Trust Chair Gives His View On Cardiff City’s Latest Accounts

Trust chair Keith Morgan

Trust chair Keith Morgan, an accountant and football finance expert, gives his analysis of the latest audited accounts for the year ended May 31, 2019 submitted by Cardiff City Football Club (Holdings) Limited.

Cardiff City Football Club (Holdings) Limited

Commentary on the audited accounts for the year ended 31 May 2019

The following is my commentary on the audited accounts, which were signed off and approved by the board of directors and by the auditors on February 28, 2020.

Key Findings

1. There was a net loss for the year of £755k, after a tax charge of £3.3m, so a profit before tax of £2.6m. This compared to a net loss of £36m in the year to  May 31, 2018 (£39m before tax). There are two points to take into account in these figures. Firstly, the 2018 loss was significantly reduced down to £9m by a £27m revaluation adjustment on the club`s stadium. Secondly, the 2019 result is after making a provision of £19.5m in respect of the club`s dispute with Nantes FC over the Emiliano Sala transfer. The club have made clear that this provision has only been made in the profit and loss account on a prudent accounting basis and that its directors are of the opinion (based on legal advice received) that this sum will eventually prove to be not payable , with a consequential improvement in reported financial results.

2. As a consequence of the above loss, the club`s net liability position worsened slightly from £10.7m to £11.5m.

3. The group remains dependent upon the financial support of its owner Tan Sri Vincent Tan, but the accounts refer to his pledge to continue supporting the club financially for the foreseeable future.

Main Elements Of Reduction In Losses

These can be summarised as follows                                                             £m

Increase in revenue                                                                                         90.4

Increase in cost of sales                                                                                   (6.4)

Increase in Administrative expenses                                                           (47.8)

Decrease in interest payable                                                                            5.8

Increase in tax payable                                                                                     (6.6)

Smaller profit on sale of players                                                                      (0.2)


Net decrease in losses                                                                                     35.2


Increase In Revenue

As a consequence of its season in the Premier League, income levels rose dramatically. Not only did broadcasting related revenues increase by £85m to £107m but gate receipts and sponsorship and advertising revenues also rose by over £5m.

Increase In Cost Of Sales

The main element of this was an (expected) increase in players` wages which rose by £11.3m to £42.5m. However, a significant part of this wages increase was offset by other wage reductions so that the overall increase in wage costs across the club was limited to £5.1m.

Increase in Administrative Expenses

These increased dramatically by £47.8m to £62.1m. Most of this increase was down to three main factors:

  1. The provision of £19.5m in respect of the Emiliano Sala transfer dispute. As stated above, the directors do not believe that this amount will eventually prove to be payable, but have provided for it as a prudent accounting entry.
  2. Player amortisation costs – the amount by which their cost is written off in the accounts across their contract periods – rose by over £10m as a result of player acquisition costs being far higher in recent years than in earlier seasons.
  3. Player impairment costs – the extra write off made because players were worth less than their accounting written down value after annual amortisation (see above) when assessed at the year end. This figure was £11.6m in 2019 and zero in 2018. This figure would include , for example, an allowance for the termination of the contract of Gary Madine.

Decrease In Interest Payable

In 2018 there was a technical accounting tax charge of £6.4m which was not required in 2019. Other interest payable rose by £1.3m to £1.8m.

Increase In Tax Payable

Another accounting technical adjustment to do with tax timing differences rather than to do with the underlying business of the club.

Player Sale Profits

These were £2.4m in 2018 season and £2.2m last season.

The Balance Sheet

As stated above, the balance sheet position worsened slightly as a result of the reported net losses for the year.

The principal assets and liabilities as at May 31, 2019 were as follows:

Stadium Assets

Revalued professionally in May 2018 by independent valuers at £83.5m and since depreciated down to £82.8m. In addition to the stadium itself, its fixtures and fittings and training ground improvements had a value in the balance sheet of £1.6m.

Player Assets

The net (depreciated) value of players in the balance sheet at May 31, 2019 was £23.5m. The club has invested heavily in players over the last three seasons as funding support for its manager. In the year to May 31, 2018 it acquired new players of total value £14.3m (2017 was £5.9m), in the year to May 31, 2019 that rose to £38.2m and in the current season expenditure on new players has been £23.1m.

Although the club did not make major profits on the sale of players in that period, it was able to generate substantial cash inflows from the sale of players (Zahore,Reid,Manga etc) which helped offset the cash cost of new player registrations.

Other Assets

The club had £2.2m of cash at the bank as at May 31, 2019 and debts due to it of £14.2m (of which over £10m related to broadcasting income earned in the season but not received until after the year end).

Current Liabilities

In addition to the provision of £19.5m regarding a contract dispute referred to above (which may never actually be payable), the group had liabilities payable on or before  May 31, 2020 totalling £114m.

Of the above total of £114m, £40.1m is shown as due to the owner Vincent Tan , some £32.3m of his debt having apparently been repaid during the year. This reduction in debt due to him was replaced by other loans of £39.5m from other (unnamed) parties who are not shareholders or directors (if they were the loans would have had to have been disclosed as related party transactions).

The remaining debt due to TSVT is split into two elements. £14.8m is stated to be interest bearing at 7% a year and carrying the right to convert into shares with the vast majority of the balance being non-interest bearing and having no conversion rights. Both elements are secured by charges over the assets of the football group.

The loans from other parties are also stated to be secured over  future guaranteed income streams – probably broadcasting fees earned but not yet paid. That security would have had to be given with the specific consent of creditors having registered security over the group`s assets.

Summary And Conclusions

The season in the Premier League in 2018-19 enabled the club to make a profit from its trading activities of around £22m before tax and before making the provision for a debt which may or may not prove to be payable.

In addition, the resultant “parachute payments” receivable in the current season and, to a lesser extent, in 2020-21 season, will assist in stabilising the club`s financial position.

However, it must be appreciated that there will still be a major reduction in the club`s income stream as those payments are greatly less than the broadcasting rights the club earned in 2018-19. Costs will have to be controlled accordingly as best possible in order to comply with Profitability and Sustainability (Financial Fair Play) requirements of the EFL. It is therefore highly likely that the levels of recent expenditure on player recruitment will not be repeated in the near future.

The football club is also likely to remain reliant on the ongoing financial support of its owner, and others, for the foreseeable future.