Southampton squeezed by the pandemic

FOOTBALL club accounts for the 2019-20 season have become a cause for concern, the big losses incurred in a partially compromised season indicating that unless normal service is resumed, 2020-21 will be a complete financial disaster. With no sign of a major change occurring before the middle of 2021, football has to come to terms with a write-off year.

Southampton are the latest club to announce a major loss in 2019-20 – £ 73.3 million, but the most relevant aspect of their financials is the fact the club’s gross debt position has risen to £ 91.3 million after taking on a new loan of £ 78.8 million from private investment firm MSD Capital, the managers of the Dell technology family’s financial affairs. 

This facility is due for repayment in 2025 and carries an interest rate far in excess of their previous debt (more than 9%). Although restructuring of debt in the current climate is not unusual, the amount of debt and the high level of interest raises questions about lender perception of the club.

Southampton’s revenues for 2019-20 declined by around 15% to £ 126.6 million, although lost and deferred income totalling more than £ 30 million would have resulted in the club posting an increase of 5.5% in 2019-20. Although this is purely academic, it does show the club had positive momentum before covid-19 struck.

All revenue streams were impact by the pandemic, broadcasting declining by 17% to £ 93.5 million and matchday falling by almost 15% to £ 14 .5 million. Commercial income was down by 6.5% to £ 17.2 million. 

With revenues lower, the club’s overall wage bill of £ 114 million, little changed from 2018-19, was a very unsustainable 90% of income, a rise of 13 percentage points. Of the overall total, the first team’s wages came to £ 89.6 million, representing 71% of turnover. These figures could deteriorate further in 2020-21 if an entire season is played behind closed doors, which could create challenges for the Saints.

The club’s profit on player sales was just £ 13.9 million, lower than 2018-19’s £ 20 million and some way below 2017 (£42m) and 2018 (£ 69m). The past two seasons have not only seen lower levels of profits on player sales, but have coincided with the club posting losses for the first time since 2013.

Player trading is an important part of Southampton’s business model and over the last few years, clubs like Liverpool have benefitted from the club’s production line. The Saints’ managing director, Toby Steele, reassured the fans that the financial difficulties could be eased significantly by the sale of a couple of players, but they don’t appear to have the depth of marketable talent they had before. Transfermarkt rates James Ward-Prowse (£ 22.5m) as their most valuable asset with Danny Ings (£18m), Jan Bednarek (£ 18m) and Nathan Redmond (£16.2m) also highly valued. The current squad is valued at £ 215 million.

Southampton spent in excess of £ 50 million in the transfer market in 2019-20, including      £ 18 million on Ings, £15 million for Che Adams and £ 14 on Moussa Djenepo. They recouped around £ 25 million from sales. In 2020-21, they have been among the lowest spenders in the Premier League, signing Kyle Walker-Peters for £ 12 million from Tottenham and Mo Salisu from Real Valladolid for £ 11 million. To counter this, they sold Pierre-Emile Højbjerg to Spurs for £ 15 million.

The 2019-20 loss may mean a very quiet transfer window unless players are sold to fund any possible acquisition. The Saints have had a very decent season and currently sit in seventh position in the Premier League. 

Ralph Hasenhüttl’s team recently beat Liverpool 1-0, an emotional evening for the manager and a game that underlined the progress made at the club since he took over, notably since they were beaten 9-0 at their own St. Mary’s stadium by Leicester City in 2019-20. Southampton’s problems would seem to be away from the field of play as they try to keep pace with the Premier elite.

Photo: PA

Southampton – changing conditions, not owners

SOUTHAMPTON’s Chief Executive Martin Semmens has denied rumours the club is going to be taken over by a group of US investors. This may not be the best time to sell a football club when the industry has been in lockdown and the world is about to tip into recession, but rumours repeatedly emerge that Southampton’s majority owner, Gao Jiosheng, is keen to offload his 80% and he’s even cut his asking price to £ 250 million.

Football Finance expert Kieran Maguire, in his recent paper on club valuations, suggested Southampton are currently worth £ 269 million, a fall of £ 100 million on the price 12 months ago. Clearly a sign of the times.

However, US sports investors, aware that European leagues are not “closed” and also not subject to salary caps, get nervous about football’s ability to turn clubs from heroes to zeroes in one season. There may have been strong interest, but the uncertain financial climate may have turned would-be investors away. For now.

Questions were recently asked about the true nature of Southampton’s ownership, specifically whether China is actually holding a percentage in the Premier League club. This came about because Gao Jiosheng sold a 29.9% stake in Lander Sports, the vehicle used to buy 80% of Southampton, to state-owned Chengdu Assets Supervision. Southampton insisted they are owned by a UK-based entity unconnected to the China-based company.

Saints’ fans must wonder what the future actually holds for their club. They have been up for sale on more than one occasion in the past couple of years and the Coronavirus has created a volatile landscape that could have an existential impact on modern football.

The loss of matchday income will not have hit Southampton as hard as some clubs, it currently brings in around 11% of their total revenues, but the club has a huge reliance on TV money, some 75% of overall income. Who knows if broadcasters will be quite as generous in their next deal?

Southampton have developed a number of players that have been sold on for big money in recent years, notably Sadio Mane and Virgil van Dijk to Liverpool. They have accrued more than £ 250 million on player sales since 2012. However, player trading for 2018-19 was less successful, contributing to the overall loss of £ 34 million, a fairly dramatic turnaround from the £ 28.6 million profit in 2017-18 and the worst results since the club returned to the Premier League. Southampton have struggled to offload some of their unwanted players and they have 24 currently out on loan. The club’s business model undoubtedly provisions for the regular discovery of sought-after players that can bring in a significant profit.

Turnover for 2018-19 (St. Mary’s Football Group, of which SFC is a part) was marginally down on the previous year, but operating costs went up, with the wage-to-income ratio 77% for the group and 58% for the first team squad. When football closed down in March, Southampton were 14th, but for the first time since 2012, average gates at the excellent St. Mary’s were below 30,000 and showed a decline for the third successive season.

If the Bank of England’s calculations are anything to go by, the UK will be in for a period of turmoil in the coming 12 months. Football is going to find this particularly savage as it is a game that relies, to a large degree, on mass gatherings. As in any recession, it is rarely the big guns in any industry that are troubled, but clubs like Southampton – along with much smaller clubs – will surely feel the squeeze. With a majority owner whose business activities are in one of the countries most compromised by the virus, the Saints will be hoping they can benefit from the anticipated rebound. It won’t just be the bounce of the ball that governs Southampton’s immediate future.


Photo: PA