Tottenham Hotspur have posted their accounts for the 2016-17 financial year, which covers the period for the football season of the same period. We provided our analysis for the 2015-16 season which raised a number of questions, many of which have subsequently been addressed either through clarification directly from the club or other information coming to light.
Our analysis of the previous set of accounts remains apposite in terms of highlighting key elements of the structure of the club’s finances, however in light of our concern over pricing of season tickets at the new stadium we have decided to take a different tack with the 2016-17 accounts. Our interest is in seeing the extent to which the 2016-17 accounts can be used to predict the future financial position of the club and the extent to which new season ticket pricing is dictated by the demands of servicing the debt incurred to fund the new stadium – as the club insists is the case.
Our analysis of the previous set of accounts remains apposite in terms of highlighting key elements of the structure of the club’s finances, however in light of our concern over pricing of season tickets at the new stadium we have decided to take a different tack with the 2016-17 accounts. Our interest is in seeing the extent to which the 2016-17 accounts can be used to predict the future financial position of the club and the extent to which new season ticket pricing is dictated by the demands of servicing the debt incurred to fund the new stadium – as the club insists is the case.
Firstly, a warning. The 2016-17 accounts are published at the last possible moment allowed by regulation and are consequently nine months out of date. Last season was the last at White Hart Lane, when the capacity was reduced to facilitate building work on the new stadium. Tottenham Hotspur played in the group stages of the Champions League (CL), dropping down for one round in the Europa League (EL), and also reached the FA Cup semi-finals. The season before the club had a full house for the Premier League (PL) and had an average run in the EL. Both PL seasons were one of the best the club has had since the 1960s. The club has not made available to us any of the results of its modelling of its finances once it is in situ at the new stadium and therefore any forward projection made by us is based on public information evidencing its performance over the last two years.
The 2016-17 accounts, as with the previous year, are provided for Tottenham Hotspur Limited (THL) both on a consolidated basis (i.e. incorporating all of its 14 subsidiary companies – which in turn may have further subsidiary companies) and on a sole basis (i.e. just for that company alone). The accounts do not include companies further up the chain, such as the ENIC group of companies and its affiliates, which, being based in the Bahamas, are not subject to the same level of scrutiny.
In summary, the 2016-17 accounts show THL making substantial progress on and off the field. Revenues increased by almost £100m due to CL participation and the first year of increased TV money, which allowed for a 25% increase in staff costs and accommodated a reduction in PL match receipts due to the reduced capacity at WHL. Top line revenues were as follows:
The 2016-17 accounts, as with the previous year, are provided for Tottenham Hotspur Limited (THL) both on a consolidated basis (i.e. incorporating all of its 14 subsidiary companies – which in turn may have further subsidiary companies) and on a sole basis (i.e. just for that company alone). The accounts do not include companies further up the chain, such as the ENIC group of companies and its affiliates, which, being based in the Bahamas, are not subject to the same level of scrutiny.
In summary, the 2016-17 accounts show THL making substantial progress on and off the field. Revenues increased by almost £100m due to CL participation and the first year of increased TV money, which allowed for a 25% increase in staff costs and accommodated a reduction in PL match receipts due to the reduced capacity at WHL. Top line revenues were as follows:
£m |
2015-16 |
2016-17 |
Match receipts |
£40.78 |
£45.34 |
of which PL |
£22.2 |
£19.0 |
UEFA prize |
£15.52 |
£38.42 |
TV/media |
£94.84 |
£149.76 |
Commercial |
£58.63 |
£72.81 |
- |
£209.77 |
£306.32 |
EBIT |
£42.65 |
£69.58 |
PPE Dep'n |
£6.42 |
£32.77 |
EBITDA |
£49.08 |
£102.36 |
Notably, while revenues increased by 46%, operating profit (Earnings Before Interest, Tax and Depreciation and Amortisation or EBITDA) increased by 109%, indicating that costs were kept under control, while depreciation kicked in as the new stadium progressed.
What could the revenues look like once the club is in the new stadium?
Let’s assume that 2016-17 is repeated at the new stadium. We keep all other revenue streams equal but only adjust PL receipts. These we double (30k capacity versus 62k at the new stadium) which gives us a new EBITDA of £121m - but now the stadium bank debt has to be repaid.
What could the revenues look like once the club is in the new stadium?
Let’s assume that 2016-17 is repeated at the new stadium. We keep all other revenue streams equal but only adjust PL receipts. These we double (30k capacity versus 62k at the new stadium) which gives us a new EBITDA of £121m - but now the stadium bank debt has to be repaid.
