By James Dailey
The Start of the Modern Era
In an alternate history, a pandemic hits the world in early 2004, and Celtic have just come off the enchanted 2002-2003 season, including the heartbreaking loss of the league and the Cup final to Porto. The Martin O’Neill era was near its apex, with that vintage of Celtic probably the best since the Lisbon Lion era 9 in a row. Surely the Club would have leveraged that tremendous on-field success and the legacy of Fergus McCann’s financial prudence to be relatively well positioned to endure a pandemic – right?
Celtic’s public filing of financial information at the conclusion of the 2002-2003 season, dated 30th of June 2003, showed cash in the bank and on hand of £753,000. To put this is formal financial terms, we would have been in deep doo doo. In this time of widespread hardship and anxiety, I thought I could provide fellow supporters a welcome distraction and some reassurance about our Club.
Pandemic Reality
When I wrote the “The Celtic Business Model” piece in January, I certainly did not anticipate that a global pandemic was already unfolding. Much of the catalyst for my decision to write that piece related to how much of an outlier Celtic’s financial management was/is within the world of football. I used my little alternative history exercise to highlight how most of the rest of the football world is managed – even the most successful clubs. Most clubs are in serious trouble, which makes the recent SPFL charade even more of an absolute farce.
As with many companies, Celtic’s financial disclosures have evolved over the years, so it can be difficult to do a full long term “apples to apples” comparison. What I have tried to do with this analysis is offer readers some context for what Celtic’s financial situation may look like as we all hopefully emerge from the pandemic. As with any financial modeling or analysis, assumptions are key, and the ones I have used will most assuredly not be precise, but I believe it to be a worthy exercise, nonetheless.
The Celtic Reality
I will start by sharing where Celtic were entering the pandemic. Per the interim financial disclosure as of 31st December 2019, there was £37,604,000 cash in the bank and on hand. In addition, there appears to be some money (about £7.5 million) expected sometime within the year– possibly either related to the sale of Tierney last August or the compensation for Brendan Rodgers’ departure last season, but I am speculating.
Next, I will provide some historical context for Celtic’s financials. I have taken snapshots of the 2002-2003, 2009-2010 and 2018-2019 seasons, all which Celtic failed to qualify for the Champions League group stage.
*Note – disclosures for a period of years around 2009-2010 season did not breakdown staff into categories.
On an operating basis, generally the Club appears to have been run to target around breakeven in seasons we do not qualify for Champions League group stage, with extra revenue from the seasons we did qualify effectively “banked” for 2016-2017 and 2017-2018. Contrary to a common narrative that Celtic are a “selling club,” total net player transfers over the past 10 seasons has been close to zero.
Outside of the growth in cash, I have several other observations. With the tremendous evolution in sports science and analytics since 2002-2003, I think it is alarming that Football-related staff is down over that period. I also believe that it is worthwhile to consider the change in the various metrics since 2002-2003 in real terms – meaning adjusting for inflation. I have used official annual UK inflation statistics to adjust those 2002-2003 amounts and compare them to last season’s:
I think what you will see with this comparison is that outside of wages, the balance of the other data is generally in line with general inflation. Do not get me started on my disgust with how executive pay across the corporate world has basically been a leveraged “reward” for managers who have simply benefited from inflation!
Now let us focus on the Salaries line item and staffing data from above, as I believe they are key variables when we consider how the Club will manage through the pandemic. Based upon information on the Celtic website, I estimate there are 36 first team and 27 reserve players. Using what I believe are reasonably conservative compensation estimates for those players, my guestimate is that along with the coaching staff, that group’s total annual salary amount is around £30 million plus or minus a million or two. If I assume that about 75 of the 155 total Staff- Football figure are non-player or coach (let’s call them “Support”), and I add that figure to the 874 in Staff- Other, the total is 949. Next, I subtract the £30 million in estimated player/coach salary from the £56,094,000 total salary figure and get £26,094,000. A simple average can then be derived by dividing that figure by the 949, and I get about £27,500 per year per person – seems like a reasonable estimate. This delineation offers a framework for breaking down those salaries which are possibly covered by furlough, versus those that may not.
Harry Brady recently suggested on a recent episode of ByTheMinute Celtic podcast that the Club’s monthly “burn rate” may be around £3.5 million per month. Based upon my assumptions and analysis, I hope that figure is a bit high. An unadjusted monthly wage bill would be around £2.5 million per month, and we know that “significant reduction in salaries” were agreed to by first team players, staff, and coaches, as well as executives.
