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We're losing £1.5m a month – the club’s latest accounts explained


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Source: Nancy Frostick and Matt Slater, The Athletic

 

 

Sheffield Wednesday will require “additional funding” if it is “to continue in operational existence”. Those are the words that cause the most concern from the latest set of the club’s accounts.

 

The accounts, which were filed over seven months late of the original July 31 deadline, are for the 2018-19 season and showed that in line with previous seasons, further significant investment will be required from owner Dejphon Chansiri if the club is to continue operating. For a team that is staring relegation to the third tier in the face, these are worrying times.

 

It also revealed that the much-discussed sale of Hillsborough to Chansiri-owned company Sheffield 3 Ltd has been moved to the most recent accounts from the 2017-18 set, as expected following the club’s battle with the EFL, which led to a six-point deduction.

What are the standout details in the accounts?

 

Most noticeable is the fact that the sale of Hillsborough has been added to this accounting year after Wednesday lost their battle with the EFL to have it included in the 2017-18 financial year as they tried to meet the league’s profitability and sustainability rules. This means that the club have been forced to reissue their accounts for that year to show the change, turning an overall profit of £2.5 million in 2018 into a £35.5 million loss.

 

Moving the sale to the latest accounts means that, overall in the 2018-19 set of accounts, the club posted a profit of £19.1 million and they have received their first payment for the stadium, which is £7.5 million. The club should continue to receive £7.5 million a year over eight years while paying rent to Sheffield 3 to continue using the stadium. That figure looks to be around £2.7 million a year over a 30-year lease, but Wednesday will not start paying that until 2019-20, which will be in the next set of accounts that are due to be published in July. 

 

Another line that stands out from the auditors says: “We draw attention to note 1.3 in the financial statements, which indicates additional funding will be required to enable the company to continue in operational existence.” That is essentially their way of saying that owner Chansiri will need to continue injecting cash if the club is to stay afloat.

 

This is not unusual. Most Championship teams struggle to make an operating profit and it is not a departure from the norm for Wednesday — the same concern has been raised in the last three sets of accounts. As long as Chansiri is committed, which a note in the accounts emphasises that he is, then fans have nothing to worry about. His commitment to fund the club for the next 12 months is, however, not legally binding.

What else did we learn?

 

Well, despite the profit of £19.1 million seemingly showing a healthy picture, the club made an operating loss of £17 million in the year up to July 2019, which equates to roughly £1.5 million per month.

 

Their wage-to-turnover ratio for the year really jumps out from the day-to-day costs of running the club: 160 per cent. Strictly speaking, the wage bill fell from £42.4 million to £36.4 million but the earlier figure was for 14 months, so the club’s monthly wage bill was unchanged at just over £3 million.

Income was down from the 2018 accounts but it is worth noting that the accounting period was 14 months for the 2017-18 season as the club tried to include the Hillsborough sale on that set of finances. It is not a huge surprise that figures such as match-day income are down from £18.1 million to £16.6 million between 2018 and 2019, given the shorter accounting period and the tail-off in results.

 

Commercial income fell in that period from £7.1 million to £6.1 million but in the same period, owner Chansiri injected £21 million by creating new shares to allow him to invest.

 

Chansiri remains the only listed director as it was in this period that Katrien Meire left the club, with the accounts showing that the highest-paid director in this received £137,000 — a cut of 30 per cent from the year before.

 

Is there any good news?

An amount of £6.5 million was recouped in a confidential settlement payment. We do not know what that fee is for despite speculation that some or all of that figure is linked to the compensation that was agreed with Newcastle United when manager Steve Bruce made the move from Hillsborough to St James’ Park.

 

They will also save themselves another £2.1 million but that was a figure they would have been happy to pay. It would have been due to lenders and the bank of the club’s previous holding company, Sheffield Wednesday PLC, if they had been promoted to the Premier League before May 31, 2021.

 

Sadly, fans know all too well that relegation to League One is looking increasingly likely.

 

What does it mean for the future?

If Wednesday file their accounts on time this year, we will get a clearer financial picture for the 2019-20 season in July. Ultimately, the latest accounts show that Wednesday is not a profit-making business through their day-to-day operations and they are entirely reliant on the support of Chansiri to survive. That is true of many football clubs.

 

By selling Hillsborough, they have managed to find an injection of funds. But that can only be done once, and selling the training ground at Middlewood Road is out of the question given that the land is owned by Sheffield City Council. Moving the sale of the stadium does mean that Wednesday should be able to avoid issues with profitability and sustainability rules for the three-year rolling period up to July 2019.

 

The losses of just over £20 million in 2016-17 added to the pre-tax loss of around £35 million in 2017-18 and the £19.1 million profit in these latest accounts means that Wednesday are around £3 million inside the allowed figure of £39 million losses in a three-year period.

 

That is not to say that they will not face problems in meeting financial restrictions in the future. For example, if they posted losses in excess of £23 million in the accounts due this summer, then they could face sanctions again. Any charges or sanctions would be at the discretion of the EFL and an independent disciplinary panel as they were last year.

 

 

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Guest Mcguigan

That summary looks pretty accurate to me although, when saying any losses exceeding £23m in this next set of accounts would result in new sanctions, that number is a bit low.

 

The figures they quote are pre tax losses but don't include allowable items for P&S purposes. This is usually around £2.5-3m a year so £23m losses effectively becomes £30-32m. Which we won't post.

 

Our worries start again when the 18/19 profit drops out of the 3 year rolling period.

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3 minutes ago, TheGaffer said:

So in theory we can be punished twice for the same crime? 

I really don't get this.

 

Birmingham were punished for the 3 year reporting period ending 2018 (same as us).  

 

So what happened with them for the 3 years ending 2019?

 

They posted losses of £14m in 2017, £37m in 2018 and £8m in 2019 this is a total of £59 milion over 3 years but DIDN'T get charged with breaching FFP in 3 years to 2019!

 

So don't think they are correct in the article.

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12 minutes ago, TheGaffer said:

So in theory we can be punished twice for the same crime? 

Same crime, different time.  Possibly.  The 19/20 accounts are bound to show a massive loss.

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14 minutes ago, @owlstalk said:


 

One thing I’ve learnt about accounts is that there’s never ever been a time when everyone has agreed on the basic facts about them

The stand out fact was that our wages/turnover ratio was 160% for that accounting period which is staggeringly incompetent for any business.  Inept management in my opinion.

We knew roughly what turnover would be from season ticket sales and TV money.  We knew what non salaries expenditure would be, roughly. Pretty much the same as Forest, Derby and other similar size clubs in this division, I would guess.

Who does the annual estimates and budgets?

This is what happens when you pay double the wages a player is worth and give out 4 year contracts.

Those accounts are for 2018-19.   Forestieri, Fletcher, Nuhiu, Winall, Fox and others were with us throughout 2019-20 so I expect the next set will be even worse.  

 

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Guest HillsboroughOwlNI
37 minutes ago, @owlstalk said:


 

One thing I’ve learnt about accounts is that there’s never ever been a time when everyone has agreed on the basic facts about them

Yep. Accounting is an art, not a science.

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