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Cost pressures grow at Watford

The authoritative Swiss Ramble has taken an in depth look at the recently published accounts of Watford FC. The club made a pre-tax loss of £32m, compared to a £4m profit in the prior year, despite revenue rising 3% (£4m) to a record £128m, as profit on player sales fell from £22m to £3m. The £32m loss before tax is the highest of the ten Premier League clubs that have to date. The books would have been balanced if the Richarlison sale to Everton had gone through earlier.

This is first time Watford have lost money since returning to the top flight, having made £4m in both previous two seasons. Previously, they tended to make (small) losses. However, rather than indicating an underlying problem, it shows the influence that player sales can have on the bottom line.

The £4m revenue growth was mainly due to £3m (3%) increase in TV to £109m (Premier League distributions) while commercial rose £1.3m (13%) to £11.4m and match day was up £0.4m (5%) to £8.0m. Revenue has grown by an incredible £110m since promotion to the top flight in 2015 from £18m to £128m. Virtually all of this growth (£104m) has come from broadcasting with only small increases in commercial and match day (£3m apiece).

A hefty 85% of the club's revenue comes from TV, but this is far from unusual in the Premier League with many clubs heavily reliant on this revenue stream. In fact, in 2016/17 half of the clubs were above 80%.

Average attendance fell slightly from 20,571 to 20,231. Crowds are around 4,000 (20%) higher in the Premier League than the Championship. Attendance of 20,231 is still just about the lowest in the Premier League, only ahead of Bournemouth. £11m commercial revenue is still one of the smallest in the Premier League, around the same level as WBA, Swansea City and Brighton.

The wage bill rose 13% (£10m) from £76m to £86m, with player salaries increasing by £7.7m, while headcount was up from 254 to 292 (mainly players 13, coaches 13, ground staff 12). Wages to turnover ratio worsened from 61% to 67%. Wages have quadrupled since promotion.

Gross debt rose from £50m to £84m, with loans from group companies increasing from £45m to £80m. Debt has shot up £71m from just £13m since promotion to the Premier League. £84m. gross debt is now the 9th largest in the Premier League. What is worth noting is the high interest charged on Watford parent company loans, e.g. £55m at base rate + 6.28%; £20m at 5%. This resulted in £3.3m cash interest payments in 2018, the 6th highest in the Premier League, with a further £3m unpaid.

According to press reports, owner Gino Pozzo received a £125m offer last year from American media company, Prolific Media Holdings, for a 37.5% share, which would value the club at around £350m. Although this was rejected, there may be owner interest in selling a minority stake.

CEO Scott Duxbury noted that “costs associated with running a successful business within the PL” would continue to grow steadily. This will place pressure on the owners, as their loans would also have to increase – unless the club makes more profitable player sales.

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