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West Ham 2018/19 accounts: heavy investment in playing squad leads to heavy losses

Writer's picture: Andrew ZarbAndrew Zarb

West Ham's heavy investment during the summer 2018 transfer window, including the signing of Felipe Anderson, led to significant losses.

West Ham United have announced their accounts for the year ended 31st May 2019, in which the club made a pre-tax loss of £28.2m compared to a pre-tax profit of £17.4m the previous year, as under the management of Manuel Pellegrini, the club spent significant sums of money in a bid to strengthen the squad.

Some key performance indicators (KPIs) from the accounts are the following: Revenue This saw a considerable increase during the 2018/19 period to £190.7m from £175.3m in 2017/18, a rise of roughly 9%. This was mainly influenced by the fact that broadcasting revenue increased by just under £8.9m, as the club finished three places higher in the league (10th in 2018/19 compared to 13th in 2017/18), which meant an increase in Premier League TV money of £6.5m. Furthermore, the club saw an increase of just over £2.5m in matchday revenue, which was probably influenced by the fact that average league attendance increased from 56,885 to 58,336. In addition, commercial revenue increased by £3.4m from £24m in 2017/18, as the club signed a new sponsorship deal with Basset and Gold to appear on the sleeve of their shirt. It is fair to say that the club have been struggling massively in the league in the 2019/20 season, with the club currently lying in the relegation zone in 18th place, and were the club to suffer relegation come the end of the season, this would be a huge blow to their finances. If the club finished the season in 18th place, and they had to have 15 live Premier League games broadcast during the campaign, this would mean that they'd likely receive only around £105m in TV money, a drop of roughly £20m. That said, the club signed a new sponsorship deal with betWay which will boost their commercial revenue, and average league attendance is higher than in the previous season, so there would not be such a drop (if any - in fact there may well be an increase) in matchday revenue. Therefore, if the club were to finish in the relegation zone come the end of the season, it is likely that revenues would drop to approximately £170-175m. However, revenue would fall extremely sharply in 2020/21 were the club to be playing in the Championship, and a drop of around £70m in revenue if in the Championship is not inconceivable, as matchday revenue will likely fall (due to a combination of lower attendances or lower season ticket prices), as well as probably commercial revenue. Therefore, Premier League survival is imperative for the London club's finances.

Wages These rose significantly, as the club signed several players on fairly sizeable wages, in addition to awarding new contracts. In 2018/19, wages rose by just over £29m from £106.6m to £135.8m, an increase of roughly 27%. In addition, staff members increased sharply from 435 to 542, which may very well help explain the increase in wages. To put the wage figure into perspective, only the big 6 and Everton (whose accounts were for a period of 13 months due to a change in the date of financial year end) will likely have a higher wage bill than West Ham during the 2018/19 season. Also, the wages to turnover ratio increased by 10% in 2018/19, from 61% in 2017/18 - meaning that the increase in wage bill was considerably larger than the increase in revenue.

For the 2019/20 financial year, wages will likely increase again, as the club spent heavily once more in the summer to bring in the likes of Sébastien Haller, Pablo Fornals, Roberto (who flopped spectacularly and was loaned out in January 2020), Jarrod Bowen and Darren Randolph in January as well as Albian Ajeti. However, this increase in wages will be offset slightly by the fact that players such as Marko Arnautovic, who was reportedly on a wage of £120k per week, were sold. In addition, Edimilson Fernandes, Reece Oxford, Sam Byram, Javier 'Chicharito' Hernandez and Pedro Obiang were sold, whilst Adrian, Andy Carroll, Samir Nasri and Toni Martinez were all released at the end of their contracts. On the other hand, during the 2019/20 season West Ham sacked manager Manuel Pellegrini which meant the club would have had to pay compensation for his departure, which might well increase the wage bill (or else this may be classified as an exceptional item). Clearly, irrespective of the total wage bill figure for the 2019/20 financial year, if West Ham were to suffer relegation at the end of the season, they would need to dramatically reduce their wage bill in order to offset the fall in revenue - which would have to be done either by selling players, or else it is possible that some players will have had relegation clauses inserted into their contracts (meaning a drop in wages if the club suffers relegation).

Amortisation As explained in yesterday's analysis of Swansea City's 2018/19 accounts, this refers to the depreciation of a player's transfer fee over the duration of his contract. This figure increased sharply for West Ham during the 2018/19 financial year from £41m to £57.3m, an increase of around 40% - this figure does include impairment charges, though. In order to put the figure into some context, only the big six, Everton, and potentially Leicester City will likely have higher amortisation than West Ham for the 2018/19 financial period, which reflects the fact that West Ham invested heavily in player recruitment during the last financial year (how successful/effective that recruitment was is a matter for debate).

For the 2019/20 season, this will likely increase due to the signings of Pablo Fornals, Albian Ajeti, Sébastien Haller, Jarrod Bowen and Darren Randolph, though offset in part by the sales of Marko Arnautovic, Chicharito, Pedro Obiang and Edimilson Fernandes. In total, it is likely that amortisation will increase by around £8m, however, it is important to point out the possibility that the club might impair (reduce) the book value of several players in the event of relegation, which would increase the total amortisation and impairment costs further still. Profit on player sales This refers to the difference between a player's book value on the date he was sold and the amount for which he was actually sold for - this is a non-cash item. This figure saw a sharp drop for the Hammers from £29.9m in 2017/18 to £12.6m in 2018/19, a drop of over half - as the club only sold Cheikhou Kouyaté, together with Domingos Quina and Reece Burke for relatively small transfer fees. For the 2019/20 season, this figure will likely increase to around £27m, aided significantly by the sales of Marko Arnautovic and Pedro Obiang, though helped also by the sales of Edimilson Fernandes and Chicharito. Conclusions The significant level of investment during the summer 2018 transfer window did not necessarily result in markedly improved performances on the pitch, though wages and amortisation spiralled significantly, which led to a loss being made, also influenced by the fact that there was not a substantial increase in income. These losses will likely increase for the 2019/20 financial year, due to a probable increase in wages and amortisation as a result of considerable investment in player recruitment once again, coupled with the fact that revenue will likely fall due to the club's lower league position as well as the costs incurred in dismissing Manuel Pellegrini and his coaching staff. One crucial thing to note that the club is relying extremely heavily on Premier League football for their finances, and relegation (which is a serious possibility at the end of the season) would lead to a huge hit which would require the club to drastically reduce their costs due to lower revenues.

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