£34 million pound loss last season Cardiff City

Cardiff City made £34m loss in year they won promotion
By Chris Wathan


BBC Sport Wales

Saturday 22nd February 2019

Last year's report showed Cardiff City owed owner Vincent Tan over £100m


Cardiff City made a £34m loss in the year they won promotion to the Premier League, but cut their overall debt.

Latest accounts state owner Vincent Tan turned £79.095m worth of loans into equity and waived payable interest as Cardiff returned to the top flight for the first time since 2014.

Cardiff's successful season saw them pay £23.165m in bonuses and contractual commitments following promotion.

Malaysian businessman Tan is still owed around £72m by the club.

Additional shareholder loans have been issued since the accounts, including to fund £35.397m worth of transfers in the summer transfer window.

Paperwork filed at Companies House discloses a £28.3m loan from "an unrelated third party to help with working capital".

However, the club's net deficit in May 2018 stood at £10.719m, down from £80.771m.

Cardiff's £34.026m losses - up by £15.674m from the previous 12 months - came despite an increase in revenue to £34.794m from £28.673m for the financial year ending 31 May, 2018. The promotion bonuses due to players and clubs for previous transfer deal account for much of that total.

Under manager Neil Warnock they upped wages last season by 51% to spend £31.201m on player salaries as they finished runners-up to Wolves in the Championship.

Directors' wages jumped up from £283,000 for the 2016-17 season to £1.429m.

In a statement in the accounts, chairman Mehmet Dalman said the club's aim and challenge was to "secure our place in the (Premier League) and continue building the infrastructure of the club around that".






In the directors notes, it was stated: "The company has the support of its controlling shareholder (Tan) and whilst his funding is not guaranteed, the ultimate owner has indicated that providing business develops as planned, he will continue to support the group in the foreseeable future and provide additional funding in order that it can settle its liabilities as they fall due."

You do not have the required permissions to view the files attached to this post.

No doubt Keith will explain in depth but from what I've read that all seems postive

Net loss 10m down from 40m! and debt to tan 72m Lot better than previously? Also tan will continue to bank roll club as long as we continue with our present strategy.

22 m bonuses must be from contracts and transfers?

I can see massive profit this year

22 m bonuses must be from contracts and transfers?

Yes plus payments to other clubs for transfers?

22 m bonuses must be from contracts and transfers?

Yes plus payments to other clubs for transfers?

I'm guessing it means things like the extra 4m to Bolton for Medine and other similar deals.

22 m bonuses must be from contracts and transfers?

Yes plus payments to other clubs for transfers?

I'm guessing it means things like the extra 4m to Bolton for Medine and other similar deals.

Yes the staggered payments for signings

I can see us making a Massive profit this year turnover will be around 150 million

Just read the report by Keith on the trust website. As always a good and very interesting read.

From my understanding Vincent Tan has converted a lot more debt to shares than anticipated and he is slowly getting the club back on track. To me he seems to have more than stuck to his word.

What surprises me is the lack of positivity or the lack of responses on what seems a step forward in the wake of devastating and tragic events that the club has been through in the last month or so.

Unless I have missed something !




Keith Morgan


Summary and Conclusions

1. The club made a substantial loss of £36m in the year before the benefit of a £27m stadium revaluation. However, £23m of this loss related to an exceptional, one-off cost of promotion bonuses to players and playing management.

2. The club`s balance sheet position dramatically improved in the year as a result of debt to equity conversions by its owner and the stadium revaluation.

3. The club remains confident that it will remain compliant with football`s Profitability and Sustainability requirements, particularly following its promotion to the Premier League at the end of 2017-18 season.

4. The above promotion has been a major boost to the club, both from a footballing and a financial aspect. In the absence of the promotion, the club would have faced season 2018-19 without the benefit of any parachute payments with the financial implications that would have incurred.

Trust chair Keith Morgan, an accountant and football finance expert, gives the lowdown on the latest Cardiff City accounts.

Cardiff City Football Club (Holdings) limited

Commentary on the audited accounts for the year ended May 31, 2018

The following is my commentary on the audited accounts , which were signed off and approved by the board of directors on September 19, 2018 and by the auditors on September 26, 2018.

Key findings

1. There was a net loss for the year of £36m, compared to a loss of £21m in the previous year. However, the loss of £36m was reduced to £9m overall by a stadium revaluation surplus. The main reasons for the movement in reported annual losses and comprehensive expense is summarised below.

2. Despite the above loss, due to a very substantial conversion of debt to equity by the group`s principal shareholder, the group`s balance sheet position improved significantly, with net liabilities reducing from £81mto just under £11m.

