have significantly ramped up their purchases in the last three seasons with a net spend of £67 million.

In 2012/13 West Ham spent big on Matt Jarvis, then bought Andy Carroll and Stewart Downing at the start of the 2013/14 season before really motoring this season, purchasing Enner Valencia, Cheikou Kouyate, Diafra Sakho, Aaron Cresswell, Morgan Amalfitano and Mauro Zarate. In addition, the club has also made good use of the loan market, bringing in Alex Song from Barcelona and Carl Jenkinson from Arsenal.

In fact, over that three-year period, West Ham were the 6th highest net spenders in the Premier League, only beaten by those clubs that manager Sam Allardyce frequently refers to as “the big boys”: Manchester United, Chelsea, Manchester City, Liverpool and Arsenal.

This spending spree has been financed by the owners, David Sullivan and David Gold, putting in more money as shareholder loans, which have increased to £49 million. This is over half of the club’s gross debt of £92 million, leaving £42 million of external debt and £0.6 million of debenture loans under the Hammers Bond Scheme.

Although net debt fell £4 million from £78 million to £74 million, gross debt actually slightly increased £1 million from £91 million to £92 million with the net fall being driven by the £5 million rise in cash balances from £13 million to £18 million. Since 2010 gross debt has more than doubled from £45 million to £92 million, but external debt is down £2 million with the growth funded by the club’s owners as their loans have increased by/to £49 million.

External debt includes bank loans of £26.7 million with interest charged at 3% over LIBOR, which have been refinanced until December 2016, though the club has repaid £5.5 million after the 2013/14 accounts were finalised, and a short-term facility with Vibrac, an offshore loan corporation, secured on Premier League TV money. This arrangement was renewed for a further year for £18 million in August 2014 after the previous £15 million loan was repaid.

Karren Brady has stated that any outstanding bank debt that is secured on the club’s ground has to be repaid before the move to the Olympic Stadium. She hopes that the proceeds from the sale of the Boleyn Ground to Galliard Homes will cover the £15 million conversion fee plus “some of our bank debt”. Given current repayment patterns, this should be down to less than £20 million at that time, as this will not include the Vibrac loan. Incidentally, the owners’ loans are unsecured subordinated to the secured bank loan.

According to the profit and loss account, West Ham’s net interest payable of around £5 million is among the highest in the Premier League, albeit considerably lower than Manchester United and Arsenal. However, the cash payment is only £2 million, as the interest on the owners’ loans (6-7%) will not be paid or added to the loans until the loans are repaid. Accrued interest currently stands at £6.3 million.

Sullivan and Gold have now invested a total of £75 million into the club, including £3.5 million in 2013/14 “to allow the manager to go into the transfer market to cover our injury crisis and buy the emergency players we needed to secure our Premier League status.” The owners invested £24 million into the club during their first year in 2009/10 and, importantly, £32 million in the form of loans in 2011/12 to cover the revenue reduction in the Championship. Sullivan and Gold now own 86.2% of the club.

Of course, much of the increase in profitability is due to the Premier League’s new Financial Fair Play legislation, which ensures that the majority of the increased money from the new TV deal remains within the club and does not simply go to higher player wages (and agents’ fees), as has invariably been the case with previous increases. In summary, top flight clubs cannot make a loss in excess of £105 million aggregated over a three-season period between 2013 and 2016 and the amount of money clubs can spend from the new TV deal on wages is restricted.

Specifically, clubs whose player wage bill is more than £52 million will only be allowed to increase their wages by £4 million per season for the next three years. However this restriction only applies to the income from TV money, so any additional money from the higher gate receipts, new sponsorship deals or profits from player sales can still be spent on wages. Although Allardyce was worried that this might prevent the purchase of Andy Carroll, this turned out not to be the case.

Although it will be a wrench to leave the atmospheric Upton Park, there is little doubt that the club has secured a great deal at the Olympic Stadium. Brady enthused about its “enormous commercial and brand opportunities” and promised “a strategy to deliver sell-out crowds”. That will depend to some extent on how the team is performing on the pitch. While Allardyce’s side has played some enterprising football this season, only time will tell whether this can be maintained, allowing the club “to deliver much more in years to come” (to once again quote Brady).

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