Can Saints bounce back?

Before they went down in 2022/23, Southampton had long been held up as an example of a club punching above its weight, spending 11 years in the top flight, which included finishing in the top eight four seasons in a row between 2013/14 and 2016/17.

The relegation in 2022/23 took place in the first full season under the control of Serbian media mogul Dragan Solak, who bought 80% of the club for £100m in January 2022 via his investment vehicle Sport Republic Limited.   However, the rot had already started to set in after Chinese businessman Gao Jisheng acquired a majority stake in 2017, with Katharina Liebherr retaining the remaining 20%.

There has been a huge amount of change since Solak’s arrival, as the club is now on its sixth manager in just over three years, having previously dismissed Ralph Hasenhüttl in November 2022, Nathan Jones in February 2023 and Ruben Selles in May 2023, before this season’s trio.

The accounts for that 2023/24 season are obviously now a year out-of-date, but they do provide a good indication of what will face Southampton after this latest relegation.

Fire sale

Despite playing in a lower division, Southampton swung from an £87m pre-tax loss to a £17m profit, an improvement of £104m in the bottom line. However, this was entirely driven by profit from player sales, which shot up from £7m to £123m, as many players left for greener pastures.   Thanks to their “successful player trading”, Southampton actually had the highest pre-tax profit in last season’s Championship with £17.3m, ahead of Watford £12.8m, Coventry City £8.7m and Blackburn Rovers £3.3m.

This included the big money sales of Roméo Lavia to Chelsea, Tino Livramento to Newcastle United, James Ward-Prowse to West Ham, Nathan Tella to Bayer Leverkusen and Mohammed Salisu to Monaco.

This was the largest gain in last season’s Championship, ahead of the other two clubs that came down with the Saints, Leicester City £72m and Leeds United £34m. This is a fairly common occurrence after relegation, as players want to remain in the higher division, while the clubs need the money to help balance the books (or at least reduce the size of their losses).

Southampton’s profit followed five losses in a row, adding up to nearly quarter of a billion pounds, which completely wiped out the gains made in the preceding five years.   Given the relatively low profit from player sales this season, it would not be a surprise if Southampton once again reported a loss in 2024/25.

To date player sales this season have been much lower, with the only meaningful money made from the transfers of Carlos Alcaraz to Flamengo and Sékou Mara to Strasbourg, though this could yet change if further deals are completed before the 30 June accounting close.

The summer sales that the club made two years ago when Southampton were last relegated could well be repeated, with a number of players likely to attract interest.  That could include the exciting young striker Tyler Dibling, England internationals Aaron Ramsdale and Taylor Harwood-Bellis, as well as midfielder Mateus Fernandes. However, the talented Kyle Walker-Peters will be a free agent in June, so will not generate any money.

Southampton’s £85m revenue in the Championship was nearly £100m less than their £182m peak in 2016/17, when they finished 8th in the Premier League and also competed in the Europa League. Most of the reduction since then has come in broadcasting, which has dropped £87m.   Nevertheless, broadcasting remains the most important revenue stream by far, contributing 66% of total revenue, followed by match day 19% and commercial 15%.

Of course, promotion will have had a massive impact on Southampton’s revenue this season. Looking at the clubs that went down in the previous three years, they could anticipate a revenue increase of around £60m.

As they went down after just one season in the top flight, they will only receive two years of parachute payments (instead of the usual three years), which are estimated at £49m in 2025/26, then £40m the following season.

One observation is Southampton have done a lot of business with Manchester City, as they have spent £75m on six players from City’s academy in the last three seasons.  This is part of Saints’ strategy to invest in young talent, hoping to make big gains on future player sales. There is obviously a degree of risk associated with such a strategy, but the £55m paid by Chelsea for Lavia is an example of what is possible.

One of the reasons for Southampton’s poor results this season was a poor recruitment campaign, where they failed to secure a number of their top targets.  The club said that its net spend was only £47m, which was the lowest of the three promoted clubs - and clearly insufficient to give them a decent chance of being competitive in the Premier League.

It is worth noting that Southampton actually had the highest external debt in the Championship, as none of their debt was provided by the owners, unlike many other clubs. The next highest were Leicester City £55m, Leeds United £38m and Hull City £22m.

Funding

In the last 10 years Southampton’s available cash has come from a variety of sources: £90m from the owners (almost entirely Solak’s £85m capital injection), £29m external loans and just £7m from operating activities.  Interestingly, their largest outlay was the £51m interest payments, ahead of £50m (net) player purchases and £38m infrastructure investment.

Between 2015/16 and 2021/22 Southampton did not receive any owner funding. In fact, they actually repaid £13m of owner loans, after Katharina Liebherr sold up and Gao Jisheng was unwilling (or unable) to provide funding following Chinese law changes.  Solak put £85m into the club in the 2022/23 season in five separate tranches, which diluted Liebherr’s shareholding below 20%, but there has been nothing since then.

The concern is that they will now have to emulate the actions of two years ago, when they had to sell many of their talented players following relegation.  The other decision that the board needs to get right is the appointment of a new manager, as this could make the difference in terms of once again bouncing straight back. If they get this wrong, they will be laying the foundations for a longer stay in the Championship.