The authoritative and thorough Swiss Ramble has reviewed the 2018/19 accounts of Stoke City. Despite relegation, Stoke City cut their pre-tax loss from £30m to £15m, even though revenue dropped £57m (45%) from £127m to £71m and profit on player sales fell £4m to £18m, as costs were down £75m.
The Swiss Ramble comments from Zurich, 'The £15m loss is obviously not great, though in fairness very few clubs manage to make money in the challenging Championship environment. Worth noting that the highest losses are often reported by the promoted clubs – though these invariably include hefty promotion bonuses.'
He adds, 'Following four consecutive years of (small) profits between 2014 and 2017, Stoke have now posted losses two years in a row, adding up to £45m in total (£30m in 2018 and £15m in 2019), though worth noting that £31m of this is from impairment (non-cash) adjustments.'
Revenue trends
The main reason for Stoke's £57m revenue reduction was broadcasting, which more or less halved in the Championship from £101m to £51m, despite parachute payments, though commercial was also down 30% (£6m) to £13m and gate receipts fell 17% (£1.3m) to £6.4m.
This is the second year in a row that Stoke's revenue has fallen. It is down by almost a half (£65m) from the club record high of £136m in 2017 to £71m in 2019. Most of the reduction is from TV money £57m, but commercial is also down £7m.
Even though broadcasting income dropped nearly 50% from £101m to £51m following relegation, this was still a lot more than the £8m most Championship clubs received, including £2.5m EFL central distribution and £4.6m Premier League solidarity payment. Nevertheless, this is a lot less than the TV riches available in the Premier League with revenue distributions ranging from £97m to £152m. That said, the club did earn a chunky £646m from their decade in the top flight.
The main driver of the decrease in commercial income was sponsorship and advertising, which more than halved from £11m to £5m. Owner bet365 pays a reported £3.2m for shirt sponsorship and also has stadium naming rights. Macron have a five-year kit deal from 2016/17.
The Swiss Ramble notes, 'Despite the steep decrease, Stoke City's £71m revenue is highest to date in 2018/19 Championship (though other relegated clubs Swansea and West Bromwich Albion are still to publish accounts) and actually third highest ever in the second tier. This makes their performance on the pitch all the more disappointing.'
Reducing the wage bill
To offset the revenue reduction, Stoke cut the wage bill by £38m (41%) from £94m to £56m, while other expenses were £12m (41%) lower at £17m. The wage bill was cut by 41% (£38m) from £94m to £56m, though the wages to turnover ratio still increased from 74% to 79%, as “the club has invested significantly in its playing squad as well as suffering a reduction in overall turnover.” Lowest [total] wages since 2012.
Even though the wages to turnover ratio worsened from 74% to 79%, this is actually among the lowest (best) in the Championship. In fact, more than half the clubs in this ultra-competitive division have ratios over 100% with Birmingham City 202% “leading the way”.
Despite the decrease, the £56m wage bill is the highest reported to date in the 2018/19 Championship, ahead of Norwich City’s £51m. In fact, it is actually the fifth highest ever reported in this division, though a long way below Newcastle United £80m in 2016/17.
Reliance on player sales
The loss would have been even higher without £18m profit on player sales, second highest in the Championship, mainly from the sales of Xherdan Shaqiri to Liverpool, Ramadan Sobhi to Huddersfield Town and Marc Muniesa to Girona. Stoke have traditionally made very little from player sales – averaging just £1m a year in the 6 seasons to 2015. However, in the last 4 years, profit has increased to £15m a season.
[WG: Clubs across the world are becoming more reliant on player sales to balance the books, note our recent comments in Brazil. It is risky to rely too much on such a revenue stream, but one can see why clubs find it attractive.]
Parachute payments and gate receipts
The club benefited from £43m parachute payments, which will fall to £34m in 2019/20 and £15m in 2020/21. Swansea City and WBA received the same amount, while Hull City, Middlesbrough and Sunderland got £34m, QPR £17m and Aston Villa £15m.
If parachute payments were excluded, Stoke's £33m would still be among the highest revenues in the Championship, though below Norwich City £34m (in 2018/19) and Leeds United £41m and Aston Villa £39m (in 2017/18).
Gate receipts fell 17% (£1.3m) from £7.7m to £6.4m, despite having five more games at home, as average attendance was down 14% (4,000) to 25,200. This level of revenue is mid-table in the Championship, around half of Villa, Leeds and Sheffield Wednesday £11-12m.
Gross debt increased by £19m from £123m to £141m, all ultimately owed to the Coates family. The good news is that Stoke have no bank debt, but the “friendly” debt with their owners has shot up by around £82m over the past three years. The gross debt of £141m is by far the highest in the Championship. The closest challengers were Middlesbrough £101m, Ipswich Town £96m and Sheffield Wednesday £79m.
WG: Stoke are clearly at risk of relegation which would be very damaging for the club despite the support shown by their owners. Sadly, clubs that look as if they were established in the Premier League can suddenly find themselves on a downward spiral, even Manchester City were affected in the past. Many such clubs recovered, but Sunderland are an example of how difficult it can be for a substantial club.
Economic recovery in the Potteries would provide a beneficial climate, but that is going to be challenging. Hopefully progress can be made with greater investment, but it will take time. There is also another smaller club in the Five Towns.
Kieran Maguire of the PriceofFootball has long argued that the finances of the Championship are not sustainable, but financial fair play has not had the impact hoped for with some clubs taking evasive measures by selling and leasing back their stadiums.
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