£m |
2015-16 |
2016-17 |
Projected |
Match receipts |
£40.78 |
£45.34 |
£64.34 |
of which PL |
£22.2 |
£19.0 |
£38.0 |
UEFA prize |
£15.52 |
£38.42 |
£38.42 |
TV/media |
£94.84 |
£149.76 |
£149.76 |
Commercial |
£58.63 |
£72.81 |
£72.81 |
- |
£209.77 |
£306.32 |
£352.32 |
EBIT |
£42.65 |
£69.58 |
£88.58 |
PPE Dep'n |
£6.42 |
£32.77 |
£32.77 |
EBITDA |
£49.08 |
£102.36 |
£121.36 |
We must therefore try to estimate future debt repayments. The first job is to calculate the interest rate on the club’s debt. This figure is not provided in the 2016-17 accounts but we can arrive at a reasonable figure by calculating the average debt outstanding by (bear with me here) adding together the club’s debt at the start of the year and the club’s debt at the end of the year, dividing by two and then dividing the result by the total interest paid at the end of the year. This gives us a result of 3.34%.
Debt o/s SOP |
£123.880 |
Debt o/s EOP |
£180.448 |
Interest |
£5.087 |
Implied IR |
3.34% |
This does not seem unreasonable and we would note is in line with our analysis of the previous year’s results.
Now we need to make some assumptions about the structure of THL’s debt position. At present THL’s main debt facility used to finance the new stadium is a £400m bullet, scheduled for repayment in 2022. A bullet is akin to an interest only mortgage in that debt service during the life of the loan is restricted to interest only until the principal debt amount becomes repayable at the maturity date. Debt service costs are consequently minimised but the repayment structure creates a refinancing risk in the event that replacement bank debt is not available at loan maturity. At the last meeting with the club’s board we were told they were already considering refinancing options but that the overall amount of debt might rise. Therefore, to be conservative, we have assumed that the debt will rise to £450m and that the club will switch to a project financing type structure (i.e. capital repayment in mortgage terms). Repayments in this case will obviously depend on the term of the loan so we have looked at terms from seven to fifteen years as follows:
Now we need to make some assumptions about the structure of THL’s debt position. At present THL’s main debt facility used to finance the new stadium is a £400m bullet, scheduled for repayment in 2022. A bullet is akin to an interest only mortgage in that debt service during the life of the loan is restricted to interest only until the principal debt amount becomes repayable at the maturity date. Debt service costs are consequently minimised but the repayment structure creates a refinancing risk in the event that replacement bank debt is not available at loan maturity. At the last meeting with the club’s board we were told they were already considering refinancing options but that the overall amount of debt might rise. Therefore, to be conservative, we have assumed that the debt will rise to £450m and that the club will switch to a project financing type structure (i.e. capital repayment in mortgage terms). Repayments in this case will obviously depend on the term of the loan so we have looked at terms from seven to fifteen years as follows:
Loan amount (£m) |
£450.00 |
- |
- |
- |
Tenor |
7 |
10 |
12 |
15 |
IR |
3.34% |
|||
Qtly payment |
£18.19 |
£13.38 |
£11.52 |
£9.67 |
Annual |
£72.76 |
£53.52 |
£46.08 |
£38.68 |
Seven years would be a short loan tenor in project finance terms but 10-12 would appear achievable particularly once construction risk is no longer an issue. Our calculations would therefore suggest that THL would have to bear an additional £46-54m in financing costs over the life of any loan compared with the projected £121m of EBITDA going forward, giving around £70m in ‘surplus’ profit.
Now to the vexed question of season ticket pricing at the new stadium. We do not have the detail to model accurately the seat revenues from the new pricing structure but we can apply a simple switch to determine the result of price reductions. We know that 42,000 season tickets are being sold and we can calculate the lost income if tickets are reduced by a certain amount.
Now to the vexed question of season ticket pricing at the new stadium. We do not have the detail to model accurately the seat revenues from the new pricing structure but we can apply a simple switch to determine the result of price reductions. We know that 42,000 season tickets are being sold and we can calculate the lost income if tickets are reduced by a certain amount.
Reduction by: |
42,000 |
£50 |
£2,100.000 |
£75 |
£3,150,000 |
£100 |
£4,200,000 |
£125 |
£5,250,000 |
£150 |
£6,300,000 |
£200 |
£8,400,000 |
These calculations would tend to suggest that pricing reductions could be comfortably accommodated by the additional anticipated profits from the new stadium (and remember our projections use old WHL prices).
