ENIC...

[KikoSpurs]

Just how rich is Tottenham Hotspur, really? Not very.

With the virus having suspended football, this seems like a good moment to finally sit down and look at exactly how “rich” Tottenham Hotspur is as a football club, and therefore think about the question of how much we can afford to spend.

The Swiss Ramble recently performed its annual analysis of Spurs’ finances, and it is an exercise I like and admire very much since it attempts to put into perspective the club’s performance and context amongst the elite. Yet it has a major limitation, which is that it focuses almost exclusively on “profitability”, as this excerpt shows:

Source: Swiss Ramble twitter account

The problem, of course, is that profitability tells us very little about cash available, since the items on the P&L (including the profits after taxes) are mostly not real cash items. Instead they are filled with such concepts as depreciation and the gains recognized on the sale of players as assets. Essentially, these are accounting items. And I find it a dangerous way to look at a football club because it raises false expectations about how “rich” we are and therefore how much we should be able to pay for transfers.

I prefer to apply a financial perspective by looking at football clubs as one would any other business, through the company’s balance sheet and cashflow statements. The balance sheet gives us a sense of how indebted the company might be. But more importantly I like to look at the cashflow statement for a few reasons:

1. Real cash items – the cashflow statement gets rid of non-cash items such as depreciation and replaces it with real cash such as capex
2. Transfers – it more accurately captures the actual money going in and out on transfers including all hidden costs as well as payments spread over time – a £60m fee paid over three years should be seen as such and not lumped into one number
3. Stadium investment – it captures all hidden costs but also allows for financing raised against the project, ending the “the stadium pays for itself” speculation.

Helpfully most financial accounts break down transfer spending in quite some detail, which in turn allows for me to get to my core concept: the pre-transfer free cashflow (“PTFCF”). For this I take the net cash inflow / outflow, and add back transfer spending which I assume to be discretionary. This brings us to a calculation which tells us how much “spare” money we would have available to spend in a given year, if we had wanted to.

Taking the June 2019 figures, this metric then allows us to judge – somewhat – our performance in the transfer window.

Pre-Transfer Free Cashflow by club for year ended June 2019 (£m)

We can see from this analysis that Tottenham came a fair way off Man Utd, Chelsea and Liverpool (and one assumes Man City, who do not publish a cashflow statement or give any notes to their Intangible Fixed Asset investments). Arsenal were the big losers of last year given their Europa League participation, and Chelsea show themselves as doing well despite not qualifying for the Champions’ League. To be clear, generating a negative cashflow (just like generating a loss) does not mean you have no money to spend; only that you must do so unsustainably out of your “savings”, which will show up on the net debt (which we will get to).

If we look at the year prior, this becomes even more stark, and highlights the fact that Tottenham, contrary to some assertions, was under real financial pressure during the stadium building process starting in 2017.

Pre-Transfer Free Cashflow by club for year ended June 2018 vs net transfer investment for the following year (£m)

Note: Since transfer spending runs July-June and mostly occurs during the summer transfer window, a June 2018 year ending is best contrasted with the June 2019 transfer spending.

At this point, Spurs were actually incurring a substantial negative PTFCF due to stadium costs, not least since much expenditure for large capital projects is paid up-front, for land acquisition and so on. Man Utd and Chelsea spent far more than they were generating – one might say generously, “investing for the future”; Liverpool were spending about as much as they might expect; and only Arsenal were spending significantly below their capacity, buoyed no doubt by the knowledge that they were not in the Champions’ League. Indeed Tottenham’s tiny net expenditure of ~£3m was quite flattering under the circumstances.

In fact, if we look at how Tottenham have performed on average against the rest of the Top Six (excluding Man City), we have had a tenuous few years.

Three-year rolling average Pre-Transfer Free Cashflow (£m)

On a rolling three-year average, the other clubs have managed a PTFCF of around £80m per year over the last five years, whereas Tottenham, having clawed our way into contention by 2016, have actually seen the gap widen again in the subsequent years. In other words, we really are not that well-off, are some way behind the other Big Six teams, and cannot spend the money on transfers that some fans seem to believe we now should. The stadium remains a massive gamble and has to succeed as a standalone business for us to begin making up the difference with the other clubs.

