Burnley - Seasons In The Sun

Life looks pretty good for Burnley at the moment, as they are top of the Championship table with a very good chance of an immediate return to the top flight. Even though they were relegated from the Premier League after a single season, chairman Mike Garlick rightly observed, “as a club we gained a great deal of respect and admiration throughout the football world.”

It had been a similar story in 2009/10 when Burnley also only survived one season in the Premier League, though in fairness this was the first time that they had competed at the elite level for over 30 years.

One of the reasons that Burnley are held in high esteem is that they look to do things the right way. A few years ago, the board outlined their approach: “we continue along the path towards living within our means while providing the manager with the resources to compete successfully.” This was reiterated in the promotion season, “we will manage the club’s finances sensibly whilst keeping the club as competitive as possible.”

"Shout to the top"

It’s clearly a tricky balance, but Sean Dyche appears to be fully on message: “You want to be productive in the (transfer) market and move the team forward, but there is also the bigger picture of the club and the future, and we have managed to find the balance pretty well.”

Dyche has been a steady hand since replacing Eddie Howe in October 2012, with the club’s decision to keep faith with him after last season’s relegation looking to be an inspired one.

Burnley’s brief sojourn in the Premier League has significantly boosted their finances, so much so that they have cleared their debt, have money in the bank and are investing in the future with major redevelopment at the training ground.

As Garlick put it, “the financial benefits of that season in terms of our profit are quite staggering to say the least”, adding that “in times of boom and bust” Burnley could be regarded as “a role model of how to run a football club in the modern era.” This is fair comment after the club posted record profits of £34.6 million before tax (£30.1 million after tax).

That represented a £42.3 million improvement compared to the previous season’s loss of £7.6 million, though that year was adversely impacted by £8 million of exceptional costs linked to promotion, mainly player and staff bonuses plus additional fees paid to other clubs in relation to player purchases.

Revenue quadrupled, rising by £59.1 million from £19.6 million to £78.8 million, very largely due to the much higher TV deal in the Premier League that increased broadcasting income by £54.6 million from £11.9 million to £66.6 million.

The other revenue streams also rose: match day by £2.1 million (54%) from £3.9 million to £6.0 million, as attendances flourished in the top tier; and commercial by £2.4 million (63%) from £3.8 million to £6.2 million. However, profit on player sales was £3.2 million lower at just £165k

As might be expected, the wage bill climbed by £13.9 million (90%) from £15.5 million to £29.4 million, while player amortisation also increased by £1.9 million (58%) from £3.2 million to £5.1 million. Other expenses shot up by £4.7 million (146%) from £3.2 million to £7.9 million.

Garlick noted that Burnley’s profit was “not only the biggest recorded by the club, but also one of the highest in the Premier League.” Their pre-tax profit of £36 million is the second highest reported to date for the 2014/15 season, only surpassed by Liverpool’s £60 million, but ahead of Leicester City £26 million, Arsenal £25 million and Southampton £15 million.

Even though the Premier League these days is a largely profitable environment with only five clubs losing money so far in 2014/15, thanks to the increasing TV deals allied with Financial Fair Play (FFP), it is still possible for clubs to lose a lot of money in the top flight, especially QPR, who have just communicated a thumping great £46 million deficit.

This is a highly valid comparison, given that QPR have emulated Burnley’s movements by gaining promotion in 2013/14, only to be immediately relegated the following season. Indeed, Garlick himself commented on the different financial strategy employed by others: “None of the other promoted clubs got anywhere near break-even, QPR and Leicester both showed heavy losses.”

What makes Burnley’s performance even more impressive is that hardly any of their profit (only £165k) came from player sales, as these can have a major influence on a football club’s bottom line, especially at Liverpool, whose numbers were boosted by £56 million from this activity in 2014/15, largely due to the sale of Luis Suarez to Barcelona.

In the same way, Arsenal and Southampton, two of the closest challengers in the profit league to Burnley, would actually have reported losses without the benefit of once-off profits from player sales (£29 million and £44 million respectively). Only Leicester City have reported lower profits on player sales in the Premier League 2014/15 results with just £135k.

Looking at their financial trend, basically Burnley have made substantial profits in the two seasons when they have been in the Premier League, benefiting from the far higher revenues available there, e.g. their previous record profit of £14 million was registered in 2009/10.

As a rule, Burnley have produced smallish losses in the Championship, though ironically their largest deficits have come in their promotion seasons, as these have triggered substantial bonus payments. In fact, without the impact of once-off promotion payments in 2013/14, the club would actually have reported a £300k profit.

