Review of PFC Financial Statements 2023-24
by Simon Colebrook

In line with the reporting requirements of the EFL Championship, Pompey have published their annual accounts for the season 2023-24 earlier than usual, and here’s the PST analysis of what the numbers mean.. You can download the accounts here: https://www.portsmouthfc.co.uk/news/2024/december/30/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 glorious season of 2023-24, in which Pompey were promoted as deserving champions. Under the calm leadership of John Mousinho and Richard Hughes we spent the overwhelming majority of the season at the top of the table, culminating in that unforgettable evening in April when Connor Shaughnessy scored late on to clinch promotion and the title.

Off the pitch, the works to the Milton End were completed enabling the attendance in the ground to go above 20,000 for the first time since 2011. In addition to this, the works at the Health and Fitness Centre meant that the First Team and Academy were able to move out of the older portacabins and into the new offices and private gym area. New analysis and medical facilities were also made available as part of this work.

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 8 pages to 9 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.

Topics covered in this narrative explanation of the season include:

• Football Performance
• The Academy
• Pompey Women
• The 125 Celebrations
• Fan Engagement
• The Club’s Vision and Purpose
• Fratton Park Redevelopment
• Pompey Health & Fitness Club and the Training Ground
• Trading Performance and the Balance Sheet
• The Club’s environmental impact and sustainable working projects

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 £1.1m in the year. This was driven by increases across all areas of the club operations. The higher capacity meant more matchday income and the success of the club meant more broadcasting, and Commercial & Sponsorship income.

Wages

The wage bill for the club grew significantly by £2.3m in the season. This increase is a combination of growth in the playing budget and bonuses that were paid to players and staff for achieving promotion as Champions.

The number of staff employed full time grew only slightly, further reinforcing the reason for the increase in the overall cost being down to growth in the wage budget and the promotion bonuses.

The shift in strategy away from premium loan players was further evidenced by the note in the accounts stating that loan costs were more than halved, compared to the previous season. 

Overall Profitability

Looking at the P&L as a whole, we see that the losses incurred nearly doubled for the whole season despite the increase in revenue.

The club’s income grew by over £1.1m, however with player trading profit falling by over £700k combined with a wage bill increase of over £2m, player amortisation increasing by over £400k, plus general cost increases we see losses for the season reach the highest figure since administration of the club 12 years ago. 

Fortunately, the non-payroll costs seem to have stabilised a little after a period of very high inflation.

Looking at the underlying performance of the club ignoring player trading and amortisation we see this reflected as well. The increased underlying loss is driven by the increase in the payroll cost offset by the increase in income.

In my report last season, I discussion the sustainability of this. Ultimately, this is a question for the owners. The losses are not going to be turned around in the Championship. If anything, they will get larger. In fact, we now see that even in the Premier League, with all its riches, the losses grow to match the increased revenue.

However, losses on their own don’t cause companies or football clubs to fail. It’s running out of cash that kills companies and football clubs. When we look at the history of football clubs reaching a crisis, it is always because the owner becomes either unable or unwilling to continue funding their club.

The PST maintains a continual dialog with the club executive team, as well as with Tornante. Being US based means that the risks of government intervention (domestic or foreign) are minimised compared to Chinese or Russian owners, for example. We are also satisfied that the desire to continue covering the deficits and fund improvements is still there.

Clearly, however, this is a risk. And it’s not going to go away anytime soon. Most football fans, it seems, would like their club to be financially sustainable. But they also want them to be competitive, and the tension between these two aims is very difficult to manage once a team is in the Championship or higher, but more on that later in this report.

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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.

During the season, the club spent over £1m on new players. This was spent on Anthony Scully, Callum Lang, Owen Moxon and Tom McIntyre, plus agents fees.

Moving on to the physical assets of the club, this year the club has expanded the detail of the spend on the infrastructure assets of the club and reclassified them in more meaningful categories.

Previously assets were split between Owned Assets (Freehold), Rented Assets (Leasehold) and Other. Now we see the split between Fratton Park, Health Centre and Training Ground, Investment Properties, Fixture and Plant, Motor Vehicles, and Construction projects in progress. This greater detail is very welcome as it informs us where the money is being spent.

Here we can see that at time of acquisition by Tornante, the club had spent £5.5m on Fratton Park, £1.3m on the Training Ground and £1.1m on other Fixtures, Fittings, Plant and Equipment.

Up to the end of the 2022/23 season, a further £10m had been spent on Fratton Park, £10m on construction projects that were not yet completed, £1.3m on properties adjacent to the Fratton Park area and £1.5m on additional Plant and Equipment.