Assuming that this monthly salary amount is now between £1.5-£2.0 million per month, and another £1 million to “keep the lights on” with other operating expenses, we can do a simple calculation on cash reserves. I should also mention that the Club has a £2 million revolving line of credit, which had not been in use prior to the pandemic, so that would increase liquidity from £39 million. There is also the potential that the additional £7.5 million owed the club is collected. At a £2.5-£3.0 million monthly burn rate, the math is simple.
Conclusion
The Club has valuable players it could also sell if needed, so I believe Celtic are in a relatively rare position of financial strength compared to the wider football world – most look more like our 2002-2003 or 2009-2010 vintages. However, as visionaries like David Low have stated recently, the football world is likely to look dramatically different on the other side of the pandemic. I am confident Celtic are well positioned to survive as a corporate entity but believe our relative competitive standing as a Club is far less certain.
I hope to tackle that topic in a future piece.
Also, I welcome any constructive feedback any readers may have regarding the assumptions used.
Mark Nicoll says
Excellent piece and it would provide clarity on what the strengths of the negotiating position was if we knew where the new club were financially?
James Dailey says
Thanks Mark – I am not clear on what your question is, apologies. Happy to answer if you would expand.
Daniel Docherty says
What expenses if any would be covered by insurance for disruption of business
James Dailey says
Hello Daniel – that is an excellent question and one I am embarrassed to say I hadn’t considered when doing my review. I give myself an automatic F given the importance!
I went back through the fiscal year end filing (dated 30th June 2019) and the interim filing at year end 2019 and only specific mention of insurance deals with liability insurance, where they basically say they don’t disclose specifics. I can’t find anything relating to business interruption insurance. I am guessing that if we had it, like the clubs that do, we’d have disclosed that publicly since the lock down began.
Auldheid says
I think assumptions are ones that are relevant and probably in right ballpark overall, remember doing a spreadsheet years back trying to separate football costs from other.
You say “but believe our relative competitive standing as a Club is far less certain.”
Competitive standing compared to where/what? I look forward to next article.
James Dailey says
I’ll be focusing on RFC but also probably provide some European context. I hope to write it this coming week.
Chris Gibbons says
Excellent piece. Would our relative financial stability make it easier for the club to keep players such as Ajer? If our scouting system is as good as ever it might also enable us be in a position to buy. Presumably the price of players will come down when all is settled. Really interesting read.
James Dailey says
Hello Chris – thank you for the kind words. I think it is really too early to have any great visibility on those kinds of questions, as important as they are. My current view is that much of the world remains in the first stage, Denial, of five regarding the “grief” in dealing with the pandemic. The implications of this may be exponential and probably result in things most of us can’t imagine at present. The better minds I have heard (such as Mr. Low) comment to date is that the transfer market may freeze up, which makes sense to me intuitively.
Someone on a 2 to 4 year deal at 20 grand a week may not be happy with what they find out their value is in the marketplace in these conditions. In fact, I commented on Twitter last week that I expect players to develop negative transfer values, as the carrying cost of their above market level wages will result in clubs having to pay others to get rid of them. I don’t know anything about UK or EU labor or contract law, so not sure what flexibility clubs will have to try and terminate player contracts before their expiry.
vino says
Oh Celtic Oh Celtic , we are the Champions.
James Dailey says
I was on the “vino” last night but back to a lager tonight – Stone Tropic Thunder to be specific!
Hail Hail!
fess19 says
Once again an instructive and enjoyable report.
I am like Auldheid in that I would to know more about our “competitive standing as a club is less certain”
Cheers for your time &work on the tepory
Friesdorfer says
Excellent analysis James, this is just the sort of information we need to see and consider atm. I look forward to reading your next piece. Thanks again.
Boab says
Will this all be before season tickets money is collected for the new season and 1st year sponsorship money from Adidas is included.
James Dailey says
My analysis is using the figures entering this season. There will be some contracts like Gordon which expire in June, so first team costs will fall a little. I assumed zero incoming revenue during the period of shutdown. It is possible some will pay for season tickets despite the uncertainty, but I have no way of modeling or having a reasonable guess as to what that may be. Same goes with any other commercial contracts and potential associated payments.
I tried to offer a “bare bones” really bad case scenario.