3. The group remains highly dependent upon the ongoing financial support of the principal shareholder Tan Sri Vincent Tan. The accounts refer to his pledge to continue such support in the foreseeable future.





Main reasons for reduced losses

These can be summarised as follows

Increase in revenue

6.0m

Increase in wage costs

(19.4m)

Decrease in administration expenses

2.6m

Decrease in player sale profits

(3.1m)

Tax credit

3.3m

Stadium revaluation (net of tax)

27.0m

Decrease in finance costs

0.6m

Other cost of sales increases

(5.0m)

Overall reduced losses

12.0m

—

Increase in revenue

The club enjoyed a very successful season on the pitch, with promotion to the Premier League. Average match day attendances were up from 16,564 to 20,164 and it proved easier to attract sponsorship and other commercial income. Match day income increased by £1.3m, broadcasting income by £0.8m and commercial income by £3.9m.

Increase in wage costs

As a “cost” of promotion to the Premier League, the club made very substantial promotion bonus payments to players and other playing staff. In addition, costs were incurred in respect of additional fees payable in transfer fees to other clubs etc. triggered by promotion. These costs totalled £23.2m in the year.

Decrease in administration expenses

This was largely due to a reversal of an impairment charge of £5.5m made in previous years against the club`s stadium. Each year the club has to assess whether its assets (stadium, playing squad etc.) are worth less than the value at which they appear in the accounting records and adjust accordingly. As a result of a stadium revaluation (see below) a previous impairment charge was deemed to be unnecessary and was reversed in the May 2018 accounts.

Other administration expenses increased by £2.9m in the year. These costs are not analysed in published annual accounts.

Decrease in player sale profits

The club made less profit on selling players in the year – £2.4m compared to £5.5m in 2016/17 season.

Tax credit and decrease in finance costs

The club`s tax computations for the year resulted in a tax credit benefit of £3.3m in the profit and loss account.

Net finance costs reduced in the year by £0.6m. The two main factors in this were a reduction of £1.2m of interest paid to Tormen Finance Inc. (a company in which club Chair Mehmet Dalman has significant influence) whose interest bearing loan to the club was paid off in the year and an increase of £0.6m resulting from a technical tax adjustment required to account for long term shareholder loans. These both significantly reduced in value and were reclassified between current and non-current liabilities in terms of potential repayment dates.

Stadium Revaluation

At the financial year end, the club obtained an independent professional valuation of the stadium from Savills (UK) Limited. The valuation, on what is termed a depreciated replacement cost basis, was £83.5m compared to its previous value in the accounting records of £54.2m giving a revaluation benefit in the profit and loss account of £29.3m less a related tax adjustment of £2.3m.

The stadium value in the balance sheet now reflects what it would cost to replace it with a similar stadium asset. It is held on a 150 year lease with Cardiff County Council, the lease start date being September 2009.

Other cost of sales increases

These are not analysed in published accounts, so cannot be commented upon in detail in this report. However, they are likely to include expenditure on costs such as agents` fees linked to player signings, player loan fees (in lieu of permanent signing fees), player contract termination fees etc. They also are likely to reflect costs associated with generating the additional income referred to above.

The Balance Sheet

The group`s balance sheet position has improved dramatically between May 31, 2017 and May 31, 2018, with net liabilities reducing from £80.8m to £10.7m. This has been brought about by two principal events

1. Two conversions of debt due to the principal shareholder and creditor Tan Sri Vincent Tan into shares totalling £79.1m

2. An upwards revaluation of the football stadium by £27m

The above two adjustments improved the balance sheet by £106m. Trading losses before the revaluation adjustment of £35.9m reduced the improvement down to £70.1m.

The main assets and liabilities in the balance sheet as at May 31, 2018 were as follows

Stadium asset

As stated above, this was recently revalued at £83.5m. Related assets such as stadium equipment amount to a further asset value of £1.2m

Player assets

During the year , players costing £14.3m were added to the squad whilst those originally costing £30.8m (depreciated down to a net value of £0.5m) were disposed of at a profit of £2.4m.The playing squad overall as at May 31, 2018 had an accounts value of £12.2m.

A note to the accounts reveals that player purchases between the year end and the date the accounts were signed off (i.e. players signed in the Summer 2018 transfer window) were at a cost of £35.4m , of which £2.6m only becomes payable if the club is still in the Premier League next season.

Other assets

The club had £0.2k of stock, £7.4m of debtor money due to it(including the £3.3m of tax credit referred to above), and £2.9m of cash.

Current liabilities

These are debts due by the club which fell due for payment on or before May 31, 2019.

