The 20th annual financial review of Scottish Premier League football. Season 2007/08

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1 The 20th annual financial review of Scottish Premier League football Season 2007/08

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3 Contents Introduction 4 Profit and Loss 6 Balance Sheet 22 Cash Flow 30 Club Five-Year Review 36 Post Balance Sheet Events 44 Appendix 1: The Season That Was 2007/08 46 Appendix 2: What The Chairmen Thought 50 Appendix 3: Significant Transfer Activity 52 Appendix 4: The National Team 54 Appendix 5: January Transfer Activity 56

4 Introduction David Glen Welcome to the 20th annual PricewaterhouseCoopers financial review of Scottish Premier League (SPL) football finance. A record-breaking year? The eye-catching number from this year s report is the 23m profit generated by the SPL clubs. Not only is this a remarkable turnaround from a decade of losses but it stands as the largest profit ever recorded in SPL history. With the exception of Hearts, every club recorded a profit or was close to break-even, whilst eight clubs reduced their debts and two (Inverness and Falkirk) operated with no debt. This performance is testament to the action that has been taken across the sector to rein in costs and finally achieve a sustainable business model. Before we get too carried away however, there were also a number of significant, and perhaps oneoff, factors that occurred during this season: Hearts sale of Craig Gordon to Sunderland for 9m. St Mirren s sale of Love Street generating a gain of 9.2m. Rangers sale of Alan Hutton to Tottenham Hotspur for 9m. Having said that, the underlying operating profit for the SPL showed a creditable growth from 7m to 10m, driven by the success of SPL clubs on the European stage. Other financial highlights include: Combined turnover increased by an impressive 15% from 170m to 196m. Aberdeen and Rangers were the main drivers of this rise, posting increases of 71% and 54% respectively. Total wage costs increased by 16% from 96m to 112m. This was largely impacted by the successful European campaigns of Aberdeen and Rangers, and the resulting increase in wages and bonuses arising from the additional games played. The wage to turnover ratio has remained constant at 57%. However Inverness and St Mirren have edged past the recommended sustainable ratio of 60% during the year, whilst Hearts ratio remains in excess of 120% for the second successive season. Combined gains on player sales increased from 19m in 2007 to 29m in In addition to those already mentioned, significant gains were made by Hibernian and Kilmarnock from their respective sales of Steven Whittaker and Steven Naismith, both to Rangers. Total SPL net debt reduced 8% in the year to 88m. Rangers was the only club to increase its net debt, whilst Hearts benefited from a 12m debt-for-equity swap undertaken during the period. The four most leveraged clubs, Aberdeen, Hearts, Kilmarnock and Rangers now constitute 83% of the total net debt (2007: 73%). PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Introduction. 4

5 Credit before the crunch? A record profit is not to be knocked, however it was generated, but it may flatter to deceive, particularly in the current economic environment. The world economy is in recession and Scottish football is not immune from the financial fallout, and the first signs of which were apparent during the last season with reductions in corporate hospitality and sponsorship. We will be keeping a close eye on this year s season ticket sales to see to what extent the clubs supporters are tightening their belts. On top of all of this, at the time of writing, there are signs that the television rights contract with Setanta may be under threat, with Setanta having defaulted on its final payment for season 2008/09. The current Setanta contract is worth c 13m per season to the SPL, or close to 1m per club. For the smaller clubs this can represent 20-30% of their income; moreover they were looking forward to this revenue more than doubling to c 31m per season under the terms of the new contract which extended Setanta s rights to Combined turnover increased by an impressive 15% from 170m to 196m Should Setanta not be able to fulfil its contract, it will be imperative that the SPL move as quickly as possible to secure an alternative broadcaster, as a number of the clubs may struggle to survive without this income. Whatever happens on this front we can expect a close season with most clubs reducing their squad sizes and proceeding with extreme caution in the transfer market. Cutting costs is the only way to go in this fragile financial world as the banks are no longer there to plug the gap as they have in the past. the largest profit ever recorded in SPL history The fans aren t going to like it but, unless someone develops a technique for the agricultural cultivation of money, that is how life is going to be for the foreseeable future. And let s not forget Gretna Gretna s rise to the higher echelons of Scottish Football eventually came at a price with the club being dissolved at the end of the 2007/08 season. Principally its rapid growth, lack of a core fan base and reliance on its owner Brooks Mileson s continued financial support meant that when the latter was withdrawn the club was unable to survive. Gretna s progress from the Third Division to SPL within six years was phenomenal and even encompassed a Scottish Cup Final in addition to an appearance in the UEFA Cup. However, on the back of this success, the reality was that at the other end of the spectrum the club also managed to break the SPL s low attendance record on 5 April 2008 at a game against Inverness, when just 431 turned up. Gretna s games against the Old Firm didn t capture the public s imagination either with the average attendance being just short of 2,300 over the course of the season. These gate receipts effectively only covered the much quoted 25k the club was paying to stage home games at a ground 70 miles away from its Raydale home, whilst paying the playing and backroom staff was funded by the Setanta income, and any shortfall met by the owner. In this sense it is easy to understand that this was never going to be a profitable arrangement, and when the main contributor withdrew his support, the club was unable to stand on its own feet. Thanks Thanks once again to my Sports Unit for helping me compile this report, in particular David Auld and Stuart MacDougall. David Glen, June PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Introduction

