Financial Forecast: Rising wages to cause another big loss for Crystal Palace
12 September 2019 1:15 PM
Photo: Getty Images Co-owner Steve Parish have to deal with another loss at Crystal Palace after a year where the club did not sell any players to offset rising wages
Crystal Palace are looking into a small revenue growth and with no players sold the club are set to post another pre-tax loss.
Here are Crystal Palace's 2018/19 finances predicted.
MAGNUS ALBERTSEN, ANALYST
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Following two years with solid growth in total revenue, Crystal Palace are predicted to face stagnation in their 2018/19 annual accounts.
Crystal Palace recorded an all-time-high revenue of £150.3 million in 2017/18, which was a positive sign for the Eagles. However, grooming wages resulted in an operating loss of £36.9 million and profit on player sales did not prevent a pre-tax loss as it did in 2016/17.
With this trend in mind, 2018/19 is looking to be the second year in a row with a pre-tax loss. No players were sold, while Wilfried Zaha’s contract was renewed, and Max Meyer received a big contract as well. However, the departure of Wan-Bissaka prior to June 30th could result in a profit if included in the 2018/19 annual accounts.
Below is Off The Pitch’s forecast for the 2018/19 annual accounts of Crystal Palace.
Turnover
The overall revenue for 2018/19 is estimated to increase to £155.9 million. Reaching the quarter-finals in the FA Cup resulted in £0.7 million, while no prize money was received for the Eagles’ third-round exit in 2018.
HOW WE DID IT
The forecasting method is based on incremental changes from the previous accounting year.
Turnover estimates are based on the officially reported Premier League, FA and UEFA payments, as well as the values of, for example, new sponsorship deals reported by reliable sources.
Wages are estimated based on newly signed contracts, departing players and managerial changes.
Player amortisations are based on straight-line amortisation of transfer fees over the period of the contract.
The profit on player sales is based on the initial transfer fees paid for the departing players, the booked value calculated in accordance with above-mentioned player amortisations and the transfer fees received for selling the player.
Finishing 12th in the 2018/19 season resulted in a slight decrease in Premier League broadcasting payments of £0.1 million to £114.2 million, even though the overall broadcasting payments rose with 1.5 per cent from 2017/18 to 2018/19.
In 2018/19 Palace signed a new kit deal with Puma. The value of the deal is still unreported; however, we have estimated the value of the deal to be £4 million annually - the latest Macron deal was worth £1 million. Due to their continued presence in the top flight, an additional £2 million of commercial revenue is reasonable to expect. All in all, we therefore estimate that Crystal Palace’s revenue will increase to £156 million.
Wages
Crystal Palace have seen their wage bills increase by almost a third since the season of 2015/16.
In 2017/18 their wages amounted to £117.3 million. This total is expected to increase in the recently closed financial year of 2018/19, mainly due to an extension with Wilfried Zaha, and newly acquired Max Meyer. The new signing from West Ham, Cheikhou Kouyaté, is also expected to impact the wage bill significantly.
Crystal Palace’s wage bill is estimated to increase by £4 million.
Player amortisations
In the post balance sheet events of the annual report of 2017/18, Crystal Palace mention that the sum of their player purchases and sales resulted in a net cost of £10 million in 2018/19.
The only activity in player sales was Alexander Sörloth on a loan deal with a value of £0.3 million, which means they spent £10.3 million on the acquisition of Cheikhou Kouyaté and on the loan fee of Michy Batshuayi.
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Max Meyer was acquired on a free transfer, as was Bakary Sako. Kouyaté is the only new signing that needs to be amortised over the following years and added to the existing amortisations. Kouyaté’s contract length is four years, which will result in a yearly amortisation of £2.58 million.
There were no major departures during the financial year, which is why the player amortisations are expected to be increasing to a total of £48.5 million.
Profit on player sales
As mentioned, Crystal Palace didn’t sell any players in the 2018/19 season. The only activity was a loan deal for Alexander Sörloth with a value of £315,000. The other departures from the Eagles were either on a free transfer or loan deal.
It is worth mentioning Aaron Wan-Bissaka because he was sold just a few days prior to 30th June. The fee was £45 million up front with an additional £5 million payable based on appearances and achievements. He is not included in our forecast due to his contract with Manchester United starting 1st July 2019. We therefore expect that he will be included in the 2019/20 annual accounts.
Recap
Even though the total turnover is expected to be a new all-time high for Crystal Palace, they are estimated to post a loss for a second consecutive year. The increases in wages and amortisations while not producing a profit on player sales will likely result in a pre-tax loss of £39 million for the financial year. That loss could be turned into a £4 million profit if the Wan-Bissaka deal is included in the 2018/19 accounts.