The only other season that saw a profit was 2011/12, due to relatively high profit on player sales of £8.6 million. As the chairman explained: “Despite recording an operating loss for the year, the transfer fee we received for Jay Rodriguez (sold to Southampton) meant we were able to convert this loss for the year into a profit.”

Similarly, the sales of Steven Fletcher to Wolves in 2009/10 and Charlie Austin to QPR in 2013/14 helped to restrict the losses in those years. As the club put it, “It has long been part of the club’s ethos and vision to realise the value in our playing assets as a source of income to support the club’s business in the long-term.”

As is his habit, Dyche cut to the chase, “We’re selling Charlie Austin to make sure the club can balance its books.”

It should be noted that the latest accounts do not include the sale of Danny Ings to Liverpool, as the compensation fee has yet to be agreed by a tribunal. Burnley will hope for at least £8 million, which will be included in the 2015/16 books, as will the sales of Kieran Trippier to Tottenham, Jason Shackell to Derby County and Jelle Vossen to Club Brugge, which should produce a healthy result for this activity.

"Little Boyd Soldier"

As a technical aside, the figures for 2012 onwards are taken from Burnley FC Holdings Limited, which was incorporated in December 2012 as part of a reorganisation aimed at bringing the land and buildings occupied by the group back under its control. Before then, the figures have been sourced from The Burnley Football & Athletics Company Limited

Given that player trading can have a major impact on reported profits, it is worth exploring how football clubs account for transfers. The fundamental point is that when a club purchases a player the costs are spread over a few years, but any profit made from selling players is immediately booked to the accounts.

So, 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. To illustrate how this works, if Burnley were to pay £5 million for a new player with a five-year contract, the annual expense would only be £1 million (£5 million divided by 5 years) in player amortisation (on top of wages).

However, when that player is sold, the club reports the profit as sales proceeds less any remaining value in the accounts. In our example, if the player were to be sold three years later for £8 million, the cash profit would be £3 million (£8 million less £5 million), but the accounting profit would be twice as much at £6 million, as the club would have already booked £3 million of amortisation (3 years at £1 million).

It’s a little complicated, but basically the more that a club spends on buying players, the higher its player amortisation. In this way, Burnley’s player amortisation rose from £3.2 million to £5.1 million in 2015 following promotion in 2014, reflecting the purchases of George Boyd, Michael Keane, Michael Kightly and Lukas Jutkiewicz.

Despite the 2015 increase, Burnley’s player amortisation of £5 million was still the lowest in the Premier League, just behind West Bromwich Albion. To place this into perspective, player amortisation at a really big spender like Manchester United is around 20 times as much, with the massive outlay under Moyes and van Gaal driving their annual expense up to £100 million.

That might be considered an unreasonable comparison, but Burnley’s player amortization is also less than half of the likes of Crystal Palace £11 million and Stoke City £12 million, while the other clubs promoted in 2013/14 were also higher: QPR £16 million, Leicester £7 million.

As a result of these accounting shenanigans, clubs often look at EBITDA (Earnings Before Interest, Depreciation and Amortisation) for a better idea of underlying profitability. Burnley’s prudent approach over the years has been reflected in consistent break-even positions (more or less), but the Premier League effect is once again seen in 2015 with a spectacular rise from £1 million to £42 million.

Amazingly, this was actually the sixth best in the Premier League, only behind five clubs that have substantially higher revenue-generating capacity, namely Manchester United £120 million, Manchester City £83 million, Liverpool £73 million, Arsenal £63 million and Tottenham £48 million. This is evidence of Burnley’s ability to control their costs and goes a long way towards explaining their impressive profitability.

Revenue has obviously been influenced by the division in which Burnley have been playing, but the difference between their two seasons in the Premier League is striking, largely due to the higher TV deal. This was the principal reason that Burnley’s revenue grew by £33.4 million (74%) from £45.4 million to £78.8 million between 2010 and 2015.

Following the previous relegation in 2010, revenue fell from £45.4 million to £27.4 million, though this was cushioned by a £15 million parachute payment from the Premier League. In fact, Burnley have collected a total of £43 million in parachute payments in the four years between 2011 and 2014.

This was much needed, as match day and commercial income had been steadily declining over this period, which the club said was “as a result of the recession and falling gates.”

There’s never really a bad time for a club to be promoted to the Premier League, but Burnley’s elevation in 2014 was particularly timely, as that was the season that their parachute payments ran out. Actually, this had risen from £5.8 million to £9.7 million that season in line with the start of the new TV deal.

