Review of PFC Financial Statements 2022-23
by Simon Colebrook

Pompey have published their annual accounts for the season 2022-23, and here’s the PST analysis of what the numbers mean. You can download the accounts here: https://www.portsmouthfc.co.uk/news/2024/march/statement-of-accounts/

As always, I am grateful to Tony Brown (PFC Finance Director) and the club for giving me an advance copy of the account to produce this report, and for answering my questions about them.

Introduction

These accounts cover the 2022-23 season, which started under the management of Danny Cowley, alongside his brother Nicky. After a difficult period of results the club and the management team parted company and John Mousinho was appointed. After a run of better results, the club ended the season in 8^th place with 70 points.

Off the pitch, the north and south stand development works were completed. Thiis facilitated a 20% increase in average attendance from 15,003 in 2021-22 to 18,064 in 2022-23. This increase was enabled by the stadium works enabling the club to have all seats licensed for use by spectators instead of the capacity cuts that the licensing authority had previously imposed. At the completion of the works in January 2024 the capacity stands at approx. 21,000 which is the highest since the Premier League era.

Strategic Report

The Strategic Report is the section of the accounts where the Directors set out the key events of the year and give context to the numbers in the other sections.

Once again, the club has expanded the length of this section, from 7 pages to 8 pages. I’m pleased to see the club give more information about how the club operates than many clubs at our level and higher.

I recommend that everyone should read this section to get a picture of how the Club’s executive team saw the season, even if the numerical sections of the accounts are not of interest.

Some of the highlights of this section include:

• £1.4m was invested into renovations and improvements to the training ground and the Health and Fitness centre
• £5.3m was invested in the development works on Fratton Park
• Owner investment in the club stood at £28m at the end of the 2022-23 season and since then the owners have provided £7m in further funding.
• Pompey Health and Fitness Club contributed £1m to the club’s revenues, and a £240k loss due to utility costs and wage and inflation cost increases.

Profit and Loss Account

I start my analysis of the operational performance of the club with a look at the revenues.

Overall revenue grew by over £500k in the year. This was driven by higher ticket sales from the increased attendances, along with higher hospitality income from matchdays. The increase in income from the Health and Fitness Club also contributed. The central funding from the EFL, however, reduced as there was no Covid funding in the 22-23 season.

Wages

The wage bill for the club increased by over £400k. The number of players on the club’s books increased due to the addition of Academy scholars.

We also see the number of Office and Football staff reduce. The figure in 2022 was increased due to the taking on of staff employed at Roko on its acquisition. In 2023 these staff were TUPE’d over Mosiac who run the relaunched Pompey Health and Fitness Centre.

The increase in players and wages reflects the change in strategy initiated in the January transfer window under Sporting Director Richard Hughes. The previous reliance on loan players was switched to a focus on recruiting younger permanent players who could be developed into good first team players. Accordingly, a note in the accounts states that loan costs reduced by over £200k in the season.

Overall Profitability

Looking at the P&L as a whole we see that the total loss for the year is not much different to 2022. However, that disguises a variety of swings in both the income and the costs for the club.

The club’s income grew by £558k and Profit from player trading saw a positive £919k swing, meaning that the club was nearly £1.5m better off in the year from these two sources.

However, the costs of running the club have grown likewise, especially in the non-staff costs as inflation has hit the club.

Taking the costs of running the club and subtracting wage costs we can see that these have increased by £1.4m, or 26%.

This reflects the significant increase in costs the club has faced in the year. Looking back to the period from summer 2022 through to spring 2023, the cost of living crisis was ramping up with big increases in the costs of food, energy, as well as travel and hotels. The reopening of the swimming pool at the Health Centre also contributed to a big increase in energy costs.

Additionally, the termination costs of the management team fall in this section of the accounts, and with seven football staff leaving in the year this was also a relatively big cost.

Looking at the underlying performance of the club ignoring player trading and amortisation we see this reflected as well.

Here we see these increased running costs for the club causing increased losses despite the increaase revenues. This prompts questions about how sustainable this is over the longer term.

There is a lot of debate about what a sustainable football club looks like. If you look at all 92 clubs in the Premier League and EFL, you’ll find few that meet any normal business definition of sustainable.

In any normal business, the objective is to maximise profit and either reinvest that profit into the business or to distribute it to shareholders in dividends. This objective does not work for football clubs for two reasons.

Firstly, most fans don’t care about profit, they care about league position. The correlation between league position and  wages means that if a club maximises profit it is keeping money that could have been used to pay for a bigger or better squad.

Secondly, if a club has good player development and trading then it can accept losses on its normal operations and cover these with profits from the player trading. There are a number of clubs that incur annual multi million-pound operational losses that they mitigate by selling players for huge profits.

Ultimately, the real measure of sustainability in football is cash. If the club generates enough cash from its player trading and from equity funding to cover the costs of operations, then it is not increasing the financial risk to the club.

