Wibble...

Norwich City’s 2022/23 accounts cover a season when they finished 13th in the Championship following relegation from the Premier League the previous year. This was clearly a disappointment to the club, as admitted by executive director Zoe Webber, “To finish outside the play-off places fell below the expectations we had heading into the campaign.”

As a result head coach Dean Smith was dismissed in December, to be replaced by David Wagner, but the team failed to mount a promotion challenge under the German.

Ownership
After many years under the guidance of Delia Smith and Michael Wynn Jones, the Norwich City are increasingly influenced by Michael Attanasio, the owner of American baseball team Milwaukee Brewers.

He first purchased a minority stake from former director Michael Foulger last year, but the club has recently ratified the acquisition of many more shares, bringing his shareholding to the same 40% level as Smith and her husband.

At the time of Attanasio’s initial involvement, Smith said, “We feel he will be a breath of fresh air in our board and football club”, though it’s understood that the “old guard” will remain in control of the day to day running of the club until at least January 2026.

Changes
However, it’s clear that the fans are very unhappy, as epitomised by a very blunt statement from the Canaries Trust.

“The completion of the legal process with Mark Attanasio seems to finally be approaching a conclusion, but, from an outside perspective there’s no overall sense of leadership, or direction, and supporters are desperate for some sense of a vision that we can all buy into and move forward together.

It's sad to say that many supporters now feel completely disconnected from the club we all support, and many are turning up to games out of a sense of duty, rather than a compelling desire to attend matches. Apathy is widespread and some are questioning whether they want to continue attending games despite having done so for decades in some cases.

Something has to change, but the supporters can’t bring that change about: it must come from within the Club and we trust that the current silence will be broken before the situation deteriorates further.”

Long-serving sporting director, Stuart Webber, had already announced his departure, to be succeeded by Arsenal’s loans manager, Ben Knapper. However, as a sign of the club’s growing concerns, both of these moves were brought forward this week in an attempt to stop the decline (Norwich currently sit in a lowly 17th position in the Championship).

So things are not looking too good on the park at the moment, but how are Norwich City doing off the pitch?

Profit/(Loss) 2022/23
Norwich City’s pre-tax loss widened from £24m to £27m, as revenue dropped £58m (43%) from the club record £134m to £76m following relegation to the Championship. This was partly offset by profit from player sales increasing from zero to £4m, though other operating income fell £6m (83%) from £7m to £1m.

The loss would have been even higher without a significant reduction in operating expenses, which were cut by £60m (37%) from £162m to £102m, though interest payable doubled from £3m to £6m.

As Finance Director Anthony Richens wryly observed, “Relegation from the Premier League significantly impacts club finances.

The main driver of Norwich’s £58m revenue decrease was broadcasting, which more than halved in the Championship, falling by £53m from £102m to £49m.

The other revenue streams were also lower, though the club did well to limit the size of the decrease, which Richens said was “a credit to a loyal supporter and partner base.”

As a result, match day was down just £0.8m (7%) from £10.8m to £10.0m, while commercial dropped £4m (20%) from £21m to £17m.

Norwich compensated for lower revenue with a steep reduction in the wage bill, which was cut by £62m (52%) from the club’s all-time high of £118m to £56m. However, player amortisation was largely unchanged at £23m, while other expenses rose £2m (9%) from £17m to £19m.

Norwich are the only Championship club that has to date published accounts for 2022/3, but their £27m pre-tax loss is clearly on the high side for the division, looking at other clubs’ results from the previous season.

It will not have escaped people’s attention that the clubs with the largest losses are those promoted to the Premier League, partly reflecting investment in the squad, but also the hefty bonus payments (or price of success).

Very few clubs make money in this incredibly competitive league, though Hull City, WBA, Peterborough United and Blackpool did manage to post small profits in 2021/22. Stoke City also reported a massive £102m profit, but this would actually have been an £18m loss without the benefit of a £120m exceptional loan waiver.

Norwich only generated a “modest” £3.6m profit from player sales, though this was more than the prior year, when they actually lost £51k.