6 Profit and Loss Overview In contrast to the current financial climate 2007/08, the 111th season of competitive Scottish football, turned out to be the most financially successful season ever with the SPL yielding a cumulative profit for the third consecutive season. These results emanated from the tremendous financial results posted by the Old and New Firms respectively, and with St Mirren contributing the greatest pre-tax profit ( 10m) following the sale of its Love Street stadium. Scottish football, with the notable exception of Gretna, is beginning to look robust, making the SPL more competitive. This is due to the hard work and prudent decisions made in earlier years now creating a more sustainable financial position. However, at the time of writing, a dark shadow is cast over the SPL with Setanta, its television broadcast partner, in apparent financial difficulty combined with the general financial malaise associated with the current global economic downturn. The SPL member clubs were hoping to benefit from an extended four year contract with Setanta worth 125m. However, this is dwarfed by the 2.7bn English Premiership clubs will receive from 2007 to Each English top flight club receives an average media income from league games of 45m per annum, whereas the combined media income for SPL clubs totals just over 31m per annum. Further putting this deal into perspective, the BBC retained the rights to show highlights only of the English Premiership for the same three seasons (on Match of the Day) for 171.6m. Should Setanta be unable to fulfil its financial obligations, it will be imperative that the SPL find other media partners as soon as possible. For some clubs the income from the Setanta contract represents up to 30% of their total income. Without this income drastic cost reductions will be required and some clubs might not be able to survive this process. The 111th season of competitive Scottish football turned out to be the most financially successful season ever PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Profit and Loss. 6

7 Historic profit/(loss) analysis 25,000k 20,000k 15,000k 10,000k 5,000k 0 ( 5,000k) ( 10,000k) ( 15,000k) ( 20,000k) ( 25,000k) ( 30,000k) ( 35,000k) ( 40,000k) ( 45,000k) ( 50,000k) ( 55,000k) Old Firm profits/(losses) Other profits/(losses) Total SPL profits/(losses) ( 60,000k) ( 65,000k) PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football..profit and Loss

8 Overview continued The SPL clubs combined profit and loss account Movement m m % Turnover Wages (112) (97) 15 Other operating expenses (75) (67) 12 Operating profit before player registrations Amortisation of player registrations (16) (12) 33 Impairment on player registrations (3) (3) 20 Net gain/(loss) on player registrations Operating profit Gain/(loss) on tangible fixed assets 9 (0) (2753) Exceptional items 2 (1) (282) Net interest cost (7) (7) 4 Profit before tax Taxation (0) 0 (938) Profit after tax Source: Statutory Accounts PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Profit and Loss. 8

9 The financial results of the SPL clubs have been obtained from their Statutory Accounts for the year ending The key financial highlights of season 2007/08 were as follows: Turnover increased by a convincing 15% to 196m (2007: 170m). The Old Firm had mixed results with Celtic s turnover decreasing from its previous record breaking campaign to 73m (2007: 75.2m). Rangers witnessed a 54% increase in revenue to 64.5m as a result of its successful European and domestic cup campaigns. The Ibrox club played an exhausting 68 games over the course of the season, a Scottish record. This recordbreaking season with regards to both turnover and bottom line profits is notable considering that this was the second season to incorporate the club s licensing deal with JJB Sports. As part of this deal the club no longer operates retail stores, and so loses out on a significant amount of merchandising income, which was disclosed as 17.2m in the previous season, as discontinued operations. Further success was noted at Aberdeen with an exceptional turnover increase of 71%, buoyed by semi-final appearances in both domestic cups, a fourth place finish in the SPL and qualifying from the group stages of the UEFA Cup. Total wages increased by 16% to 112m (2007: 97m), with the majority of it being attributable to Rangers 10.1m rise in staff costs following its domestic and European run and the bonus payments which resulted from this. Amortisation cost of player registrations increased by 4m to 16m, with 12.6m of this cost assigned to the Old Firm (2007: 9.6m). One third of the gain on sale of player registration related to the departure of Craig Gordon from Hearts a gain of 10m. In addition, the sale of Alan Hutton to Tottenham Hotspur contributed a further 9m to the total SPL gain of 29m. Internally within the SPL, other notable sales were that of Steven Naismith from Kilmarnock to Rangers and Barry Robson from Dundee United to Celtic, for 1.9m and 1.3m respectively. Total net interest costs remained stable at 7m (2007: 7m). Further success was noted at Aberdeen with an exceptional turnover increase of 71% 9 PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football..profit and Loss

10 Turnover The total turnover of the SPL increased by 15% to 196m in season 2007/08 (2007: 170m). Despite this increase, only six of the twelve member clubs managed to increase their turnover during the year. The principal factors driving this total increase were the European successes of Aberdeen and Rangers, which led to both clubs posting record-breaking top line figures. Turnover By Club Movement % Movement% Aberdeen 12,869 7, Celtic 72,953 75,237 (3) 31 Dundee United 5,845 4, (3) Falkirk 4,505 4, Gretna Heart of Midlothian 9,161 10,319 (11) 0 Hibernian 8,053 9,847 (18) 13 Inverness CT 2,377 2,877 (17) 5 Kilmarnock 8,664 8, Motherwell 4,653 3, Rangers 64,452 41, (32) St Mirren 2,956 2, Total 196, , Source: Statutory Accounts PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Profit and Loss 10