In the recent PST survey, sustainable finances were highly important to our fans. Given the history of what happened to PFC, this is understandable.

Pompey is currently reliant on owner funding to sustain its operations, as is common with nearly every club in the football pyramid. The owners have shown every indication that they are willing to continue this, and we maintain a constant dialogue with both the Eisner family and the club’s Executive through the various channels to make sure this commitment continues.

We have seen that the goal of a successful player development and trading model is now being pursued with the first indication of success by delivering £750k in 2022-23. There’s also signs that the club has a more focused and successful recruitment model and we can all see the players recruited in the last 12-15 months have grown in their potential both on the pitch and in the prospect that some of them may deliver a significant transfer profit in the future.

Hopefully, if this season does deliver the move into the Championship we all want, then we will see player trading start to offset the losses from running the club.

Balance Sheet

Moving on to the Balance Sheet, this gives a picture of the financial status of the club at the end of the season.

Assets

Starting with the players we see that club spent a fair bit on players across the year.

Over the year the club spent over £1.5m on new players. This was mainly spent acquiring Colby Bishop, Paddy Lane, Ryley Towler, Terry Devlin, Christian Saydee and Kusini Yengi. Going back to my previous comments about sustainability through a player trading model, I think the performances of many of those players will have given them a value significantly in excess of the spend, and that will only increase if we finish the season with promotion.

We can also see that we made a very health profit on the three players we sold – Marcus Harness, Alex Bass and Reeco Hackett. Being a product of our Academy, the income from the transfer of Alex Bass was all profit.

Moving on to the physical assets of the club, we see the continuation of the significant investment in infrastructure as the works on Fratton Park neared completion.

Overall, since 2017 the club has spent £20.5m on infrastructure including Fratton Park, the Health and Fitness Centre, the Training Ground and on acquiring properties near to Fratton Park building long term foundations for the club.

Liabilities

Although liabilities have grown in the year, we remain debt-free with no borrowing from the owners or from external financial institutions.

The main liability growth arises from the advance season ticket money received before 30 June 2023 for the 23-24 season. This is shown as a liability as it is technical owed to the season ticket holders until the next season starts.

Equity

Here we see that the owners have injected £9m into the club buying new shares. This means that the total invested in the club since buying it is £28m.

The accounts also note that since these accounts, the owners have put in another £7m in the current 23-24 season. This will bring the total investment to £35m at the end of this season.

Cash Flow and Spending

Cash Flow is an important measure of the financial health of the club. It shows where the money comes from and how it is being spent. It is here where we would see any alarm bells if the club were to start running out of money or was having to borrow money to keep going.

As with last year, the club continues to operate on a cash neutral basis. Over the 6 years from the sale of the club it has received £35m - £28m from the owners and £7m from selling players.

In the same period it has spent £34.9m. Including £23.5m on infrastructure and other assets, £6,4m on new players and covering the operational cash losses of £5m.

From this data we can see that although club needs owner support, this has amounted to £5m over 6 years. Although a lot of money by normal measures, in football terms it is a relatively low demand for owner funding, and the majority of this arose in the Covid season.

The overwhelming demand from the owners has been infrastructure funding to upgrade the stadium and training ground. This will prevent any reductions in income, actually resulting in increased income as attendances rise and the team performs better.

Therefore, I am satisfied that although the club loses money, the operations are not such a huge drain on the owners that we need to be concerned about their ability or willingness to carry on this support.

Summary of the 2022-23 season

The main story that comes out of the 2022-23 season is one of investment.

Investment in the infrastructure of the club and investment in the playing squad. Although the club continues to operate at a loss, the cash injection needed to cover this is substantially lower than the loss and continues to be covered by the owners.

Rising costs are impacting all clubs and this was the reason for the increase in ticket prices in the current season.

However, we are hopefully seeing the fruits of all this investment in the current 2023-24 season, in terms of the performances on the pitch, the better match day facilities, the increased match day income and greater attendances.

Looking forward to 2023-24 and beyond

As I mention, the investment in facilities has enabled bigger attendances and more match day spending by fans. The success on the pitch has helped to drive that further and also increase commercial income.

We will hopefully see a big uplift in income for the current season. However, I am expecting there to still be a significant loss as costs increase. Albeit that this is mitigated by the increase in ticket prices for the 2023-24 season.

We will see the completion of the Fratton Park renovation and we already know that the owners have invested another £7m to fund this.

Looking further ahead, we can at last start thinking about what life in the Championship might look like. This will prove to be the biggest challenge faced by the management and finance team at PFC since coming out of administration and paying off the debt. Clubs in the Championship routinely lose over £16m a year. Competing with those teams will be challenging – but not impossible as a number of clubs have shown.

In the meantime, we will enjoy a tense and hopefully successful end to the season.