Of the total of £115.6m , by far the largest element was £72.4m due to Tan Sri Vincent Tan of which £50.1m attracted interest at 7% a year (all interest waived up to May 31, 2018) and all of which is secured against the group`s assets. The total due to TSVT was greatly reduced in the year as a consequence of his debt to share conversions mentioned earlier in this commentary.

Other current liabilities include such items as transfer fees payable and season ticket income for season 2018-19 already received in advance as atMay 31, 2018, plus the promotion related bonuses of £23.2m paid after the year end.

A loan of £11m due to Tormen Finance Inc. as at May 31, 2017 was repaid during the year to May 31, 2018.

Non-current liabilities

As at May 31, 2017 £115.1m was due to the club`s principal shareholder. Part of this has now been converted into shares and the residual balance is reflected in Current Liabilities above.

Post balance sheet events

The audited accounts have a note referring to major transactions which occurred between May 31, 2018 and the accounts were signed off as approved by the directors September 19, 2018).

Football transactions in the period have already been commented on above.

In addition, the accounts notes reveal that a loan facility of £28.3m was entered into in the same period with an unrelated (i.e. not a shareholder or director) party to help provide the group with additional working capital to fund ongoing trading activities.





Summary and Conclusions

1. The club made a substantial loss of £36m in the year before the benefit of a £27m stadium revaluation. However, £23m of this loss related to an exceptional, one-off cost of promotion bonuses to players and playing management.

2. The club`s balance sheet position dramatically improved in the year as a result of debt to equity conversions by its owner and the stadium revaluation.

3. The club remains confident that it will remain compliant with football`s Profitability and Sustainability requirements, particularly following its promotion to the Premier League at the end of 2017-18 season.

4. The above promotion has been a major boost to the club, both from a footballing and a financial aspect. In the absence of the promotion, the club would have faced season 2018-19 without the benefit of any parachute payments with the financial implications that would have incurred.

No brainer. Staying up may help improve the situation.

The Directors refraining from draining the club coffers may also assist a little.
Forgive the flippancy - a bit pissed after enjoying the egg win which has negated about 8% of last nights pain for me.

I said 6months ago Cardiff still owed Tan over a £100mill.

For me we should not be losing £34mill in a promotion season when we never even have a massive budget.

The money owing to Tan should by now be about £40mill just my opinion, 9 years later our finances should be looking good by now with Sky money etc

We still had our last season of Sky money as well.

I said 6months ago Cardiff still owed Tan over a £100mill.

For me we should not be losing £34mill in a promotion season when we never even have a massive budget.

The money owing to Tan should by now be about £40mill just my opinion, 9 years later our finances should be looking good by now with Sky money etc

We still had our last season of Sky money as well.

£23m was bonuses for promotion ...

All good points. However, our crowds on average weren't that stellar for a promotion season.
Maybe City will think they should start charging higher ticket prices!

Looks like the club have got it right with lower wages and incentives for promotion and that is nearly two thirds of the loss for the season - a much better set up

As well as the debt to conversion the Tormen Finance loan was settled which meant less interest being paid.

Be interesting to hear Keith’s thoughts on it but can’t see how you can be unhappy with the way the club is going forward?

I said 6months ago Cardiff still owed Tan over a £100mill.

For me we should not be losing £34mill in a promotion season when we never even have a massive budget.

The money owing to Tan should by now be about £40mill just my opinion, 9 years later our finances should be looking good by now with Sky money etc

We still had our last season of Sky money as well.

I think most clubs make a loss on promotion because of promotion bonuses. I remember there being a bug thing about the same thing happening with Swansea as well when they went up.

I said 6months ago Cardiff still owed Tan over a £100mill.

For me we should not be losing £34mill in a promotion season when we never even have a massive budget.

The money owing to Tan should by now be about £40mill just my opinion, 9 years later our finances should be looking good by now with Sky money etc

We still had our last season of Sky money as well.

Annis

How do you work those figures out ?

And what would have been an acceptable loss for the season ?

Interested to hear your thoughts - good luck today

I said 6months ago Cardiff still owed Tan over a £100mill.

For me we should not be losing £34mill in a promotion season when we never even have a massive budget.

The money owing to Tan should by now be about £40mill just my opinion, 9 years later our finances should be looking good by now with Sky money etc

We still had our last season of Sky money as well.

How did you work 100million out ? Is around 80

The report clearly states tan is owed 70m? Which if you look at top championship clubs is good as its with owner not the banks or dodgy hedge funds! Guess when it comes down to nearly zero as is the plan bet we will still owe 100m? The loss is scewed by the bonuses for promotion so one suspects if no promotion figure lot less?

I said 6months ago Cardiff still owed Tan over a £100mill.

