Relegation would hit Burnley hard

The authoritative Swiss Ramble reviews the latest accounts of Burnley FC.

In December 2020 a majority (84%) shareholding in Burnley was sold to Calder Vale Holdings Ltd, in turn owned by Velocity Sports Ltd with Alan Pace the ultimate owner, though long-term local owners Mike Garlick and John Banaszkiewicz remain at Turf Moor as directors.

The Clarets had been debt-free for many years, but the new owners put in very little of their own money, instead acquiring the club via a leveraged buy-out, placing £65m debt on the club (from MSD Holdings) & using £37m of club’s own cash balances, similar to the Glazers.

Although the £65m loan is only due to be repaid in December 2025,that depends on the club remaining in the Premier League. If Burnley do not avoid the drop, a “significant proportion” has to be repaid shortly after relegation with more due if no immediate promotion.

This has understandably caused concern among supporters, as this would likely mean having to offload some of their better players to fund the repayment and potentially dip into parachute payments, though the club says it would retain the support of its lenders.

Effects of relegation

Relegation would obviously severely impact club finances, with the normal steep decrease in TV money exacerbated by the requirement to repay a significant slice of the MSD loan, so a fire sale of players is likely, made more difficult with many out of contract this summer.

If they are relegated, their TV income will fall significantly, albeit cushioned by a parachute payment (£42m in 2019/20), which would give them much higher revenue than most other Championship clubs. Parachutes fall to £34m in year two and £15m in year three.

If do go down, the club has advised that there will be a significant reduction in wages, largely due to relegation clauses in player contracts. That said, this season will include the once-off payment for manager Sean Dyche’s dismissal.

It’s not difficult to understand why Burnley were acquired, as they were in very good shape financially, but there are big questions about the new ownership. Given the implications of relegation, little wonder that Pace said, “It is very important to be in the Premier League.

Despite this sword of Damocles hanging over them, Burnley finances did not look too bad, as pre-tax loss was only £3m in a year badly impacted by COVID.   This was one of the better results in the Premier League, as many clubs had huge losses.

Revenue

Revenue dropped £19m (14%) from £134m to £115m, while profit from player sales also fell £10m to £5m, but this was largely offset by £28m (18%) reduction in operating expenses, though the new debt drove a £2.8m increase in net interest payable.

Revenue fell for the third year in a row, so 2021 £115m is £24m (17%) lower than the club record of £139m in 2018. This is due to a combination of the pandemic and worse performance on the pitch. Broadcasting is down £18m, but still accounts for 90% of total revenue

All three revenue streams decreased with the largest fall in broadcasting, down £9m (8%) to £104m, due to lower finishing position, while COVID drove reductions in match day, down £4.2m (96%) to just £355k, and commercial, down £5m (31%) to £11m.

Commercial revenue fell £4.8m (31%) from £15.7m to £10.9m, mainly due to COVID reducing catering from £2.1m to £115k and other activities from £11.8m to £9.2m. This was the lowest in the Premier League, though Pace had targeted this as an area for improvement.

£115m revenue was the lowest in the Premier League, just below Sheffield United, though this season’s rankings are distorted by different amounts of revenue deferred from 2019/20 accounts. However, for some perspective, it was only around a fifth of Man City £570m.

The club said that 2019/20 COVID impact was £10.5m. They did not quantify this in 2020/21, but the Swiss Ramble estimates another £10.3m (match income £5.2m, catering £2.5 and other commercial income £2.6m), meaning a total revenue loss of £21m over the last two years.

Player sales

The profit from player sales fell £10m from £15m to £5m, mainly Ben Gibson and Josh Benson to Barnsley. It is true that COVID depressed the transfer market, but this was still miles below Man City £69m, Wolves £61m.

They have rarely made big money from player sales, though profit increased to £59m in last 5 years against £26m in previous 5-year period.     They have only generated above £10m three times in the last decade, though this season will be boosted by the £25m sale of Chris Wood to Newcastle.

This is the first time that Burnley have made a loss since 2016 and the first time ever in the Premier League. In the last seven  years the club has generated £104m pre-tax profit. Losses reported in the Championship in 2014 and 2016 were driven by promotion bonuses.

Average attendance of 20,268 in 2019/20 (for games played with fans) was second lowest in the Premier League, only ahead of Bournemouth, though 3,600 (21%) higher than their last season in the Championship.

Wages

The wage bill fell £14m (14%) from club high £100m to £86m, partly due to lower bonuses for worse Premier League finish. Prior year covered 13 months, so would have been £94m on a like-for-like basis. Wages still up £25m (40%) since first season after promotion in 2017.

The £86m wage bill was the second smallest in the Premier League, only above Sheffield United £57m, but £22m below #LUFC £108m . While the club could be commended for its tight cost control, the flip side is that low wages make relegation more likely.

The wages to turnover ratio was flat at 75%, though the club noted that prior year would have been 70% based on 12-month wages, so the underlying increase was 5%. For many years, one of the better ratios in the Premier League, but now in top half following revenue decline.