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Stoke City need to take drastic action in order to avoid points deduction

Stoke City need to take drastic action in order to avoid any potential points deduction they could receive next season according to reports.

The Potters could become the next Championship club to be forced into selling their stadium to avoid breaching financial rules, after showings of huge pre-tax losses of £88million.

The club are facing possible sanctions for breaking the EFL’s Profitability & Sustainability regulations next year and are under pressure to consider their options to reduce further losses.

Stoke City need to take drastic action in order to avoid points deduction

One of those options may be to sell or lease their ground, the bet365 Stadium, following Derby, Sheffield Wednesday, Reading and Birmingham, in a bid to keep in line with the rules.

Stoke, who were relegated from the Premier League in 2018, are owned by the Coates family, and they’ve backed their managers significantly to try and regain promotion back to the top flight.

The impact of Covid and absence of fans through the turnstiles since March last year has further impacted on finances, with Championship clubs allowed to record losses of £39million over a three-year period.

Accounts released on Thursday show pre-tax losses of £88million, with turnover falling to £49.8million and operating expenses increasing to £141.4million.

It is understood that around £70million of the £88million is written off the balance sheet on the historic value of players.

Stoke have been strongly opposed to the EFL’s strict P & S rules in the past, arguing that the limits punish owners with ambition.

Widely regarded as one of the best local owners in English football, the Coates family supported employees during the pandemic last year by continuing to pay wages.

John Coates, the club’s chairman, admitted how he was frustrated over the EFL’s rules at a fans’ forum.

He said: “We’ll always support our manager to the extent that the rules allow us to support him. Clearly the rules within the Championship and the profit and sustainability rules don’t allow us to support him as much as we would like to.”

Stoke City FC - Stoke City FC Announce John Coates To Become Vice-Chairman

Photo Credit: Stoke City FC

Stoke are currently managed by Michael O’Neill and finished a respectable 14th in the Championship this season.

Under EFL rules, clubs are allowed to record losses of £39m over a three year period. Though reports in the Daily Telegraph suggest that one of way of Stoke avoiding a possible points deduction penalty would be to sell its ground.

Key questions were answered on Stoke City’s latest accounts, here it is summed up by Stoke Sentinel.

“Financial Fair Play losses are not the same as accounting losses,” explained football finance expert Kieran Maguire, who spent a good chunk of his Friday talking to StokeonTrentLive and Radio Stoke about Stoke’s balance sheets.

“Stoke have put a huge decrease in player valuation, for example, at the door of Covid, which would be exempt from FFP.

“There is also the cost of running a Category One academy, which you’re looking at about £5m a year, infrastructure costs, work in the community and the women’s team, which are all also exempt. You can knock off perhaps £20m.

“The club isn’t necessarily going to breach FFP, even if it doesn’t mean there could be a transfer war chest for Michael O’Neill this summer.”

How severe are Stoke’s accounts?

Stoke posted accounting losses of £30m in the relegation season of 2017/18 and £15.5m in 2018/19, when Gary Rowett arrived and was replaced by Nathan Jones.

They have now posted losses of £88m in their consolidated accounts for 2019/20, which saw parachute payments fall and the start of the pandemic.

About £75m of the £88m comes from writing off the historic valuation of players, either through amortisation or impairment due to dramatic changes in the transfer market.

A total £38m has been attributed to Covid, also including the club not utilising the furlough scheme and lost match day revenue.

Maguire said: “It certainly is a lot by both Premier League and Championship standards but having said that there has been a big hit as a result of Covid. The club estimates that’s well over £40m, which still leaves it losing about £1m a week in normal circumstances.

“That is a bit of a hangover from being relegated from the Premier League as far as these accounts are concerned because there are players on big wages who the club cannot shift off their wage bill because no one else is prepared to pay that level of remuneration.”

Are Stoke under pressure to get those players off the books?

Badou Ndiaye won’t be returning to Stoke while Kevin Wimmer has made a permanent exit, terminating the final year of his contract to join Rapid Vienna.

Maguire said: “Contracts are for a fixed length of time and Stoke have now not been in the Premier League for three seasons.

“Many contracts are due to expire at the end of the 2021/22 season, which will allow Stoke City to shift costs off their books and hopefully go forward with a much lower base wage level which they can use as a means to recruit players.”