To cap things off, let us just look at the “savings”. A net debt position is typical of most companies and football clubs are no exception. Furthermore, the ratio of that debt to net assets or ‘shareholders’ funds” shows the relative indebtedness of a business.

Top Six clubs net debt (£m) and gearing for year ended June 2019

On both measures, Tottenham are more precarious than our peers. Not only is net debt larger in absolute terms, carrying with it the funding for the stadium; but alone amongst the Big Six, our gearing is at more than 100%. No doubt much of the stadium borrowing is ring-fenced to a degree, and probably operates on a project finance basis; nonetheless the cost of the debt will weigh Spurs down through interest payments for some time – and the analysis gives a sense of how much better off Man Utd really are than us, for instance. Daniel Levy, who is no stranger to this situation, will clearly not be minded to let spending get out of hand.

Some of this will be well-known and obvious to observers. The reason I raise it is the danger of football fans demanding spending beyond what is possible – and Spurs have been particularly under the microscope for this. The Swiss Ramble’s analysis – whilst perfectly legitimate and technically correct – conveys a very misleading impression over our financial clout. Headlines about record revenues and profits on the P&L, lead to questions (from those who should know better) of “where has all that money gone?”. In the end, Spurs just are not yet that big a club, and whilst I am confident that we will reach our goals, it will still take some time before we can splash out.



**************************************

Browsing the internet after posting, I came across the University of Liverpool’s football finances website, which has recently just posted about Premier League club values for 2018-2019, which, whilst doing some equally interesting things, has rather fallen rather into the same trap. Their proprietary “Markham Multivariate Model” is based on net profit adjusted for one-off items, but unadjusted for non-cash items. The formula is quite off-the-wall in other aspects too but I will let that lie for now.

Nonetheless it leads to what I think is just as unhelpful an output (below), saying:

Spurs overtook both Manchester clubs at the top of the table on the back of reaching the Champions League final, a fourth-place finish in the Premier League and a wage bill barely half that of Manchester United.

Even from the eyes of a purely financial investor, this cannot be true. Spurs’ true hidden value, if you want to see it this way, is the stadium value and its future earnings but as far as I can see this has not been captured by Markham. If you strip that out, however well managed our wage bill is, a DCF of Tottenham vs the other clubs would not come to this conclusion. My opinion: head in hands.


Source: https://asymmetricworld.com/2020/05/08/just-how-rich-is-tottenham-hotspur-really-not-very/

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I am not a accountant nor very good with these concepts, but could some translate what that all means ? Is that accurate ?

So far it only means to me the stadium was a very bad investment, in football perspective.

 

[thebenjamin]

We'd been in statistical decline for years leading up to Poch's sacking. In that time, we've gone from genuine title contenders to finishing 27 points back of last season's champions and (as of now) 41 points back of this season's. The gap between us and Liverpool is more than twice as large as the gap between us and the relegation zone. We've been passed up -- on the table, not in theory -- by the likes of Leicester and Wolves, and sit level on points with Burnley. We have, in actual fact, been dragged back toward mid-table.

In order to close the enormous gap that has opened between us and the clubs at the top, we're going to have to do incredibly well in the transfer market. A market in which Chelsea, ahead of us this season to begin with, have already added two world class players to their squad and don't appear to be finished. A market in which our manager has explicitly stated, in reference to the business already done by our rivals, "We know that we are not going to be in the same league, in the same world, as clubs that are going to do completely different to us." As discussed at length in today's Extra Inch podcast episode, it's also a market in which our league-leading debt obligations leave us with dramatically less free cash flow, and therefore less capacity to spend on transfers, than the clubs which are already ahead of us and which we would need to outcompete in the market in order to surpass.

Does all that mean, necessarily, that Levy won't pull a rabbit out of a hat and put together a string of deals which has us competing at the top again? Of course you're correct that it does not, and that we cannot know what the future will hold. You can look no further than my posts in the scouting thread to see that I've not actually given up hope, that I'd be thrilled if we sold some of the players who hold value in the market but who are on the fringes of our best XI and used the money for a genuine squad refresh. I quite enjoy thinking of different transfer scenarios that would put us back in contention and do it all the time both here on SC and with my friends in real life. In other words, I haven't let go of hope at all. You may also notice, however, that there are a number of responses to those posts quite rightly suggesting that the sort of player exchange I'm hoping for is unrealistic.

