Financial sting for Hornets could be worse

The authoritative Swiss Ramble reviews the 2019/20 financial results for Watford that covered a season that the club described as “unique and challenging”, as it ended in relegation after they finished 19th in the Premier League and they had three managers: Javi Gracia, Quique Sanchez.

The Hornets swung from £10m pre-tax profit to £36m loss, as revenue decreased £28m (19%) from club record £148m to £120m and profit on player sales fell £4m to £18m, while expenses increased £9m (6%). Prior year boosted by £4.5m Marco Silva compensation.

During their time in the Premier League Watford reported profits in 3 out of 5 seasons, though there is an overall deficit of £49m in this period, due to the hefty losses in 2018 and 2020. In the Championship, they tended to lose money, though the losses were quite small.

One reason for  the club swinging from profit to loss in 2020 is exceptional items. Prior year was boosted by £4.5m compensation for Marco Silva’s move to Everton, while 2020 was adversely impacted by £6.7m termination payments, presumably for Javi Gracia and Quique Sanchez Floresey.

The main driver of revenue reduction was broadcasting, which fell £24m (20%) from £119m to £95m, while match day dropped £2.0m (21%) to £7.3m, commercial decreased £1.2m (6%) to £17.4m and player loans were down £0.9m to £84m.

Even after the steep decrease in broadcasting income, this was still by far the most important revenue stream, accounting for 79% of total revenue followed by commercial 15%.  This revenue stream was again one of the lowest in the Premier League, just behind Southampton. For perspective, this is over a quarter of a billion below Manchester United.

Despite the decline in 2020, revenue has still grown by £26m (27%) from £94m to £120m since 2016, their first season following promotion to the Premier League. However, it will fall again after relegation, despite parachute payments and TV money deferred from 2019/2.

The £36m loss is obviously not great, it is actually pretty good compared to others, as all clubs have been adversely impacted by COVID with no fewer than 13 in the Premier League posting higher losses in 2019/20.

The club listed the COVID impact as £10m lost revenue (broadcasting rebate £7.2m, match day £2.4m and commercial £0.3m), while the Swiss Ramble estimates that £17m TV revenue has been deferred to 2020/21. Excluding £27m reduction, revenue would have been £147m with the club posting a £9m loss.

The £28m revenue decrease is one of the better performances in COVID-impacted 2019/20 Premier League, though in percentage terms their 19%, is towards the upper end. Partly driven by accounting date, as this influences the amount of revenue deferred to 2020/2

Following the decrease in 2020, the  £120m revenue was 17th highest in the Premier League, only ahead of Norwich, Villa and Bornemouth. To place this into perspective, it was less than a quarter of Manchester United’s £509m, highlighting the Hornets’ challenge in the top tier.

The bottom line benefited from £18m profit on player sales, down £4m on prior year, mainly from the sale of Lukebakio to Hertha Berlin, Foulquier to Granada and Oulare to Standard Liège. That’s not bad, but a fair way below Chelsea £143m, Leicester City  £63m and Arsenal £60m.

The club have grown their profits from player trading, making £71m in the last five years, compared to only £19m in the preceding 5-year period. Indeed, 2020/21 figures will include £51m, mainly from Doucouré to Everton, Estupinan to Vilarreal and Suarez to Granada.

Watford spent £66m on player purchases in 2019/20, including Ismaela Sarr, Ignacio Pussetto (from the Pozzo family’s Udinese), Craig Dawson and Joao Pedro. This was in the bottom half of the Premier League, around the same level as Sheffield United.    had £303m gross spend in the transfer market in their 5 years in the Premier League (net spend £195m), significantly higher than the £8m they spent in the preceding 5-year period.

The wage bill rose £12m (15%) from £84m to £96m, a club record, with playing staff increasing from 65 to 74. This means that wages have grown by two-thirds since first season in the Premier League (£58m).   Despite this growth, the £96m wage bill was the 4th lowest in the Premier League. It will fall in the Championship season, due to player departures and relegation clauses (though media reports suggest that some players did not have these).

As a result of the revenue fall, the wages to turnover ratio increased (worsened) from 57% to 80%, the 8th highest in the Premier League. In fairness, without the COVID revenue loss the Swiss Ramble estimates that this ratio would have been only 66%.