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.
