Monday, January 26, 2015

Brighton and Hove Albion - Love At The Pier

In many ways Brighton’s 2013/14 season was similar to their previous campaign, as they once again reached the Championship play-offs, only to fall at the semi-final stage this time to Derby County, leading to the resignation of Head Coach Oscar Garcia. In spite of this blow, the club’s finances still improved with their losses falling by nearly a third from £15.3 million to £10.6 million.

Chief executive Paul Barber described this as “a significant improvement”, which seems a little strange, given that Brighton still reported a loss of nearly £11 million, but he’s sort of right, given the crazy finances in England’s second-tier as clubs strive to reach the highly lucrative Premier League. Furthermore, revenue rose 3% (£0.6 million) to £24 million, which is a record for the Albion, though the debt owed to chairman Tony Bloom also increased by £28 million to £131 million.

The £4.7 million reduction in losses from £15.3 million to £10.6 million is largely due to a substantial cut in operating costs of £3.8 million (including the overall wage bill being trimmed by £0.8 million). Player trading also improved with profit on player sales £2.2 million higher, while player amortisation fell £0.6 million. Depreciation was £2.4 million higher, as a charge for stadium depreciation (£2.1 million) was made for the first time (the cost will be written-off on a straight-line basis over 50 years).

Revenue grew by £0.6 million, largely due to a £0.9 million increase in ticket sales, offset by a £0.3 million decrease in money from player loans. Commercial income was flat, as a £0.7 million increase in sponsorship and advertising was largely offset by an apparent £0.5 million fall in catering revenue – though this is due to a change in the way this revenue is reported (net instead of gross, as in the previous year).

Brighton’s strategy is more clearly seen by the club’s alternative presentation of the profit and loss account, which highlights the steep reduction in administrative and operational costs, down 27% from £16.7 million to £12.1 million. This was explained by Barber thus, “I’m obsessive about reducing our operational costs, cutting waste, getting better supplier deals, and making the club more efficient because it's the only way that we can maintain a competitive playing budget without breaking FFP regulations.”

Of course, the reduction in operational costs is also partly driven by the changed accounting treatment for the catering business, but the trend is clear, as football costs (excluding player amortisation and depreciation) increased by nearly £1 million from £19.9 million to £20.7 million. In fact, Brighton’s managers have benefited from a significant increase in this football budget of around 60% since 2012, as it has grown from £13.1 million to £20.7 million.

Brighton have consistently reported losses in recent years. The last time that they made a profit was back in 2007/08 – and that was less than £1 million and only because of a £3.6 million exceptional credit, due to a change in the accounting for the Falmer stadium expenses incurred to date. Since then, the club has made cumulative losses of £51 million.

Essentially, their losses have increased as the stakes have got higher, i.e. targeting promotion to England’s top flight, where the financial rewards are enormous. As Tony Bloom put it, “most Championship clubs are currently loss-making as a means of supporting their own ambitions.”

Although only a few clubs have published their accounts for 2013/14, this point is backed-up by reviewing the 2012/13 accounts in the Championship, which reveal that only four clubs made money that season, while the vast majority incurred losses. Everything is relative and Brighton’s £15.3 million loss was “only” the 9th highest that season with four clubs reporting losses more than twice as high as the Seagulls: Bolton Wanderers £51 million, Blackburn Rovers £37 million, Leicester City £34 million and Wolves £33 million.

Brighton’s revenue has grown by almost 500% since 2009, surging from £4.1 million to £24 million, largely due to what can de described as the "Amex effect", though the promotion from League One to the Championship in 2011 has obviously also helped. In 2012 revenue jumped from £7.5 million to £22.2 million with gate receipts increasing from £2.3 million to £8.3 million following the move from Withdean to the Amex Stadium in Falmer.

In addition, commercial income more than doubled that year from £3.1 million to £7.6 million. The club could negotiate better deals with sponsors in the higher division (up from £0.8 million to £3.9 million), increase retail sales, e.g. from the stadium megastore (up from £0.5 million to £2.0 million) and make more from catering, i.e. pies and the famous Harveys beer (up from £35k to £1.3 million).