The low profit was not out of the ordinary in the Championship, where most clubs make very little from player trading. Traditionally, the only clubs that tend to do well here are those that have recently been relegated from the Premier League, which highlights another benefit they enjoy on top of parachute payments.

That was certainly the case for Norwich in 2020/21, when their profit from player sales was a hefty £60m, mainly due to the club record sale of Emi Buendia to Aston Villa. That was actually the highest gain generated by clubs in their first season after relegation (in the last six years).

However, it was a very different story last season, when Norwich generated “limited transfer income”, leading to the smallest profit from player sales over this period.

Profit Trend
Norwich fans would probably hate to be described as a “yo-yo” club, but this is relevant to their finances, as their club tends to be profitable in the Premier League, but lose money in the Championship.

However, that changed in 2021/22 when they also lost £24m in the top flight, mainly because they loosened the purse strings, investing a relatively large amount in the squad, both in terms of transfers and wages.

Over the years, Norwich have looked to adopt a sustainable approach, making £31m profits in the decade up to 2021. However, there has been a fairly dramatic twist in their model in the last two years, when they lost £51m, more than wiping out those surpluses.

The comparison is actually even starker here, as Norwich’s finances were heavily impacted by the COVID pandemic in the 2019/20 and 2020/21 seasons, thus reducing their profit. I estimate that the club lost £30m revenue in these years, split between match day £13m, broadcasting £10m and commercial £7m.

Player Sales Trend
However, the Norwich business model is fairly dependent on player sales. They have made an impressive £163m profit in the last ten years, but their performance has not been consistent, as the majority of the gains came in only two seasons: £60m in 2020/21 and £48m in 2017/18.

This season’s figures will be pretty good, though, following the sales of academy products Andrew Omobamidele to Nottingham Forest for £11m and Max Aarons to Bournemouth for £9m, as well as Milot Rashica moving to Besiktas.

Operating Profit/(Loss)
Norwich’s operating loss (excluding player sales and interest) increased from £20m to £25m, though this was better than the last two occasions they were in the Championship (£37m in both 2018/19 and 2020/21).

The only time that they made a (small) profit from day-to-day business in the last nine years was £3m in 2019/20 (in the Premier league).

In fairness, this sort of performance is not unusual in the Championship, where no clubs have managed to deliver an operating profit in the last two years. Well over half of them lost more than £20m without the benefit of player sales.

Furthermore, the club would point out that their operating loss excluding player trading (sales, amortisation and impairment) was only £1.5m, albeit worse than the prior year’s £3.0m profit.

Revenue
Norwich’s £76m revenue was their highest ever in the Championship, slightly higher than the previous record of £75m six years ago. Broadcasting was slightly lower, but this was more than offset by growth in both commercial and match day.

Norwich’s £76m revenue is currently the highest in the Championship, though we are still awaiting 2022/23 accounts from the other two clubs relegated from the Premier League the previous season, namely Burnley and Watford.

These clubs enjoy a big advantage over clubs that do not receive parachute payments, where the largest revenue in 2021/22 was Stoke City’s £31m, followed by Nottingham Forest and Bristol City, both £30m.

In fact, Norwich’s revenue last season was the second highest ever in the Championship, only surpassed by Newcastle United’s £86m in 2016/17, so they really should have performed better.

Parachute Payments
Norwich’s revenue was boosted by a parachute payment, which was worth an estimated £44m last season. In total, they have received £186m such payments since 2015, having been relegated four times in that period.

In fairness, they have often made good use of these funds, as they have also been promoted back to the Premier League on three occasions.

It’s a while since the Premier League published details of parachute payments, but in 2019/20 a club received £42m in the first year after relegation from the top flight, £34m in year two and £15m in year three.

As Norwich were relegated after just one season back in the top flight, they will only receive parachutes for two years (instead of the full three years), so this is the last season when they will hold an advantage.

Broadcasting Revenue
Norwich’s broadcasting income more than halved in the Championship from £102m to £49m, including the Premier League parachute payment and EFL central distribution.

