LUFC Accounts 2019

What do the latest Leeds United accounts, published at the end of March 2019, tell us fans?

Well, three things of interest really and these three things seem to be the most important issues for fans; namely: How much are we spending? Did we pass FFP last year? Will we pass FFP this year?

These accounts tell us about the club’s 12 months of operating starting 21 months ago.
We get a glimpse into the first full year of Andrea Radrizanni’s ownership and his spending. It is obvious that Radrizanni has spent money but also kept costs under reasonable control and produced a loss level that is not inconsistent with other Championship clubs, although the Club relied upon player sales, just as Championship clubs without parachute payments find necessary to remain solvent.

Other commentators have produced detailed analyses of Leeds’s accounts and compared the Club to other Championship clubs so I won’t duplicate that work.
For me, whilst our high income makes our wage bill percentage of income a seemingly small figure, it was in fact one of the highest absolute spends in the league apart from parachute clubs.
As the saying goes, a big percentage of sweet FA is sweet FA and I discount these percentage comparisons due to the widely different incomes of other Championship clubs. Having a high absolute spend that increased significantly from the levels sought by Massimo Cellino show the change in management style and spending plans at Leeds United.

However, these accounts cover a season where we had two, arguably, inexperienced managers and the season was really meant as a consolidation year by management – I think it is true that a low level play-off place was the expectation and we fell just short at the final hurdle.

If the current season had continued in the same vein of management ambition I think I would study these accounts in far more detail but in truth they are well out of date – we all know that ambitions (and costs incurred) ramped up last summer with the addition of Marceo Bielsa and his plentiful coaching staff, plus some key player additions and new player contracts on competitive wages.

Fans, of course, look to accounts to check that the club is solvent, has not run up debt it cannot service and will not suffer penalties due to exceeding the Financial Fair Rules concerning Profit and Sustainability (P&S). These accounts do not show a worrying increase in debt levels, due mainly to the investment from the 49ers and player sales.

So secondly, we can check what our FFP P&S status was LAST year:
These accounts were submitted to the EFL in draft form on 1st March last year (2018) for the EFL to check our P&S status. The club has already submitted draft accounts for this current season to the EFL for evaluation but we are forced to wait a further 12 months to find out how far, or close, we are from getting hit with penalties for failing this summer. However, we can use these accounts to check what the EFL was presented with last year. We can then perhaps make some wild guesses as to how the accounts have faired this year and make a wild guess as to whether we will get sanctions or penalties this summer.

The P&S rules now operate on three time periods; the current year (called time period T) and the two previous years (called time periods T-1 and T-2). We now have the full accounts for 2018, 2017 and 2016 so can apply the rules to these years, just like the EFL did in March 2018, last year.

The EFL apply three tests in sequence to determine P&S status; initially they look at the first two time periods in the sequence of three (that is T-1 and T-2) and if the club has made an un-adjusted profit before tax over these two years combined then the club passes P&S and no further checks are made.
If the first test is failed, the EFL then deducts certain costs, such as youth & women’s costs, depreciation and amortisation (but leaving player costs untouched) from the accounts and recalculates the total profit or loss made over the full three time periods. This figure is then checked against the 3 year allowance of a maximum of £15 million loss. If the club has adjusted losses no worse than £15 million then the club provisionally passes FFP P&S but must provide forecast accounts for the next two years that show the club will be profitable or can sustain any losses without going bankrupt.
After that, if the second test is failed because total 3 year losses exceed £15 million, the EFL checks that the losses do not exceed £39 million. If they don’t then again the club passes provisionally but only if the owner makes good the losses from his own pocket by giving the club money in exchange for equity shares (these shares would be worthless in the event of the club going bankrupt later).
Finally, if these 3 year losses exceed the £39 million limit then the club fails FFP P&S and is referred to the independent disciplinary panel for sanctions.

These latest accounts show, as can be seen in the table below, that Leeds United failed the first test but easily complied with the second test.
We basically knew this from estimates made by various parties so the new accounts have really done little more than confirm what we already knew.


Thirdly, these accounts allow us to start to piece together some draft guesses for what the accounts for this season might look like.
Unlike previous seasons I’ve not done any preparatory work in this area so cannot put forward any reliable data at this moment in time. However, I can look very quickly at how the profit could have changed and apply that crude estimate to the P&S rules and so determine whether Leeds United are in danger of failing this summer.

We know that bringing Bielsa and his team into the club has increased coaching costs in a major way, we know that player wages have risen (partially offset by some players leaving), we know that staff numbers have risen and so costs will have too, we know that increased staff levels has a knock-on effect on other costs such as heating, lighting, insurance, travel costs, subsistence costs, hotel costs and so forth. We know that we have implemented an internet service for all matches which is costly and, I believe, not bringing sufficient revenue at the moment to cover costs, we know that we have more spectators with more areas of the ground open, leading to increased stewarding, cleaning, policing costs – the council rates probably went up too!
We know that we have had an increase in attendance this season – however, these larger numbers do not bring in the increase in revenue some people imagine. Ticket revenue gets reduced from its highest values in many ways; we have many concessions at ER, both young on sub-£100 season tickets and aged-reductions, we must pay the government the 20% VAT we collect on ticket prices, we must pay the EFL a 3% tax levy on each ticket too. After deductions, I estimate the club gets less than £20 net per extra ticket per match so if our average attendance is 7,000 higher then the club only gets an extra £3 million. We also know we have had an increase in merchandise, both shirt sales and such-like along with matchday sales of refreshments, we have had good corporate attendance and good revenue from advertising and sponsorship.

Net effect on profits/losses:
I cannot be precise at this moment but my gut is saying that costs have risen far higher than revenue and so the net effect has been to reduce profits or increase losses.

My estimate:
I would not be surprised if the club has an extra £10 million of losses in the current season’s accounts that it has just sent to the EFL. I would be surprised if this figure exceeded £20 million.

This figure is important to us fans because we need to be satisfied that our club will not fail FFP this summer and also that the increased losses can be funded going forward and not lead to an insolvency event for the club. The funding is a matter for the management and shareholders and I’m not privy to that information but I feel reasonably secure that the club is well-funded through this season.
The FFP P&S rules can be applied to my, admittedly wildly inaccurate, guess for this year’s accounts and is shown in the table below.


As can be seen, Leeds United pass FFP P&S reasonably comfortably with my wild guess. It may be that my guess is too pessimistic and we pass more comfortably, however from that quick analysis fans can rest easy that we won’t have sanctions this summer.
Conversely, I may have been too prudent in my estimation of rising costs but, even if my estimate of losses increasing by £10 million is understated, losses would have to increase by £45 million to even get close to us failing FFP P&S this summer.

So in summary:
The accounts tell an historic tale that is too out-of-date to get particularly excited about and, as far as I far see, Leeds United are well clear of failing FFP P&S rules this summer.

Mike Thornton – 4th April 2019