LEICESTER POSTS £67M PRE-TAX LOSS

[The whole world smiles]

22 minutes ago, Golden Fox said:

You can't beat a bit of quoting yourself!

 

Its quite frightening reading through these accounts... That £67m loss is after accounting for £63m profit on player transfers (mainly Harry Maguire), so its £130m loss before transfers. That compares to a £78m loss before transfers in 2019: Over £200m lost in 2 years excluding player transfers.

 

For a business to be spending £272m when turnover is only £150m is quite staggering: Covid deferring revenue of £28m doesn't make much impact on that. Non-wage costs are £113m, and the club is spending £159m on wages on top of that. Most companies would be battening down the hatches: not spending £300m on a training centre and starting spend on a stadium development.

 

In terms of a balance sheet to support this position, I'm not sure I've ever looked at a set of accounts with Net current liabilities of £186m - which is greater than turnover. Usually this would be the sign that a business should have already stopped trading!

 

Looking at cashflow to see how the business survived, you can see net £117m of loans coming in, so basically using debt to finance this.

 

I had thought we were a prudently run club, doing this sustainably and spending within our means, but that is clearly nowhere near the truth.

 

However, you can't look at a subsidiary accounts without understanding the position of the wider group. The reason the accounts were signed off is that Leicester City "have received confirmation that " King Power "will provide further funding where necessary to meet the requirements of the Company". "Further King Power International has confirmed that existing liabilities will not be called in for the foreseeable future".

 

So basically, King Power are bankrolling the club.

 

So, its been said before, but we are very lucky to have the owners we do, and the money they are spending on us, (even if the source of this money is a monopoly that would be an illegal business model in the UK!) - but these accounts show that we are utterly dependent on them now & if they walked away or if King Power were to fail, we would be in administration and back in League One in a heartbeat. (and I haven't even tried to look at a set of King Power accounts). The continued investment in facilities and the banks continuing to loan money are proof that this isn't an imminent concern, but our accounts are so bad, not even Champions League football would return us to profit! 

 

(Also, I do stand by my concerns before looking at the accounts that I didn't trust the initial article that was linked to - it fails to address the key points with the opening statement of "The huge impact of the pandemic coupled with millions of pounds on players, a new training ground and progress on its stadium expansion plans saw Leicester City post pre-tax losses of £67 million last season." Looking at the accounts, the players were a massive profit, the training ground cost is in fixed assets and the Covid revenue is (only) £28m. Clearly, the club wants to spin a story and the writer of that article lapped it up.)

Good if worrying post mate. How do our accounts compare to other clubs are size (wolves, West ham, Southampton etc) is there a precedent for running at such a dizzying loss? 

[Golden Fox]

7 minutes ago, Foxxed said:

Cheers mate. You seem to be the most knowledgeable here. The value of the squad must go a long way to reassuring creditors. Although you mentioned CL football won’t bring an immediate profit, it’s surely the best bet for long term profitability.

That is a very good point... The accounting rules are players are held at amortised historic cost rather than current value. So yes, we could sell players to pay for this (which would also reduce loans) - but it seems counter-intuitive to look at these accounts from a selling point of view, so if we were in that position (particularly with the increased overheads of Seagrave) we'd be in real trouble...

 

... Unless we sold a big player each year for a ridiculous price!

 

5 minutes ago, The whole world smiles said:

Good if worrying post mate. How do our accounts compare to other clubs are size (wolves, West ham, Southampton etc) is there a precedent for running at such a dizzying loss? 

I'd love to have the time to go through these, but it really wouldn't surprise me if they are all in similar positions. I think our wages are a bit higher than these clubs but not as much as would make a difference. I think the big picture is that the owners of Premier League clubs have to put in tens of millions a year to compete - and they do. That is probably small money for most the owners, if they pull out, it is a massive amount of debt to try and work with, as plenty of clubs can attest to.

[Out Foxed]

1 hour ago, Golden Fox said:

That is a very good point... The accounting rules are players are held at amortised historic cost rather than current value. So yes, we could sell players to pay for this (which would also reduce loans) - but it seems counter-intuitive to look at these accounts from a selling point of view, so if we were in that position (particularly with the increased overheads of Seagrave) we'd be in real trouble...