In the previous season Norwich became the first club finishing bottom of the Premier League to earn more than £100m TV money. This included £88m equal share (domestic £32m, overseas £49m & commercial £7m), £11m facility fees (12 live games) and £2m merit payment.

Amazingly, this was more than the champions of Germany, Italy and Spain received from their domestic broadcasting agreement, which highlights the strength of the Premier League TV deal.

Most Championship clubs receive between £8m and £10m broadcasting income, but there is obviously a massive gap to those clubs with parachute payments, who average around £50m in the first year after relegation.

Match Day Revenue
Despite relegation, Norwich’s gate receipts only fell 7% from £10.8m to £10.0m, mitigated by five more home games plus the first ticket price increase in 10 years.

The club said this was driven by “the ongoing financial challenges faced throughout the course of the COVID-19 pandemic”, adding that it had “worked hard to ensure that this adjustment in pricing is minimal”. The cheapest season tickets rose 7%, while the most expensive were up 3.5%. Ticket prices were frozen in 2023/24.

Although Norwich’s match day revenue was one of the lowest in the Premier League, it is actually the highest (to date) in the Championship. The closest challengers in 2021/22 were Nottingham Forest £8.7m and Sheffield United £7.1m.

Norwich’s average attendance of 26,131 was 3% lower than the 27,005 peak in the Premier League, but it was slightly more than the last time they were in the Championship.

Norwich attracted the third highest crowd in the Championship in 2022/23, only behind Sunderland 38,480 and Sheffield United 28,746. The club sold out its season tickets quota, showing “the incredible support of our fans”.

The board has spent some money on a feasibility study into a possible expansion of the Carrow Road stadium.

Commercial Revenue
Norwich’s commercial revenue fell £4m (20%) from £21m to £17m, mainly due to the usual reductions in the Championship for sponsorship & advertising, down from £7.4m to £4.3m, and catering, down from £6.1m to £4.2m.

In total, this is a fair bit higher than the last few times they were in the second tier (expect for the COVID-impacted 2020721 season). In fact, the 2022/23 campaign was commercially the club’s best season in the Championship, due to “record-breaking revenue” in partnerships and retail.

A new Championship best for the Canaries was set with 33,000 shirt sales, easily beating the previous high of 27,000.

Despite the decrease, Norwich’s £17.0m commercial income is the highest in the Championship, ahead of Stoke City £16.6m, and Bristol City £15.8m (2021/22 figures), though they may be overtaken by Sunderland when they publish their 2022/23 accounts.

Norwich’s shirt sponsorship with Lotus Cars has been extended by two years, while Joma replaced Errea as kit supplier in 2021/22. Norfolk based tech firm Sekura has become back-of-shirt sponsor for the 2023/24 season, as well as the main sponsor for the women’s team.

There was also commercial income by using the stadium for some major events, e.g. the Arctic Monkeys gig.

Other Operating Income
Norwich’s other operating income dropped 83% from £7.4m to £1.2m, mainly due to a steep reduction in player loans

The highest amount booked in this category in the 2021/22 Championship was Birmingham City £4.0m, mainly due to a business interruption insurance claim.

Wages
Norwich’s wage bill more than halved following relegation, falling £62m (52%) from the club record £118m to £56m. This was £11m lower than the last time they were in the Championship two years before, but that had been inflated by a promotion bonus. Player contracts include relegation clauses of up to 60%.

Despite the steep reduction, Norwich’s £56m wage bill was still pretty high for the Championship. In 2021/22 it was only surpassed by the three promoted clubs, whose reported wages included hefty promotion bonuses.

This is a clear indication of Norwich’s recent significant investment in the playing squad. As Richens said, this has “a resulting impact on salaries”. It is evident that Norwich have really pushed the boat out in the past couple of years, though the results have been disappointing to say the least.

In fact, the previous season’s £118m wage bill was the highest ever for a club relegated from the Premier League. If the Canaries had managed to stay up, their wages would have been even higher, as they would have then paid a survival bonus.

Clearly, their wages were still very much in the bottom half of the top flight, but it’s worth noting that these were still higher than some much more successful clubs like Brighton and Brentford.