11 Aberdeen The 2007/08 season was the most successful trading year in the club s history. The significantly improved financial figures were a consequence of the additional commercial opportunities from its UEFA Cup run. Gate receipts rose 61%, primarily due to the European run, although reaching both the domestic semifinals also helped. Sponsorship and advertising revenue rose 55% on the back of selling the overseas rights to the European games. Celtic Total revenue fell 3% from 75.2m to 73m principally due to a reduction in merchandising sales following the club s decision to keep the same playing kit as the previous season. In line with the prior season these strong results a were a reflection of the significance of participation in the higher echelons of European football in addition to the club s vast global commercial appeal. On the field Celtic won the SPL on the last day of the season after the title race went down to the wire, while on the European front the club progressed to the last 16 of the UEFA Champions League for the second successive season. Dundee United 2007/08 was the first full season with Craig Levein at the helm and it proved to be one of the most successful seasons in recent times, both on and off the park. The Tannadice club managed a top six finish in the SPL, progression to the fifth round of the Scottish Cup, and was runners up in the League Cup, in what would prove to be a fitting last full season for Eddie Thompson. Financially this compares favourably with the clubs previous season s ninth placed league finish and early cup exits, and resulted in revenues rising a very creditable 46% to 5.8m (2007: 4m). This means the club is on a better financial footing now than when Thompson first acquired it in 2002, which is testament to his dogged determination to carry out his responsibilities at Tannadice for as long as possible. Revenue was also boosted as a result of improving the product on the pitch stadium utilisation increased to 58% (2007: 50%) as average attendances increased by 1,145 spectators per home game. Falkirk In its fourth consecutive season in the SPL Falkirk once again managed an increase in turnover, witnessing a 8% rise to 4.5m. This followed another seventh placed finish to the season, although narrowly missing out on a top six place following defeat to Aberdeen in the last game of the third quarter of the league. Although revenue from season tickets and gate receipts was comparable to the prior year, the increase in revenue was achieved through the continued support from sponsors and advertisers. Gretna Gretna s debut season was blighted by financial difficulty as the club entered administration and subsequently no financial information was available for both the 2007 and 2008 seasons. 11 PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Profit and Loss

12 Turnover continued Gretna s rise to the higher echelons of Scottish Football eventually came at a price with the club being dissolved at the end of the 2007/08 season. Principally its rapid growth, lack of core fan base and reliance on its owner Brooks Mileson s continued financial support, meant that when the latter was withdrawn the club was unable to survive. Gretna s progress from the Third Division to SPL within six years was phenomenal and even encompassed a Scottish Cup Final in addition to an appearance in the UEFA Cup. However, even on the back of this success, the reality was that at the other end of the spectrum the club also managed to break the SPL's low attendance record on 5 April 2008 at a game against Inverness, when just 431 turned up. Gretna s games against the Old Firm didn t capture the public s imagination either with the average attendance being just short of 2,300 over the course of the season. These gate receipts effectively only covered the much quoted 25k the club was paying to stage home games at a ground 70 miles away from its Raydale home, whilst paying the playing and backroom staff was funded by the Setanta income, and any shortfall met by the owner. In this sense it is easy to understand that this was never going to be a profitable arrangement, and when the main contributor withdrew his support, the club was unable to stand on its own feet. Heart of Midlothian Turnover for the period fell 11% to 9.2m (2007: 10.3m) due to the club s eighth-placed domestic league finish and the associated negative repercussions arising from this. In addition, the club s early exit from the Tennents Scottish Cup also directly affected retail and ticket sales, contributing to the drop in its top line. The prior year s turnover was inflated by a lucrative pre-season friendly against Barcelona, which a record crowd of 57,857 attended. Hibernian After two seasons of successive growth, Hibs turnover decreased by 18% ( 1.8m) in the year to 8.1m, due to early exits from both domestic cup competitions and no European involvement. This was in stark contrast to the previous season when the club won the CIS Insurance Cup under the stewardship of John Collins. Despite announcing a modern day record for the number of season tickets sold, this failed to offset the financial ramifications of the poor on-field performance. Inverness Caledonian Thistle As Inverness Caledonian Thistle filed abbreviated accounts in the current year, no information regarding turnover was available. PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Profit and Loss 12