 

... Unless we sold a big player each year for a ridiculous price!

 

I'd love to have the time to go through these, but it really wouldn't surprise me if they are all in similar positions. I think our wages are a bit higher than these clubs but not as much as would make a difference. I think the big picture is that the owners of Premier League clubs have to put in tens of millions a year to compete - and they do. That is probably small money for most the owners, if they pull out, it is a massive amount of debt to try and work with, as plenty of clubs can attest to.

which is what we've been doing. this year it will be Tielemans or Maddison for 80-100.

[Chocolate Teapot]

7 hours ago, The whole world smiles said:

Good if worrying post mate. How do our accounts compare to other clubs are size (wolves, West ham, Southampton etc) is there a precedent for running at such a dizzying loss? 

You could literally say the same for every major club in world football. They're not run for profit (or very few are). 

[AmyLGK]

8 hours ago, Golden Fox said:

You can't beat a bit of quoting yourself!

 

Its quite frightening reading through these accounts... That £67m loss is after accounting for £63m profit on player transfers (mainly Harry Maguire), so its £130m loss before transfers. That compares to a £78m loss before transfers in 2019: Over £200m lost in 2 years excluding player transfers.

 

For a business to be spending £272m when turnover is only £150m is quite staggering: Covid deferring revenue of £28m doesn't make much impact on that. Non-wage costs are £113m, and the club is spending £159m on wages on top of that. Most companies would be battening down the hatches: not spending £300m on a training centre and starting spend on a stadium development.

 

In terms of a balance sheet to support this position, I'm not sure I've ever looked at a set of accounts with Net current liabilities of £186m - which is greater than turnover. Usually this would be the sign that a business should have already stopped trading!

 

Looking at cashflow to see how the business survived, you can see net £117m of loans coming in, so basically using debt to finance this.

 

I had thought we were a prudently run club, doing this sustainably and spending within our means, but that is clearly nowhere near the truth.

 

However, you can't look at a subsidiary accounts without understanding the position of the wider group. The reason the accounts were signed off is that Leicester City "have received confirmation that " King Power "will provide further funding where necessary to meet the requirements of the Company". "Further King Power International has confirmed that existing liabilities will not be called in for the foreseeable future".

 

So basically, King Power are bankrolling the club.

 

So, its been said before, but we are very lucky to have the owners we do, and the money they are spending on us, (even if the source of this money is a monopoly that would be an illegal business model in the UK!) - but these accounts show that we are utterly dependent on them now & if they walked away or if King Power were to fail, we would be in administration and back in League One in a heartbeat. (and I haven't even tried to look at a set of King Power accounts). The continued investment in facilities and the banks continuing to loan money are proof that this isn't an imminent concern, but our accounts are so bad, not even Champions League football would return us to profit! 

 

(Also, I do stand by my concerns before looking at the accounts that I didn't trust the initial article that was linked to - it fails to address the key points with the opening statement of "The huge impact of the pandemic coupled with millions of pounds on players, a new training ground and progress on its stadium expansion plans saw Leicester City post pre-tax losses of £67 million last season." Looking at the accounts, the players were a massive profit, the training ground cost is in fixed assets and the Covid revenue is (only) £28m. Clearly, the club wants to spin a story and the writer of that article lapped it up.)

Well this is f**king depressing...

[Heymister2015]

So many players we could sell for £80m each. Panic when the club has no assets 

[st albans fox]

8 hours ago, Golden Fox said:

You can't beat a bit of quoting yourself!

 

Its quite frightening reading through these accounts... That £67m loss is after accounting for £63m profit on player transfers (mainly Harry Maguire), so its £130m loss before transfers. That compares to a £78m loss before transfers in 2019: Over £200m lost in 2 years excluding player transfers.

 

For a business to be spending £272m when turnover is only £150m is quite staggering: Covid deferring revenue of £28m doesn't make much impact on that. Non-wage costs are £113m, and the club is spending £159m on wages on top of that. Most companies would be battening down the hatches: not spending £300m on a training centre and starting spend on a stadium development.

 

In terms of a balance sheet to support this position, I'm not sure I've ever looked at a set of accounts with Net current liabilities of £186m - which is greater than turnover. Usually this would be the sign that a business should have already stopped trading!

