Trust chair Keith Morgan, a football finance expert gives his views on Cardiff City’s finances
The Trust has received a number of individual queries recently relating to Cardiff City FC accounting arrangements. This note has been created to outline the overall governance position, some key deadlines and other relevant issues that will affect the club.
Cardiff City Football Club is a limited company whose accounts are filed at Companies House each year following an independent audit. The company is wholly owned by Cardiff City Football Club (Holdings) Limited which, in turn, is almost entirely owned by Tan Sri Vincent Tan. It is the Holdings accounts which are the most relevant as they include all transactions within the group of companies of which the football club is the main operation.
The company`s financial year-end is May 31. This is a year-end adopted by the majority of football clubs as it corresponds with the end of the football season most closely. Accounts for a May yearend do not have to be filed at Companies House and put on the public record until the end of February of the following year, but a set of audited accounts must be lodged with the football authorities by no later than December 1 of the same year – so May 2016 accounts have to be filed by no later than December 1, 2016.
The most recent audited accounts for Cardiff City Football Club (Holdings) Limited (“Holdings” are those for the financial year which ended on May 31, 2015. These showed an overall profit for the year of £3.8m compared to an overall loss in the previous year to May 31, 2014 of £12.0m. However, a technical interpretation of these accounts by the football authorities led to an adjustment of the published figures in terms of deemed Financial Fair Play (FFP) requirements and a consequent transfer embargo being placed on the club in January 2016 (which has since been lifted).
The May 2015 accounts were in respect of the first season following the club`s relegation from the Premier League. Because of this, income dropped by a huge amount (from £83.1m in 2014 to £40.3m in 2015). As a consequence, great efforts had to be made to reduce the club`s wage bill and other costs in an attempt to “balance the books”. This was successfully done, helped greatly by factors such as a £9m profit on player sales, a £13m debt write off by the owner, and a further £13m accounting adjustment to the balance sheet value of the debt due to the owner. It was the final item, required by accounting regulations, which not receive the approval of the football authorities for FFP purposes and led to the transfer embargo being imposed on the club.
A significant element of income included in the accounts is the “parachute payments” received as compensation from the Premier League following a relegation. These reduce over time and will end for CCFC next season (2017-18). The calculation of these payments has varied over time but, roughly speaking, CCFC could have expected £25m income from this in 2014-15, £20m in 2015-16, down to £10m in each of 2016-17 and 2017-18 seasons. Variations occur as the TV deals struck by the Premier League are renewed and by which clubs get promoted from the Championship to the Premier League (if a club recently relegated gets promoted again while still in a “parachute payment” entitlement period, then those payments instead get redistributed among the other Championship clubs). Once the parachute payments end or begin to reduce for a Championship club, then further and greater efforts have to be made to reduce costs in order to comply with FFP. This is a situation in which CCFC now finds itself.
The May 2016 accounts for Holdings are not due at Companies House until February 2017, but are due to be lodged with the football authorities (for them to assess FFP compliance) at the end of November. The exact content of those accounts is not known, but the Trust expects them to show an overall loss, but within the limits allowed by FFP. In respect of the announcements made by Tan Sri Vincent Tan in February 2016, the pledge to convert debt to equity is required to be referred to in a note in the May 2016 accounts even though all the transactions have yet to take place.
The current season (2016-17) will undoubtedly reflect the ongoing battle to minimise trading losses and will almost certainly require further reductions in wages and other costs in addition to efforts to sell on players at a profit. This is a situation which fans of no club wish to see, but is an ever increasing fact of life for all but the richest clubs. For example, an established Premier League club like Swansea City, despite enjoying the income levels that come with that status will still show a loss in its 2015-16 accounts.