Trust Chair Gives His Verdict On Latest Cardiff City Accounts

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 


Increase in wage costs


Decrease in administration expenses 


Decrease in player sale profits  


Tax credit 


Stadium revaluation (net of tax)  


Decrease in finance costs 


Other cost of sales increases


Overall reduced losses



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.