Manchester City reveals record losses
Fri 18th Nov 2011 | Money & Finance
Manchester City Football Club have revealed record losses in its second comprehensive annual report published today.
The report for the 2010-11 financial year, reveals City made a net loss on a recurrent operations basis of £160.5m. Additional exceptional charges of £34.4m were also reported and were principally related to the revised carrying values of intangible assets bringing City’s total losses for the year to £194.9m.
However, City stressed that the results was consistent with the guidance provided in the first MCFC annual report that losses would peak in the 2010-11 financial year, as a result of the accelerated investment programme that the Club undertook between 2008 and 2011.
The report also reveals the further strengthening of the City’s capital base with the issuing of £176.7m of new equity in 2010-11 and £114.2m of equity in the post year end period - ensuring, as in the prior financial year, a balance sheet strengthened by new equity rather than debt based funding.
Speaking of the results Chairman, Khaldoon Al Mubarak reiterated his priorities for the Club moving forward, saying: “Now that we are witnessing progress, both on and off the pitch, it is more important than ever to redouble our efforts and to work towards achieving our ambition to establish Manchester City as a more successful, sustainable and internationally competitive football club, which remains rooted in the heart of the community it serves.”
Significantly, the Club’s commercial revenues increased in the 2010-11 financial year by 22.5 per cent - driving total revenues from £125.1m in 2009-10 to £153.2m - exceeding the £150m threshold for the first time in the Club’s history.
Notably, the report outlines how in 2010-11, all revenue streams witnessed further growth:
• Match day ticketing revenue - driven by increased average attendances, UEFA Europa League matches and FA Cup matches - increased by eight per cent (from £18.2m to £19.7m).
• Television rights income increased by 27.4 per cent on the previous year (from £54m to £68.8m), largely driven by the Club’s highest-ever finishing position in the Premier League, participation in the UEFA Europa League and the Club’s successful FA Cup campaign.
• Commercial partnership revenue increased by 49.7 per cent on the previous year (from £32.4m to £48.5m), driven by the full year impact of continued long-term partnership deals.
• Profitability from retail activities increased to £2.6m following the entering into of a long-term partnership with leading online retailer Kitbag to handle all club retail operations, including the opening of new retail stores.
But the figures will no doubt cause concern at UEFA with their Financial Fair Play Regulations (FFPR) coming into effect from next season.
Reflecting on the results Daniel Geey of Field Fisher Waterhouse LLP said, “UEFA may well be concerned today when they see Manchester City's results. Their goal however is for clubs to break-even according to their FFPR timescale.
“This means that clubs will be required to break-even based on its UEFA license submissions in the 2013-14 season. This includes detailed financial reports setting out whether a club has passed the FFPRs.
“Many who argue that a club making large losses is contrary to the FFPRs misses the point to a degree because there are caveats to many parts of the FFPRs. Such caveats allow for certain losses and expenditure exclusions. Such acceptable losses mean that Manchester City can make a €45m loss in the first 2013-14 monitoring period and take advantage of any player contracts being entered into prior to June 2010 being excluded from its cost base.
“The big plus for the club is the Etihad deal which will considerably boost the club's revenues and thus chances of fulfilling its FFPR obligations. There is reason to believe there may be more sponsorship agreements in the pipeline too. The truth is the only entity that will know whether it will comply with the FFPRs is the club itself. They will have done their detailed financial modelling and know exactly what they need to do to adhere to the regulations.”
Manchester City’s Chief Operating Officer, Graham Wallace said in the report: “Our losses, which we predicted as part of our accelerated investment strategy, will not be repeated on this scale in the future.
"Consistent with the Club’s transformation strategy, and the stated ambition of commercial sustainability, these financial results represent the bottoming out of financial losses at Manchester City before the Club is able to move towards a more sustainable position in all aspects of its operations in the years ahead."
He added, “As we undertake the Club’s commercial transformation, we are cognisant of the incoming UEFA Financial Fair Play regulations and consequently we continue to maintain positive and ongoing dialogue with all appropriate football authorities.”
UEFA could impose a ban on City competing in its European competitions if they fail to meet the necessary requirements of FFPR. But as Daniel Geey explained, “The ECA recently announced that it believed the most severe penalty for non-FFPR compliance should not be outright exclusion from UEFA competition but a withholding of participation money or a transfer ban.
“This is where UEFA will have to tread a careful line between providing the necessary tough sanctions to deter would-be rule breakers whilst placating certain clubs who may be concerned at breaching the regulations.
“The interesting time will come once the license submissions in the 2013-14 season have been made and UEFA approves or rejects those license applications based on the FFPR criteria."
Manchester City feature in this month’s issue of fcbusiness focussing on the hard work they are doing on Fan Engagement initiatives. Read it here (from page 28)
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