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Reading FC Announce £15m Loss For 2015/16

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To top off a fairly miserable week, the accounts for last season reveal a worrying hole in the finances.

Reading v Leeds United - Sky Bet Football League Championship
How much is this club costing me John?!
Photo by Martin Willetts/Getty Images

If you're wondering why the potential takeover of Reading Football Club by a Chinese consortium is a hot topic of conversation for those including Jaap Stam, the latest set of accounts should tell you all you need to know.

Reading have reported a whopping £15m loss for the 2015/16 season, mostly due to a £9.2m fall in revenue.

Here are the key points:

  • Total financial loss of £15.03m, a decrease in over £17m from 2014/15 (£2.6m profit).
  • Total club debt stands at £73m up £6m.
  • Revenue down £9.2m to £25.8m.
  • Media revenue decreased £10.3m largely due to a fall in Premier League parachute payments.
  • Salary costs decreased £2.5m to £30.8m.
  • Number of players remained at 56 - coaching staff dropped by 42.
  • Salary costs represent 119% of turnover - an increase of 24%.
  • Club earned £7.1m through player sales and trading including fees for Michael Hector, Nick Blackman, Alex McCarthy, Shane Long & Michail Antonio.
  • Club spent £5m on player trading leaving profit of £2m for 2015/16.
  • Since accounts were filed, the club has spent £2.7m on players (2016/17) and earned £6m in sales (not stated but presumably Norwood & Tshibola).
  • Commercial revenue up £1.8m.
  • Club earned £518k from Rugby Matches.
  • Spent £1.5m on fees for arranging finance.
  • Shareholder debt up £14m to £42.1m.

That's the key info that we've been able to pick out so far but if you want to wade through them yourselves you can read through the full document here. We'll hopefully get a more thorough and expert breakdown as in previous seasons in the coming weeks to clear up any grey areas, including Royal Elm Park.

Lots Of Numbers But What Do They Mean?

At first glance those numbers seem painful but in the wider context of the Championship they're not as awful as you might think. For example, Brighton lost £25.9m last season and several other clubs reported similar losses back in 2014/15.

Yet we can't pretend that just because other clubs are losing cash that it's fine for Reading to be doing the same. The club's debt is now up to an eye watering £73m and by the looks of things it's no longer held by Sir John Madejski, instead falling to multiple different sources including £42m to the Thai shareholders.

Worryingly these loans are now costing us money with a £1.5m 'fee for arranging finance' a particular concern. It's one thing borrowing cash at low interest rates as they did from Sir John for decades but when it costs you money up front to borrow some, you can get into a painful spiral fairly quickly. For example, that £1.5m fee alone pretty much wipes out the entire profit from last season.

Wages Are Totally Unsustainable

A wages/turnover ratio of 119% is totally ludicrous and while it's not spelled out in the accounts, you'd have to assume Reading spent wildly on those seven loanees last season, despite knowing their parachute payments would be cut in half. The club ditched a lot of big salaries during 2015/16 including the likes of Pavel Pogrebnyak, Royston Drenthe and Danny Guthrie yet still somehow managed to spend virtually the same amount on player salaries, all for the gain of two league places.

This season's trading has seemed a lot more sensible so that will hopefully be reflected in a lower wage bill in the 2016/17 accounts.

Financial Fair Play

So how does this impact FFP rules? You can read a much more detailed breakdown here but in a nutshell, the league now judges clubs over a three year period with teams permitted to lose a total of £39m (including shareholder investment) the club also have to submit a forecast of the season to come, with judgements in March.

With a £2m profit in 14/15 and £15m loss in 15/16, that means Reading will be permitted to forecast a loss of roughly £26m this season to pass the regulations, something that they should be able to do due to the club receiving one last set of parachute payments.

Where things get sticky is in 12-months time when we have to work out next year's calculations.

That £2m profit will be excluded from the calculations for 2015-18 leaving the 2015/16 figure of -£15m plus whatever this season is, which we'll estimate loosely at say £10m.

By that point we'll be at -£25m meaning that the club will have to be realistically able to forecast a loss of £14m or less to comply, something that looks tricky given we'll be £8-10m or so down in parachute payments. Therefore, either we'll have to make big money selling players or really slash the wage bill.

So Are We In Trouble?

Yes and no...

In the short-term is doesn't seem as if the club has any problem with paying its debts but the fact we're spending money to borrow money is alarming and you have to question how long the Thai owners want to own a football club that's losing such massive sums. That's why the takeover from the Chinese consortium takes on more importance as they'll be able to inject cash to cover other projects such as the new training ground, not to mention underwriting losses from wages etc.

I don't want to call this a make or break season for Reading, however if we lost £15m last season despite receiving parachute payments then you're looking at having to slash around a third of the wage bill next season to cover that drop when they run out. Hopefully we've already gone some of the way to doing so this summer but 11 new signings aren't playing for free. Unless we win promotion this season you'll almost certainly see players allowed to leave the club or sold to cover the shortfall.

It's one to keep an eye on but for now, fingers crossed a takeover deal can be sorted.