Brighton & Hove Albion´s financials

Brighton & Hove Albion FC´s financials

Brighton and Hove Albion FC have been aiming for promotion to the premier league for a couple of seasons now. The club won League 1 in 2010-11 after five seasons at League 1. The team has come a long way since playing at League 3 at the turn of the millemium, and without a doubt the single biggest factor in the team´s performance has been the owner, chairman Tony Bloom. 

By the time Bloom came in the picture Brighton, like many other football clubs, was in financial freefall. Profitability was weak, debt had added up, and the future looked weak, to say the least. Bloom, having made his fortune as a sports bettor, poker player and property investor, secured the majority of the club´s stocks in 2009. Dick Knight, who had been the chairman for 12 years, stepped down and became the club´s life president. Bloom had been a lifelong fan of the club, and when the credit crunch threatened to undermine the club´s plans for a new stadium, Bloom came to the rescue. “It’s a bit of a no-brainer really. I absolutely love the club, I’m passionate about the club.”, he said in 2009. 

Things progressed rapidly, with Bloom injecting funds to the club, enabling the Albion to push forward with the stadium plans. The Falmer stadium, known as Amex Stadium for sponsorship reasons, was opened in 2011, after which the club continued to expand it and develop it´s services. The Community Stadium Ltd (TCSL) is a wholly owned subsidiary of  Brighton & Hove Albion Holdings Limited. The facilities are undoubtly sufficient for Premier League, all that is missing is the actual promotion.  But what could go wrong? With top notch stadium, an improved squad, and  a dedicated owner/chairman who is ready, able and willing to keep pouring cash into  the club, surely the promotion to the premier league is only a matter of time? It might not be quite so simple. Bloom has done a remarkable job in enabling the club to invest heavily and push for promotion, but financial figures paint a picture of a club that has more than it´s fair share of issues to tackle. 

While Bloom´s financial commitment to the club has been more than generous since becoming the owner, the club´s problem is that it isn´t able to generate any real profit itself. While the issue is far from uncommon with football clubs, Brighton´s brave strategy has so far caused the figures to appear relatively ugly.  

The figures above show Brighton´s consolidated profit and loss acount from the last four years, the figures from the year ending June 2014 have not yet been published. As the turnover-levels show, Brighton played in League 1 during the seasons 2009-2010 and 2010-2011. During 2010-2011 turnover increased by 1,8 million £. Gate receipts increased by 414 000 £, commercial & retail activities increased by 234 000 £ and broadcasting revenue increased by 119 000 £. This increase was due to FAC fees the club received. In 2011 Brighton moved to the Community Stadium, and income relating to the stadium increased by 554 935 £. The football leagues solidarity payments also increased .

After promotion to the Championship the turnover naturally rocketed, to 22,2 million £ in 2012 and 23,4 £ in 2013. During these years the stadium´s capacity was increased to 30 750. Higher attendances and higher ticket fees raised ticketing income from 2,3 million £ in 2010-11 to 7,9 million £ in 2011-12. Central distribution from the league increased, new sponsorship deals increased commercial income in 2011-12 to 3,9 million £ from the previous seasons 0,8 million £.

Despite success on pitch and increased revenue, Brighton´s biggest problem as a business unit is painfully obvious looking at the first few lines on the profit & loss accounts. The above figures are presented almost exactly as in the official records. I did add one line to the figures though, and that is the EBITDA (Earnigs Before Interest, Taxes, Depreciation and Amortisation). EBITDA is commonly used to present the profitability of a company, because it simply shows how much money the company can generate from it´s actual operations. In Brighton´s case, the profitability is ugly, to put it mildly. Increased revenue has only led to more rapidly increasing expenses. The following shows the development of both figures in millions of £ since 2010:

 

The percentages don´t actually give a proper picture of the situation in this case, since the turnover- and expenses-figures are in a different league to begin with. But looking at the actual numbers we can see that while turnover has increased roughly 18 million £, expenses have increased almost 25 million £.  With most football clubs, the biggest problem tends to be the players wages that in many cases almost eat up the turnover. With Brighton, the situation is a little different. 

