LEAGUE RECAP

Flashback to 2013, and the Baggies delivered an 8th-place finish, their highest in the Premier League. West Brom would bounce across the bottom half of the top tier for a further 5 seasons before suffering relegation in 2018.

 Two years later, West Brom would secure their return to top-flight football. The dreaded yo-yo was out immediately, with the Baggies dropping back to the Championship a year later.

 The decade finished with West Brom regrouping in mid-table.

On the sidelines, the Hawthorns has seen a revolving door of managers – a staggering 15 different individuals have occupied the dugout.

Now, let’s turn our attention backstage. What unfolded behind the scenes?

REVENUE

Firstly, West Brom adjusted their accounting period in 2020 and 2021, a response we’ve seen from other clubs coping with COVID disruption. 

 Revenue went from strength to strength in that initial Premier League run, peaking at £138m. However, subsequent relegation and the impact of COVID-19 led to a decline, with the Baggies generating £65m in 2022

What factors contributed to this decline? Let’s analyse it by revenue type.

Gate receipts

First up, let’s discuss gate receipts.

They peaked in 2015 at £8m, then dropped to £5m. Proportionally, they’ve consistently accounted for 5-10%.

What’s the story behind the underlying attendance figures?

A decade ago, over 25k fans filled the Hawthorns. However, COVID-19 may have hastened the decline, with under 22k attending on average in 2022.

Broadcasting

They peaked at £119m in 2017, fuelled by an enhanced TV deal and a commendable 10th-place finish.

As expected, these revenues decrease with relegation, although parachute payments cushioned the blow, amounting to £52m in 2022.

Commercial

Commercial revenues have also suffered since the Baggies’ relegation, decreasing by half from £13m in 2018

Analysing by league position

reveals a general correlation between revenue and league performance, with yo-yoing providing West Brom with additional income in the Championship. 

On average, Premier League years only generate 1.6 times compared to the second tier.

PROFIT

Now, let’s dive into the profits.

This story unfolds in two parts. The top-flight run yielded steady profits, peaking at almost £40m in 2017. However, following the relegation year, losses became a consistent theme.

 League positi

on highlights the highs and lows – with a staggering £60m swing in profit from 10th to 22nd place!

On average, the advantages of Premier League football are evident, resulting in a £9 million operating profit.

So what’s happening?

Let’s address this with our P&L walkthrough.

Staff Costs

Wages continued to climb during the top-flight tenure yet remained proportionate to the revenues generated. However, following relegation in 2018, the wage bill halved, only to surge again with promotion due to a blend of squad investment and promotion bonuses.

The Baggies’ wages continue to fluctuate as they oscillate between divisions.

The trend is mirrored in staff numbers, which rose during the Premier League spell, stabilised after the initial relegation, and then declined.

Setting aside the impact of Covid, the Baggies have consistently maintained wages below 75% of revenues, with 2017 being a standout year at under 60%.

Now, let’s assess the cost of the wage bill in terms of points for West Brom.

In their three Championship years, points have come at an average cost of £700k

In non-relegation years, Premier League points have cost under £2m each – but spiked to £3m

when the Baggies couldn’t avoid the drop.

The tale of two halves is already evident after discussing staff costs. Let’s now shift our focus to operating expenses.

Operating Expenses

These costs steadily rise during the Premier League run – yet what’s noteworthy is the £25m expense in 2022, despite the club being in the Championship.

The Baggies had to write off £7m in loans made to other companies owned by Guochuan Lai, despite assurances of repayment. This hints at trouble behind the scenes, which we’ll explore further shortly.

Returning to the walkthroug

h, it’s evident that EBITDA favours Premier League football.

Stadium + facilities

Expenses related to  the stadium and facilities encompass the capit

alised costs of long-term assets, such as the Hawthorns. Nonetheless, these expenditures are relatively minor in the larger context, so let’s discuss transfer fees.

Transfer fees

Expenses rise as the Baggies aim to consolidate their position in the Premier League. However, it’s the substantial losses incurred from 2018 onwards that have plunged West Brom into consistent deficits, with no profits recorded since the banner year in 2017.

On average, the margins paint a clear picture – the Premier League delivers 5% profits, contrasting with the 17% losses incurred in the Championship.

CASH

Let’s analyse if the cash aligns with the profit narrative we’ve just explored. As usual, we’rescrutinising the combination of cash from operations and transfer fees.

Cash from operations

Cash from operations, influenced by EBITDA line items, illustrates the benefits of being in the Prem.  Cash flows in during all top-flight years, with only modest outflows during the Championship spells, which may come as a surprise. Over 10 years, the Baggies generated £125m.

Cash from transfer fees

Now, let’s shift our attention back to transfers. As expected, net transfer spending increases as West Brom builds out the team. Following the initial relegation, the cash situation mirrors the team’s yo-yo performance on the field. Across the decade, £94m was the net spend on transfer fees.

Cash from operations + transfer fees

Combining these amounts, the outlook appears promising. In fact, the Baggies have managed to generate cash over the last 10 years, totalling £31m, thanks to their early Premier League performance.

Volatility in the yo-yo years however, may be a cause for concern.

Financing

Let’s now delve into who’s footing the bill, or perhaps not. In fact, small amounts of cash have been leaving the club since 2015.

However, the situation may not be as rosy as it appears. In addition, West Brom took out a £2 million loan – while not significant in the grand scheme, the Baggies missed their repayment date, resulting in accruing interest at a rate of 5% per month, equivalent to about 80% interest annually!

So, what has transpired since then?

 West Brom’s tenure in the second tier appears set to continue, with another mid-table finish in 2023.

 Additionally, West Brom has recently secured a larger £20 million facility, incurring interest at approximately 14%. This suggests that the reduction in parachute payments may be starting to have an impact.

Lastly, rumours of a potential sale have emerged. Could a change in ownership alter the fortunes at the Hawthorns?

Only time will tell.