In the interest of balance, we should note that our starting point, 2016-17, was a year in which the club participated in the CL. In the previous year, participating in the EL, UEFA prize money was £23m less. Without any UEFA participation the club would be £38m short and one can reasonably assume in either scenario that there will be a related impact on TV money. Player wages are bound to rise in line with our obvious competitors (and recent news reports suggest this process is already commencing) and there will be some increase in costs associated with operating a larger stadium. Any material deterioration in current performance risks substantially eating into the surplus that we are projecting.
We should also note that we have used EBITDA rather than Free Cash Flow (FCF). The latter, in summary, takes operational cash flow, adds back depreciation, and subtracts capital expenditure. EBITDA is a finance industry standard which is used as a proxy for cash flow in assessing corporate creditworthiness but FCF is a more precise indication used in project financing. Applying the latter to THL however is problematic due to the current phase of high capex associated with construction of the new stadium and the high and constant application of amortisation for THL’s intangible assets, otherwise known as its players. We have consequently reverted to EBITDA for our analysis.
On the other hand, we have not taken into account potential upsides from the new stadium. These include additional revenue from naming rights, income from its use for NFL and other events, the expected high value of corporate income and the increase in sales of merchandising and catering due to the higher capacity at the new stadium. We do not consider it unreasonable to expect these revenue streams to offset materially any downsides.
It would appear that THL’s banks too agree that there is some flexibility in its financing structure. The 2016-17 accounts show that directors’ remuneration has increased by £4m (equivalent to £100 off each season ticket in the new stadium) while Macon Inc, believed to be a vehicle for majority owner Joe Lewis, has redeemed £20m in preference shares. If the financing was as tight as we have occasionally been led to believe it’s hard to understand why banks would allow owners/managers to cash out in this way.
In short, our conclusion is that the recent publication of the 2016-17 accounts offers no evidence for the necessity for ticket price increases at the new stadium. We remain willing to engage constructively with the club board to either demonstrate that our analysis is flawed or to mitigate the negative effects of their decision to increase season ticket prices. In the meantime we will continue to press the case that season ticket price increases at the new stadium are an unnecessary and retrograde step that risks the unity of the Tottenham family.
Michael Green
THST Board
5 April 2018
In the interest of balance, we should note that our starting point, 2016-17, was a year in which the club participated in the CL. In the previous year, participating in the EL, UEFA prize money was £23m less. Without any UEFA participation the club would be £38m short and one can reasonably assume in either scenario that there will be a related impact on TV money. Player wages are bound to rise in line with our obvious competitors (and recent news reports suggest this process is already commencing) and there will be some increase in costs associated with operating a larger stadium. Any material deterioration in current performance risks substantially eating into the surplus that we are projecting.
We should also note that we have used EBITDA rather than Free Cash Flow (FCF). The latter, in summary, takes operational cash flow, adds back depreciation, and subtracts capital expenditure. EBITDA is a finance industry standard which is used as a proxy for cash flow in assessing corporate creditworthiness but FCF is a more precise indication used in project financing. Applying the latter to THL however is problematic due to the current phase of high capex associated with construction of the new stadium and the high and constant application of amortisation for THL’s intangible assets, otherwise known as its players. We have consequently reverted to EBITDA for our analysis.
On the other hand, we have not taken into account potential upsides from the new stadium. These include additional revenue from naming rights, income from its use for NFL and other events, the expected high value of corporate income and the increase in sales of merchandising and catering due to the higher capacity at the new stadium. We do not consider it unreasonable to expect these revenue streams to offset materially any downsides.
It would appear that THL’s banks too agree that there is some flexibility in its financing structure. The 2016-17 accounts show that directors’ remuneration has increased by £4m (equivalent to £100 off each season ticket in the new stadium) while Macon Inc, believed to be a vehicle for majority owner Joe Lewis, has redeemed £20m in preference shares. If the financing was as tight as we have occasionally been led to believe it’s hard to understand why banks would allow owners/managers to cash out in this way.
In short, our conclusion is that the recent publication of the 2016-17 accounts offers no evidence for the necessity for ticket price increases at the new stadium. We remain willing to engage constructively with the club board to either demonstrate that our analysis is flawed or to mitigate the negative effects of their decision to increase season ticket prices. In the meantime we will continue to press the case that season ticket price increases at the new stadium are an unnecessary and retrograde step that risks the unity of the Tottenham family.
Michael Green
THST Board
5 April 2018
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