This is all well and good, and revenue has gone up a further £1.8 million in the last two seasons, but a significant step-up in Brighton’s revenue would surely require promotion.

Following last season’s growth, the club’s revenue mix is largely unchanged: 43% comes from gate receipts, 34% from commercial income and 23% from broadcasting. This is a fairly typical mix for Championship clubs, as opposed to the Premier League where TV is by far the largest source of income.

In 2012/13 Brighton’s revenue of £23.4 million was the 6th highest in the Championship, only behind Bolton Wanderers £35.1 million, Wolves £32.1 million, Leeds United £29.3 million, Blackburn Rovers £26.9 million and Birmingham City £24.2 million.

Interestingly, many of the clubs that have already published their 2013/14 accounts have reported a reduction in revenue (including Birmingham City, Watford, Ipswich Town and Millwall), which casts an even more favourable light on Brighton’s achievement in managing to increase revenue last season.

Of course, these revenue figures are distorted by the parachute payments made to those clubs relegated from the Premier League, e.g. in 2012/13 the first year of relegation was worth £15.6 million. If we were to exclude this “disparity” (as Barber describes it), then Brighton’s revenue would have been the second highest in the Championship, only behind Leeds United.

The impact of parachute payments can be clearly seen when looking at the Media revenue in the Championship in 2012/13. Those clubs without parachute payments basically all received the same amount (around £4 million) split between the Football League central distribution and a solidarity payment from the Premier League. This actually fell in 2012/13, as the new deal with BSkyB was worth less, because no other companies were interested in the TV rights.

Brighton’s central distributions (£4.9 million in 2013/14) have been boosted in the last two seasons due to the appearances in the Championship play-offs, but this still pales into insignificance compared to what they would have received if they had succeeded in reaching the Premier League. As Jim Bowen used to say on “Bullseye” to the losing contestants, “come and have a look at what you could have won.”

For example, Cardiff City, who finished last in the Premier League, trousered the princely sum of £62 million – or £57 million more than Brighton, even though there were effectively only six places between the two clubs in the English hierarchy.

The higher PL TV deal will also increase the parachute payments, so clubs relegated at the end of the 2014/15 season will receive the grand total of £65 million: year 1 - £25 million; year 2 - £20 million; year 3 - £10 million; year 4 - £10 million. There are some arguments in favour of these payments, namely that it encourages clubs promoted to the Premier League to invest to compete, safe in the knowledge that if the worst happens and they do end up relegated at the end of the season, then there is a safety net. However, they do undoubtedly create a significant revenue advantage compared to clubs like Brighton.

Brighton’s gate receipts rose 9.5% (£0.9 million) from £9.5 million to £10.4 million in 2013/14, driven by an increase in average attendance from 26,236 to 27,283. In the previous season Brighton’s match day revenue of £9.5 million was only surpassed in the Championship by Leeds United £9.7 million, so it is possible that they will be the highest once all the accounts are published for the 2013/14 season. In any case, last year they were far ahead of the nearest clubs (Nottingham Forest £7.1 million and Cardiff City £6.2 million), though Brighton do have a transport levy paid to rail and bus companies.

Brighton’s attendances have been the highest in the Championship for the past two seasons. In 2013/14 their average attendance was more than 2,000 higher than Leeds.

Since the move from Withdean, basically a council-owned athletics stadium, to the Amex, attendances have been steadily rising. In the last season at the “theatre of trees” in 2010/11, the average attendance was 7,352, but has increased every season since then, as the new stadium finally met the local demand for tickets. Capacity has been increased twice since the original move: in July 2012 it grew from 22,500 to 27,444 after the Upper tier of the East Stand was extended; and in March 2013 there was a further increase to 30,500 after all four corners were completed.

More worryingly, the average attendance this season has so far declined to 25,351, largely due to the insipid displays under the guidance of Hyypia (though a new record crowd of 30,278 was set in the FA Cup 4th round tie against Arsenal). Although the former Leverkusen manager resigned in December, it would have been no surprise if the club’s hierarchy had decided at some stage to “bin the Finn”, given his influence on and off then pitch.