And it's that realism, not some deficiency in my "personality traits" which you so smugly and presumptuously point to, which informs my less-than-rosy view of the medium-term future of the club. The reality is that we're miles behind the best teams in the league. The reality is that we have far fewer financial resources than they do. None of that definitively dooms us, per se, but it does render a sudden rebirth of a title contender rather unlikely. And that's more than enough reason to rue the opportunities we've allowed to pass us by.

If we don't see WHL full with supporters very soon the situation is going to get a lot worse before it gets better. Realistically at the moment the best case scenario is not having to sell players to make the stadium repayments.

 

[SpursSince1980]

If we don't see WHL full with supporters very soon the situation is going to get a lot worse before it gets better. Realistically at the moment the best case scenario is not having to sell players to make the stadium repayments.

Or sell the club to an entity that can withstand the short-to-mid term cash flow issues, while still investing in players.

 

[thebenjamin]

Or sell the club to an entity that can withstand the short-to-mid term cash flow issues, while still investing in players.

Given how many clubs will be available for nothing, post-Covid, it's hard to see the attraction of paying ENIC £2billion.

 

[SpursSince1980]

It’s interesting that you dismiss Metalhead’s restrained optimism as a “theoretical future that may never come to fruition” when your entire post is founded on unrestrained negativity about an equally theoretical future that may never come to fruition.

Of course, I do get why fans are unhappy. I’m unhappy too. You’re absolutely correct to say that we had a golden chance or three. And blew them. Levy undoubtedly has to take a share of the blame. As does Poch. And the players. And now we have Jose, who has done little yet to restore our faith. So, yes, I completely understand where you’re coming from.

But perhaps you could clarify for me what kind of pessimism specifically motivated your post? There are two generally accepted types - defensive and dispositional. The former is actually a positive trait because it helps us to prepare for the worst. The latter serves no purpose other than to suck every last drop of enjoyment from the lives of its sufferers.

So is your post simply your way, as a long suffering Spurs fan, of helping you to prepare for the worst, should it ever come to pass? In which case, that’s probably not a bad idea! Or is it just that you find yourself taking a kind of perverse solace in misery? In which case, shake it off.

We have no idea what comes next. Not for Spurs. Nor for any other club. All we can say is that, under Levy, Spurs rose to very near the top from a far lowlier position than now. The odds were stacked against us to a far greater degree. We had nothing like the resources then that we have now.

There is nothing to be gained from speculating that everything will go right for myriad other clubs in the near future while everything will go wrong for Spurs. Nothing to be gained, that is, apart from inuring yourself to disappointment. And while that is a valid defensive strategy, don’t let it suck the hope and enjoyment that you can and should still get from following Spurs. Hope still abides. Hold onto it.

Hello, everyone, by the way. Long time lurker. Thought I’d announce myself with a bland first contribution....

Sometimes, I think it can be helpful to err on the side of grace and allyship before jumping to the aspersion phase of discussion. Personally, I find it helpful to actually ask questions first. Not questions with pre-meditated answers or pre-conceived binary suppositions... but rather, genuine questions.

Such as...
... how long have you been supporting the club?
Why do think that a chance has been missed?
Why do you think we will now fall behind others?
Do you feel disappointed by how things have gone at the club, compared to what you were hoping for a couple of years ago?

I think all of those are potential questions that could provide you with additional personal insights that don't involve jumping to conclusions about the emotional state of another human being. In particular, one you don't know from a hole in the wall.

Read Wittegenstein's theory of language for a much more intelligent and thoughtful set of reasons as to why it is borderline pointless to guess how others feel, and indeed doing so... in particular when coloring those assumptions with subjective assertions, can cause the subject of your observations to feel defensive and judged.

I'd imagine that @JayB, might be a bit like myself, and others who have supported the club for a long time. We've all seen a lot of dross along the way, with eons slugging our way through the mire of mediocrity.

The Poch era was somewhat of a game-changer. For the first time that I could remember supporting the team (since 1986-87), that we had a team of genuine merit that could compete at the highest levels.

It's hard when you love something, and you so desperately want it to be successful. You see all those other fans basking in the glow of those big European nights... destiny of Wembley, parading a trophy from atop a double-decker bus... and you yearn to touch that light. And for the briefest of moments, it seems feasible. And then it doesn't.