For me we should not be losing £34mill in a promotion season when we never even have a massive budget.

The money owing to Tan should by now be about £40mill just my opinion, 9 years later our finances should be looking good by now with Sky money etc

We still had our last season of Sky money as well.

How did you work 100million out ? Is around 80

We paid £23m in wages and bonuses for getting promoted and also repaid Delmets company £11m, that is where the £34m loss is, and it really does not matter that Vincent Tan has £100m £80m or whatever figure tied up in CCFC, we do not owe this money to anyone but the owner, so we are not in debt, and did he not convert £79.1m into shares, so when eventually VT converts the rest of the "debt" to shares, then we will be completely debt free.
If an owner owns a club and has invested millions of pounds in that club then that is not classed as a debt to the club

I said 6months ago Cardiff still owed Tan over a £100mill.

For me we should not be losing £34mill in a promotion season when we never even have a massive budget.

The money owing to Tan should by now be about £40mill just my opinion, 9 years later our finances should be looking good by now with Sky money etc

We still had our last season of Sky money as well.

How did you work 100million out ? Is around 80

We paid £23m in wages and bonuses for getting promoted and also repaid Delmets company £11m, that is where the £34m loss is, and it really does not matter that Vincent Tan has £100m £80m or whatever figure tied up in CCFC, we do not owe this money to anyone but the owner, so we are not in debt, and did he not convert £79.1m into shares, so when eventually VT converts the rest of the "debt" to shares, then we will be completely debt free.
If an owner owns a club and has invested millions of pounds in that club then that is not classed as a debt to the club

I get where your coming from but it is secured against club assets so it is a long term liability and is a debt

But as far as I’m concerned that’s positive reading take out the loans repayment and promotion bonuses and effectively the loss was under £3m for season

I said 6months ago Cardiff still owed Tan over a £100mill.

For me we should not be losing £34mill in a promotion season when we never even have a massive budget.

The money owing to Tan should by now be about £40mill just my opinion, 9 years later our finances should be looking good by now with Sky money etc

We still had our last season of Sky money as well.

How did you work 100million out ? Is around 80

We paid £23m in wages and bonuses for getting promoted and also repaid Delmets company £11m, that is where the £34m loss is, and it really does not matter that Vincent Tan has £100m £80m or whatever figure tied up in CCFC, we do not owe this money to anyone but the owner, so we are not in debt, and did he not convert £79.1m into shares, so when eventually VT converts the rest of the "debt" to shares, then we will be completely debt free.
If an owner owns a club and has invested millions of pounds in that club then that is not classed as a debt to the club

I get where your coming from but it is secured against club assets so it is a long term liability and is a debt

But as far as I’m concerned that’s positive reading take out the loans repayment and promotion bonuses and effectively the loss was under £3m for season

Slight abnormality in city's case as stadium is an asset used in figures but tan or anybody else cannot sell it due to covenant on it ? A legacy from sams time at club council put in safeguards? Yes technically we are in debt to tan but as he's not even taking out the interest from loan we are better off than most.

All this and some people still criticise and wish Tan would sell up

Even if you can find someone willing to buy Tan's shares and everything else that comes with this club, would you be confident that they would do so without charging the club interest on the money they used to buy us ? I certainly wouldn't and even clubs like Man Utd have suffered on that score in the past.

Sometimes you need to take the emotion out of the financial side of a club and, frankly, there would be a pretty high proportion of clubs that would love to be in this financial situation right now.

All this and some people still criticise and wish Tan would sell up

Even if you can find someone willing to buy Tan's shares and everything else that comes with this club, would you be confident that they would do so without charging the club interest on the money they used to buy us ? I certainly wouldn't and even clubs like Man Utd have suffered on that score in the past.

Sometimes you need to take the emotion out of the financial side of a club and, frankly, there would be a pretty high proportion of clubs that would love to be in this financial situation right now.

I think your spot on, the grass isn't always greener. I think sometimes some fans put there own bitterness towards Tan ahead of the good of the club. If we can be made self sufficient that would have been a hell of an achievement.

I notice the Directors wages up from £283k to over a Million ????

I notice the Directors wages up from £283k to over a Million ????

Who are the directors?

All this and some people still criticise and wish Tan would sell up

Even if you can find someone willing to buy Tan's shares and everything else that comes with this club, would you be confident that they would do so without charging the club interest on the money they used to buy us ? I certainly wouldn't and even clubs like Man Utd have suffered on that score in the past.

Sometimes you need to take the emotion out of the financial side of a club and, frankly, there would be a pretty high proportion of clubs that would love to be in this financial situation right now.

Mate, i criticise Tan, yet never demanded he leaves, aint fans allowed to criticise?