Furthermore, Norwich’s £56m wage bill in 2022/23 is actually the fourth highest for a club that did not manage to secure promotion, only behind Aston Villa (twice) and Bournemouth.

Despite the big decrease in revenue following relegation, Norwich’s wages to turnover ratio improved from 88% to 75%, which was almost exactly the same as the last time they were in the Championship before the pandemic struck.

Even in the Premier League, they have struggled to get below the recommended upper limit of 70%, which highlights the challenge for clubs with lowish revenue.

That said, Norwich’s 75% is actually one of the best in the Championship, where the vast majority of clubs in this ultra-competitive division are burdened with unsustainable ratios well above 100%

Norwich’s directors remuneration more than doubled from £204k to £513k despite relegation. However, it is worth remembering that none of the directors received any money in 2020 and 2021, presumably due to the impact of COVID.

It’s also much less than it has been in the past, e.g. £2.1m in 2016, though it is at the upper end of the Championship.

Player Amortisation
Norwich’s player amortisation, the annual charge to expense transfer fees over a player’s contract, was flat at £23m, though this expense had more than doubled the previous year from only £11m.

Norwich’s £23m player amortisation was one of the highest in the Championship, though a fair way behind Bournemouth’s £30m. It was no coincidence that these two clubs were recently relegated from the Premier League, as they managed to maintain a relatively expensive squad.

Other Expenses
Although other expenses are usually lower in the Championship, Norwich’s actually increased by £2m (9%) from £17m to £19m, a new record for the club. This was again one of the highest in the Championship, only below Sheffield United £20m.

Transfers
Norwich spent £15m on player purchases, mainly on two emerging talents from South America: Gabriel Sara from Brazilian club Sao Paolo and Marcelino Nunez from Chilean club Universidad Catolica. This is likely to be one of the highest outlays in the Championship last season.

Following relegation, this was unsurprisingly much lower than the prior season’s club record of £48m gross spend, when Norwich really “went for it”, even though this was still not that big for the Premier League.

To underline how much this outlay represented for Norwich, their 2021/22 expenditure was almost as much as the previous three years combined.

However, the taps have been turned off since relegation, as Norwich have only spent £3m, mainly on Christian Fassnacht from Swiss club Young Boys.

Instead, they have opted for a number of very experienced players on free transfers, including Ashley Barnes (Burnley), Shane Duffy (Fulham), Adam Forshaw (Leeds United) and Danny Batth (Sunderland).

Squad Cost
This might come as a surprise to many fans, given their performances on the pitch, but Norwich’s squad cost increased from £88m to £90m, a new record for the club. This is based on amounts paid per the balance sheet (as opposed to market value).

Following this small increase, Norwich’s £90m squad cost was one of the highest in the Championship, though still a lot lower than some other recently relegated clubs, e.g. Fulham and Bournemouth had £197m and £151m respectively in 2021/22.

Debt
Norwich’s gross debt increased by £16m from £69m to £85m, though there was a “fundamental” change in the debt structure, as previous loans secured against TV money and transfer payments were replaced by unsecured financing provided by Attanasio’s Norfolk FB LLC.

As a result, the club had £37.5m director loans with £36.6m from Attanasio and £0.9m from Delia and her husband, though there were still £47.5m external loans remaining.

In addition, there are £11.4m preference shares, including £10m from Attanasio with 7% dividends. If these were to be considered as debt, then the total gross borrowings would be £96m.

Even after the increase, Norwich’s £85m gross debt was nowhere near the highest in the Championship, as it was a long way below the likes of Bournemouth £184m, Blackburn Rovers £163m and Middlesbrough £148m.

That said, their debt has shot up from only £5m just five years ago. Richens justified the growth by saying that the additional debt had “permitted an investment into infrastructure and the playing squad”.

However, it is worth noting that Norwich now have the highest external debt in the Championship with their £48m being more than Sheffield United £41m and Hull City £23m (both figures from 2021/22).

