With the forthcoming retirement of Peter Lawwell from Celtic I thought it would be interesting to reflect on how we have performed financially as a club over the past decade. I must caveat this with I am no expert in this space so the writing below is simply me sharing my views based on how I see what our accounts from this period tell us about the club’s financial performance.
Below is a table summarising Celtic PLC’s reported financial results over the decade (Source: Celtic Annual Accounts 2011-2020). The reason for picking this time is twofold.
Firstly the 2009/10 season went a similar way to this one, we were well off the pace in the league by the midway point and had a squad made up of first team players on loan, who had failed to make an impact and had some sellable assets who had reached the point of wishing to move on, therefore a rebuild of our squad was inevitable which is similar to where we find ourselves now.
The second is the sale of Aiden McGeady for over £9m to Spartak Moscow signalled one of the first transfer deals where we sold one of our first team stars for a considerable profit.
So, what are the key takeaways from the above and what lies behind the figures?
First off prior to the pandemic, it must be said the club was in reasonable financial health, we had a healthy amount of cash at the bank in £28.6mn and had posted a pre-tax profit for the last 4 seasons this generated by a combination of Champions league money and profits from player sales as well as a period of domestic dominance having seen season ticket sales at high levels.
One thing that noticeably started to drift over the decade was the assumption that the club budgets for Europa League football and not Champions League. Whereby looking at the difference between our Revenue and OPEX (operational expenditure) from the table since 2011/12 onwards there are 5 occasions where OPEX is higher than our revenue.
It should be noted that the difference in 2019/20 is partly due to the pandemic and where it is likely without the pandemic would have saw a similar difference to the 18/19 season given similarities in European performance but given exact details are not published this cannot be relied upon to make a comparison to the others.
Discarding the 2019/20 results the club would have made a loss in each of the seasons we did not qualify for Champions League Group stage football if it was not for player trading profits. The importance of Champions League Football is further explained in table 2 below.
An interesting trend is the noticeable two waves that feature over the decade. There is a noticeable increase in the club’s revenue, OPEX and wages on two occasions and how this correlate to our success in European football.
The club qualified for the Champions League Group Stage in 2012/13 which shows the first time a substantial operating profit is generated of over £13m with revenue being significantly higher than OPEX leading to a £9.74m profit as player trading contributed a small loss that season and wages had increased by just short of £7m most likely due to a performance related pay structure for the management and players reflecting an increase due to Champions League Group Stage Qualification and making the last 16 of the tournament.
The following season 2013/14 the revenue of the club decreased by over £11m, there is a note in the report highlighting a £100 reward was given on season tickets that season which will have played its part but given we had played European football in the Champions League post-Christmas and subsequently had no European football post-Christmas the following season prize money and the lack of a sell out home glamour tie will have been a big contributor to this. In addition, we won the double the previous season, whereas in 2014 we were knocked out of both cups in early rounds so would have lost match day revenue from those competitions.
Stating the obvious but Table 1 and 2 above shows evidence of performance on the pitch being what is truly driving the financials of our club. This is not trying to take away from those running the financials of the club but assuming that task is carried out with a degree of competence then our playing performance is what determines a good year financially from a poor one. It is worth pausing at this point in time to reflect as in the same season we sold a number of our first team players including Victor Wanyama, Gary Hooper, Kelvin Wilson and Joe Ledley, all fundamental players in the spine of our team who left which generated over £17m, with £5.3m less than a third reinvested in replacements, although one of the replacements was Virgil Van Dijk.
At the end of the 13/14 season Neil Lennon was replaced by Ronny Delia and we lost Fraser Forster. Despite having banked considerable fees from developing players before selling them on and having done well from deals for out of contract or expiring contract players such as Ledley, Commons, Kelvin Wilson, Matthews and Lustig, the club seemed to change tact in its transfer dealings. Celtic signed a number of loan deals most of which did not really work out for and none of them did in the long term as the likes of Jason Denayer who had a good season returned to his parent club and left us with a gap at centre back.
I have to say I am not a fan of loans where there is no option to make the deal a permanent as it effectively impacts long term squad management but that is for a different article.
The two years under Delia saw the extension of our first slump at the end of a positive cycle. No Champions League Qualification both years and no European football post-Christmas the second year. Football Operations revenue as Table 2 shows was down considerably due to a fall in ticket sales. Financially for the club those seasons were poor, with only the sale of Van Dijk allowing a very modest £0.5m profit in the second season with a sizeable part of the fee covering our revenue shortfall due to our European performance and the rest covering a disastrous performance in the summer transfer market where almost all our signings failed to make an impact.
