Earlier this year Argyle owner and Chairman, Simon Hallett, announced plans to change the club’s financial year end to June (the usual practice in football to align with the timing of the season) and to publish much more comprehensive financial data starting in 2020. However, the club has gone a step further and last week released income and expenditure figures for each of the last three seasons that are more detailed than those provided by virtually every other EFL club.

At the same time, the club announced that the Chairman has converted his £4.1m loan for the refurbishment of the Mayflower grandstand into shares. The impact of this is twofold. First, unlike debt, share capital never has to be repaid. Secondly, there are no interest payments to be made. That represents a significant strengthening of the club’s financial position.

Both moves are, of course, highly positive. This level of financial disclosure is rare in football, which is odd really, since transparency debunks some of the myths around team finances, not least by showing that EFL clubs devour capital rather than lining their owner’s pockets.

The detailed figures make interesting reading and below we try to extract some insights into the financial realities of running Plymouth Argyle.

Argyle is loss-making overall

The Chairman has always said that Argyle is a loss-making business. Over the last three seasons as a whole, the club was in the red by just over £1m. Losses of £1.5m last season and just under £300,000 in 2017/18 were partly offset by a £722,000 surplus in 2016/17. However, that profit was only because ticket sales and TV revenues from the FA Cup run – especially the two Liverpool fixtures – generated almost £850,000. Without that, the club would have made a loss (of around £125,000) in that year as well.

The reason for ongoing losses is clear; stagnant income and rising costs.

Income has been flat over the last three seasons

Income in 2018/19, at around £6.4m, is 4% lower than in 2016/17. The four core elements of income are home ticket sales, ‘football income’, commercial revenue and ‘fortune’ income. Here’s what they look like:

  • Ticket sales are the largest single contributor (around 42% of the total) at around £2.6m to £2.8m for the last three seasons.
  • The next largest component, ranging from £1.7m to £2.1m (25-34% of income) over the last three years, is ‘football income’. That’s basically the central payments from the EFL and the Premier League Solidarity Payments, the amount varying depending on which league the team is playing in.
  • Commercial income – a mixture of advertising & sponsorship, club shop & programme sales, and catering – is around £1.3m (21% of the total).
  • ‘Fortune’ income is the revenue from two sources: transfer proceeds and money from Cup runs and associated TV payments. It is volatile and unpredictable, ranging from £1.4m in 2016/17 to £224,000 in 2017/18 and £501,000 in 2018/19, and can be the difference between the club making a profit or a loss.

But costs have been rising

While income has been flat, over the last three seasons the annual cost of running Argyle rose by almost a third to £7.8m. Expenditure is broken down into general running costs and wages.

  • The club has done a good job of controlling running costs – stadium upkeep, administrative and football costs (match day costs, travel expenses etc.) – which have remained constant at about £2.1m per season.
  • Which means that the overall increase in costs is down to higher wages; the salary bill grew by 55% (almost £2m) from £3.6m in 2016/17 to £5.5m in 2018/19. The majority of that increase will have been spent on the players’ wage budget.

Surprise, surprise: running a football club is very difficult

The core goals of all businesses are to increase revenues and minimise costs. Owners also need to be able to make reliable forecasts on both to enable forward planning. All of these are problematic in football.

For one thing, some key elements of income can’t be accurately forecast.

Revenue from Cup runs and associated TV income is impossible to predict. Not only because of the uncertainty around performance on the pitch but also because it depends on pure chance. In the FA and Carabao Cups, the name of the opposition club drawn out of the bag and whether it’s a home or away fixture can be the difference between earning a few thousand and hundreds-of-thousands from a fixture.

While we’re on the subject of cup runs, the release of these financial figures should finally put to rest the nonsensical argument that the ‘windfall’ from the Liverpool FA Cup games has somehow been siphoned off, when it has actually just gone back into the pot to run the club and keep the red ink at bay.

Transfer income is equally random. How many would have predicted a half-a-million pound bid by Rotherham for Freddie Ladapo last summer?

Finally, even central payments from the EFL and Premier League can’t be relied upon, as they are dependent on the League in which the team finds itself. Last season’s relegation which, lest we forget came on the back of the finest of margins, means that Argyle’s revenue from that source drops by £420,000 this year.

Running a football club must come with a large dollop of frustration and feelings that it’s a case of one step forward, one step back. The number of unpredictable factors makes financial planning extremely difficult, meaning that the only sensible course of action is prudence on the expenditure side.

Wages are the main cost, unsurprisingly

Speaking of which, although the club can manage the day-to-day running costs to a large extent, rising wages across the game as a whole are largely out of the club’s control. Since wages account for 70% of expenditure, again, a significant part of the profit and loss account is at least partly subject to market forces.

Sticking with wages for a moment, the figures also give the lie to the idea that Argyle has been excessively stingy in the last couple of years, exhibiting a ‘lack of ambition’ on the pitch. In fact, wages have risen substantially in the last three seasons, from 53% to 86% of income. While this is far from the highest in the EFL – many clubs are spending more than 100% of turnover on wages – only the most reckless would suggest that Argyle should emulate the clubs gambling their long-term future by stuffing the team with high priced talent and rolling the dice (Bury FC, anybody?).

Another common view is that the club under-spends on players relative to the crowds it attracts. Argyle is very fortunate to enjoy top two or three average attendances in the Leagues in which it competes, but ticket revenues still cover only a third of the club’s total expenditure. The harsh reality is that ticket sales are still nowhere near sufficient to fund extravagant spending on transfers and wages.