 

Looking at cashflow to see how the business survived, you can see net £117m of loans coming in, so basically using debt to finance this.

 

I had thought we were a prudently run club, doing this sustainably and spending within our means, but that is clearly nowhere near the truth.

 

However, you can't look at a subsidiary accounts without understanding the position of the wider group. The reason the accounts were signed off is that Leicester City "have received confirmation that " King Power "will provide further funding where necessary to meet the requirements of the Company". "Further King Power International has confirmed that existing liabilities will not be called in for the foreseeable future".

 

So basically, King Power are bankrolling the club.

 

So, its been said before, but we are very lucky to have the owners we do, and the money they are spending on us, (even if the source of this money is a monopoly that would be an illegal business model in the UK!) - but these accounts show that we are utterly dependent on them now & if they walked away or if King Power were to fail, we would be in administration and back in League One in a heartbeat. (and I haven't even tried to look at a set of King Power accounts). The continued investment in facilities and the banks continuing to loan money are proof that this isn't an imminent concern, but our accounts are so bad, not even Champions League football would return us to profit! 

 

(Also, I do stand by my concerns before looking at the accounts that I didn't trust the initial article that was linked to - it fails to address the key points with the opening statement of "The huge impact of the pandemic coupled with millions of pounds on players, a new training ground and progress on its stadium expansion plans saw Leicester City post pre-tax losses of £67 million last season." Looking at the accounts, the players were a massive profit, the training ground cost is in fixed assets and the Covid revenue is (only) £28m. Clearly, the club wants to spin a story and the writer of that article lapped it up.)

Of the owners decided to up and leave and therefore were likely prepared to ‘take a bath’ on their investment, there would be a number  of interested parties out there. Infact you could argue that are potential owners out there who would be even more generous than ours. 
 

if our owners wanted to recover their investment (think Newcastle) then that becomes more complex because any buyer would need v deep pockets to then bank roll the club thereafter .....

[Guest ttfn]

9 hours ago, Golden Fox said:

You can't beat a bit of quoting yourself!

 

Its quite frightening reading through these accounts... That £67m loss is after accounting for £63m profit on player transfers (mainly Harry Maguire), so its £130m loss before transfers. That compares to a £78m loss before transfers in 2019: Over £200m lost in 2 years excluding player transfers.

 

For a business to be spending £272m when turnover is only £150m is quite staggering: Covid deferring revenue of £28m doesn't make much impact on that. Non-wage costs are £113m, and the club is spending £159m on wages on top of that. Most companies would be battening down the hatches: not spending £300m on a training centre and starting spend on a stadium development.

 

In terms of a balance sheet to support this position, I'm not sure I've ever looked at a set of accounts with Net current liabilities of £186m - which is greater than turnover. Usually this would be the sign that a business should have already stopped trading!

 

Looking at cashflow to see how the business survived, you can see net £117m of loans coming in, so basically using debt to finance this.

 

I had thought we were a prudently run club, doing this sustainably and spending within our means, but that is clearly nowhere near the truth.

 

However, you can't look at a subsidiary accounts without understanding the position of the wider group. The reason the accounts were signed off is that Leicester City "have received confirmation that " King Power "will provide further funding where necessary to meet the requirements of the Company". "Further King Power International has confirmed that existing liabilities will not be called in for the foreseeable future".

 

So basically, King Power are bankrolling the club.

 

So, its been said before, but we are very lucky to have the owners we do, and the money they are spending on us, (even if the source of this money is a monopoly that would be an illegal business model in the UK!) - but these accounts show that we are utterly dependent on them now & if they walked away or if King Power were to fail, we would be in administration and back in League One in a heartbeat. (and I haven't even tried to look at a set of King Power accounts). The continued investment in facilities and the banks continuing to loan money are proof that this isn't an imminent concern, but our accounts are so bad, not even Champions League football would return us to profit! 

 

(Also, I do stand by my concerns before looking at the accounts that I didn't trust the initial article that was linked to - it fails to address the key points with the opening statement of "The huge impact of the pandemic coupled with millions of pounds on players, a new training ground and progress on its stadium expansion plans saw Leicester City post pre-tax losses of £67 million last season." Looking at the accounts, the players were a massive profit, the training ground cost is in fixed assets and the Covid revenue is (only) £28m. Clearly, the club wants to spin a story and the writer of that article lapped it up.)

