For many of us, getting our heads around our own finances can be tricky, so imagine trying to break down the accounts of a large company such as Reading FC. Well fortunately, Supporters' Trust At Reading (STAR) have done a wonderful job in recent seasons working with Royals fan Dave Hunt to present the club's accounts in a readable, easy to understand format.
This year's document can be downloaded and read in full here, complete with full tables and detailed analysis from Dave but the basic headlines from his report are thus:
How much money did Reading bring in?
The club's turnover took a hit by around £3m last season mainly due to our parachute payments dropping from £24m to £16m. Fortunately, the run to the FA Cup Semi-Finals helped offset the drop. Other income sources remained roughly the same, with match day income remaining steady at £5.7m and commercial income up very slightly by £100k.
Overall the club earned £35m last season compared to £38.1m in 2013/14.
OK, so how much did we spend?
Costs went down last season mostly due to a £1.3m reduction in staffing costs. The club spent £33.3m on staff last year, which represents an alarming 95% of turnover. As Dave speculates, based on previous accounts this probably put us inside the top six spenders on wages in The Championship last season which makes our 19th placed finish last season seem really quite awful.
Beyond wages our other expenses remained roughly the same from the previous season, to see the closing figure at £48.1m.
So what about player sales and spending?
The club earned £4.6m in profit on transfer activity last season, mostly due to the sales of Sean Morrison and Alex McCarthy. Additional income was also earned from add-on payments for Shane Long and Michail Antonio. In terms of players recruited, Oliver Norwood and Simon Cox were two we reportedly paid money for, alongside plenty of loans and free transfers.
This set of accounts don't include the money earned on selling Michael Hector, Orlando Sa or Nick Blackman, nor the player spending that took place in the summer window on players such as Matej Vydra.
The final figure of £4.6m profit is a slight dip from the previous season where £5m was earned after selling players including Adrian Mariappa and Jimmy Kebe.
Yes, the club's accounts also include an £11m gain in disposal of fixed assets which in this case is the value of the land around the Stadium to the 'RFC Prop Co' who will be developing Royal Elm Park. While that's all well and good on the balance sheet, Dave points out that it can't be factored into FFP rules. Fortunately we didn't break FFP rules overall as with other factors such as youth development and depreciation meant that we came in above the £6m loss threshold.
So what's the bottom line here?
The accounts show that including that 'sale' of the land Reading actually made a £2.6m profit during 2014/15. However, that's not a real profit in pure cash terms and with the club spending nearly all of its income on player wages, we're running out of time to compete with the big boys. The club have already had to transfer some of the debt owed to shareholders into equity to fit inside FFP rules.
Parachute payments will cease at the end of next season and once that's gone we can't rely on cup runs to keep us propped up. Instead we'll either need large sums of cash injected by the Thai owners, slash the wage bill or generate money through player sales. FFP rules have been relaxed somewhat to allow clubs to lose £39m over three seasons from next season onward (this year's limit is £13m) so that will help us compete IF the Thai's want to invest. But otherwise it's not looking very pretty.
There's also more questions to be answered about the overall debts of the football club and its associated holding companies. The new holding companies don't have to report their finances until around October 2016 so until that point it's guesswork how much debt is surrounding the club and where it's owed.
I'd very much encourage everyone to check out Dave's original document as linked above, he's put in some fantastic work and we'd like to thank him and STAR for allowing us to share his findings here.