A lot to admire about Norwich City's self-sustaining strategy

The authoritative Swiss Ramble blogger reviews the recently published accounts of Norwich City. The club went from a £18.5m profit before tax to a £39.4m loss, as revenue dropped by £28m (45%) from £62m to £34m, mainly due to parachute payments coming to an end, and profit on player sales falling from £48m to just £2m. Loss after tax was £33.9m, due to £6.4m tax credit.

The decrease in revenue was entirely due to the lack of parachute payments, which meant broadcasting income fell £29.1m (75%) from £38.7m to £9.6m. However, commercial rose £1.3m (10%) to £14.4m, while gate receipts were flat at £9.7m. Despite the significant decrease, the club's £34m revenue was still comfortably in the top ten in the Championship, though only around half the level of clubs benefiting from parachute payments.

Revenue has dropped by around two-thirds since relegation from the Premier League from £98m in 2016 to £34m in 2019 (the lowest since 2011), very largely due to lower TV money. This will rebound back to an estimated £136m after promotion, an increase of around £100m. Promotion will be worth around £174m (even if relegated immediately), but worth noting that this is paid over three seasons.

The Swiss Ramble notes, 'The £39m loss is obviously not ideal, but it is pretty much par for the course for promoted clubs, partly due to hefty promotion payments. In 2017/18, the largest losses in the Championship were reported by the three promoted clubs: Wolves £57m, Fulham £45m and Cardiff City £39m.'

Furthermore, the loss was also linked to a decision to keep their talented young players, resulting in very low profit on player sales of just £2m, compared to £48m the previous season (the highest in the Championship), when they sold Maddison, Pritchard and the Murphys.

The Canaries have been profitable in five of the last eight years: they made money in all four seasons in the Premier League, but reported losses in three of the four Championship seasons. The only exception was £18m in 2017/18, due to the significant £48m profit on player sales. In fact, the bottom line has been increasingly influenced by player sales, which averaged an annual profit of £24m over the preceding 4 seasons, either leading to overall profit or lower losses, before the swing back in 2018/19 to the low £2m.

Attendances held up pretty well in the Championship with last season’s average of 26,017 only around a 1,000 (4%) below the 27,000 average in the 2015/16 Premier League with an impressive 20,257 season ticket holders.

After the revenue decline the wages to turnover ratio shot up from 68% to 152%, one of the highest (worst) in the Championship, though clearly impacted by promotion bonuses.

Unlike quite a few Championship clubs, the club had no FFP concerns, as their £24m loss over the 3-year monitoring period was lower than the £39m limit, even before allowable deductions for academy, community and infrastructure (£18m) and promotion bonus (£11m).

The Swiss Ramble concludes, 'There is a lot to admire about Norwich City's self-sustaining strategy. Even if they had not been promoted, they could have balanced the books by selling some of their young players. Time will tell whether their lack of spending this summer comes back to haunt them in May.'

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