Sorry I haven’t written for so long but a WHTID reader put in a special request for me to write an article on my specialist subject about West Ham finances so I was more than happy to oblige. With the talk of a summer transfer war chest of up to £70m and wages for one striker of £140,000 per week I thought I would re-visit the club finances in light of the move to the London Stadium and the new mega TV deal to give you all an update.
If you ask the West Ham board about the state of the finances of the club they will say the club is still over £100m in debt. While this is technically true, closer inspection will show that £60m of this debt is owed to the owners in shareholder loans and £41m owed to other clubs in staged transfer payments which the norm nowadays. A further £30m is a short term loan borrowed against future TV money to help with cash flow which is paid off and then refinanced each season almost like a bank draft.
The latest financial accounts published in March this year showed that the Hammers turnover increased by 17.7% to £142.1m and within that figure ticket sales for the last season at the Boleyn Ground rose to an impressive £26.9m. TV rights income two seasons ago grew to £86.7m for finishing seventh and commercial and sponsorship revenue was up by 31% to £19m while retail and merchandising sales grew by 29% to £9.3m.
The Boleyn Ground land was sold last year to developers for £38m with £15m going to pay off all external bank debts that were mortgaged against it and a further £15m going to stadium owners LLDC to contribute towards the £323m transition costs of the former Olympic Stadium. The remaining £8m was used for the WestHamification of the London Stadium including fitting out the club shop, the seats and the Claret and Blue branding so the Boleyn Ground stadium money has all been spent.
In my estimation, West Ham should publish a record turnover of around £197million when the financial accounts the year which finished on the 31st May this year are published early next year. The Hammers earned around £122m from the new 8 billion pound TV deal after finishing 11th in the Premier League last season. Each Premier League club received £85m but the Irons received £18m for having 15 games televised and a further £19m for finishing in 11th place.
On top of the TV money, ticket sales and match day activities at the London Stadium are expected to rise by £12m from the record £27m received from the last season at the Boleyn Ground to £39m at the London Stadium. Retail shop and commercial sponsorship income are also expected to increase by around 30% from £29m in 2015/2016 to £36m in 2016/2017 after the club megastore size doubled and more commercial sponsorship opportunities have arisen at the new stadium.
The sale of the Boleyn Ground Sale for £38m and outbound player sales of James Tomkins to Palace for £10m and Dimitri Payet to Marseille for £25m as considered capital sale of assets and therefore not factored in turnover figures.
So what does the financial future hold for the Hammers?
Probably the most controversial debt on the books are the shareholder loans. These are loans from Sullivan and Gold dating back to 2011 but they continue to attract accrued interest of between 6% and 7%. This debt grew to £61.5m up to May 2016 before the owners cashed out £4.2m. The remainder of the debt is not due to be paid back until 1st January 2020 but with compound interest, the remaining shareholder loans could reach around £71m in just under three years time meaning that around £75m could be paid back for £49m originally loaned to the club by the owners.
Board critics will point to previous statements that the owners said they would never draw a salary from the club and to be fair to them technically they haven’t. The owners would probably say themselves that they could earned far more than £26m in 9 years if they had invested their money in property and again they would probably be right about that too. The truth of the matter is, no bank would lend to us so they stepped in as a bank of last resort. Some people will have a problem with this but personally, I don’t.
In 2013 David Sullivan loaned the club £3.8m as he acted as a bank to refinance bank loans. Icelandic CH Holdings loaned the club £28.4m but a 12% hole in funding was plugged by Sullivan personally. Both loans were mortgaged against the Boleyn ground. This bank loans with 4% interest were paid back in instalments and were completely settled by July last year. Sullivan would have received around £450,000 in interest from his part of the bank loan.
Their next financial challenge for the club to self-finance their cash flow, for many years they have utilised payday loans from companies such as Vibrac, Mousehole and more recently JG Funding and Media Rights and Funding. This season the Premier League agreed to outlaw offshore lending by clubs. Media Rights and Funding is regulated by the FCA so doesn’t technically break the new rules even though it borrows the money from an offshore lender. Earlier this year it was reported that the funder of all these companies is West Ham fan, Michael Tabor but the days of this type of lending are probably numbered as loopholes are closed.
West Ham have been borrowing each year from these payday lenders since 2012. A total of £105.9m has been borrowed short-term over that period but with the last £30m due to be paid off by the club in direct payments from the Premier League of TV money by the end of this month. With an average of 7% interest, the club has paid out an estimated £7.5m in interest to these lenders over five years. (2012-2013 £12.8m 2013-2014 £15m 2014-2015 £18m 2015-2016 £30.1m 2016-2017 £30m)
Going forward I understand that the club hopes to use to extra revenue from TV and the London Stadium to rid themselves of these short-term loans with expensive interest in the near future to self-finance themselves and create a financially sustainable model of operation without the need of outside help or finance which seems very sensible.
So with an estimated turnover of £197m and the sale of assets worth £73m for last season up from £142m the previous season it could look like to casual eye that West Ham have an extra £128m to spend but I am afraid it doesn’t work like that. In reality, West Ham will have an extra £12m per year from ticket sales at the London Stadium and certainly have an extra £35m from TV money under the new deal. Retail and sponsorship should also grow by another £7m.
So what will they do with this extra £53m per year of income? Well up to £30m of it could well fund getting rid of the short term loan in just one year, the remaining £24m will most likely disappear quickly in transfer fees and wages is the honest but boring answer.
For example, if we signed Hernandez this summer on £140,000 per week he would take up £7.3m in wages on his own.
Well done if you have made it to the bottom of this article, I am happy to answer any finance related questions.
Sean COYI