13 Kilmarnock An extremely disappointing season on the pitch inversely correlated with improved financial results off it. Kilmarnock finished the campaign in 11th place, which was in stark contrast to 2006/07 where it managed a very creditable fifth place finish in addition to supplemental revenues earned from reaching a domestic cup final. This disappointing season was alleviated somewhat by the 2m profit on player transfers yielded during the period (2007: 25k), a major contributing factor to the club s financial results. Overall, turnover was up 0.5m to 8.6m (2007: 8.1m). Motherwell The 2007/08 season was one of mixed emotions for Motherwell following the tragic death of its captain Phil O Donnell, whilst managing to obtain the club s highest league finish in the SPL, closing out the year in third place behind the Old Firm (2006/07: tenth). Principally as a result of the club s vastly improved league position, turnover increased by 0.97m to 4.65m (2007: 3.68m) following a marked improvement in gate receipts due to this top six finish. Furthermore, the top line was enhanced via the ground sharing agreement with Gretna. Rangers Season 2007/08 was Rangers first full season under the management team of Walter Smith, Ally McCoist and Kenny McDowell. The team delivered trophies and exceeded all fans expectations by reaching the UEFA Cup Final, winning both domestic cups and whilst taking the title race to the last day of the season. Overall, turnover increased by an incredible 54% to 64.4m, beating the previous record of 61m achieved in the 2005/06 season. Not only was the team successful in these four tournaments, but it also participated in the lucrative Champions League for the first time in three seasons and this alone meant a substantial increase in sponsorship and advertising revenue of 8.1m. It highlights the importance of The total turnover of the SPL increased by 15% to 196m in season 2007/08 participation in this competition, whilst reaching the club s first European Final in 36 years resulted in a further 3m within this revenue stream. This is even more impressive considering that 17.2m of the previous record high turnover was attributable to the discontinued operations prior to the JJB licensing agreement being initiated. Gross retail sales have now been replaced within turnover as net royalty income. Rangers season was dominated by these European performances and fixture congestion which resulted in 68 games being played, 17 more than in the previous season and 14 more than the next Scottish club. This directly resulted in income from gate receipts and hospitality increasing by 10m to 35.9m, one of the main drivers in improved revenue. St Mirren A second successive season in the SPL saw the club maintaining, almost to the pound, its record-breaking turnover levels from the prior year despite the club experiencing the effects of second-season syndrome in the 2007/08 SPL campaign. Interest in the Paisley club was reignited on the back of promotion to the top flight. However, one year on and the fan interest dwindled with a 19% drop in average attendances. 13 PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Profit and Loss

14 Attendance level The SPL attracted slightly lower crowds during the 2007/08 season with average attendance figures down 3% from the prior season to 184,297. Two thirds of the SPL teams experienced a decrease in attendance levels with the largest absolute fall of 2,636 per match attributable to Hearts. Celtic and Kilmarnock also noted falls in attendance numbers, down 1,251 and 1,375 respectively. Bucking this trend, Dundee United and Motherwell posted improved numbers due to a top six finish for the former, while the tragic death of Phil O Donnell attracted greater numbers through the gates for the latter. A more significant impact on the overall level, however, was Gretna with its relatively poor supporter base as compared with the 6,000 average of Dunfermline whom they replaced in the SPL. Total stadium utilisation remained constant at 75% in the year, and similarly 33% of SPL stadia remained half as empty as the prior year. Note that utilisation figures are based on average attendance as a proportion of stadium capacity. Acknowledging the financial climate, Rangers froze the price of season tickets for adults and concessions, whilst juvenile tickets were reduced by one third leading to the sale of 2,500 more season tickets than the same period the year before. Average Attendance by Club Average Attendance 2008 Average Attendance 2007 Utilisation 2007/08 % Utilisation 2006/07 % Aberdeen 11,994 12, Celtic 56,676 57, Dundee United 8,291 7, Falkirk 5,568 5, Gretna 2,288 1, Heart of Midlothian 14,253 16, Hibernian 14,004 14, Inverness CT 4,753 4, Kilmarnock 6,181 7, Motherwell 6,599 5, Rangers 49,143 49, St Mirren 4,547 5, Totals 184, , Source: Scotprem.com PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Profit and Loss. 14

15 Wage Level Wage to Turnover Ratio Analysis Total Wages Total Turnover Wages/Turnover Ratio Movement Movement % % % % Aberdeen 5,931 5, ,869 7, Celtic 38,981 36, ,953 75,237 (3) Dundee United 3,338 2, ,845 4, Falkirk 2,630 2, ,505 4, Gretna Heart of Midlothian 11,319 12,488 (9) 9,161 10,319 (11) Hibernian 4,591 4, ,053 9,847 (18) Inverness Caledonian Thistle 1,484 1, ,377 2,877 (17) Kilmarnock 3,764 3,899 (3) 8,664 8, Motherwell 3,412 2, ,653 3, Rangers 34,339 24, ,452 41, St Mirren 2,202 1, ,956 2, Total 111,991 96, , , Source: Statutory Accounts Aberdeen The wage bill at Aberdeen increased significantly during the year by 15% to 5.9m (2007: 5.2m) and this followed a 20% rise from This arose partly from an increase in the base wage level but mainly as a consequence of the bonuses paid out to staff as a result of the European run. However, despite the increase in gross wages, the wages to turnover ratio is now at a far more sustainable 46% (2007:69%). This was assisted by Aberdeen s drive to keep the playing squad at a static level to the prior season despite having to play additional matches. Celtic Once again Celtic continued to carry the heaviest wage burden in the SPL. At 39m the employee costs for 2008 were 14% higher than their Old Firm rivals, partly due to having greater numbers of players in the high earning bracket. This increase in wage costs, coupled with the fall in turnover, led to an increase in the wage to turnover ratio to 53%, which is still comfortably below the recommended sustainable ratio of 60%. Dundee United With improved performances on the pitch, Dundee United s year-on-year wage costs soared by 29% ( 0.8m) as Craig Levein brought in several new faces financed by the departure of Barry Robson to Celtic, whilst the club s Hampden appearance and top six finish brought with it additional bonus payments to the first team squad. This is in contrast to recent seasons where the club s stated strategy has been to reduce the wage bill by disposing of the higher earning players. However, on the back of the improved top line financials, United has been able to operate at a more sustainable wage to turnover ratio, which has fallen from 64% to 57%. 15 PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football..profit and Loss

