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out-of-date, but they do provide a good indication of what will face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.
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