Reasons to be cheerful

That all sounds a bit gloomy, but in fact there is every reason to be positive about Argyle’s financial future:

1. Gates have held up and the new Mayflower is a big opportunity

The good news is that the outlook for the largest contributor to total income, ticket sales, is positive.

First, despite relegation, the average attendance so far is almost identical to that for the whole of last season at 9,860. Admittedly we’re only five league home games in and crowds have tailed off a little since the start of the season, dipping below 9,000 for the visit of Cheltenham. But compared to 2011/12, the last time Argyle dropped into the bottom tier, when the average gate plummeted to 6,915, the picture is much rosier. The Ryan Lowe effect certainly helped to shift season tickets in the summer, with the club reporting in mid June that 5,500 had already been sold.

And we are, of course, looking at a 50% increase in capacity, to around 18,000 when the new Mayflower Stand opens at the end of the year. Bigger crowds are the most obvious route to higher sustainable revenues for the club since, aside from some additional policing and stewarding costs, most of the money spent on those additional tickets represents extra profit for the club.

Of course, boosting attendance is easier said than done. The most common idea is to cut ticket prices on the assumption that demand will rise as prices fall – a theory known as price elasticity of demand. In plain English, if you cut the price of something, you will sell more of it and vice versa. So halve ticket prices and attendances will double from the current 9,000 odd to the 18,000 new capacity. Total ticket income would be the same but you’d have more fans, creating a better atmosphere and selling more shirts, programmes and pints of beer. In theory.

This is the model that Bradford City tried, but results have been mixed at best. After slashing prices to £150 for an ‘Early Bird’ season ticket for the 2015/16 season, the average attendance rose from around 13,300 the previous year to 18,100. However, since then, average gates have fallen to the point where home crowds are running at around 14,100 this year, even though season tickets were still priced at that £150 level. Financially the club is almost certainly worse off and they have now painted themselves into a corner to the extent that it’s much more difficult to get fans to accept higher prices, even if the club’s financial position demands it.

I seriously doubt that such a strategy is under consideration at Home Park. However, it would be surprising if the club wasn’t devoting considerable energies to finding ways to take advantage of Home Park’s increased capacity and get more bums on seats after Christmas. Expect some imaginative marketing schemes to bring in new faces to experience an Argyle game in the coming months.

2. Season ticket sales have risen substantially

Season tickets are an area where the club has made significant progress already. Annual season ticket revenue has increased by almost £600,000 since 2016/17 and the balance between season ticket holders and those who buy tickets for individual games has shifted significantly in favour of the former. On average, season tickets now account for 61% of the revenue for each home game, up from 41% three years ago.

While the per match revenue from season ticket holders is lower than for tickets bought for individual games, that is more than offset by the cash flow benefits of the up-front season purchases in the summer. And season ticket holders tend to be more loyal of course. Indeed, the fans deserve credit for showing their support by buying season tickets that are priced at the high end of the range for the division.

3. Yield per spectator has risen

Despite season tickets offering a cheaper per game price, the yield per spectator – calculated as the income from home games (season tickets plus individual game tickets) divided by the total attendance at home league games over the season – has actually been rising. It’s up almost 15% since 2016/17 season, from £8.98 to £10.30 in 2018/19.

This statistic might seems a bit obscure, but is actually critical for the long-term success of a business such as football which, like airlines, is about selling seats without pricing tickets too cheaply (so missing out on revenue) or too expensively (deterring customers). The data suggests that Argyle has been doing a pretty good job in this area.

As a side note, that £10.30 per game yield probably seems low compared to the price of individual tickets or the per game cost of a season ticket. However, it should be remembered that a good percentage of tickets sold are concessions and also that 20% of the cost of each ticket goes to the government in the form of VAT.

4. Increased commercial income potential from the Mayflower

The redevelopment of Home Park last season and into this has reduced commercial income and has also increased costs in some areas (the provision of temporary changing rooms and staff office space for example).

The old grandstand produced revenue through supporters paying for a premium match day experience and by attracting sponsorship. For example, tickets could be purchased for the Tribute Lounge, while businesses would buy match-day sponsorship packages. The redevelopment meant that match day hospitality was shifted to alternative venues such as the Life Centre and a local hotel, but this incurred extra costs and deterred potential attendees.

The opening of the new Mayflower is a big opportunity to boost revenue. The premium experience is likely to be considerably more attractive and the club will now be able to generate income outside match days through conference and hospitality facilities. It will be tough for Argyle to replicate the success of Exeter Chiefs at Sandy Park, but there is nevertheless considerable potential for developing a long term, stable revenue source.

Overall then, there are clear avenues for the club to gradually increase its income in the coming seasons.

Argyle is in good hands

It’s easy to get depressed looking at football finances, but Argyle is actually in a very sound position compared to most other EFL clubs. Virtually debt-free and with stable ownership, Argyle is also unburdened by the property development shenanigans, webs of cross-shareholdings, inter-company loans and holding company trickery that bedevil so many other clubs.

But it’s also important to appreciate that the nature of football finances drives the business philosophy of the owner. Recognising that there are large areas of revenue outside the club’s immediate control and in the face of constant wage pressure, Simon Hallett will continue to run the club on prudent lines. The central concern is to ensure that Argyle is still playing football in five, ten, fifty years time, surviving when he is no longer around to inject funds into the club. The only sure-fire way to do that is to achieve a long-term balance between costs and income.

That will not always sit well with fans. Justifiable caution will occasionally be seen as a lack of ambition and some will yearn for extravagant spending in pursuit of promotions and trophies, even at the risk of the viability of the entire club. Once again, sadly, we have to point to the example of Bury as the reason why this will not, and should not, happen down here.

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