16 Wage Level continued Falkirk Falkirk s seventh placed finish for the second successive year meant wage costs remained fairly stable as the club maintained its prior season investment in the first team squad. Total wages rose 14% to 2.6m (2007: 2.3m); however this was offset by the improved turnover leading to a healthy wage to turnover ratio of 58% (2007: 55%). Gretna No information was available. Heart of Midlothian Although the Gorgie club managed to reduce its total wage bill by 1.2m in the year to 9.1m, this was offset by a fall in turnover, leading to a wage to turnover ratio in excess of 120% for the second successive season. This represents a significant increase from the pre-romanov era, when the wage bill was c 4.5m, partly arising from Hearts having one of the largest playing squads in the SPL. Wage costs spiralled during the year Hibernian A significant 13% increase ( 0.5m) in staff costs was felt by the club. This, coupled with the fall in revenue, resulted in a sharp increase in the wage to turnover ratio to 57%. This is in stark contrast to the 2007 season when Hibs operated at the most sustainable wage to turnover ratio in the SPL at 41%. Inverness Caledonian Thistle As Inverness Caledonian Thistle produced abbreviated accounts in the current year no information in regard to wage costs was available. Kilmarnock Kilmarnock had a negligible 3% reduction in wages to 3.8m (2007: 3.9m), although there was an increase in the number of backroom support staff. Total headcount at the club increased by six during the year on the back of investment in sports science. However, the club s poor performance on the park resulted in fewer bonuses payable, compared with the prior year s run to a domestic cup final coupled with a top six finish. The subsequent net effect means Kilmarnock achieves the top spot in terms of the wage to turnover criterion at 43%. PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Profit and Loss. 16

17 Motherwell Motherwell s wage to turnover ratio was negatively impacted by its increase in wages failing to be offset by a proportional increase in turnover. The current year ratio of 73% is up from 64% in the prior year. This is a departure from the recommended sustainable level of 60% that the club was heading towards following concerted efforts to reduce the wage bill in prior years. Rangers There has been continual pressure on the management team to reduce the wage bill and run a more sustainable business. However, net operating expenses increased 13.7m due to the 42% increase in wage costs, together with costs associated with European competition. Higher base remuneration costs were incurred to strengthen the squad, whilst bonusrelated payments were earned based on both European and domestic success. The ratio of total wages to turnover was 53% against 58% in the prior season, which compares favourably with the average of 63% for the English Premiership 2006/07 season. St Mirren Wage costs spiralled during the year and the reasons for this were threefold. Due to the success of the previous season the club had to compete with other clubs when renegotiating the contracts of many first team players on short-term deals. Add to this bonus payments for securing SPL survival and the increased playing squad for the club s assault on a second SPL season, and St Mirren s wage to turnover ratio soared by 15 percentage points to 74%. (2007: 59%). The subsequent net effect means Kilmarnock achieves the top spot in terms of the wage to turnover criterion at 43% 17 PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Profit and Loss

18 Player Registration Fees The costs associated with the amortisation of player transfer fees have similarly risen 36% to 16.4m (2007: 11.5m), on the back of an overall increase in transfer market activity for the Old Firm. Celtic s amortisation charge of 5.6m compares favourably with the prior season ( 5.86m), reflecting the continued investment in the playing squad. This spend is mainly a result of the charge for players acquired during the year including, Scott McDonald, Andreas Hinkel and Barry Robson, offset by elimination of the charge in respect to players who left following the end of the 2006/07 season. Rangers amortisation on player registrations increased to 7m from 3.8m, with a total of 18m worth of additions made in the year in order to improve the composition of the playing squad. The gain on disposal of player registrations of 7.7m largely comprises the sale of Alan Hutton, which enhanced the profit before interest and tax to 8.3m, a dramatic turnaround of 13.3m from the previous season and the best performance for many years. After doubling their charge over the prior three years, Hearts charge for the year almost doubled again to 2.8m (2007: 1.9m), principally due to its persistent transfer market activity. The gain on sale of player transfers increased dramatically from 18.8m in the prior year to 28.8m, a rise of 53%. Notable gains were made by Celtic, Hearts and Rangers, these being 5.7m, 10.0m and 7.7m respectively. Celtic s gain was derived from the sales of Kenny Miller, Craig Beattie and Jiri Jarosik. Hearts benefited from the record sale of Craig Gordon to Sunderland, whilst Rangers generated a similar gain from the sale of Alan Hutton to Spurs. This demonstrates the purchasing power of the entire English league, compared with the top SPL clubs, on the back of their lucrative TV contract it is no longer only the elite clubs which can attract the very best of Scottish talent. PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Profit and Loss. 18

