Leeds United Accounts 2017

Leeds United – Why did Cellino sell?

The accounts for the last year of Massimo Cellino’s tenure at Leeds United have been released and, as always, the Club looks to highlight positives within them.

At first glance it seems we have lots to thank Cellino for:

  • Club actually made a profit
  • Turnover rose by £4 million
  • Attendances were up by over 5,000

The question occurred to me: “If the Club’s finances were so rosy, why did Cellino sell to Radrizzani?”

Let’s delve a little and see if any reasons for the sale are hidden in the detail.

Gate receipts increased by £2 million as a result of Cellino’s offer of a 25% refund on Season Tickets if the Club failed to enter the playoffs and some strong performances on the pitch.

Our TV money from central distributions (including the EPL solidarity payment) also increased by £2 million.

Both these two items were strong but small increases in per-match TV payments and merchanising were wiped out by a fall of £1 million in catering income.

Disappointingly, commercial income remained static during Cellino’s last year.

Overall though the increase in turnover is pleasing and very welcome.

Admin Expenses
This item has long been a source of bewilderment for fans due to its massive value which has often dwarfed the turnover figure. In Cellino’s last year the Admin expenses went from £32.3 million to £37.7 million, an increase of £5.4 million.

I’ve discussed many times before what goes to make up these Admin Expenses so I’ll not do so again, however the increase in costs is worth looking at and it can basically be put down as follows.

The wages for both the players and the everyday staff increased by £2.6 million which covered general increases of £1 million to players (whilst the number of player stayed the same so this was effectively increasing contract wages) and also to fund an extra 29 management staff.

The amortisation of player transfer fees increased by £1.5 million, which represents an increase of players being brought into the club via a paid transfer fee. The full transfer fees are divided up over the number of years of a player’s contract and just this smaller figure is charged each year.

The income from early season ticket sales last season was about £5.7 million up to June 2016; during this season Cellino ran a deal to return 25% of season ticket money if the Club were not in the play offs and, since we failed in that task, he had to return about £1.5 million. I’d expect this cost to be put into Admin Expenses too (rather than be deducted from Gate Money).

These three items alone account for an increase in costs of £5.6 million and represent the change in Admin Expenses.

Player Sales
Player sales are a volatile entry on accounts in that they are not guaranteed to occur each year and can vary in value from one year to the next.
Over his last three years Cellino sold many players and made a total profit of £21.5 million on them.

Cash Flow
This item is the main item that interests me: Clubs can make huge losses each year providing someone has long arms and deep pockets stuffed full of cash.

When players are sold it is normal for the money to be paid to the Club in stages over a period of a few years, similarly when we buy a player we don’t pay everything up front in one go.

When a player is sold the Club claims the FULL VALUE of the sale as PROFIT IMMEDIATELY even though it doesn’t get the cash for many years. This means that profit is often not a reliable indicator of the health of the Club. To remedy this it is better to look at Cash Flow and, in particular, the Cash used by the Club each year prior to any financing income coming into the Club.

Over the last three years, up to June 2017, the Club has “used up” large amounts of cash: The first year £6.5 million was used, followed by £10.5 million and the latest accounts show another £6 million of cash left the club. £23 million in total.

Cellino had supported the Club previously, by buying new shares and making loans to the Club, via his Company Eleonora Sport and also by selling players for good sums. Eleonora Sport accounts show that they were down to their last £7 million in the bank before last season and so had limited ability to fund the Cash Outflow from the Club.

The latest Club accounts show that Radrizzani stepped in last season with a loan of £14.5 million pounds to cover the Club’s Cash outflow of £6 million and also used this loan to repay GFH some £8.5 million and reduce the Club’s debts.

So Why did Cellino sell?
Obviously I don’t know for sure but the indications are that the Club continues to lose Cash hand-over-fist and he was at the end of his abilities to fund the operation.

Radrizzani stepped in at the right time and topped up the Bank Balance to keep the Club afloat.

What about the Current Season?
The problem with accounts is they are always 9 months old and look back to a period starting 21 months ago. Being so out of date they are good for historical purposes but a different analysis is needed to look at the Club’s funding going forward into this season and next.

Maybe an essay for the future?

Mike Thornton 4th April 2018