www.pwc.co.uk Fighting for the future Scottish Premier League Football 22nd Annual Financial Review of Scottish Premier League football season 2009-10 Contents Introduction 3 Profit and loss 5 Balance sheet 16 Cashflow 22 Appendix one 2009/10 the season that was 39 Appendix two What the directors thought 41 Appendix three Significant transfer activity 2009/10 42 Appendix four The Scottish national team 43 compared to the previous season’s run in the Champions League group stage. Introduction Making reasonable adjustments for these items shows that the league generated an underlying loss of c£16m. Adjustments (£m) Headline profit 1 Less: exceptional profit adjustment (7) Less: Champions League profit adjustment (10) Welcome to our 22nd annual financial review £(16) of Scottish Premier League (SPL) football. Adjusted underlying turnover was c£156m, representing a fall of 6%, and the underlying operating loss was £6m with only the Old Firm and Dundee with both clubs’ results being boosted Back to black? United generating an operating profit by related parties forgiving £8m and In season 2009/10, the SPL posted its – every other club was loss-making at £1m of debt, respectively. These are fifth bottom-line profit in the past six this level. one-off items and don’t represent a seasons. On the face of it, this modest true flow of income for the clubs. £1m profit appears positive, given the It is therefore clear that the SPL clubs have not been immune to the impact ongoing turbulent economic climate, The season’s results were particularly of the recessionary environment. but when we delve deeper, our analysis enhanced by a good European run The uncertainty of a potential double- reveals a different story. It could well for Rangers. On the back of playing in dip recession, coupled with supporters’ be that more pain is to come as the the Champions League group phase, fears over job security, left many with league strives to find a sustainable Rangers turned a prior year operating very difficult decisions to make when financial footing. loss of £8.5m into a £12.4m operating it was time for season ticket renewals. profit, with turnover increasing by £17m. We need to adjust for two significant This discretionary income is often This £20.9m operating profit swing is items to establish the underlying the first to be sacrificed in times of almost entirely due to the positive performance, which are: financial hardship. Add to this the turnaround in European performance drop in corporate hospitality and when compared to last year’s early exit 1. exceptional debt forgiveness, and entertaining, and season 2009/10 was to FBK Kaunas. On the other hand, another challenging year financially. 2. Rangers’ success in Europe. Celtic’s operating profit fell £6.8m to £4.5m thanks to their participation in Other highlights: Exceptional credits were realised in the less lucrative Europa League, the year by Hearts and Kilmarnock, • Rangers was the most profitable club, with a profit of £4.2m; • At £2.1m, Celtic recorded the The SPL clubs’ combined profit and loss account largest loss; 2010 £m 2009 £m Turnover 171 167 • Overall, six clubs recorded a bottom line profit and six clubs reported a loss; Wages (105) (110) Other operating expenses (62) (65) • The wage-to-turnover ratio fell to 61% (2009: 66%), albeit still skewed Operating profit/(loss) 4 (8) upwards by Hearts’ continued Amortisation of player registrations (17) (22) excessive ratio of 115%; Net gain/(loss) on player registations 12 13 • Net debt marginally grew to £109m Operating loss before interest (2009: £108m), with only Hamilton and exceptionals (1) (17) and St Johnstone operating debt Exceptional items 7 (1) free; half of the clubs recorded a rise Net receivable (payable) (5) (6) in their debt; Profit/(Loss) 1 (22) • A £12m gain on disposal of player Source: Statutory Accounts registrations (2009: £13m). Season 2009-10 3 Arguably, this model could be causing A 14 team set-up would require a The player trading model a perceived drop in the quality of the rather unusual split to take place after The analysis overleaf shows that the retained talent, which in turn could be 26 games, with the top six teams majority of clubs continue to struggle affecting attendances. Overall, the playing a further 10 matches and the to generate a basic operating profit. average gate was down 10% this year, bottom eight playing a further 14. What’s more, the ‘big money’ TV deal with a total of 347,000 fewer fans This could essentially create an SPL that clubs had hoped for didn’t attending SPL games compared to last ‘1.5’, with the bottom eight not only materialise, leaving them to continue season, and I would argue that a fall of playing four games more, but also their search for alternative income this magnitude is not solely due to the playing one fewer game against each streams and long-term sustainable financial