19 Profit/Loss Before Tax The SPL (excluding Gretna) generated an overall profit for the second season in a row of 23.4m (2007: 2.6m). This is only the second time that the member clubs have yielded a combined real profit since Only three SPL clubs adversely impacted this profit during the year by generating losses, thus displaying a prudent approach during these turbulent financial times. This is in stark contrast to the free-spending days at the turn of the century, where the combined SPL was producing total losses approaching 65m. Aberdeen Aberdeen managed to turn around the previous season s loss of 0.4m to a respectable profit of 1.5m. This operational improvement was brought about by its playing success on the park both domestically and in Europe. Following these impressive results, the Managing Director Duncan Fraser authorised early repayment of its outstanding bank debt, which was due to be repaid during the period from July 2008 to March Following this, the net bank debt position at 30 July 2008 was 6.5m. Celtic For the fourth successive season, Celtic continued to lead by example in the club s ability to combine onfield success with stellar financial results. The Parkhead outfit once again generated an operating profit and nearly managed to preserve its record levels of turnover achieved during the previous season. Moreover the net gains made on the sale of players enabled the club to convert this into a secure bottom line profit before tax of 4.4m. Although down substantially from the previous campaign, this profit is indicative of the club s solid financial core and worldwide commercial appeal. Dundee United Like their New Firm rivals, Dundee United operated at a profit for the first time in recent memory due to the club s top six finish coupled with its appearance in the Hampden showpiece League Cup Final. This profit of 0.5m was a 1m turnaround from the previous year s loss. Furthermore, player sales, namely Barry Robson s move to Celtic, contributed almost 0.9m to the bottom line. This was an encouraging season for the club and highlights the importance of a continued top six involvement, as turnover and operating costs were directly influenced by the performance of the club in this competition. Falkirk A fourth SPL campaign for Falkirk saw the club slide into the red for the first time in three years. A loss of 107k was incurred during the year compared with a 150k profit from the prior season. This was attributable to increased costs from continued investment in the youth academy, the running costs of the new pavilion at Stirling University and escalating match day costs due to the necessity to meet new regulatory demands. Going forward, the club s reliance on sponsorship income from the building industry may significantly impact its results as these firms struggle in the current economic climate, and they scale back their financial support for the club. Gretna No information was available. Heart of Midlothian Hearts reported positive progress, taking strides towards its mid-to long-term strategy of returning to profitability. Pre-tax losses reduced by 73% to 3.5m (2007: 12.5m) mainly arising from the sales of Craig Gordon ( 10m) and Roman Bednar ( 2m) to Premiership sides Sunderland and West Bromwich Albion respectively. Furthermore, a 10% reduction in employment costs and improved operational efficiencies led to a further 2.5m saving on the previous year. Going forward, it is the directors intentions to redevelop Tynecastle stadium and with this they believe the company will return to profitability and derive positive cash flows in the longer term. Hibernian The club traded at a bottom line profit of 1.2m (2007: 7.4m), making it the fourth consecutive year of bottom line profitable trading. However, unlike each of the previous three years, 19 PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Profit and Loss

20 Profit/Loss Before Tax continued the club traded at an operating loss. This was principally due to the club s disappointing sixth-placed finish, resulting in a fall in turnover and with more than half of the SPL s central revenues being distributed to clubs based on their final league position, the club s income was affected accordingly. Once again the Easter Road outfit was dependent on player sales to generate income to cover annual expenditure, with the sales of Steven Whittaker to Rangers and David Murphy to Birmingham yielding a cumulative gain of 3.5m, which kept the club in the black. Inverness Caledonian Thistle In its fourth season in the SPL, Inverness Caledonian Thistle witnessed a 700k drop in the bottom line, generating a loss of 0.4m (2007: 0.3m profit). This followed reduced participation in cup competitions, which consequently resulted in three fewer home games and reduced gate receipts from the prior season. The gain on the sale of the Romanian international Marius Niculae (circa 100k) prevented the club from incurring even higher losses. Kilmarnock The Ayrshire club managed to produce a third consecutive profit before tax of 1.6m (2007: 52k). However this profit was a result of the sale of Steven Naismith to Rangers, in addition to a 0.5m profit generated on the disposal of land. Stripping out these non-recurring one-off gains, the club would have posted a significant loss. Motherwell Motherwell remained in the black for the fifth consecutive year, generating an impressive 0.4m profit from a practically break-even position in the prior year. This increase in profit was principally due to the net gain on disposal of player registrations, which offset the costs of significant pitch repairs. Rangers 2007/08 was the second year incorporating the impact of Rangers licensing deal with JJB Sports and, following the emphatic season on the pitch, Rangers may feel that the reduced retail sales were a missed opportunity due to the fact that in the region of 150,000 fans descended on Manchester, whilst back in Glasgow the retail outlets were unable to meet the demand for replica strips. Within the 2005/06 accounts, the retail outlets were disclosed as a discontinued operation and culminated in 5.2m operating profit, whereas this season the bottom line with regards to the JJB royalty payments totalled 3.2m. Overall the 13.3m rise in pretax profits to 7.2m reflects the remarkable year for the Ibrox club, overturning a pre-tax loss of 5m on the previous 12 months. This improved profitability is attributable to the club s participation in the Champions League group stages and run to the UEFA Cup Final. These results underpin the necessity for Rangers to qualify for Europe every season to meet the overheads that PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Profit and Loss. 20

