For fans of Peterborough United, it has been another
rollercoaster-year. On April 24th, the club parted ways with manager Graham
Westley, who had been in charge since last September, when he replaced Dave
Robertson. Westley´s fate was sealed after Peterborough lost to Scunthorpe
United 2-0, a defeat which saw the club slipping back to 14th position in
League One. The season has been a rocky one for the Posh. Westley was able to
lift the club to play-off places in January, but since then the form has dipped
again. In January, the club sold forward Conor Washington, and went on to lose
six of their next seven games, effectively ending hopes of promotion to the Championship
this season. As the season is nearing its end, Washington is still the club´s
top scorer with 15 goals this season. The club´s colorful owner Darragh
MacAnthony has been less than pleased about the club´s situation, and told BBC
in the spring: ”I employ over 300 people
at Peterborough United, not one of those employees right now has a job in the
summer.”
In a way, this season´s wild swings in form and results are
not really all that surpising. The current season is actually very telling of
the way the club has been performing in recent years. A lot of it has to do
with the owner, Darragh MacAnthony, and the business model he has brought to
the club. MacAnthony is an entrepreneur, who has made his fortune through real
estate, namely MRI Overseas Property, a company that helps people buy and sell
property abroad. Developing property abroad was obviously a profitable
business, since in 2007 MacAnthony´s worth was estimated at £ 150 million by
the Sunday Times rich list. According to BBC, MacAnthony felt he needed an
outlet, and in 2006, at the age of 30, he took the helm at the club. A year
later, after a dispute with Peterborough landlords was settled, he became the
sole owner of the club. According to BBC, by this time he had already pumped
over £ 5 million into the club. At this point, Peterborough were playing at
League Two, and MacAnthony was quick to promise the fans something better, a
promotion from League Two to the Championship within two years. While doing
this, he wasn´t too concerned about what kind of reactions his methods would
cause in the football community. As he told BBC in 2014: ”To be not liked by a lot of people in football, I couldn't care less”.
Under MacAnthony´s reign, the Posh have certainly made the
leap forward. His promise to get the club to Championship within two years was
fulfilled, but unfortunately the club has been unable to stay there. In fact,
Peterborough´s results have been resembling that of a yo-yo:
It certainly hasn´t been boring for the fans of Peterborough,
or for MacAnthony himself. As he told BBC in 2014, talking about the club´s
performances: ”It's like my life in a
way. It's what I expect. I wake up and never expect a normal, boring day.”
Looking at the club´s finances, it is no surprise that the
club´s form has been swinging wildly. MacAnthony has brought a relatively unconventional
business model into the club, relying
heavily on active player trading. In other words, buying low, and selling high.
If that sounds like a simple way to operate, it is. In theory. In practice, not
so much. But Peterborough have certainly been succesful in doing that.
According to calculations made by Daily Mail in January 2016, Peterborough have
made a staggering profit of £ 21,58million on player sales in the last five years. Some of the most
notable transfer have been as follows:
At this point it shoud be noted that ”profit” above is the difference between the
price the player was bought and the price he was sold. While that is the
logical way of thinking, in the club´s accounts the matter is dealt with a bit
differently. When a player is bought with, for example, £ 10 million, and his
contract duration is 5 years, his original value in the club´s balance sheet is
£ 10 million, which is amortised over the duration of the contract. In this
case, the annual amortisation would be £ 2 million (£ 10 million/5 years). If
the player in question is then sold, the club´s profit is the selling price –
the value left in the balance sheet. For example, if the player in question
here would be sold for £ 10 million after two years, the club´s profit would be
£ 4 million (10 –(10-2x2)). This is just to point out the difference in how these
kind of profits are handled in the official accounts and how they are perceived
in real life. Also, the selling price may not always be strictly for the
seller. According to Peterborough Today (December 2015), half of the selling
price of Britt Assombalonga for example, went to the striker´s former club
Watford.
If we look at Peterborough´s profit & loss account from the
last four years, we can clearly see the impact that the player sales have had
on the club´s figures.
The first thing to note here is that in the first two years
of the figure above (2011-12 & 2012-13) the club was playing in the
Championship, so the turnover was obviously much higher than in the two seasons
since then. Relegation takes its toll on attendance figures, ticket prices,
other commercial income etc. For many clubs, the biggest challenge then is to
adjust the expenses (namely, wages) accordingly. For Peteborough, relegation
clearly had an effect on profitability, as the club´s EBITDA (earnings before
interests, taxes, depreciations and amortisations) went from less than £ -1
million to £ -2,8 million in 2014, improving slightly in 2015.
When looking at the EBITDA, it should be noted that since
the club does not own the stadium it plays in, London Road (currently known as
ABAX Stadium, due to ABAX´s sponsorship deal with the club), the rent it pays
affects the EBITDA. According to the accounts of 06/2015, the rental commitment
increased to £ 380 000 per annum in 2014, when the Moys End stand
construction was completed.
Operating income (which includes amortisations and
depreciations) went from -1,4 million to
£ -3,9 million. These are obviously not flattering numbers, although the club´s
wage bill was actually quite modest at the Championship -level. Wages/turnover
-ratio was around 50-60 %, which is really not that big, especially at the
Championship, where many clubs aim for promotion to the lucrative Premier
League. In fact, Peterborough´s wage bill was the smallest in the Championship
in 2012-13, and wages/turnover -ratio the second lowest. After relegation to
League One, the wage bill has declined, but the wage/turnover-ratio increased
up to 81 % in 2013-14, then dropping to 73 % in 2014-15. This was not
surprising, since the turnover dropped by almost £ 4 million. It would have
been very hard to lower the wage bill so that wages/turnover -ratio wouldn´t
have increased.