Even after their considerable revenue growth in 2015, Burnley’s £79 million was still the lowest in the Premier League, behind Hull City £84 million and QPR £86 million. Their relegation  should therefore have come as no great surprise, as it is very difficult to compete with others who have more spending capacity. Just look at the financial might of the elite clubs, who earned at least £220 million more than the Clarets: Manchester United £395 million, Manchester City £352 million, Arsenal £329 million, Chelsea £314 million and Liverpool £298 million.

Clearly, this season Leicester have shown that money is not the sole indicator of success, but even their revenue was £25 million more than Burnley last season. Furthermore, it is no coincidence that the three relegated clubs in 2014/15 were those with the lowest revenue.

The vast majority (84%) of Burnley’s revenue in the Premier League came from television with just 8% from commercial income and 8% from gate receipts. It was similar in in the Championship, though broadcasting “only” accounted for 61%, (inflated by parachute payments) followed by match day 20% and commercial 19%.

This reliance on TV money is fairly common in the Premier League with half the clubs in the top flight dependent on broadcasting for more than 70% of their revenue, though no club earned a higher proportion than Burnley. If the Clarets do succeed in reaching the top flight again, their relatively low revenue from other streams will remain an issue for them.

In 2014/15 Burnley’s share of the Premier League TV money was £65.4 million, compared to £11.6 million in the Championship (£1.9 million from the Football League pool plus the £9.7 million parachute payment). Note: if a club receives parachute payments, then it does not also get the £2.3 million solidarity payment from the Premier League that other Championship clubs have.

The distribution of Premier League funds  is based on a highly equitable methodology with the top club (Chelsea) receiving £99 million and the bottom club (QPR) getting £65 million, a ratio of around 1.5.

Most of the money is allocated equally to each club, which means 50% of the domestic rights, 100% of the overseas rights and 100% of the commercial revenue. However, merit payments (25% of domestic rights) are worth £1.2 million per place in the league table and facility fees (25% of domestic rights) depend on how many times each club is broadcast live.

In this way, Burnley’s TV money was adversely impacted by not only finishing in the relegation zone, but also only being shown live just eight times, though they were actually paid on the basis of 10 times, as that is the contractual minimum.

The blockbuster new TV deal starting in 2016/17 only reinforces the benefits of promotion to the Premier League. My estimates suggest that Burnley would receive an additional £29 million under the new contract, if they finished in the same place as 2014/15, increasing the total received to an incredible £94 million, though even that might be conservative, given the size of the overseas deals announced.

Clearly, this works both ways, so Burnley’s 2015/16 revenue in the Championship will be much smaller, falling by an estimated £38 million from £65 million to £27 million, even though the first year parachute payment is now worth £25 million. Obviously, this is still considerably higher than those Championship clubs without parachute payments, who receive only £5 million.

Another point worth noting is that from 2016/17 clubs will only receive parachute payments for three seasons after relegation, although the amounts will be higher. My estimate is £75 million, based on the percentages advised by the Premier League (year 1 – £35 million, year 2 – £28 million and year 3 – £11 million). Up to now, these have been worth £65 million over four years: year 1 – £25 million, year 2 – £20 million and £10 million in each of years 3 and 4.

Match income climbed by 54% (£2.1 million) from £3.9 million to £6.0 million in 2014/15, thanks mainly to the average attendance rising from 13,527 to 19,158.

Season ticket prices for 2014/15 were frozen for “early bird” renewals, but increased by up to 50% after promotion was confirmed, though this did include a £100 retainer which was redeemed if fans renewed for 2015/16. The idea was that the club would hang on to fans even if Burnley were relegated, as former chief executive Lee Hoos explained, “Commit to us for two years and we’ll make sure you’re rewarded.”

Nevertheless, Burnley’s match receipts of £6.0 million were the lowest in the Premier League, behind West Brom £7.0 million, Stoke City £7.6 million, Swansea City £7.7 million and QPR £8.1 million.

Burnley’s average league attendance of just over 19,000 was the second smallest in the Premier League, only ahead of QPR. Although this grew by over 6,000 (49%) in two seasons, it was lower than the 20,654 achieved the last time that the club was in the top flight.

On the other hand, the good performances this season have meant that the attendances have held up reasonably well in the Championship, though the current 2015/16 average is still down to 16,537. To be fair, Burnley’s attendance is never going to be massive, as the town has a relatively small population and Turf Moor, one of the oldest grounds in English football, only has a capacity of around 21,000.

