Watford bet high on turning on-the-pitch results into financial success
14 February 2019
Like most clubs, Watford are very dependent on broadcasting revenue, but commercial revenue is on a run.
Italian owner will once again have to inject cash into the club.
Revenue boost seems likely if club can maintain league position and go through in the FA Cup.
Despite having competed in the Premier League since the 2015–16 season, Watford Football Club, the Hornets, are still in the process of becoming a solid business.
The club’s owners, the Pozzo family - headed by Gino - which also owns Udinese Calcio in the Italian Serie A and previously Granada CF in Spain, has great faith in the club’s potential.
This is despite its equity only having been positive once in the last five financial years. To cover this, loans from within the Pozzo group have increased almost fourfold in just two years.
This year’s negative equity can also be directly linked to the £30.7 million deficit in 2018. Since Premier League rules allow adjusted pre tax losses of £105 million over three years and the last two years saw Watford FC being profitable, this should not be a worry for now.
Also the summer sale of Richarlison to Everton, where the transfer fee was supposed to be more than £40 million, could have turned losses into profits at Watford, if that sale had taken place a few months earlier.
FA Cup could boost economy
Watford FC sits 8th in the Premier League. Should the club maintain this position by the end of the season, this would be a great improvement on 14th place last year and 17th place the year before.
In the light of an annual report showing a club that has invested heavily in being successful in the Premier League - and the financial windfall this could create - for now the players and coaching staff are repaying the trust placed in them.
In 2018 Watford FC received £108.82 million in media and broadcasting revenue, while Everton FC, who finished 8th last season, received £21 million extra.
However, Watford cannot expect a similar revenue boost as it will eventually be determined by how often Watford’s matches have been broadcast. But regardless of this, it is fair to assume a boost in media and broadcasting revenue will happen if the club’s 8th place is maintained throughout the season.
On top of this, there are financial possibilities in the FA Cup, where the club will face Crystal Palace in the quarter final on March 16th, where a total of £9.49 million is to be collected if the club were to - by surprise - go all the way. In 2018 the club only had revenue of £67,500 through it’s participation in the FA Cup.
Match-day income has fallen
In the club’s three seasons in the Premier League, match-day revenue has fallen however - both absolutely and relatively.
It peaked in 2016 as the club made its return to the Premier League, but despite maintaining almost full capacity in the past three seasons, match-day revenue has fallen 5.54 per cent from 2016 to 2018, although 2018 saw a small increase compared to 2017.
Interestingly, commercial revenue dropped the year that the club was promoted to the Premier League, but has since rebounded to its highest level in five years - a fourfold increase from the low point in 2016.
If both match-day and commercial revenues continue this type of growth from 2018 to 2019 and onwards, this will be a positive sign for the club as a business.
Broadcasting-income remain the big driver
Broadcast revenue has remained constant at around 85 percent of total revenue. The increase from 2016 to 2017 was caused by a new broadcast deal, whereas the £3.37 million increase from 2017 to 2018 is due to increased centralised distributions from the Premier League.
If other revenue remains the same, it would only take an increase in media and broadcasting revenue of £6.60 million for that category to go beyond 90 per cent of revenue.
Increased revenue is rarely a bad thing, but one only needs to look at broadcasting revenue in 2014 and 2015, when the club was playing in the EFL Championship, to see the dependency on broadcasting revenue and the financial risk associated with relegation.
Investments need to pay off
The need for investments on the pitch to pay off in the financial reports is further highlighted by the amount owed to creditors which is falling due within a year.
Merely in terms of player registration costs, this has increased from £35,11 million in 2017 to £63.98 million in 2018 - an increase of 82 per cent. By comparison, the club will collect £12.15 million from other clubs in transfer fees.
Unlike group loans, these financial obligations are unlikely to be deferred. If the success does not create the necessary revenue, Gino Pozzo and the rest of the ownership will probably need to put more money into the club in order to maintain stability.
As noted, the annual report for 2018 shows a football club going all out to create a successful football team, which should in turn create revenues larger than the investment.
As such, the final evaluation of the 2018 annual report will not be possible before the 2019 annual report is ready. 2018 is characterised by big investments - and 2019 will show whether they paid off.