Thanks for writing this up. This is a good analysis but is unnecessarily alarmist.

 

King Power aren’t making a habit of bankrolling the club. Covid-19 and the training ground left the club with a huge cash flow shortage which King Power have filled on what I’m sure they will be hoping will be one-time basis. At the end of the 18/19 season we owed King Power £10m, now it’s more than 10 times that. The last few years’ accounts (going back to the promotion season) show very little in the way of debt financing from King Power. If anything I’m pleasantly surprised they’ve been able to stump up the cash at a time when their core business must be getting absolutely hammered.
 

The net current liabilities position is misleading as the club have hundreds of millions of pounds of extremely liquid assets effectively off balance sheet. I’d be confident that almost every team in the PL is in a huge net current liability position and many will be in the same position as us with the net current liabilities being bigger than turnover.

 

In short we’re in the same boat as everybody else. But you’re right that we shouldn’t kid ourselves into thinking that everything is completely rosy and that everything will be back to normal next year because it won’t, no matter where we finish. I also agree that there’s a heavy amount of spin with the training ground etc which has been misunderstood by the press.

Edited 30 March 2021 by ttfn

[gerblod]

6 hours ago, Out Foxed said:

which is what we've been doing. this year it will be Tielemans or Maddison for 80-100.

What Golden Fox is stating is a loss which is only resolvable by selling off three players at £90m each.

Do that and you've lost the guts of the team and are back to being a breeding farm for Chelsea and United et al.

If King Power fails then the Club is back into administration yet once more. Players of the worth of Tielemans will be sold at what the Administrator judges their worth and what a buyer is prepared to pay.

I've bought into this 'fabulous Leicester model' stuff - wrote a long paean to the owners and BR in a separate thread. I'm eating my words now.

This isn't solid business acumen - it's gambling that the potential of the team to qualify and compete in the Champion's League can be sustained long enough to redress the loss. The ground extension is virtually meaningless in terms of income when viewed against the debt. It and Seagrave could be viewed as vanity projects in the context of the accounts.

 

Before Covid, King Power could have projected mid-term solvency - now the coin is spinning in the air. Leicester City's fortunes now appear to rest on how quickly the world recovers from Covid.

[Grebfromgrebland]

We need to win the champions league then it'll all be fine.

[fleckneymike]

Swiss Ramble on Twitter is a great go to if you want to see how we compare. 
 

Certainly the narrative of a ‘well run club’ and ‘Maguire paid for Seagrave’ make us feel smug but has zero basis in reality. 
 

 

[Babylon]

5 minutes ago, fleckneymike said:

Certainly the narrative of a ‘well run club’ and ‘Maguire paid for Seagrave’ make us feel smug but has zero basis in reality. 
 

 

Why are we not a well run club? We knew there was going to be huge debt added to the books in forms of loans from Kingpower to pay for infrastructure costs. It's not debt like most clubs where they've just taken loans to pay for wages or transfers, it's to pay for long term infrastructure to facilitate growth of the club and add value to it. 

 

Of course covid has thrown a bit of a spanner in the works, meaning we are more reliant on them for the generally running of the club, but every club has had to fund things differently because of it. That's a short term problem. 

 

The Maguire stuff is just people joking about or people not understanding things is it not, nobody actually thinks that money paid for the training ground as we knew we were taking loans to finance it. 

[Chocolate Teapot]

The way I see it and I could be wrong is king power are effectively acting as a guarantor with the club, ready to step in if needed which they have done. By and large over the last few years the club hasn't needed them to step in. Clearly during covid to keep investing they've needed to, which means the club have a lot of debt in the short term but as many have said the assets far outweigh the liabilities. As ever with accounting its never as straight forward as it could be but then those clever accountants wouldn't be able to command big salaries or tell everyone how clever they are.