In the new world of Financial Fair Play, Tony Bloom has said that the club needed “to establish a sharper commercial focus”, which they have clearly done, despite the reported figures only showing a slight increase from £8.1 million to £8.2 million. Sponsorship and advertising was up 16% from £4.2 million to £4.9 million; retail was down 3% from £1.4 million to £1.3 million (as this is usually dependent on timing of new shirt releases); and catering down £0.5 million from £1.8 million to £1.3 million.

In 2012/13 Brighton were once again only behind Leeds in the Championship, whose commercial revenue, as befitting their fine history, was much higher than every other club at £14.7 million.

As already outlined, the reported fall in catering income is misleading. Following the outsourcing of this activity to Sodexco, Brighton now show only the net commission in revenue, whereas in the previous season all the gross revenue was reported in revenue with the expenses shown in costs. In fact, Barber has said that there was “a very good increase” in catering in 2013/14. It is likely to be among the highest in the division, though Delia Smith’s Norwich City reported £4.2 million catering income the same season (albeit before their relegation from the Premier League).

What has been impressive is the increase in sponsorship with the two major deals attracting new sponsors. American Express replaced Brighton and Hove as shirt sponsor from the 2012/13 season and they are also the naming rights partner for both the stadium and the training ground. From 2014/15 Nike replaced Errea (after 15 years) as the club’s kit supplier. The value of the deal has not been divulged, but Barber said that it “represents a significant increase on our existing commercial arrangement.”

Profit from player sales, which equals the transfer fee less the remaining amortised value of the player in the accounts, increased from £1.6 million to £3.8 million in 2013/14, thanks to the sales of Liam Bridcutt to Sunderland and Ashley Barnes to Burnley. As can be seen from the Championship 2012/13 accounts, this has traditionally not been a big money-spinner for Brighton, but this is likely to change.

The 2014/15 accounts will benefit from the major sales of Leonardo Ulloa (“who’s that man from Argentina?”) to Leicester City for £8 million and Will Buckley to Sunderland for £2.5 million (note that these are press estimates, as figures have not been officially announced by the club). There are also potentially additional transfer fees receivable of up to £4.3 million from their new clubs, if certain performance criteria are satisfied, e.g. number of appearances, relegation avoided.

In the future, Brighton will hope that the significant investment in their academy bears fruit, as it has done with their South Coast “neighbours” Southampton, by developing young players, either for the first team or to sell profitably to other clubs.

Brighton’s total wage bill was cut by 4% (£0.8 million) from £21.1 million to £20.3 million, lowering/improving the wages to turnover ratio from 90% to 85%. That said, given the significant reduction in administrative and operational expenses, it is likely that the players wage bill has actually increased. Since 2009, wages have more or less kept pace with the revenue growth: revenue has grown by £19.9 million, while wages have grown by £15.4 million.

In 2012/13 Brighton’s wages of £21.1 million were the 8th highest in the Championship. Two of the three promoted clubs that season had far higher wage bills (Cardiff City £32.8 million and Hull City £25.9 million), though in fairness Crystal Palace (gulp) managed to go up on lower wages (£18.8 million). It is worth noting that many of the clubs that have reported 2013/14 results to date have also cut their wage bills, e.g. Blackburn Rovers, Birmingham City, Ipswich Town and Watford.

The remuneration for the highest paid director, who is not named, but is surely Paul Barber, has increased from £480k to £652k, which is a lot of money, but almost certainly includes a large bonus for the chief executive’s success in cutting operational expenses and renegotiating many of the sponsorships.

The prudent approach is evidently the one that Brighton want to follow, especially in a FFP world, as noted by Bloom: “While we do want to play at the highest level, we cannot simply open our cheque book and start spending without care or attention.” This can be seen in the wages to turnover league table in the Championship in 2012/13. Brighton’s 90% is not great, but considerably better than most of the other clubs, e.g. Cardiff City 189%, Bristol City 170%, Hull City 153%.

Nevertheless, Brighton’s gross debt has increased by £28 million from £103 million to £131 million, almost entirely comprising debt to Tony Bloom. The amount loaned is interest-free and repayable after more than one year. This figure would have been even higher if Bloom had not converted around £69 million of loans into equity over the years, including £18 million in May 2009, £40 million in September 2012 and £11 million in October 2013. That means that Bloom has pumped around a cool £200 million into the club.

