Reading face big financial challenges

From his Zurich base, the authoritative Swiss Ramble analyses the recently published 2019/20 accounts of Reading FC. It doesn't make for comfortable reading and brings home the financial challenges facing Championship clubs seeking promotion if they don't have parachute payments.

This was the third season that Reading were under the control of Chinese businessman Dai Yongge (and his sister Dai Xiu Li), who own 96% via Renhe Sports Management Co Ltd. Former manager Mark Bowen said, “He has spent a hell of a lot of money on the club and still wants to spend money.”

The club’s loss increased from £30m to £42m, largely due to no repeat of prior year’s £8m from sale of the training ground and £2m other operating income. Revenue dropped £3m (16%) from £21m to £18m.

Profit on player sales fell £0.8m to £1.6m. This is one of the lowest gains in the Championship. The Royals have made very little from player sales, averaging only £4.2m a year since 2011. Much poor recruitment has resulted in numerous free transfers in order to get players with high wages off the books. 2020/21 will be no better, only really including Modou Barrow’s sale.

Most clubs in the Championship report large losses with many of them losing more than £20m a year even before the pandemic. However, Reading’s £42m loss is the second worst to date in 2019/20, only surpassed by Leeds United £62m, which included a £20m promotion bonus

The Royals have posted losses in eight of the last 10 seasons, even managing to lose money in the Premier League in 2013. Their annual losses have been increasing in the last three years (2018 £21m, 2019 £30m and 2020 £42m), amounting to an incredible £93m in this period.

The losses would have been even higher without £53m once-off gains in past eight years, including property sales £26m, grants received £10m, loan write-off £9m & investment disposals £8m. If the “questionable” £3m player loan is also included, impact would be £56m.

Revenue has fallen by £19m (52%) in the last 3 years from £37m to £18m, mainly due to parachute payments stopping. The club received £71m in parachutes between 2014 and 2017. Nevertheless, broadcasting still most important revenue stream with 46%.

Revenue of £18m is firmly in the bottom half of the Championship. To highlight the magnitude of their challenge, this is around a quarter of the £71m earned by clubs in receipt of parachute payments following relegation from the Premier League.

The wages to turnover ratio increased from 194% to 211%, the worst to date in the 2019/20 Championship. In fairness, 19 of the 24 clubs in this division are over 100%, which is well above UEFA’s 70% upper limit, but Reading’s ratio is particularly poor.

Renhe Sports now owns the Madejski Stadium, though it has been leased back to the football club for £1.5m annual rent, while the training ground is owned by Sun Elegant Group. These sales are within the EFL rules, but the Swiss Ramble notes this is still some fancy financial footwork.

The club did not detail the impact of the COVID-19 pandemic on these financials, though it is not likely to be very significant in 2019/20. The Swiss Ramble estimates around £2m for losses in match day and commercial income. It will be higher this season, as games still played without fans.

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The Political Economy of Football V2

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