This slump combined with a cup semi final penalty shoot out defeat to theRangers prompted an apparent intervention from Dermot Desmond and the result was Brendan Rodgers arriving as the club’s new manager.
What followed was what many felt should have been happening for some time during the decade but never fully grasped, complete domestic dominance!
However, it was our return to the Champions League group stages that made a sizeable difference to the finances of the club can be seen from table 2. There was not a noticeable increase in transfer spend but there was in our investment in wages. Deals for the likes of Moussa Dembele, Scotty Sinclair and Kolo Toure as well as the manager and his team contributed to an over £19m rise.
However, this show of ambition raised the revenues of the club by £38.6m between increased ticket sales increasing football operations by £12.5m, merchandise increasing by £3.8m and mostly driven by the Champions League over Europa league media package being worth an additional £22.3m . Another telling factor was player trading recorded an over £5m loss due to club having all but exhausted our main sellable assets at that point with the squad value being low of the back of a poor season.
The 17/18 season we qualified for the Champions’ League group stage and managed to retain European interest post-Christmas. The club again won all domestic honours and recorded record revenues of £101.6m however operating profit only increased marginally due to OPEX having reached £87.1m. However we did make a greater profit overall due to selling Stuart Armstrong and our sell on from Virgil Van Dijk’s move from Southampton to Liverpool which was a shrewd piece of business, as the club secured a fee a kin to a decent transfer fee without losing a key member of the first team squad.
£17.3mn profit was returned that season which was the crown jewel of our financial performance for the decade. However much like our previous two-year stint in the Champions League from 12/13 and 13/14 things were about to take a downward trajectory for the 18/19 season financially.
The club endured a frustrating time in the summer transfer window, a poor January had resulted in the squad being threadbare of quality options in defence with aging full backs in Mikael Lustig and Emilio Izaguirre, an over-played Kieran Tierney and only two centre backs in Jozo Simunovic and Dedryk Boyata due to the poor recruitment of Marvin Compper and Jack Hendry.
There was also the summer transfer saga’s as targets were not landed and unrest unearthed itself within key members of the squad with Boyata, Olivier Ntcham and Moussa Dembele all expressing a desire to move on when interest presented itself. Only the later was sold with the other two left sulking and failing to produce the calibre of performance we had become accustom too.
Champions League qualification failed and we ended up in the Europa League resulting in a hefty wage bill contributing to operating costs remaining high while revenues fell £18.2m due to missing out on the Champions League Group Stage, this resulting in an operating loss of £3.5m which was turned in to a £11.3m pre-tax profit by the departure of Dembele and the compensation received from Leicester City for Brendan Rodgers and his staff.
On the face of it financially this was another good season, an eight figure profit and even on the pitch we had post-Christmas European football and won our third consecutive treble however the feeling around the footballing performance began to shift and the significant events of Brendan Rodgers departure in February 2019 were only beginning to show.
The team had become considerably weaker with the loss of Dembele, Armstrong and Boyata about to depart with the only major signing being Edouard’s loan made a permanent deal. This is not considering Scott Brown, Michael Lustig and Craig Gordon, who were all senior players being a year older and showing signs of decline. I do not want to dwell on squad management or transfer activity in this article as it is a topic that requires its own subsequent article which I will write.
At this point it is difficult to comment fully on the 19/20 season as the revenue figures have been impacted by the curtailing of the season leading to refunds which are reported to exceed what the club anticipated and lost match day revenue from the remaining league and Scottish Cup fixtures. It would have been reasonable to have expected a similar set of results or slightly better than the previous year having reached the same stage of European competition only having won our group.
For the 2020/21 season what can be speculated is that the cash at bank figure of £18.9m will be significantly lower if not gone. The club will record a sizeable operating loss again this season as our revenues will be significantly reduced by the pandemic not allowing any additional ticket sales including European Group Packages and our poor on field performance in both the Champions League Qualifiers and Europa League Group Stage.
We have also seen most of our summer signings fail to live up to expectations with only the £3m invested in David Turnbull looking like a good acquisition, with the other £12m looking like poor value. Celtic have tried to offset some of this through the sales of Jeremie Frimpong, Eboue Kouassi and Hatem Abd Elhamed, where speculating on Manchester City’s cut of the Frimpong deal we will have pocketed around £10.5m which results in a player transfer loss of around £4.5m for the season to date.