Yep, that's disappointing. Or at least, the term is a gross simplification of how it makes me feel. It's more elemental than that. It hurts the heart in some respect. It's the equivalent of holding a dream and then having it ripped from your grasp.

That's why it's acutely painful, my friend. That's why some fans like me feel sad, agitated, grumpy, cynical, etc. And apologies if that comes across as defeatist, but when you have followed this team and watched this sport for multiple decades, you get pretty good at recognizing patterns. It's hard to not to see this as an opportunity that may not come around again for some time. And you're right, it may be much sooner than that. But history implies otherwise. Don't get me wrong, I'd love to be proven incorrect, but... experience 'n all that.

So, you can't swipe away these feelings and chalk them up to a black-and-white explanation... that we are either this or that. Forgive me for saying, but directing absolutism, judgement, and indignance at the unremitting chaos of fan-driven emotions, is to be dismissive of what it means to support Tottenham Hotspur... at least for me.

No one supports this team 'cos of guaranteed success. Far from it. Supporting this club is like some sort of religious, albeit sadistic, calling. We revel in the badge we wear and all that goes with it. That includes occasionally taking a ride to the dark side of hope. It's all part and parcel of being a Spurs fan.

But you know that already... don't you?

 

[SpursSince1980]

Given how many clubs will be available for nothing, post-Covid, it's hard to see the attraction of paying ENIC £2billion.

Is me wanting that to happen not reason enough?

 

[buckley]

Why anybody would want to go to the bother of finding out how rich we are when two of the six IE Man City and Chelsea has owners who have invested billions of pounds which have been converted to shares or other such ways that allows the club to write off any debt .
It is totally unbalanced also untrue and with FFP because these billions spent which should be in reality a debt to the club has magically disappeared . Why ? because the ultra rich owners can and do write off this money in various ways that avoid the club having debts.
If you want to make the list leaving out Man City and Chelsea then compare the four that are left then fine as for stadium debt Arsenal have had approx 20 to 25 years headstart on us when it comes to repayment of stadium debt .
Also we could bring in a fair amount with a stadium sponsorship which would help the figures .
Our stadium will bring in untold millions with American football ;Rugby ;concerts; boxing the lists goes on .
This figures in this list I have no reason to doubt they are true but the relevance is another thing .
Come back in twenty years time and do the same financial list and we would be in a much healthier position plus a self confessed amateur when it comes to finances compared to Levy is no contest in my eyes .

 

[mill]

Sweet only 20 more years to wait ?

 

[buckley]

The thing is Levy does not think short term most of his actions regards finance are with the longhterm good of the club not short term .
As for waiting 20 years well 20 years for what ? All I have said is that Levy does his business with a long term view and not the short term fix
In any case I dont think many believe ENIC will be here in twenty years they are an investment company and when the right person comes along they will sell but they will be selling something that is rock solid as regard finances if not the team on the field of play .
I think myself there may have been something in the Amazon thing but cv19 came along to either stall things or may be that's wishful thinking
I would like to see new owners but dont hit them over the head with financial figures that are spurious at best like I say comparing any club with the likes of Chelsea / Man City / also abroad Juventus / PSG . is not fair as these clubs manipulate and convert debt into shares and by any means fair or fowl they are quite happy to avoid FFP .

 

[HedgieSpur]

Imo, the ENIC vision for us has always been as a multi-sports and entertainment business and NOT THFC. This divergence of aims means that our broader commercial success will be seen by some as a great thing, but most fans I suspect ultimately want to see us win things on the pitch.

Commercially, with NFL, concerts, regeneration of the local area, I can see us doing very very well. I don't expect this to automatically transition to the pitch though, while Levy remains in charge and with the current football structure (no DoF, no aligned Performance Management & Analysis structure). Instead, I think while our profile will remain high, our success on the pitch will remain moderate (in terms of silverware).

The wildcard in all of this of course is the manager. Like Poch, Jose might well excel and drive us to new heights, despite the financial restrictions.

 

[buckley]

It is no coincidence that the richest clubs win almost exclusively the main trophies and how do you compete with the uber rich oil owners or Russian oligarchs ? The only way I can see is to try to get our revenue to a level that we may have a chance to compete on that level Levy is doing a great job but unless we are taken over by some company like amazon or Facebook or some other company that has billions available to spend we are or will be an " almost club " .