 

 

Wages really did form a substantial amount of expenses between 2009 and 2011, especially in 2010, with wages being as much as 96 % of turnover. By 2012, the wages/turnover –raitio had declined all the way to 59 %, which is really not that bad for a football club. The most notable development in Brighton´s costs was the increase in ”other costs” from 7,5 million £ in 2011  to 16,9 in 2012 million £. According to the annual report from 2012, the operational  and administrative costs of running a state of the art stadium are significant, and that has caused the cost base to increase significantly.  It really isn´t totally surprising, since the facility really is state of the art and running it is costly. Also, whenever any company opens a new factory or facility, it often takes time before it runs properly and without hiccups. Before that, costs often are high until they settle to a normal level. Still, the administrative costs more than doubled, which seems high, especially since this doesn´t include wage costs. New, bigger stadium obviously reguires more staff, and that was one of the reasons why staff costs increased from 7,2 million £ in 2011 to 14,7 million £ in 2012. But what are the other costs that  increased so much, is a little unclear. In any case, at this point it was obvious that this is a facility that not only merits, but requires a premier league club. Without one, supporting the facility would be difficult, to say the least.

In 2012-2013, the administrative and operational costs still increased a little, to 17,7 million £. An interesting little detail about the figures of 2012-13 is the increase in director´s remuneration. Remuneration increased from 333 963 £ to 721 007. Retirement benefits were accruing to 3 directors. The highest paid director received a remuneration of 480 002 £, when in 2012 the figure was 142 887 £. These are small amounts in the bigger picture, but it still is a notable increase. 

The total wage costs increased again during 2012-13, from 13,2 million £ to 18,9 million £. Turnover increased a little, mostly due to increase in ticketing income. Brighton´s average attendance was 26 236 (20 028 in 2012), the highest in the Championship. Commercial income also increased to 4,2 (3,9) million £ due to new sponsorship opportunities. The bottom line is, increases in revenue were nowhere near enough to compensate for the increasing costs. The wage costs increased because the club invested heavily in the playing squad in order to aim for the promotion to the Premier League. The club acquired Bruno Saltor, David Lopez, Andrea Orlandi, Andrew Crofts, Stephen Dobbie, Tomas Kusczczak and Leonardo Ulloa, and loaned Wayne Bridge and Dean Hammond. Due to increasing additions to the player squad, the amortisations increased as well. When a player is bought, his transfer sum is is amortised over the duration of his contract, not all at once. For example, if player is bought with 10 million £, and his contract is for five years, the annual amortisation is 2 million £. 

All this led to operating profit going from bad to worse, from -5,3 million in 2010 £ all the way to -15,3 million £ in 2013. Brighton´s spending on new players increased remarkably during the last four years. Obviously after promotion to Championship they had to invest, otherwise even staying in the Championship would have been uncertain. As the figure below indicates, Brighton´s spending to new players increased substantially between 2010-2013.

 

 

Brighton´s cash flow statement is also indicative of the club´s problems. The cash flow statement shows simply what comes in and what goes out, so it describes well how much (or little) the club makes money and how it´s operations are financed. In 2010, Brighton´operating loss was 5,3 million £. Net cash inflow from operating activities was 2,4 million £, but this includes the increase in creditors by 12,7 million £. By the end of 2010 the total amount for ”Directors loan account” was 54,3 million £. The directors loan is obviously from Tony Bloom.

In 2011 the net cash inflow from operating activities was 41,2 million £.  The actual cash flow from operations was once again negative, but increase in creditors was 43,6 million £, almost all of it an increase in directors loan account, which by 2011 had already grown up to 94,4 million £. That´s right, we´re not talking peanuts here. 2012 was once again a similar kind of year. Operating loss was 9,3 million £, and directors loans increased up to 120,2 million £.

During the season 2012-13 Tony Bloom took a different route with financing the club. In September 2012 the company´s share capital was increased by 40 000 000 £. This way, part of the directors loan was converted to share capital, and the loan amount declined to 102,3 million £. This was obviously a sign of true dedication to the club by Bloom. While the loan from Bloom is (as the annual report states) interest free, it is still a loan, and loans are meant to be paid back at some point. With share capital, that is not the case, so putting 40 000 000 £ in to the club this way can be seen as a generous act. And in any case, with the way Brighton´s finances were running, repayment of those loans is a very lengthy process, to say the least.

