This week we’re heading up to Yorkshire, to delve into the financial history of Sheffield United!

LEAGUE RECAP

Let's rewind to 2013; Sheffield United, stationed in the 3rd tier, spent 4 further years in League One, marked by 2 remarkable semi-final cup runs .  Fortunes shifted in 2017 with a promotion, sparking a rapid climb up the leagues.  Two years later, another level up – the Blades were back in the big time.  A fantastic first season in the Premier League unravelled with second-season syndrome, leading to United's relegation in 2021. This decade concludes with the Blades in the playoffs, losing out to eventual winners, Nottingham Forest.

Impressively, in that middle 5-year stretch, Sheffield United climbed 46 league places across 2 divisions.

 And in the dugout? Bramall Lane witnessed slightly turnover in managers compared to others we've examined – 8 different men led the Blades. 

So what unfolded off the pitch?

This week we’re heading up to Yorkshire, to delve into the financial history of Sheffield United!

REVENUE

Firstly, Sheffield United adjusted their accounting period in 2020 and 2021, a response we've seen from other clubs coping with Covid's disruption. Overall, it will balance out in our analysis, so let's proceed to revenue.

Sheffield United's case vividly illustrates the step-changes in revenue as a team progresses through the divisions

Revenue nearly doubles transitioning from League 1 to the Championship, followed by even greater jumps as reward for top-flight football.

The impact of Covid is evident, with the Blades experiencing a dip in their revenues during the second Premier League season.

Parachute payments are evident once more, with the Blades securing £67m in revenue the year after relegation, compared to just £22m in their promotion year.

Zooming in on these two years, broadcasting revenue amounted to £8m in 2019.

Fast forward to 2022, and it has surged to £51m!

 The disparities in Premier League and parachute payments become evident when examining revenue by league position.

On average, the revenue trajectory is clear. The Blades picked up 3.6 times the revenue they did in the Championship,

PROFIT

It follows a familiar pattern – akin to other clubs, Sheffield United consistently records losses in the 2nd and 3rd tiers of English football.

 Securing promotion in 2019 leads to an immediate rise in bonuses and other costs, further denting profitability. The scenario takes a turn with the infusion of additional Premier League money – reaching its peak in Year 1, but the Blades still remain profitable as they exit the top flight."

 Returning to the Championship for their first season results in a return to losses.

 Now, observe these clusters when considering league position.

Undoubtedly profitable in the Premier League, experiencing smaller losses in the League 1 years, and facing the worst financial performances when the Blades are competing at the top of the Championship.

 So, why did the Blades incur more losses in the Championship than in League 1?

Let's navigate through this in our P&L walk-through. Set the timer, fade out the revenue, and let’s delve into staff costs." 

Staff Costs

In League 1, wage constraints tightened, possibly due to the lesser financial incentives of ascending to the Championship. Once the 2nd tier is reached, wages start to rise, reaching £78.5m in 2020.

However, with declining performances, the Blades have aimed to control the wage bill, effectively halving it in 2 years.

Percentage-wise, the Blades have controlled spending – keeping wages under 65% of revenues since 2019."

And how does this spending on wages translate to points on the pitch?

In League 1, United spent just £140k in wages for each point, on average.

 In the initial 2 years in the Championship, this figure rises to £400k. The first season in the Prem was a triumph, with the Blades earning 54 points at under £1.5m each. The following year wasn't as successful, with 23 points costing an additional million each, at £2.5m

 Post staff costs, Premier League promotion appears transformative once again 

Operating Expenses

Moving on to operating expenses, they incrementally rise until the Premier League. There's a spike afterward, but the confluence of differing accounting periods and Covid complicates the analysis.

There's not much more to add here, but we can infer that EBITDA favors Premier League football.

Stadium + facilities

Stadium & facilities costs are minimal, but there's an uptick in 2022. This is partly due to a £1.3m impairment of the club’s land & buildings – it appears that the latest valuation came in below what United were carrying it at, resulting in an incremental hit to the P&L.

Transfer fees

Lastly, transfer Fees. Smaller figures in League 1 – but it gets very interesting from 2017 onward. Profits in the ascent through the Championship but that flips to increasing costs in the Premier League as the Blades build a team to compete in the top flight. Those costs persist despite relegation back to the Championship

Sheffield United appears to be an example showcasing that profits can be made in the Premier League, with an average 13% profit margin over two years

CASH

Now, what about cash? As usual, we're scrutinizing the combination of cash from operations and transfer fees.  

Cash from operations

Cash from operations, influenced by EBITDA line items, has one standout figure – what's happening in 2020? In all but one other year, cash flows out from Bramall Lane, but 2020 sees an incredible £105m coming in. Why is that?

Remember they had generated a healthy EBITDA of £35m – so where does the other £70m come from??

Well, first, we see £31.4m of deferred Broadcasting income in 2020. The end of this season was disrupted by Covid so the last few games of the season weren’t played until the next financial year. Sheffield United had the cash from the Premier League for those last games but had not yet “earned” the income (that would happen next year)

On top of that, there were expenses that United had incurred but had not yet pad – perhaps renegotiating payment terms or agreeing deferrals to preserve cash in the pandemic. As an example.  The amounts owed to HMRC jumped to £16.1m in 2020.

 We can see most of these timing differences had resolved itself by 2022

Across the 3 years from 2020, Sheffield United earnt £80m in EBITA.

From a cash side over that period, they made £86m – so its broadly in line, just the timings out of whack! (There’ll always be some difference between profit earned and cash generated due to timing of payment terms)

Cash from transfer fees

Now, returning to transfers—it's the opposite. Smaller cash inflows in nearly all years leading up to the Prem, and heavy outflows in the top-flight as the Blades invest in the playing squad.

 Those two years tip the balance to a net £65.5m spent on transfers in the decade. The average of those 2 years in the Prem was £42m out the door."

Cash from operations + transfer fees

So, where does that leave us? There were a couple of crazy years in the Premier League, but the Blades have ended up spending just £8m over the last 10 years.

Financing

So, have the Blades' owners had to find much to fund?

Cash was taken out of the club in those beginning years, but funding has continued to ramp up through the Premier League spell and beyond – reaching £82m net by the end of 2022.

Alongside the £8m operational shortfalls, the club has spent £64m on stadium & facilities – most of it in 2020 as part of the fallout of the heated takeover battle won by Prince Abdullah in 2019, with the club ordered to buy the stadium & other facilities for £38m.

 The consequence of this is Sheffield United have now accumulated significant 3rd party debts, with bank loans standing at £63m in 2022.

So what’s transpired since?

On the second attempt, Sheff Utd punched their ticket back to the top flight. However, it was back to the future for the Blades as Paul Heckingbottom was replaced by Chris Wilder, who returned to try and steer United to Premier League survival.

But more change may be on the cards in the board room, with Prince Abdulluh looking to offload the club.

How will this impact the Blades? We'll just have to wait and see

Until next time!