Are Stoke under pressure to sell one or more of their best young players?

Nathan Collins, Harry Souttar and Tyrese Campbell have already been linked with eight-figure moves to the Premier League.

But they are all on long-term contracts and will not be let go on the cheap.

Michael O’Neill said back in January: “We’re in a situation with Financial Fair Play which we have to accept but we have to be seen as a club to be doing the right things. I don’t think selling your assets at an undervalued price is the right thing to do.

“We’ve done other things. For example, the players who have left the building on loan have gone out at a much greater cost than the players who’ve come in. There has been a realignment of wages within the building with players we’ve brought to the football club.

“What we don’t want to become is a club that sells players because of that and a club that sells players for a value that we believe is far less than what they’re worth.”

Could Stoke City sell their stadium to avoid sanctions?

Derby sold Pride Park to a company owned by club chairman Mel Morris for £81.1m in 2018. The EFL subsequently charged Derby with an alleged breach of Financial Fair Play rules based on an apparently inflated valuation – but Derby successfully challenged that count on appeal.

Birmingham, Reading and Sheffield Wednesday have sold and leased back their stadiums too. It is clearly an option for Championship clubs to consider.

The bet365 Stadium is owned by Stoke City (Property) Ltd, a separate subsidiary business of the club’s parent company, bet365. It was revalued by an independent surveyor in March 2018 and is currently valued at £40.7m.

It should be noted that the sale of a stadium cannot be backdated.

Why are Stoke losing money?

Stoke’s average first team player wage bill has dropped by half since relegation. Maguire calculated the average weekly wage going from £43,791 in 2018 to £24,473 in 2019/20.

And it is understood that new contracts across the Championship are about 40 per cent, post-pandemic, what they might have expected in 2019.

But Maguire explained: “They are losing money because, although their income is the highest level in the Championship, in 2017 Stoke City generated £136m of income and that’s now down to around £50m. Costs are coming down but not coming down as quickly as income.

“Stoke were paying £110 in wages for every £100 which came through the door, which meant that before you even switch the floodlights on, the club is losing money.

“I think the club has taken a hit, some costs have been accelerated in the accounts and I think 2021/22 will be substantially better. The season we’ve just had will be pretty severe as well because of the impact of Covid.”

The last nine matches of 2019/20 were also played out behind closed doors.

Maguire said: “Match day income was down by about a quarter because Stoke lost those matches from March to May. That’s one hit.

“Then we have these things called parachute payments, which mean that when you’re relegated you get less and less broadcast money for the next three years. That fell by £20m on top of the hit for match day income.

“The wage bill hardly shifted from the previous season because of the issues we discussed in terms of players on long term contracts not willing to move away because no one was prepared to match the wages.

“That really put the club in a bit of a pincer movement in terms of the money coming in was falling but the costs weren’t.”

Does it make a difference that Stoke’s owners are billionaires?

It seems pretty clear that it is better to be owned by billionaire supporters than not, even if they are restricted in terms of how much they can invest.

“I think you’ve got to give the Coates family a lot of credit,” said Maguire. “They’ve now put about £220m into Stoke City, staff didn’t go on furlough and they didn’t force any wage cuts.

“They’ve got to get a lot of credit for their benevolence towards the club.

“But in terms of Financial Fair Play, broadly you are allowed to lose £39m over three years to stop clubs trying to spend their way to promotion out of the Championship.

“And then the accounts and lawyers take a look at the numbers and make adjustments left, right and centre. You can’t put £200m, £300m into the club and spend it all on players because you’re limited to this £39m loss over a three-year period.

“But the generosity of the Coates family is quite amazing.”

Could Stoke’s losses force the club into administration?

“From a point of view of going into administration they will be fine,” said Maguire.

“I think the big challenge for Stoke City – and Michael O’Neill has expressed this view himself – is that they are going to be very close to the Financial Fair Play limit and that’s going to make it very challenging for him to recruit and retain players over the course of the summer.

“There will be financial pressures to make sure that Stoke don’t exceed the Financial Fair Play limit. That’s going to be the main driver.

“But provided the Coates family take the same position as, say, Roman Abramovich at Chelsea or Farhad Moshiri at Everton, in terms of continuing to underwrite losses, then from sustainability point of view, Stoke are in a good position.”