Commercial revenue rose 63% (£2.4 million) from £3.8 million to £6.2 million in 2014/15, comprising catering £1.5 million, retail £1.3 million and other commercial activities £3.4 million. The Premier League generated more international business for the club’s retail and media departments, while enhancing domestic interest, and there were higher sales of corporate hospitality packages and more ground advertising revenue.

Nevertheless (and stop me if you’ve heard this one before), it was still one of the lowest in the Premier League, only ahead of Hull City £4.5 million. To put this into context, commercial giants like Manchester United and Manchester City earned £197 million and £173 million respectively. As a better comparison, the likes of Crystal Palace, QPR, Southampton, West Brom and Swansea City all generated £10-12 million, around twice as much as Burnley.

Their 2015/16 shirt sponsorship is with Oak Furniture Land, owned by a Burnley fan, replacing a deal with the online gambling company FUN88.com in the Premier League that was estimated to be worth £1 million a season.

When that deal was initially signed, it was the club’s first overseas shirt sponsor and described as “the biggest deal in the club’s history”. It’s still not massive money compared to the elite clubs, but it was around the same level as shirt sponsorship for West Brom, Southampton, Leicester and Crystal Palace.

Burnley have been with kit supplier Puma since 2010, but the financial terms have not been disclosed.

Burnley’s wage bill rose by £13.9 million (90%) from £15.5 million to £29.4 million following promotion, slashing the wages to turnover ratio from 79% to just 37%. This is a great improvement from the 120% peak in 2009, while this ratio was as high as 100% as recently as 2013.

Wages have been a clear area of focus for the Burnley board. Back in 2012 they noted that the wage bill had nearly doubled compared to 2008, stating that “the level of staff costs is not sustainable on Championship revenues.” However, by 2014 they felt that they had “been able to control staff and other operating costs at a level that we consider to be reasonable.”

Performance-related bonuses have been a key part of their approach, as seen in the promotion seasons. The 2014 gross wages were £21.5 million, but the £6.1 million bonus should be excluded to give underlying wages of £15.5 million; while 2009 was “inflated by some very substantial success-related bonuses.”

The rationale was explained by Garlick: “We tried to skew as much as possible in terms of incentives and bonuses on the players to try and fire them up and motivate them to get there – and it worked.”

Not only was Burnley’s £29 million wage bill the lowest in the Premier League, but it was the lowest by some distance. In fact, the nearest clubs, Hull City £56 million and Leicester £57 million, enjoyed wage bills around twice as much as Burnley. As Dyche drily commented, “Historically this club has had to punch above its weight.”

As you would expect, Burnley’s wages to turnover ratio of 37% is also the lowest in the top tier with the next best being Manchester United and Tottenham, both at 51%. As an interesting comparative, another promoted club, QPR, had a fairly horrific wages to turnover ratio of 85%.

This is nothing new for Burnley, as they were promoted spending very little with their £15 million wage bill being strictly mid-table. Not much has changed this season with Burnley again being outspent by others, as evidenced by Jason Shackell’s move to promotion rivals Derby County, with Dyche commenting that the defender had been offered a contract that was “beyond the levels of what we feel are appropriate for our football club.”

Unfortunately, Burnley were also relegated spending very little, so there has to be a concern that there would be a repeat performance if Burnley manage to go up this season. Again, Dyche realistically recognised the challenge: “We would have to get a wage structure at the top level of this club’s affordability, which is difficult, because this club’s affordability is different to most.”

Over the years, Burnley have not been a big player in the transfer market, often registering net sales, though they have increased their gross spend in the last two years, when they averaged £11 million, compared to just £2 million over the previous eight seasons, including the club’s record purchase of striker Andre Gray from Brentford for £9 million.

However, it is apparent that Burnley have not gone overboard in terms of spending, hardly splashing the cash even after promotion to the Premier League. As Dyche said, “We can’t throw money at every situation, but we’re in a better position than we were a couple of years ago.”

The lack of spending means that Burnley have to be “smarter than the average bear”, according to their veteran midfielder Joey Barton, especially when you look at some of their principal rivals who are really “going for it”.

To illustrate this, in the last two seasons Burnley had net spend of £14 million, but were still comfortably outspent by  Derby County £29 million and Middlesbrough £23 million, much to Dyche’s disgust: “Even with those clubs making enormous losses, they still just seem to be throwing money everywhere.”

To be fair, any analysis of transfer fees has to be treated with some caution, as many deals are “undisclosed” in the Championship, so might have no reported value. For example, in Burnley’s case, no value has yet been ascribed to the Ings sale – though that would only make the shortfall against Derby and Boro higher.