climate. Indeed, over the past of the Old Firm. Whilst there might business models. It’s becoming more four years attendances have fallen by be no financial impact for the top six, and more apparent that one of the over half a million fans a season, in comparison, with the current 12 most likely solutions to balance the therefore other causal factors must be team set-up, a bigger financial question books will be an ongoing reliance on in play. When the economy starts to remains for the bottom eight as to profitable player trading. The warning fully recover, there is no guarantee that whether the revenue from an extra here is that applying a successful fans will flock back to the turnstiles. two home games will compensate for model must be carefully balanced There is a real danger of losing a an extended run of potentially lower against appeasing fans’ expectations generation of football fans; once you quality games. and compromising playing standards. lose your customers, it’s hard to win them back. That leaves us with the known quantity The past three seasons have yielded of the current 12 team set-up versus a cumulative gains on player registrations 10 team set-up. of £53.5m, which highlights the League reconstruction significance of profitable player trading Thoughts inevitably turn to finding A return to the 10 team set-up would to the SPL’s business model. The current ways to revitalise interest levels in maintain the current number of Old season’s £12m gain was mainly down the game, and talks continue over the Firm games at four each season, but to the high-profile departures of Scott prospect of league reconstruction. reduce the overall number of games McDonald (£3.5m) and Barry Robson For any of the proposals to be accepted played from 38 to 36 for each club. (£1.5m) to Middlesbrough from Celtic, and successful, they must also be Arguments over familiarity breeding and David Murphy (£1.5m) to financially viable and ideally increase contempt would likely return to the Birmingham from Hibernian. The most revenues across the board. Suggestions fore, but this may be offset by the successful form of this model is to include creating an SPL2 to reduce the enhanced quality of games as the two nurture young talent into the first team current financial disparity between the weakest performers would drop into and sell them on for pure gain. I would existing SPL and Division one clubs. the SPL2. single out Hibernian as the best A move to the English leagues appears example of this in recent times, though Detailed financial modelling will to be off the agenda for the Old Firm, not always to the delight of the Easter have to be undertaken to estimate and the focus is now on a change from Road faithful. the additional finance that would need the current SPL ‘split’ league system – to be generated; a key factor will be The majority of supporters will find the only one in Europe – to a 10, 14 or whether this represents a more it hard to stomach as a conveyor belt 16 team top flight. valuable model for broadcasters. of talent departs south, seduced by Until this happens, it remains to be Taking each scenario in turn, a 16 the affluent Premiership and top seen whether a compelling case can be team league would result in 30 games Championship sides whose purchasing made for any of the proposed set-ups to a season (four fewer home games for power is fuelled by ‘big-money’ successfully repackage the Scottish top each team), and with only two Old broadcasting contracts. This trend of flight and increase interest from fans Firm matches each year, this presents luring away the very best SPL talent and broadcasters alike. a major drawback to any potential does not appear be stopping and there broadcaster. In addition, bringing in will need to be greater acceptance and more smaller clubs – and with them Thanks realisation from supporters that the As ever, I am indebted to my Sports the potential for more meaningless future success of the league in its Unit team for their help in compiling end-of-season mid-table clashes – current format relies on this income. this report, particularly David Auld will likely further harm the perception and Stuart MacDougall. of quality. Without putting a figure on it, it can be reasonably deduced that David Glen this combination would bring in Tax Partner, PwC reduced revenue. July 2011 4 PwC Annual Financial Review of Scottish Football Profit and loss Overview The SPL clubs’ reliance on their fans’ Even before the collapse of Setanta, As the economy discretionary spending on merchandise, the SPL was in a unique position compounded by reduced revenue from compared to the other big leagues such recovers from the corporate sponsorship, marketing and as the Premiership, Ligue 1, Serie A global economic hospitality, has made them particularly and the Bundeslige, with ticket sales vulnerable to the global downturn.