With all these developments with loans, how does Brighton´s balance sheet look, then? The intangible assets have naturally increased because of the player acquisitions and tangible assets because of the building and expansion of the Amex stadium. The directors loan increased the liabilites all the way up to 2012, when part of that loan was paid through the increase of the share capital. In fact, the shareholders funds were already negative due to recurring losses the club was making. By July 2012 the amount was -13,3 million £, which was further worsened by the loss of 15,3 million £ the club made in 2012-13. Without the issued new shares, shareholder´s funds would have been around -28,5 million £. The 40 000 000 increase in share capital increased the figure to 11,4 million £.  Bloom repeated this kind of operation in October 2013, new ordinary issues were once again issued to him, total amount this time being 11 million £. Brighton´s loans situation has been as follows:

 

 

Brighton total liabilities are naturally much bigger than above, but most of that amount consists of items such as trade creditors, accruals and deferred income etc. 

During the season 2013-14 Brighton made it to the playoff-stages of the Championship, but lost to Derby County and were denied the promotion again. The club sold Liam Bridcutt for 3,2 million £ to Sunderland (source: Transfermarkt). After the campaign, several players have left the squad, most notable names being Orlandi, Lopez and Kuszczak. These were free transfers so the club received no transfer fees, but they certainly have an improving effect on the wage bill. The question with Brighton is, is this a sign of the club starting to pay closer attention to it´s business side of things? Or were these players merely let go because they didn´t fit the plans on pitch? Remains to be seen. 

During the summer, manager Oscar Garcia was replaced by Sami Hyypiä. Hyypiä had a succesfull playing career at Liverpool, and had started his coaching career at Bayer Leverkusen in 2012. He naturally would like to see the club making it to the top positions of the Championship and compete for promotion. But he needs a strong squad to do that, and so far that doesn´t look to be the case. In July, the club announced the sale of striker Leonardo Ulloa. With a transfer sum of 8 million £, Ulloa switched to Leicester. The move raises some questions about Brighton´s future. He was one of the profile players of the squad, and Brighton are currently in a hurry to find a replacement for him. Hyypiä was disappointed to see Ulloa go, and  has stated there is not much time to find players for the squad. It might be that this was just too good of an opportunity for Brighton to pass on, since 8 million £ is quite a lot of money for a player who doesn´t have Premier league experience yet. Frankly, it is a huge amount. Brighton bought Ulloa for 2,2 million £ in 2013, and since part of that sum is already amortised in the accounts, the club definitely made a nice profit by selling him. But it still begs the question, are Brighton still seriously pushing for promotion, or are they starting to take a more discliplined approach to finances, possibly with the expense of success on the pitch. With Bloom having already invested huge sums to the club and financial fair play –regulations affecting the businesses of all the clubs, it is also natural if financial matters are to play a bigger role in the club´s operations. The annual report of 2013-14 will obviously shed some light to these questions, but we are going to have to wait for a while before that is released.

Whatever the case, Brighton is still very much depending on Bloom to supply the financial foundation to the club. Without a truly radical change in the revenue/costs –ratio, the club has to rely on the chairman to cover up for the losses, as well as finance new investmens. The ability and willingness of Bloom to continue supporting the club is vital for Brighton´s ability to continue as a going concern. That is not to say they wouldn´t get funding in the form of bank loans. They have the Amex  stadium to secure the loans against, if necessary. But with the profitability figures being as low as they are and with the huge losses the club is making, any possible loans would most likely come with high interest payments, which would definitely be less than helpful in improving the overall situation. Only Bloom himself knows how long he will keep funding the club. Using poker terms, he is very much ”pot committed”, meaning he has invested so much to the club it would probably not be easy to walk away. On the other hand, the prospect of him actually getting any kind of return to his investments is a distant one. 

How Brighton will do this season, is anybody´s guess. Most likely the fans, as well as Hyypiä, would like to see the club participating in the promotion fight again. The fans will definitely hope the opening defeat at home to Sheffield Wednesday is not a sign of things to come. In any case, the competition at the Championship is always tough, and it could be a rocky road for Brighton this season. In the long term, a lot depends on Tony Bloom.