It is likely several first team players will leave in the summer given their contract status and the need for the club to raise funds, Odsonne Edouard, Kristoffer Ajer and Ryan Christie will likely be sold, with one going early to balance the books somewhat.
The club will also be hopeful that the option to buy for the likes of Boli Bolingoli, Olivier Ntcham, Jack Hendry, Vakoun Issouf Bayo and Marian Shved are taken up by their respective loan clubs. Others may also opt to leave for varying reasons and the loan deals we currently have are unlikely to be renewed creating serious gaps in the playing squad.
All in the club will be looking to raise in the region of a further £45m to £50m from player sales. There will also be the approximately £1.5m from Dembele’s sell on from Lyon to Atletico Madrid. I would not want to speculate exactly how big our operating loss will be but if last year’s was a little over £10m from only part of the season then you would assume this year’s will be considerably greater which is a real worry.
Reflecting on the above commentary a few things stick out, the first is our long term financial performance is intrinsically linked to our footballing one, this seems obvious to say but has not stopped the club on two occasions over the last decade entering a period of prudence in a bid to maximise profits in between the 2013/14 and 2014/15 season and the 2018/19 season.
Both times we have sold key players in the spine of the team and failed to adequately replace them, quite often actually reverting to the loan market which has not served us well in the long run as the loan deals often fail to have an option to buy.
This is worrying as it shows a reluctance to learn from our mistakes and points towards short-termism. Signing loans doesn’t offer any long term sell on value when it comes to having to replace that player and by that time you will likely also have another player in the squad looking to move on leaving two gaps instead of just one to fill from their fee.
The role of Champions League qualification for the club currently seems undervalued and placed as a nice to have, when in reality it is one of the only real difference makers we have available to use as a club financially, without it our only other lever is player sales which if we are not in the Champions League we won’t maximise their true value.
The second is that during non-pandemic times there are two real variables that determine our financial performance, those are player sales and Champions League group qualification. Without the later despite the talk of the club budgeting for Europa League we make an operating loss.
Player sales are the other lever which the CEO then tends to turn too, to balance the books. Seems simple, but what is more interesting and requires more exploration in the subsequent article on transfer strategy, is even when qualifying for Champions League Group Stages we have still moved towards selling players and for me this is not an issue in fact the two should not be looked at as related.
The club should have a clear squad management strategy that regardless of which European competition we qualify for we should be looking to sell and replace players within the squad as to effectively put in place the business model we claim to have been trying to do for the past decade.
Again, I will discuss this in greater detail in the next article but effectively a talented player has a 2 to 3 season lifecycle at Celtic in the current market before they will likely want to move to a bigger league. This is a fact of the modern football transfer market whether we like it or not and Celtic holding on to players when they are angling for a move has never really worked out well for us, see recent examples of Armstrong, Ntcham, Boyata, Christie and Edouard who have all had poor seasons following a window where they expressed a desire to move.
As a club our squad management needs to improve, we will lose players every season, so we need to have options lined up to replace them. This sort of approach will minimise the complete squad rebuilds we end up needing to do at one time which takes time to implement.
The accounts tell a story of good performance but in their peaks and troughs there is this overwhelming feeling of missed opportunity for great performance, particularly in the failure to qualify for more than four Champions League group stages during this period. The 16/17 and 17/18 accounts show in financial terms the real game changer it can be.
Our current predicament shows just how quickly this can all be undone by a couple of poor transfer windows and a failure to appoint an appropriate manager. Brendan Rodgers left in an acrimonious fashion but the speculating to accumulate approach of bringing him in showed exactly how the club can move forward at pace. Rodgers appointment had a significant positive impact on our two main levers, we qualified twice for Champions League and the value of a number of our players including Armstrong, Dembele, Tierney, Callum McGregor, James Forrest and Christie significantly increased through development and having a platform to play on.
Lastly, I have mainly focused on how our revenues can increase and the two main levers of Champions League group stage qualification and player sales, however the other factor that can greatly impact our accounts is the mood of the support. The last time the support felt aggrieved at the direction the club were heading turnover dropped to £51mn and table 2 shows the main reason for this was a fall in ticket sales.
The current stewardship of the club and incoming one would do well to take note that the current attitude of keeping the supporters at arm’s length and ill informed is not a wise one if they do not want to see a repeat of this again particularly when operating in a pandemic.
Paul Foley
Great review, it also shows when our departing CEO was not in full control during the Brendan Rodgers period, the club blossomed in all area’s. But his ego meant that that could not last, how much has he cost us!