In addition, the figures are distorted by clubs that were in the Premier League the previous season (like Burnley), either because of high spend when they were in the top flight or large sales following their relegation.

Burnley now have net funds of £12.3 million, as virtually all the club’s debt has been paid off, leaving just £0.6 million of finance leases, while their cash balance is up to £12.9 million.

Gross debt was £10.3 million the previous year, including £3.6 million of directors’ loans (charged at 6.5%), £3.8 million of other loans (10-11%) and £2.9 million of fixed rate secured loan notes (5%). This was already s fair bit lower than the £15.8 million peak in 2013.

As part of the debt reduction, the Burnley FC Bond Holders, a group of supporters who were approached by the club to help finance the repurchase of the stadium and training facility from Longside Properties, were repaid five years earlier than anticipated.

In addition, Burnley have reduced net transfer liabilities from £3.6 million to £2.4 million.

As a result, Burnley’s financial debt of £0.6 million was one of the smallest in the Premier League, only beaten by Chelsea, who are funded by Abramovich, while the only other club with debt below £10 million was West Brom.

The clearing of Burnley’s debt will obviously reduce their annual interest payments. While these have not been enormous, they were up to £1.5 million in the 2015 accounts, which would have been painful back in the Championship.

Burnley have managed to generate cash from operating activities, after adding back non-cash items such as player amortisation and depreciation, which is a fine achievement, especially in a league as demanding as the Championship, though they have also been reliant on directors’ loans and additional external creditors to finance investment in players and infrastructure.

However, it was a whole new ball game (to coin a phrase) in 2015 in the Premier League, which led to more cash being generated (£35 million) than the last ten years combined, thus funding significant player investment of £12 million.

These riches also allowed Burnley to commit to stadium improvements, such as the offices and a new Clarets Store, as well as redeveloping the Gawthorpe training ground at a cost of around £10 million. The combined cost of eliminating all the debt plus the new development is approximately £20 million.

Over the last seven years, Burnley have generated £54 million of funds, largely from operating activities £48 million, but also through increases in share capital £6 million. Less than a third of this (£16 million) has gone on player purchases, while £9 million has been spent on interest payments plus £6 million on loan repayments. Infrastructure investment has accounted for a further £6 million and £4 million was required for the subsidiary acquisition.

Finally, £13 million has been “utilised” in simply increasing the cash balance to £13 million, which is a very respectable amount for a club of Burnley’s size, though much of this has been committed to capital expenditure. Obviously, it’s nowhere near Arsenal’s £228 million, but that’s a ridiculous waste of the Londoners’ plentiful resources anyway.

Given the club’s sustainable approach, it is not surprising that Burnley do not have any issues with Financial Fair Play (FFP), though these regulations have reinforced the club’s strategy: “These rules mean that we need to continue to plan carefully for the future and act accordingly, to ensure that we operate within the rules and within the income we generate.”

To that end, the club is now investing in youth, with the development at the training ground aimed at “bringing us in line with other clubs in the Championship and Premier League.”

Garlick, for one, is keen to “breed talent”, though he appreciates that this is a long-term strategy: “Whatever we put into that to develop it, we might not see the results for four or five years, but if we don’t do that everybody else is streets ahead of us, we’ll never get Category 2 and how are we going to attract young players?”

"Joey's on the street again"

The Championship is such a competitive division that no Clarets fan can be 100% confident of promotion, but they can be reasonably certain that if Burnley do go up, they will continue to be run sensibly, even if that increases the odds against them.

The size of their task should not be under-estimated. As we have seen, the last time Burnley were in the Premier League, they had the lowest revenue, the lowest wage bill, lowest gate receipts, lowest player amortisation (reflecting transfer spend) and second lowest commercial income. And yet, they still made the second largest profit and had the second smallest debt.

"Arfield of dreams"

Dyche summed up the dilemma thus: “In rational business terms, people would probably say we’re a role model, but in the irrational world of football, people would argue ‘why didn’t you throw it all on the pitch like Bournemouth have, and they’re going to stay up and you didn’t?’”

Either way, Burnley deserve respect for the way that the club has progressed. They have gained promotion to the Premier League twice in six years, despite all their financial disadvantages, and are seemingly on course to go up once again this season.

Let’s leave the last word to the big man. Here's Dyche again: “We have been building something here for the last three-and-a-half years and there have been lots of good times. We want more good times here and I want to be part of that.” No tub-thumping, no over-the-top promises, just getting down to business. That's the way that Burnley do things.