Independent analysis of Nottingham Forest accounts

Nottingham Forest Supporters’ Trust have had these reviewed by an independent accountant to offer insight into what they show about the finances of our football club for the period ending May 2017

Nottingham Forest’s latest set of accounts covering the financial year to 31st May 2017 has been published.

Nottingham Forest Supporters’ Trust have had these reviewed by an independent accountant to offer insight into what they show about the finances of Forest for that period.

The following report is written with a non-specialist audience in mind and focuses on facts, avoiding any speculation.

As is always the case, published accounts show a snapshot from the past – a case of how things were, not necessarily how they now are. That is especially the case with these because they relate to the final year of Fawaz Al Hasawi’s ownership of the club. The takeover by Evangelos Marinakis and Sokratis Kominakis took place in the final month of the 12-month period covered.

One of the main headlines from the reporting of these accounts has been the write-off of loans to the value of £40.4m. This action helped to improve the net liabilities of the club to £(38.8)M in the 2016/17 accounts. Though a substantial improvement on the previous year’s figure of £(70.9)M, it remains the case that the club continues to be dependent on loans from the parent company (in effect the owners) in order to keep running.

Nothing unusual here for a club in the Championship, but it is worth noting that Nottingham Forest continues to be a long way from being self-sufficient (i.e. that revenue is greater than what the club spends to keep operating). Critically however, the new owners have confirmed that they can meet the club’s liabilities. This removes the potential threat to the club’s future that appeared in last year’s accounts, when Al Hasawi had to report that he could not guarantee that future funding requirements would be met.

It was widely reported in the media that Forest made a profit during the period. Though technically true, this is in fact arguably misleading because the apparent profit came about because of the loan write-off mentioned above. If that one-off factor is removed from the picture, the underlying position shows a loss of (8.3m). This is a big improvement on the equivalent figure of £(19.9)M for the previous year to May 2016 but also needs to be treated with caution because profit from player sales (principally Oliver Burke to RB Leipzig and Henri Lansbury to Villa) was over £10m higher (£14.7m compared with the £4.3m).

As we all know, player sales are a very important source of income to clubs like Forest, however as we also know, there can be no guarantee of income from this source in every financial year.

The real underlying performance is most accurately reflected by the EBITDA number. This acronym stands for earnings before interest, taxes, depreciation and amortisation and this figure allows a meaningful comparison between years. The EBITDA figure for the year to 2017 is £(20.1)M, virtually unchanged from the previous year of £(19.9)M.

Behind these summary figures, income increased by £2.4m with the high majority of this (£2.1m) being accounted for by increased recipients from the EFL reflecting the new TV settlement. The new shirt sponsorship deal was an improvement on the previous one and the move to bring the catering in-house also increased income, albeit with associated increased costs.

Wages have fallen by £2.0m to £28.6m but this has been more than wiped out by a substantial increase in non-staff costs by £4.6m to £12.3m (60% increase).

The report does not specify what this includes; it is not known whether it is explained by one-off costs or by a long-term change in the cost base.

Player amortisation, the cost of buying players spread over the lengths of their contracts, has fallen from £3.0M to £2.0M, reflecting the cheaper nature of our playing squad. Depreciation has remained roughly the same at £0.9M.

An important consideration is what the figures might mean for FFP considerations. For the purpose of FFP calculations, the cost of depreciation and also anything spent on youth development is removed. Depreciation was £0.9M and if we assume around £0.5M for youth development this would give an approximate FFP loss of £(6.9)M. This compares to £(18.1)M in 2015/16 and £(20.2)M in 2014/15.

The current FFP rules allow clubs to make losses that total £(39)M over 3 years. Forest submit their returns this month, along with all other clubs.

The numbers we estimate are £(18.1)M for 2015/16 and approximately £(6.9)M for 2016/17, plus whatever the projected figures are for 2017/18.

The latest period includes the sale of Britt Assombalonga for £15M and has seen substantially increased attendances at the City Ground, so it isn’t unreasonable to think our results in 2017/18 will be similar to 2016/17. In theory the club could in fact double the losses for 2016/17 and still achieve the FFP requirements.

In any case, on the basis of the publicly available information, it seems very likely that the club will comfortably meet FFP obligations, so there is no prospect of a transfer ban to limit Aitor Karanka’s plans for 2018/19.

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