As a result of the higher debt, Norwich’s interest payment increased from £3.1m to £5.0m. This was only £0.6m two years ago, so the annual burden has significantly grown. The interest rate on the £39m short-term loan is 5.6%.

In fact, Norwich are paying more interest than any other Championship club. In 2021/22 the only club within sight of the Canaries £5.0m was Sheffield United £3.1m, but everyone else paid less than £1m.

The reason that the payments are so low, even though amounts owed are relatively high, is because most of the debt in the Championship is provided interest-free by club owners.

Transfer Debt
Norwich’s transfer debt more than halved from £28m to £12m, which is one of the club’s lowest payables in recent years. They were owed £19m by other clubs, so actually have £7m net receivables.

Even after the decrease, Norwich’s £12m transfer debt is still quite high for the Championship, albeit a lot lower than Sheffield United, WBA and Bournemouth in 2021/22.

It is also worth noting that Norwich have £69m contingent liabilities, split between £65m transfer fees and £4m signing-on fees, though these will only become payable if certain contractual conditions are met, e.g. number of appearances, promotion, etc.

This is comfortably the most in the Championship, over £50m more than the next highest club, even after reducing from prior year’s £80m. In fact, this is only surpassed by three clubs in the Premier League, namely Manchester City, Manchester United and Everton.

Cash Flow
After adjusting for non-cash movements, Norwich had £7m negative operating cash flow, though this was offset by £19m player sales. However, the club then spent £30m on player purchases, which was much more than the £15m signings last season, as they had to pay instalments on acquisitions made in previous years.

They then invested another £6m in infrastructure, including work at the stadium and training centre, and paid £5m interest. The shortfall was largely funded by £16m additional loans and £10m preference shares.

As a result, Norwich’s cash in the bank decreased from £5m to £2m. This was a fairly low balance, though most clubs in the Championship had less than £3m cash, so it was by no means out of the ordinary.

As Richens once explained, “our strategy is investing all available cash into the club’s facilities, current and future playing squads and the Academy”.

In the last 10 years Norwich have had £97m available cash, including £77m from loans and £10m shares, boosted by £10m from dipping into the bank balance.

This was mainly used for £37m (net) player purchases and £35m capital expenditure, including the £20m state-of-the-art training centre at Colney. Another £13m went on interest, while £11m was used to cover operating losses.

Norwich pay dividends on the preference shares, but this only added up to £0.5m in the decade.

Funding
Over the years Norwich’s shareholders have put hardly any money into the club, though that changed last season when Attanasio provided £10m funding in exchange for his preference shares.

This is in stark contrast to some other Championship clubs, where owners have pumped in substantial amounts, e.g. in the 10 years up to 2022 Fulham benefited from £722m funding, followed by QPR £268m, Middlesbrough £206m and Cardiff City £194m.

Financial Sustainability
Although Norwich reported a £39m loss over the EFL’s 3-year monitoring period (including the average of the 2019/20 and 2020/21 COVID seasons), they were fine with the Profitability and Sustainability (FFP) rules.

This is because they could adjust their overall deficit with allowable deductions for “healthy” expenditure, promotion bonuses and COVID losses.

Note: their annual allowable loss was only £5m in the years when the owners did not invest any capital.

Conclusion
Norwich’s executive director Zoe Webber said, “We remain committed to fulfilling our ambition of becoming a sustainable and successful Premier League club”, though that currently seems a long way off, given that they are currently struggling at the wrong end of the Championship table.

The board tried to buck the cycle of promotion followed by relegation by spending a lot more than it usually does in the last two years (and also not selling players to balance the books), but this bold plan did not work. In fact, it has only increased debt and interest payments.

As Stuart Webber said with some understatement, “The last two seasons have proven difficult, and our performances on the pitch haven’t been what we wanted.”

It’s too early to say whether the recent changes off the pitch will improve Norwich’s future prospects, but the present strife would not be what Attanasio signed up for when he invested in the club.

The Canaries’ challenge will be even harder if they do not secure promotion this season, as they would then have to compete without the advantage of parachute payments.

Posted By: DrDublin on November 9th 2023 at 11:27:44

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