What have the Coates family had to say about FFP and backing the club?

Joint-chairman John Coates said at a recent comprehensive Q&A session: “We’ll always support our manager to the extent that the rules allow us to support him.

“Clearly the rules within the Championship and the profit and sustainability rules don’t allow us to support him as much as we would like to.”

He added, when asked about the club’s debt to the Coates family: “Clearly we’ve had a Covid-affected year and we didn’t take any Governmental help. We guaranteed wages and didn’t make redundancies.

“There (has been an increase in debt to the owners). In terms of what our plans are to do with that, clearly it doesn’t make great balance sheet reading to have a huge debt like that and we’ll continue to look at that and decide what we will and won’t do in respect of that.

“However, clearly it is a completely interest free loan that is provided and we remain totally committed to the club. It is owed to the owners and nobody else. In that sense it is a soft debt.

“When the pandemic hit, my sister Denise’s first thought was that we need to do something, we need to make sure that our staff feel comfortable and aren’t worried about the implications this is going to have for themselves and their families. I think she deserves enormous credit for that.”

SEE MORE: Worrying Derby County EFL development emerges

Fans reacted after seeing that Stoke City need to take drastic action in order to avoid a points deduction…

@cLawn92: Common denominator? The @EFL.

@burger85hughes: What an absolute state were in.

@SuperbHamer: Welcome to the club lads

@danielwarren88: Lets take a minute and laugh at Stoke

@_ColinGriffiths: Financial Fair Play is a joke. It just maintains the status quo and inhibits fair play.

@MikeyMikes_: At this point I’m really struggling to see how any football club outside of about 8-10 clubs is actually financially successful. Super league was wrong but the reality is the current deal or system is rigged to keep them there & amount of money in the EFL is a disgrace

@WbaOllie: oh no

@rossi2810: Even as a Stoke fan, the ground is very basic and it’s not like we’re short of land in the city; we’d be lucky to get 10% of the debt for it; never mind all the hassle which would go with it!!

@SeanGibsonEsq: For the club to be in this position, to have run its affairs this badly given all the advantages we’ve had, is absurd.

@_alexsteventon: Pahahaha this is amazing #pvfc

@CrabbyValiant: Could be a nice bit of business to be done here for Norman Smurthwaite.

There was more tweets that Stoke City need to take drastic action in order to avoid a points deduction…

@FTMatty: And this is the kind of bullshit we are trying to compete with in the Championship.

@StokeMatt_: League 1 Potters

@LeeHallam89: Total bonkers really. We’ve got rich owners, who have the money to cover the losses (which they sanctioned in the first place) and are willing to invest more, yet they can’t spend their own money & might have to sell the stadium to themselves to get round the daft rules

@NoMoreLaughs: ‘Well run club’

@Brammered: “I don’t know what all the fuss is about.”

@NickClowes: Notwithstanding the terrible mismanagement of the club, an FFP system which prevents billionaires from writing off losses, but practically encourages ticket increases for supporters to increase revenue, is fundamentally flawed. #scfc

@saintstokie: Err wtf? FFP needs binning off

@wearelutontown: 🏟 Money bagSeems some Stoke fans think they’re owners should just be able to plough money into it and FFP shouldn’t be a thing. Such a contrast in business models in the Championship, it’s such a mad division. Comments make interesting reading.

@fslconsult: What an absolute embarrassment

@potter2207: The fact that we’re in this state and Tony Scholes is still in his job just demonstrates what is going wrong at @stokecity

@StokeMattFromCT: Stoke City in the mud pass it on

@UTCstudio: If you’re going to plummet, do it in style. From Arnautovic and Shaqiri to three consecutive bottom half championship finishes with a set of players that I suspect don’t even know which way round to sit on a toilet let alone kick a ball. Whilst setting fire to 200m in the process

@DGabrielliSmith: FFP rules are a joke but our excuses are equally as daft. Our board genuinely think they’re running the club well. They’re not. Whether FFP exists or not.

@nathscfc: Disgraceful

@BoothenBursik: Forever grateful though. We’re ran worse than a Sunday league club behind closed doors. MON doesn’t help himself at times but his hands are fully tied with this mess. #SCFC

@NathanJordan85: Here we go, people laughing at Derby now don’t realise every club is coming out of this in a bad way #dcfc

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