 

I don't think anyone should find the accounts alarming or be too worried. If we were a league one or championship club then I'd be very worried. Fortunately, we're a premier league side that has consistently been in the top 5 for the last 2 years, has a relatively young playing squad who'll get better and has aspirations of being in Europe consistently 👍

[fleckneymike]

3 minutes ago, Babylon said:

Why are we not a well run club? We knew there was going to be huge debt added to the books in forms of loans from Kingpower to pay for infrastructure costs. It's not debt like most clubs where they've just taken loans to pay for wages or transfers, it's to pay for long term infrastructure to facilitate growth of the club and add value to it. 

 

Of course covid has thrown a bit of a spanner in the works, meaning we are more reliant on them for the generally running of the club, but every club has had to fund things differently because of it. That's a short term problem. 

 

The Maguire stuff is just people joking about or people not understanding things is it not, nobody actually thinks that money paid for the training ground as we knew we were taking loans to finance it. 

We're not a 'well run club' in the terms most people understand - balancing books, buying low and selling high etc. I'd wager 90% of fans genuinely think we've next to no debt and that we spend what we earn (the same guff people believe about the economy) by selling players. The Maguire 'joke' is a 'joke' because lots of people believe it to be true.

 

Whether we are better or worse than other clubs is up for debate, but we're a million miles away from being sustainable and most likely never will be.

 

The issue, as always, remains that to be where we are requires us (and the majority of other clubs) to spend someone else's money and kid yourselves there is a '5 year plan' and that 'nothing can possibly go wrong'.

 

 

[Corky]

Hopefully the training ground is the main issue in terms of costs and that should settle down in a couple of years. We are guaranteed Premier League football next season so that TV money will be arriving, we may need to sell an asset but that's our model. The wage bill looks very high and we need to get that down, I'm also unsure about expanding the stadium right now with the other costs we've got.

 

I don't think King Power would walk away, they'd try to sell the club and get some return, if we're a Premier League club we're a lot more attractive. It is concerning to see those figures starkly pointed out and maybe we need to be run prudently for a while. What we don't want is to be run where Champions League football is a must rather than a bonus.

[Ric Flair]

Why has this come as a shock to anyone. Prior to the loan for the training ground KP haven't been bank rolling us as they haven't needed to and we have paid for progressing the squad by selling a player for a large fee and using that to offset incoming to fairly modest net spends each season. Our problem has always been the continual challenge of the top 6 with a turnover of £150-175m a season. The wages to keep a squad as good as ours is nigh on impossible. If you think we can pay them all around £40-50k a week and them renew their contracts then you're having a laugh.

 

Look at Everton, they're a club trying to do what we are doing and have posted the most grotesque losses in recent years and that's pre-pandemic. They are being bank rolled and whilst it's allowed ( it's going to be so much easier now FFP is scrapped) it's only a problem if they decide to stop and walk away.

 

If you want to dine at the main table and stay there you have to push things to the max, sustainability only comes with regular CL football and/or huge increases to commercial revenue and sponsorship. We are appalling at the latter and that has to change but the fact the club seem to be content with that and will step in and bank roll us instead then why the concern? 

[Ric Flair]

4 minutes ago, Corky said:

Hopefully the training ground is the main issue in terms of costs and that should settle down in a couple of years. We are guaranteed Premier League football next season so that TV money will be arriving, we may need to sell an asset but that's our model. The wage bill looks very high and we need to get that down, I'm also unsure about expanding the stadium right now with the other costs we've got.

 

I don't think King Power would walk away, they'd try to sell the club and get some return, if we're a Premier League club we're a lot more attractive. It is concerning to see those figures starkly pointed out and maybe we need to be run prudently for a while. What we don't want is to be run where Champions League football is a must rather than a bonus.

Of course they won't walk away  it would take their investment portfolio and business to be wiped off the face of the earth to do so. 

 

There is plans to expand the stadium so there is going tobbe further hammerings to our expenditure.

[Le Renard]

Meanwhile during the summer transfer market we will be shouting from the rooftops for the club to buy players and give new well paid contracts to some players, who are in danger of going elsewhere!  Our owners haven't put a foot wrong since they appointed Sven and tried to buy their way out of the championship, so with the current financial fair play going out of the window, I don't think these figures are much to worry about.  I would think most accounts for all European clubs are looking pretty poor at the moment.