 

[Metalhead]

It is no coincidence that the richest clubs win almost exclusively the main trophies and how do you compete with the uber rich oil owners or Russian oligarchs ? The only way I can see is to try to get our revenue to a level that we may have a chance to compete on that level Levy is doing a great job but unless we are taken over by some company like amazon or Facebook or some other company that has billions available to spend we are or will be an " almost club " .

Thing is that even a Bezos or Zuckerberg wouldn’t be a sugar daddy although I might be misinterpreting your point and that you mean that they would nevertheless invest more in the team. Our best hope I think is the partnerships with organisations such as the ones that you mentioned or Nike or other similar corporations.

 

[McArchibald]

Imo, the ENIC vision for us has always been as a multi-sports and entertainment business and NOT THFC. This divergence of aims means that our broader commercial success will be seen by some as a great thing, but most fans I suspect ultimately want to see us win things on the pitch.

Commercially, with NFL, concerts, regeneration of the local area, I can see us doing very very well. I don't expect this to automatically transition to the pitch though, while Levy remains in charge and with the current football structure (no DoF, no aligned Performance Management & Analysis structure). Instead, I think while our profile will remain high, our success on the pitch will remain moderate (in terms of silverware).

To me this is a nightmare vision... Who gives a f*ck about ENIC's "multi-sports and entertainment business"? Management buzzwords that have me running to the loo to throw up...

NFL, micro-brewery and cheeseroom be damned - I only care about Football and Spurs, my club. How dare ENIC hijack my club to build their multi-sports and property empire. How dare they sacrifice silverware for their "broader commercial success"?

 

[HedgieSpur]

It is no coincidence that the richest clubs win almost exclusively the main trophies and how do you compete with the uber rich oil owners or Russian oligarchs ? The only way I can see is to try to get our revenue to a level that we may have a chance to compete on that level Levy is doing a great job but unless we are taken over by some company like amazon or Facebook or some other company that has billions available to spend we are or will be an " almost club " .

Us, Atleti and Dortmund have shown that with smart recruitment and a great manager, the club can break into the higher echelons of European football. The difference is, that both the other clubs continued on while we didn't.

 

[danielneeds]

Us, Atleti and Dortmund have shown that with smart recruitment and a great manager, the club can break into the higher echelons of European football. The difference is, that both the other clubs continued on while we didn't.

Dortmund had some difficult times at the end of Klopp and then through the next couple of managers. The difference is their recruitment is far more proactive than ours. They see it as the primary way of creative revenue through buying young and selling at peak value.

 

[BringBack_leGin]

To me this is a nightmare vision... Who gives a f*ck about ENIC's "multi-sports and entertainment business"? Management buzzwords that have me running to the loo to throw up...

NFL, micro-brewery and cheeseroom be damned - I only care about Football and Spurs, my club. How dare ENIC hijack my club to build their multi-sports and property empire. How dare they sacrifice silverware for their "broader commercial success"?

How dare they take us from a mid table band of mercenaries to league challengers and European ever presents littered with top class international footballers, how dare they!

 

[buckley]

we would all I think have liked to stay at the old WHL if only for the atmosphere but realistically 34thousand stadium under FFP restrictions is or was never going to cut it in todays world . Without the sugar daddies of this world annual turnover is what is going to give you a chance in this new football financial arena . My crude working out has made us 40 million pound a season better off than the old WHL and we have not yet seen a whole season with the 16 stadium events allowed that at worst will earn the club 5 mill £ a game also the sponsorship is yet to be sorted all in all our stadium turnover will be at least double that of WHL more likely more than double and anybody that says ENIC has not delivered regard finances is deluded . Thats not to say that on the playing side two or three great chances have been missed over the last two years such as Fernandes ./Dybala / Grealish / but on balance they are doing a great job . I dont want to moan over things that did not happen but look to the future for things that could happen for the good of us all .

 

[JayB]

Us, Atleti and Dortmund have shown that with smart recruitment and a great manager, the club can break into the higher echelons of European football. The difference is, that both the other clubs continued on while we didn't.

Absolutely spot on. If that article on our finances is true, it would seem to be the case that the revenues associated with the stadium will be the source of most of our spending power in the years to come.