As mentioned above, the club´s EBITDA has been negative the
past four years and operating level has been even worse, due to amortisations
of intangible assets (player registrations) and depreciations (tangible assets).
But this is where the club´s true business model comes into the picture.
In each of the past four years, the most notable part of the
profit&loss account is the ”profit on disposal of player registrations”.
The club has made a significant profit through player trading every year, the
combined profit from the last four years is a huge £ 15,6 million. Even after paying
interest payments of £ 200-300 000 every year, 3 of the last 4 years have
been profitable, with a total profit of £ 3,4 million. And that´s the basic
idea behind the business model that the club has adapted, it doesn´t really
matter if the club makes losses a the EBITDA -level, since they actively compensate
that through player trading.
The strategy is perhaps even clearer when looking at the
cash flow statement:
Since the operations of the club are not profitable, cash
flow is always negative after operating activities. Interest payments weaken
the cash flow further, but negative capex (capital expenditure) compensates for
that. But what is important to note here is that the club is not just making
money by selling its assets. They are also investing in new players all the
time. In the last four years, cumulative payments to acquire new player registrations
have been £ 5,6 million. That´s not a small amount for a League One club by any
means. But the money gained from player sales far outweighs the money spent on
acquisitions. From a financial point of view, that is very succesful player trading.
In 2011-12 the money made from player sales was so good, that the club managed
to pay back some of its loans. The same
was done the next season (although repayments were far smaller), which caused
the cash reserves to decline substantially. The next season it was the other
way around, as cash reserves improved quite a bit. What is worth noting here is
that apparently the ”change in cash reserves” -figure takes into account the
bank overdrafts, as well as the actual cash. Another thing worth pointing out
is that while the club has paid back some of the ”other loans”, it hasn´t used
player sales strictly for loan repayments. In 2013-14 the club withdrew £ 0,4
million of other loans in addition to profit from player sales, to rid
themselves of bank overdraft (£ 1,9 million at the end of season 2012-13). In
2014-15 the player sales were not enough to cover the operating loss, so the
club withdrew new short term loans in order to cover the gap.
Because of their succesful way of doing business, the club´s
balance sheet has remained in a relatively healthy state:
As always, we need to remember that this is a football club
we are talking about, so how healthy the balance sheet is, is truly relative.
The equity ratio has been firmly negative, due to losses the club has been
making. Since MacAnthony has chosen to finance the operations through loans
rather than equity, the only way for the club to improve the equity has been to
make profits. That is something the club has indeed done, but not enough to
turn the equity positive. But then the club´s net debt hasn´t really increased
in the last four years either.
Obviously the clear majority of the club´s financing comes
from the owner, Darragh MacAnthony. According to the accounts, the amounts that
the club has owned to DMA Holdings S.A, a company in which MacAnthony has a
financial interest, are:
These loans are not listed in the accounts as director´s
loans or anything of the sort. My guess is that they are included in ”other
creditors”. No exact interest rate is defined in the accounts, but according to
the accounts of 06/2015, a commercial
interest is charged on this loan. MacAnthony also personally guarantees the
club´s bank overdraft up to an amount of £ 250 000. Since the loans owed
to MacAnthony are not interest free, they most likely make up a lion´s share of
the club´s total interest payments, which were £ 344 220 in 2015.
One of the weaknesses of this kind of business model is,
that it is difficult to find stability, when you have to sell players when
their market value is high, whether or not it is the optimal time for the club.
That is likely one of the reasons why Peterborough have been promoted or
relegated 5 times in the last 9 seasons. If they get promoted to the
Championship again at some point, some part of the strategy might have to be
reconsidered. As mentioned earlier, Peterborugh´s wage bill in the season
2012-13 was the lowest of the Championship.
While they did manage to hold on in the Championship for two
seasons, surviving with a wage bill like this is very hard. If Peterborough
want to get back to the Championship, stay there, and possibly even battle for
promotion to the Premier League, they will likely have to increase the wage
bill. That, in turn, would weaken the operating profit, and put even more
pressure on player trading, if the club wants to continue to cover the
operating losses through player trading. Which in turn might even increase the
instability on pitch. To sum it up, as succesful as that business model has
been for Peterborough, it does have some problems, that will likely need to be
thought out carefully. Obviously that also depends on how far the club wants to
go. Considering how business minded
MacAnthony has been with the running the club, it´s hard to imagine
Peterborough splashing out on the wages like Bolton or Blackburn in the graph
above, though. One way forward might be to find a way to increase the club´s
attendance figures. The ABAX stadium currently holds 15 314 people, but the
club´s average attendance hasn´t surpassed 10 000 even when they were
playing at the Championship. Finding a way to improve those figures might give
them some room to increase the wage bill, as well.
As it stands, Peterborough are at the 13th place in League
one at the moment. They won´t be promoted this season, but not relegated either.
Peteborough Today reported MacAnthony saying in February that he wants to take
the club back to the Championship within 18 months. If that doesn´t happen, he
will find another owner with different policy. Based on that statement, next
season will be a big one for Posh. And
for the fans, it most likely will not be a boring one, either.