 

 

[Golden Fox]

19 minutes ago, Ric Flair said:

Why has this come as a shock to anyone. Prior to the loan for the training ground KP haven't been bank rolling us as they haven't needed to and we have paid for progressing the squad by selling a player for a large fee and using that to offset incoming to fairly modest net spends each season. Our problem has always been the continual challenge of the top 6 with a turnover of £150-175m a season. The wages to keep a squad as good as ours is nigh on impossible. If you think we can pay them all around £40-50k a week and them renew their contracts then you're having a laugh.

 

Look at Everton, they're a club trying to do what we are doing and have posted the most grotesque losses in recent years and that's pre-pandemic. They are being bank rolled and whilst it's allowed ( it's going to be so much easier now FFP is scrapped) it's only a problem if they decide to stop and walk away.

 

If you want to dine at the main table and stay there you have to push things to the max, sustainability only comes with regular CL football and/or huge increases to commercial revenue and sponsorship. We are appalling at the latter and that has to change but the fact the club seem to be content with that and will step in and bank roll us instead then why the concern? 

I agree fully with all this and some of the other points made. 

 

My post said we weren't a prudently run club, but that is different from being a well run club. 

 

As I say, you can't look at a subsidiary's accounts in isolation - we are backed by King Power, who aren't walking away, continue to invest and are able to sustain the losses in this part of the business. Also, if you could revalue players to market value, the picture wouldn't look quite as bad.

 

And let's face it, you aren't breaking into the Top 6 without spending these amounts of money, so it shouldn't come as too much of a surprise. 

 

Also worth noting that there are so many variables at play: these accounts are to May 2020, so nearly a year old, and being May accounts that are not in line with seasons make them harder to read. None of this season (with no crowd at all) is in these accounts, but that said, the £28m derferred from May 2020 will move to 2021, so may even be a small covid benefit for 2021.

 

I didn't mean to be alarmist, and I knew King Power were supporting the club, but I just hadn't realised the scale of the losses and amount being put in, which has not been the story spun by the club. We are not doomed, but it's a realisation that we are nowhere near sustainable on our own. 

[North Leeds Fox]

Looks worrying but we need to trust the owners as they have never put a foot wrong and know what they are doing. Fully expect a big sale in the summer even if we get champions league as that has been the model to get us here and is working. Think the last 9 games are massively important to secure that top 4 finish and it seems apparent that the commercial arm of the business will need to grow moving forward for us to become sustainable at the current wage levels. 

[Desabafar]

did people think the money for the training ground came out of thin air? of course we are reliant on the parent company to provide the capital, i'm confused how anybody would think a 150-180m turnover business could spend 100m+ on infrastructure any other way. covid has obviously added to the situation

[Golden Fox]

13 minutes ago, Desabafar said:

did people think the money for the training ground came out of thin air? of course we are reliant on the parent company to provide the capital, i'm confused how anybody would think a 150-180m turnover business could spend 100m+ on infrastructure any other way. covid has obviously added to the situation

There is a confusion around profits and cashflow. 

 

In terms of profitability, the training ground has little impact. The £70m on land is not recognised as a cost, while the building work will get spread over future accounts, so will result in future losses - not the £67m quoted here.

 

I'm terms of cashflow, we have taken out loans to provide the capital for the training ground, so that is where the money has come from. 

 

Ultimately the big infrastructure is financed, but the owners need to cover the losses, but there is a distinction between the two. 

[hackneyfox]

11 hours ago, Golden Fox said:

.For a business to be spending £272m when turnover is only £150m is quite staggering: Covid deferring revenue of £28m doesn't make much impact on that. Non-wage costs are £113m, and the club is spending £159m on wages on top of that. Most companies would be battening down the hatches: not spending £300m on a training centre and starting spend on a stadium development.

 

I thought it was somewhere between £100-120m?

[filthyfox]

Pretax losses.... means you pay less tax (not all those losses would be allowable expenses).

 

A good way to do business and not feed the parliamentary leeches.

[filthyfox]

On 27/03/2021 at 10:35, Golden Fox said:

OK - I'll take my comments back! 

 

Likely just slow admin in getting them filed.

 

Will have a good read through them later! 

I heard it was 14 seconds too late...