With the pandemic having disrupted those plans, we seem bound for some more lean years, so we need to go back to the model that has worked so well for us -- buying low on young talents, selling high and reinvesting the money in the next crop. That model is completely dependent on getting the scouting right, which given our track record over the last few years doesn't fill you with hope.

There will undoubtedly be opportunities with clubs all over the world in major financial distress, but we've got to identify the right players and make the outgoing sales necessary to do the bits of business that could propel us forward.

 

[Spartan Spurs]

This is the way I see it.

Short version:
ENIC is an investment vehicle & it wants positive return on investment. Period.

Long version:
In one respect, we are fortunate to have current owners who are fiscally astute & responsible.
This puts us far & away in a better position that many other clubs even worldwide.

We have a state of the art training facility & stadium.
The latter being a mammoth undertaking.
It was to take us on to another level in terms of revenue & appeal to our supporters, our own players & potential future players.
To be be seen as 2nd to none.

Unfortunately, CV19 was totally unforeseen.
It has converted the stadium into an even greater burden however temporary that may be. No idea how this is truly affecting the club.
Nevertheless, under these trying circumstances, I'd rather have Levy looking after us than some other chairmen.

In another respect, ENIC & Levy continue to branch out & diversify with Spurs having been the primary catalyst. This is where it all emanates from: Spurs, the club.
But what is on the field does not seem to be their primary focus. There's the land acquisition & development project too.

Levy is a smart businessman & this is what's perplexing.
On the most elementary level, if the team has success on the field, it will mean greater rewards for the shareholders: him & Lewis.
So as a smart businessman, he should recognize who is best at what & surround himself with those that are specialists in certain areas.
Yes he can negotiate for players but he tends to piss people off. Leave that to someone else. One facet that is integral to success is the scouting system. It's even more so now given the financial constraints. We don't blow our brains out with the highest priced acquisitions. We need to be unearthing some young gems. at reasonable prices.

So for the best ROI, I believe Levy should delegate responsibilities. He should focus more on the development side of N17's project while investing & recruiting the best scouting system around. Pay a bit more upfront for the infrastructure, give them a budget, & we'll all reap the rewards later. Better quality on the field for the fans results in more £'s in his pocket.

 

[HedgieSpur]

This is the way I see it.

Short version:
ENIC is an investment vehicle & it wants positive return on investment. Period.

Long version:
In one respect, we are fortunate to have current owners who are fiscally astute & responsible.
This puts us far & away in a better position that many other clubs even worldwide.

We have a state of the art training facility & stadium.
The latter being a mammoth undertaking.
It was to take us on to another level in terms of revenue & appeal to our supporters, our own players & potential future players.
To be be seen as 2nd to none.

Unfortunately, CV19 was totally unforeseen.
It has converted the stadium into an even greater burden however temporary that may be. No idea how this is truly affecting the club.
Nevertheless, under these trying circumstances, I'd rather have Levy looking after us than some other chairmen.

In another respect, ENIC & Levy continue to branch out & diversify with Spurs having been the primary catalyst. This is where it all emanates from: Spurs, the club.
But what is on the field does not seem to be their primary focus. There's the land acquisition & development project too.

Levy is a smart businessman & this is what's perplexing.
On the most elementary level, if the team has success on the field, it will mean greater rewards for the shareholders: him & Lewis.
So as a smart businessman, he should recognize who is best at what & surround himself with those that are specialists in certain areas.
Yes he can negotiate for players but he tends to piss people off. Leave that to someone else. One facet that is integral to success is the scouting system. It's even more so now given the financial constraints. We don't blow our brains out with the highest priced acquisitions. We need to be unearthing some young gems. at reasonable prices.

So for the best ROI, I believe Levy should delegate responsibilities. He should focus more on the development side of N17's project while investing & recruiting the best scouting system around. Pay a bit more upfront for the infrastructure, give them a budget, & we'll all reap the rewards later. Better quality on the field for the fans results in more £'s in his pocket.

Herein lies the issue, I don't think "success on the pitch" is the only or indeed necessarily the best way for ENIC to get an ROI. I think that they can have us moderately successful but with a high profile and get a great ROI fro all of the other sports and entertainment revenue streams. I don't think Bon Jovi fans necessarily care if we make the CL!

Your point on DL delegating responsibilities is a salient one. I think this has the potential to be the difference between on field success or not.