Then, in the season we are looking at, the construction projects for the stands in the stadium and at the Training Ground/Health and Fitness Centre were completed which transferred £6.5m of spend to Fratton Park and £3.5m to the Training Ground.

Finally in the season a further £3.8m was spent on Fratton Park and £1.2m on new construction projects.

Overall, since 2017, the club has spent £20.7m on Fratton Park, £3.7m on the Training Ground and Health Centre, £1.4m on properties around the Fratton Park area, £1.3m on ongoing construction projects and £1.8m on other plant and equipment. A total spend of £29m on the infrastructure of the football 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 2024 for the 24-25 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 once again injected £9m into the club buying new shares. This is the third year in a row that the owners have put £9m into the club and means that the total invested in the club since buying it is £37m. The accounts also note that since the end of season up to December 2024, a further £4m has been provided. This amount, together with any further funds to the end of June 2025 will likely be converted to a further equity investment.

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 roughly cash neutral basis with the owners topping up cash shortfalls and investments in infrastructure. Over the 7 years from the sale of the club it has received £44.5m - £37m from the owners and £7.5m from selling players.

It has spent £44m - £29m on infrastructure and other assets, £7.4m on new players and has covered the operational cash shortfall of £7.7m.

Broadly speaking we can see that the player trading model for the last 7 years has been largely self-funding with spend on players matching the income from sale of players.

A huge amount has been invested into the stadium and other infrastructure and during its stint in League One, and, in addition, there has been a cash shortfall on the day-to-day operations of the club that has been covered.  

As we move into the new season in the Championship, this model will be heavily tested.

Summary of the 2023-24 season

The 2023-24 season is ultimately all about the amazing performances on the pitch, and that special night in April when the stadium erupted as Connor Shaughnessy scored that goal in the dying minutes of the game.

Financially, it continued in much the same vein as previous seasons. Some spending on new players – but nothing too crazy. Operational losses – but not at a crazy level. Huge investment off the pitch in infrastructure.

I think that the club would argue that the success of the season was built from steady investment and development. I know that many wish that it hadn’t taken 7 years to escape from League One but ultimately, we got there, and we did it in some style. 

Looking forward to 2024-25 and beyond

After every great party comes the hangover. And, from a financial point of view, the Championship is some hangover. 

Finances in the Championship break everything we knew from Leagues One and Two football.

In League Two, once the legacy debts had been paid off in summer 2015, the balance between financial sustainability and competitiveness allowed us to continually maintain a top 2 budget regardless of which teams were in the division and two seasons later we were promoted.

In League One, this balance allowed us to continually maintain a competitive budget depending on which teams were in the division and how much they were prepared to lose. Big spending teams would drop down from the Championship occasionally and disrupt this, and some of these teams would occasionally then go bust. The Covid season was a bit of a hiccup in this period.

In the Championship the financial landscape is wholly different. With our current ability to generate revenue, the balance between financial sustainability and competitiveness is always going to result in a bottom 6 budget, probably bottom 3. Breaking out of that group would likely push the shortfall of cash on operations from £2.6m in the 2023-24 season to 3 or 4 times that amount.

The path to lifting that balance point so that more competitive budgets become sustainable can only come from increasing our ability generate income, and by investing in the player trading model with young players with potential. All while trying to fund enough of a competitive team to avoid relegation.

On top of this the financial regulations in the Championship are totally different. In Leagues One and Two, there are effectively no limits on what clubs can spend provided that owners are willing to top up the club with more equity.

In the Championship clubs are limited to losses of £39m over three years – an average of £13m a year. Spending on academies and infrastructure are discounted from this figure, so the real loss allowed in Championship is closer to £15-16m per year. 

This raises questions for both the owners and the fans, and their respective appetites for risk. 

For the owners, it’s a question of what do they want? Does the club make a step change in player acquisition to jump start the player trading model, and/or a further big investment in infrastructure to lift revenue generation? All with the risk that relegation happens before those investments deliver better results on the pitch. 

Or do they continue the steady incremental development model and risk being overtaken by the new breed of club owners – American investors buying lower league clubs for a low price and investing enough to fast track them to the Championship.

For the fans, it’s also a question of what do we want? Do we want the club to join the rest of league in incurring £10m+ losses a year, covered by owner funding – and hope that our owners never become unable or unwilling to continue doing so? Or continue the path of incremental improvements but risk bouncing between Championship and League One?

At the PST, we are interested to hear from our members and the wider fanbase on this, so please get in touch at [email protected].