Where Has the Money Gone?
When looking at the cash cycle of a football club, like many businesses, the annual revenue does not come in uniformly over the course of an accounting year.
The majority of clubs like to get as much season ticket cash in as early as possible in a season so that they can better plan expenditure. Some clubs utilise part of this cash to fund transfer activities for the season ahead (though not all).
It is not a requirement for clubs to disclose their monthly cash flow breakdown, so we can only really estimate how it might flow over a given year. The annual flow is detailed in the accounts, therefore based upon a few basic assumptions we can come up with a relatively sensible view of how cash flow might look at Leeds United.
We know that in the year ending 30 June 2011 turnover was roughly £32.6m and was broken down into five main categories (note 2 of the accounts):
Given this income relates to a season in the Championship we can assume that £32m revenue is not an unreasonable figure to expect this season (obviously with a big assumption around gate receipts and merchandising holding up – but even if they don’t the overall % theory will still stand).
The 2011 accounts also disclose that the club received c£8m of season ticket and sponsorship money in advance (note 12 of the accounts), looking back at past years this seems to be the norm so we can assume that this will again be the case.
Given we know the habit of a football fan is to buy merchandise such as the latest kit before the season starts, I think it is also safe to assume that perhaps £2m of the merchandising income comes in during the first two months of the accounting period (July and August).
The central distribution from the Football League in cash terms is paid equally over the year, but on the understanding that it can be recalled if clubs fail to meet their requirements. So we can assume that the club would receive c£800k of this during July and August (2/12ths).
So, from the above we can conservatively estimate that by end of August (month 2) Leeds United will have received at least £10.8m of their annual £32m income (over 1/3rd - £8m + £2m + £0.8m).
Player trading is obviously also a factor at this time in the season and can have a dramatic impact on cash for a football club, but in the case of Leeds United, we have assumed there was very little impact after looking at the deals this summer.
Our understanding from a number of sources is that the potential acquirers have advanced £4m to the club during the summer in two tranches of £2m. We also understand that this money has been swallowed up by working capital requirements. What we obviously don’t know right now is what the bank balance was on day 1 of this season (we will have to wait until March 2013 to find this out for sure), but if we work on the basis that no overdraft facility is in place (or a significant one anyway) the worst case scenario would have been that there was nothing in the bank which is what we will assume.
If the above is all correct what we can deduce is that the club has spent nearly £15m by the end of the first two months of the accounting year on its trading activities and obligations (which might include agreed partial repayments of loans), this equates to nearly half (47%) of the annual income being spent by month two (none of which has gone on player acquisitions) - and there are ten more months to go.
We will have more on the financial situation at LUFC in the near future.