This means that Brighton have one of the largest debts in the Championship, though still not as high as Bolton’s £164 million in 2012/13. Of course, this is essentially “in-house” debt with hardly anything owed externally. Most clubs also increased their debt last season, notably Blackburn Rovers who went up £25 million to £80 million.

Brighton are very reliant on the generosity of their chairman, as explained by Barber: “In addition to Tony's interest-free funding to build the American Express Community Stadium and American Express Elite Football Performance Centre, he continues to cover the club's on-going losses and is committed to funding future losses.”

Being so dependent on one individual can be a concern, but Bloom comes from a family of Brighton supporters: “My investment in the club starts – and ends – with being a fan. I am proud to be able to contribute to the community in which I was raised, and in which my family still lives. As a supporter (and chairman) my burning ambition remains to see the Albion return to play at the highest level.”

However, Brighton will not be able to buy success, as they will need to continue to comply with the Financial Fair Play regulations. Under the existing rules, clubs are only allowed a maximum annual loss of £8 million (assuming that any losses in excess of £3 million are covered by injecting equity). It should be noted that FFP losses are not the same as the published accounts, as clubs are permitted to exclude some costs, such as youth development, community schemes, promotion-related bonuses and depreciation on fixed assets. This means that Brighton will comply with FFP for the 2013/14 season.

If clubs do not meet the FFP targets, they will be subjected to sanctions such as transfer embargoes (as is the case with Leeds United, Nottingham Forest and Blackburn Rovers from 1 January 2015) or financial penalties if they are promoted to the Premier League.

"Charge of the Rohan"

The existing rules will continue to apply for the 2014/15 and 2015/16 seasons (though the maximum allowed loss is increased to £13 million from the second season), but will change from the 2016/17 season to be more aligned with the Premier League’s regulations, e.g. the losses will be calculated over a three-year period up to a maximum of £39 million. In addition, parachute payments will be cut from four to three years, which Bloom said “will help to address some of the current disparity”.

There’s no doubt that Brighton have come a long way, but the club is still far from breaking even, so continues to be reliant on Tony Bloom to a large extent. The move towards a self-sustaining model (with the associated pricing levels and restrained investment in the squad) has annoyed some supporters, but this is the new reality in the Championship. As Bloom explained, “If we are successful off the pitch, that can only help us on it.”

The chairman has invested heavily “to give us the best possible chance”, but he acknowledged that “there is no guarantee of success” and Brighton currently sit closer to the relegation places than the play-offs. Relegation to League One would hit the club hard, as that division’s financial fair play regulations restrict a club’s wage bill to a maximum of 60% of revenue. Given that all Brighton’s revenue streams would be significantly hit if they went down, the wage bill would have to be slashed with the consequent reduction in quality of players.

However, recent performances under new manager Chris Hughton have given cause for encouragement. It is difficult to argue with his assessment that Brighton “is a Premier League club in everything except the division it plays in”, but they still need to do it on the pitch – in one of the most competitive leagues in the world.


  1. Fantastic analysis of Brighton and Hove Albion.

  2. Thanks for your very informative blog. There's no doubt that Tony Bloom is a genuine fan, who would not want to stop backing Brighton. However, what if he ceased to be able to do so? How rich is he and how secure are the sources of his wealth?

    Fans of Hearts, my club, were assured for years that our huge debt did not matter, as it was all to our owner, Vladimir Romanov. He then went bankrupt and we entered administration. Fortunately, we came out if it and are on the way to fan ownership, but liquidation was a real threat for a period.

  3. Swiss you have to try and dissect Rangers FC, just for my own amusement.

  4. Great analysis! I think this model is very interesting, since the owner is an individual and the club depends so much on him. If something happens to him or to the sources of his wealth, what is the future of the club?

  5. Swiss, I would agree that trying to make some sense - any sense - of the mess that is Rangers FC would be very welcome, and interesting for your readers

  6. Nice analysis Post ..really superb....

  7. Tick tock tick tock


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