Reading's amazing losses

The authoritative Swiss Ramble analyses the latest accounts of Reading FC from his Zurich base.

This was the fourth 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. However, in that time the club has struggled both on the pitch and with Financial Fair Play rules.

The club’s loss narrowed from £42m to £36m, despite revenue dropping £4.0m (23%) from £17.8m to £13.8m and profit on player sales falling £0.9m to £0.7m, thanks to an £11.2m (18%) reduction in operating expenses from £61.3m to £50.2m.

The £36m loss is still one of the worst in the Championship, only surpassed by Bristol City £38m to date in 2020/21. Many clubs post large losses in this division, though some have been relatively low this season, e.g. QPR and Coventry City £5m.

The Royals have reported losses in eight of the last 10 years, even managing to lose money in the Premier League in 2013. Their annual losses have been particularly high in the last four years (2018 £21m, 2019 £30m, 2020 £42m and 2021 £36m), amounting to an amazing £129m in this period.

Moreover, Reading’s  losses would have been even higher without £51m once-off gains in the past seven years, including property £26m (stadium sale £7m, training ground sale £8m and land revaluation £11m), grants received £10m, loan write-off £9m and investment disposals £8m.

The £13.8m revenue is now firmly in the bottom half of the Championship. To highlight the magnitude of their challenge, this is around a quarter of the revenue of clubs receiving parachute payments after relegation from the Premier League.

Reading no longer benefit from parachute payments, having received £71m in the four years up to 2017. These are so significant that they make it difficult for others to compete, e.g. in 2019/20 a relegated club received £42m in year one, £34m in year two and £15m in year three.

Renhe Sports now owns the stadium, though leased back to the football club for £1.5m annual rent, while the training ground is owned by Sun Elegant Group. The sales are within EFL rules (and price lower than others), but this is still some fancy financial footwork

The club did not detail the impact of the COVID-19 pandemic on these financials, though the Swiss Ramble estimates this as around £6m in 2020/21: match day £4.1m (games played without fans), commercial income £1.5m, rugby match commission £0.3m and other income £0.2m.

The club only made £0.7m profit on player sales including sell-on fees, down from £1.6m, as many players were released for nothing. Highest sale was likely to be Mo Barrow to South Korea. One of the lowest player gains in the Championship.  Reading have made very little from player sales, averaging only £1.5m a year since 2017. Poor recruitment has resulted in numerous free transfers in order to get players with high wages off the books. However 2021/22 will be better with the £8m sale of Michael Olise.

The average attendance (for games played with fans) was 14,407 in 2019/20, which was in the bottom half of the Championship. This is around 9,500 lower than the 24,000 crowds they attracted the last time they were in the Premier League.

The wage bill fell £5.4m (14%) from £37.6m to £32.2m. Down from £40.7m two years ago, though this was still higher than the £27.9m when they last received parachute payments in 2017, which highlights how much the owners have invested (wasted).

Following the decrease, Reading’s £32m wage bill is mid-table in the Championship, less than half of the clubs with parachutes. It will further fall in line with business plan agreed with EFL as part of FFP punishment: player salaries down to £21m this season, £16m next season.

The wages to turnover ratio increased from 211% to 234%, only surpassed by Brentford (impacted by hefty promotion bonuses). Even before the pandemic, most clubs in the very competitive Championship had ratios above 100%, but Reading have averaged over 200% in last 4 years.

Despite the awful state of Reading’s finances, directors’ remuneration still rose 28% from £583k to £745k, the highest to date in the 2020/21 Championship and only surpassed by 3 clubs in the previous season. The highest paid director earned £541k, up from £497k.

Gross debt rose £14m from £87m to £101m, almost entirely owed to the club’s owners. This has quadrupled from £25m in 2011. In fact, it would have been as high as £143m if the owners had not converted £42m of loans into capital in last two years.  Nevertheless, the £101m gross financial debt is still 5th highest in the Championship,