21 Net profit/(loss) before tax by club Movement % Aberdeen 1,475 (433) (441) Celtic 4,435 15,040 (71) Dundee United 834 (989) (184) Falkirk (107) 147 (173) Gretna Heart of Midlothian (3,530) (12,933) (73) Hibernian 1,185 7,418 (84) Inverness Caledonian Thistle (432) 278 (255) Kilmarnock 1, Motherwell Rangers 6,567 (6,310) (204) St Mirren 10, Total 23,355 2, Source: Statutory Accounts exist to run a club of this magnitude. Again this demonstrates the significance of Champions League football to the Old Firm s financial health, and the adverse effect of lost merchandising revenue. the bottom line profit matches that of the Old Firm combined [St Mirren] St Mirren The gain on the sale of their Love Street ground to Tesco ( 9.2m) resulted in St Mirren taking the mantle as most profitable team in the SPL ( 11.0m) from a marginal break-even position in the prior year. Another remarkable statistic is that the bottom line profit matches that of the Old Firm combined, which is testament to Stewart Gilmour s extremely prudent handling of the club s affairs over the course of his tenure. This impressive stewardship bodes well for the longterm future of the club, particularly in light of the turbulent economic conditions experienced by all member clubs at present. 21 PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Profit and Loss

22 Balance Sheet Overview The total net assets of the SPL clubs at the end of season 2007/08 were 141.8m, up 34% from the prior year (2007: 106m). The current year increase is positively skewed by exceptional transactions such as Hearts 12m debt for equity swap and the 10m gain made by St Mirren on the sale of Love Street. The SPL clubs combined balance sheet Total Total Movement % Fixed Assets Investments 2,868 2,868 0 Intangible assets 36,369 28, Tangible assets 264, ,622 (1) Total Fixed Assets 303, ,945 2 Current Assets Stocks 3,404 4,232 (20) Debtors 41,777 23, Cash at bank and in hand 22,119 26,791 (17) Total Current Assets 67,300 54, Creditors: due within one year (107,318) (117,758) (9) Net current assets (40,018) (63,662) (37) Total Assets Less Current Liabilities 263, , Creditors: due > 1 year (121,499) (128,259) (5) Net Assets/Liabilities 141, , Capital and reserves Called-up share capital 48,846 44, Share premium account 154, ,251 6 Rangers bond 7,736 7,736 0 Revaluation reserve 92,109 92,648 (1) Capital redemption reserve 2,766 2, Other reserves 30,829 30,829 0 Profit and loss account (195,390) (218,218) (10) Total 141, , PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Balance Sheet. 22

23 Key balance sheet highlights: Intangible assets increased 25% to 36.4m in the year due to continued investment by Rangers in its playing squad. Tangible fixed assets witnessed a negligible 1% decrease, with the most significant transactions during the year being St Mirren s sale of Love Street partly offset by Hibs opening its new 6m training centre in East Lothian. Nine clubs in the SPL improved their net asset position in the year, with the most notable increases at Hearts, Rangers and St Mirren as outlined above. Net debt reduced by 8% to 88m (2007: 95.7m). Hearts principally contributed to this decrease in net debt following its 12m debt for equity swap. Other notable reductions came from Aberdeen and Celtic, with the latter continuing the trend spearheaded by Chief Executive Peter Lawwell of gradually eating away at its net debt balance and heading towards a zero debt position. Nine clubs in the SPL improved their net asset position in the year Net assets/(liabilities) per club Movement Aberdeen 4,055 2,948 1,107 Celtic 41,241 36,729 4,512 Dundee United (3,036) (4,003) 967 Falkirk 3,375 3,480 (105) Gretna Heart of Midlothian (15,385) (24,891) 9,506 Hibernian 14,677 12,375 2,302 Inverness CT 1,013 1,141 (128) Kilmarnock 4,888 3,394 1,494 Motherwell 1,697 1, Rangers 79,208 71,902 7,306 St Mirren 10,105 1,613 8,492 Total 141, ,001 35, PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Balance Sheet

24 Net Debt Source of Borrowings 2008 Borrowings due < 1 year 000 Club External Connected Aberdeen Celtic (154) Dundee United - (192) Falkirk 0 - Gretna Heart of Midlothian (3,000) (9,915) Hibernian (490) Inverness Caledonian Thistle - - Kilmarnock (78) - Motherwell Rangers (1,450) St Mirren - (138) Total (4,528) (10,889) 2008% % 5 17 Source: Statutory Accounts PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Balance Sheet 24

25 Borrowings due > 1 year 000 External Connected HP/Finance Leases Total Borrowing Overdraft/(Cash) balance Net Debt (10,508) (2,300) (192) (13,000) 3,598 (9,402) (15,027) (15,181) 8,475 (6,706) (5,500) - (71) (5,763) (92) (5,855) (14,600) (27,515) (2,985) (30,500) (6,260) - (32) (6,782) 3,931 (2,851) (8,085) - (55) (8,218) (3,206) (11,424) (954) (5) (959) 528 (431) (20,500) (4,199) (26,149) 4,590 (21,559) - - (10) (148) (105) (253) (80,480) (3,254) (4,564) (103,715) 15,671 (88,044) (18) (16) PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Balance Sheet