Thanks for the question.
Por Cierto says
Really like this, very easy to understand, thanks, James.
Peter Lawwell started as Executive Director, Head of Operations, in September 2003
I’m not going to make any comment as to the contribution of him or his staff, don’t have the insight to do that, just thought it interesting and relevant, considering the period of the financial disclosures that you are reporting on James.
James Mills says
Great piece of analysis , James !
I have seen this replicated many times in our MSM since this crisis began , showing the relative strengths and weaknesses of Scottish clubs ……oh wait …. err , no , I haven’t !
Anthony McCabe says
Hi James. If the pandemic and ban on football continues, it may be that squad sizes, indeed the overall scale of clubs will be reduced. Seeing reports that Bayern Munich may be or have nabbed a couple of youth players from us. I feel that such players may have greater opportunity to progress with us in terms of getting into a first team. What do you see happening here with youth etc?
Peter says
James
Great analysis,,,, you mentioned Harry on the BTM podcast,,, one thing they mentioned, which I have also been worried about was our Competitive Advantage being eroded, through no fault of our own.
So we burn away our capital,,, end up no cash, less players,, etc etc, same as our historic competitors, who go through a fiscal event, and we are on a similar baseline,,,, as I say my fear.l
James Dailey says
Hello Peter- Harry is clearly a smart guy and I believe he is onto something. The concept is a main theme in the next piece I am working on. Thank you for reading and commenting. BTM, ACSOM and other Celtic podcasts have been great distraction and source of fellowship for so many during these difficult weeks.
Sweetie says
Interesting article, James. My heart says that football is too important to too many people not to make a complete recovery from this crisis, but my head says that the interruption is going to be too long for it to survive without terrible losses. I suspect we might see a very healthy but hugely transformed football business a year or two from now.
You may have seen this report on sports salaries. I found it very interesting.
https://www.globalsportssalaries.com/GSSS%202019.pdf
James Dailey says
Thanks Sweetie – hadn’t seen that before and it is indeed an incredible resource. They have our salary structure for this season somehow, which is a bit higher than I backed into using the 2019 annual and the December 31st semi-annual. If accurate, that would add about 500k per month in gross first team salary costs.
I have no doubt that football will endure in Scotland in some form, but these kinds of economic crisis have typically resulted in further consolidation of relative wealth and power across industries and central governments (barring revolutions/civil wars), and particularly so when the currency is not moored to prevent John Law-style monetization of deficit spending. Regardless of the insane theatrics and duplicity coming out of Ibrox, the SPFL is moving to consolidate power upwards and the quick swatting away of restructuring is an example of the top of the pyramid projecting power.
Notably, the Bank of England just recently printed half a trillion pounds to directly “finance” deficit spending in the UK, and possibly crossing the Rubicon from what had been asset purchases via quantitative easing. QE at least maintained the illusion of eventual return to normalcy.
The German and EU courts are currently battling over this and whether the ECB will be allowed to do the same, and it is the “Maginot Line” of sorts for Germany and a last defense against countries like Greece and Italy printing money to directly monetize their deficits. Unless Germany somehow embraces Weimar-style policies, the EU could disintegrate, unless more creative paths are pursued like some sort of “back door” compromise is worked out via SDR’s printed by the International Monetary Fund.
I go into all of this because the crisis in football is likely to be inextricably linked with macro issues like whether the EU dissolves/fractures, and/or whether inflation rates in the UK go to 15%+ a year 2-3 years down the line. I think the breadth of possible outcomes is vast and that football will largely be a distant derivative of these larger forces.
Duncan says
Worse case scenario?
If the worse came to the worse the long term Investors could sell their shares and open it up to a Fan controller entity as they have in Germany.
It is my opinion that a 51% model is probably the best scenario for everyone involved.
Supporters then get a controlling say in what direction we take.
For example.
I doubt very much Resolution 12 would ever need to have chased in a 51% Fan Controlled Celtic.
I doubt very much the 5 Way Agreement would have got past the first step either
I doubt very much the Titles bestowed upon the Newco from the EBT era would have gone unchallenged either.
German Clubs have proven this model works.
I don’t see why it wouldn’t work at a Club with the size of fanbase we have and if anything I actually think Investing in the squad would be a priority and not the gamble we see Annually at present.
Well worth an open debate I feel among the wider Support.
Dermot isn’t getting any younger and neither is Peter Lawwell.