26 Net Debt continued Analysis of combined SPL net debt Cash at bank and in hand Movement % 22,119 26,791 (17) Bank overdraft (6,446) (7,117) (9) 2008 % of total debt 2007 % of total debt Net cash/(overdraft) 15,673 19,674 (20) (18) (21) Borrowings due within one year Borrowings due in more than one year Amounts owed under hire purchase (15,417) (21,941) (30) (83,734) (88,703) (6) (4,564) (4,696) (3) 5 5 Net debt (88,042) (95,666) (8) Net Debt by Club 2008 Net Debt Net Debt Movement Movement % Aberdeen (9,402) (11,458) 2,056 (18) Celtic (6,706) (9,165) 2,459 (27) Dundee United (5,855) (7,283) 1,428 (20) Falkirk (408) (42) Gretna N/A Heart of Midlothian (30,500) (36,268) 5,768 (16) Hibernian (2,851) (2,876) 25 (1) Inverness Caledonian Thistle (45) (11) Kilmarnock (11,424) (11,612) 188 (2) Motherwell (431) (478) 47 (10) Rangers (21,559) (16,542) (5,017) 30 St Mirren (253) (1,374) 1,121 (82) Total (88,042) (95,666) 7,622 (8) Average per Club (7,337) (7,972) 635 (8) Average per Club (excl Old Firm) (5,978) (6,996) 1,018 (15) PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Balance Sheet 26

27 The fall in net debt during season 2007/08 was a result of many of the member clubs taking a more prudent financial stance in light of the anticipated recession and adopting additional measures to ease the financial credit pressures imposed by lenders before the crunch was to really bite. Heart of Midlothian continued to rely on the shortterm support of its ultimate parent company, UAB Ukio Banko Investicine Grupe, to maintain its going concern status, which was demonstrated by the 12m debt for equity swap agreed by both parties during the year, relieving Hearts of an estimated 0.6m of annual interest costs going forward. Celtic s continual chipping away at its net debt balance over the past four years places the club in an extremely strong financial position to weather the unpredictable financial storm that continues to blight the entire economy. Aberdeen Aberdeen s net debt decreased by 18% to 9.4m in the year (2007: 11.5m). This debt is mainly funded through the banking arrangements entered into during the prior year. Due to the club s outstanding financial performance during the year, Managing Director Duncan Fraser authorised early repayment to the Bank of Scotland of the debt servicing income due to it between now and March Following this the net bank debt position at the year-end stood at 6.5m. A further reflection of this incredible season saw the balance sheet strengthen directly as a result of the improved cash balance at the bank ( 3.6m, 2007: 1.4m). Celtic s continual chipping away at its net debt balance over the past four years places the club in an extremely strong financial position to weather the unpredictable financial storm Celtic The Parkhead club realised a net gain on player sales during the year, which had the positive impact of reducing net debt to 6.7m (2007: 9.8m). Furthermore, another successful season on the pitch in terms of Champions League football and revenue resulted in the club being able to repay a further portion of its debt. Overall the prudent stewardship of Celtic plc translates into a strong balance sheet capable of weathering the effects of the global financial storm. The recentlypublished unaudited interim results (discussed later within the post balance sheet section on page 44) further display the continuing trend of reducing the club s reliance on debt. Falkirk The Bairns are one of only two SPL clubs to have a positive cash position with no debt. Funds deteriorated in the year via increased costs; however this had a marginal effect on net assets, which fell 0.1m in the year to 3.4m (2007: 3.5m) displaying the financial stability received from continual SPL involvement. 27 PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Balance Sheet

28 Net Debt continued Dundee United Net debt levels at Dundee United reduced 1.4m to 5.9m (2007: 7.3m) following the best set of financial figures released by the club. This consequently enabled the outfit to reduce its overdraft and long-term debt by 0.9m and 0.5m respectively. The majority of debt ( 5.5m), upon which the club is dependent, is held with the Bank of Scotland and is secured over a floating charge of the assets of the club. Gretna No information regarding the balance sheet position of the club for 2007/08 was available following the club s demise into liquidation. However, it was revealed by the club s administrator that Gretna had creditors of 4m and assets (Raydale Park) of less than 1m. HM Revenue & Customs were owed nearly 600k in total and it was their threat to wind up the company that precipitated the move into administration. As no buyer could be found, the club could not be rescued as a going concern and was formally liquidated on 8 August 2008, with all remaining employees being made redundant. Heart of Midlothian The successful conclusion of a debt capitalisation saw UAB Ukio Banko Investicine Grupe swap 12m of debt for equity in the Gorgie club. This contributed to a reduction in the club s total debt figure to 30.5m (2007: 36.25m). However, Heart s net debt continues to remain in excess of that of the Old Firm combined ( 28.3m). The club is still dependent upon the short-term financial support of its ultimate parent in order to meet its day to day funding requirements. Hibernian In contrast to its Edinburgh neighbours, Hibs net debt stabilised at 2.9m, with no movement from the prior year. This was primarily due to the sales of Steven Whittaker ( 2m) and David Murphy ( 1.5m) to Rangers and Birmingham respectively. The sole component of the club s debt relates to the 6.5m stadium mortgage following repayment of the 1.4m connected parent company debt held at the start of the year. Inverness Caledonian Thistle As in prior years, the Highland club continues to operate with a net cash position as it holds zero debt following repayment of its historic 20k interest-free loan. This follows the extremely prudent approach by Chairman George Fraser and the Board. Kilmarnock Kilmarnock s net debt decreased by 0.2m to 11.4m in the year, primarily due to cash received in connection with the sale of Steven Naismith, which consequently enabled the club to repay 0.6m of external debt. The heavy burden of this debt led to an PricewaterhouseCoopers 20th annual financial review of Scottish Premier League football. Balance Sheet 28