Newco accounts, a way forward if they take the medicine
It was around 5pm on the evening of 30 July 2003, Celtic were a couple of hours from playing a Champions League qualification game against Lithuanians, Kaunus, when an alert I had setup informed me the accounts for season 2002-03, the Seville season, were released. I had been tracking our accounts for years and the cumulative losses, accrued since Dermot Desmond replaced Fergus McCann as the largest shareholder, was alarming. We needed to break even and the Seville season would surely be the time.
Immediately I knew this was not a good sign. Celtic Park had been packed out all season and the European ties extended into May for the first time in over 30 years. There was also a massive splurge on retail memorabilia, as shirts, DVDs and Seville programmes were bought in their thousands. After years of consecutive loss, we could be hopeful of some black ink at the bottom of the accounts.
The ominous timing of the publication was for a reason; income was up but wages rocketed, Celtic were spending 10% more than income. Putting the information out hours before a Champions League qualifier was an attempt to divert headlines away from a harsh reality: Celtic were underwater. Again. We were borrowing to pay wages we could not afford.
So when Newco released their accounts late on Friday evening, you did not need to read them to know what they contained.
Last season was the first Newco competed in group stage European football, meaning this document would be significantly different from all previous Newco accounts. Income was up substantially at £53m (2018: £32m) but operating expenses also rose, to £58m (2018: £39m). This resulted in an operating loss before player transfer considerations of £4.4m. A transfer amortisation charge (don’t start me!) of £7.2m, finance costs and £3m from player sales took the annual loss to £11.2m.
A year earlier Newco predicted they would require £3m additional funding this year, that figure has been revised to £10m. The board also said a “material uncertainty exists which may cast doubt over the Group’s ability to continue as a going concern”. Which is disarmingly frank.
By contrast, Celtic went one extra round in the Europa League, but turnover was £83m, a full £35m more than Newco. Gate receipts were comparable: Celtic £35m, Newco £32m, as were media rights (including Uefa money), Celtic £16m, Newco £11m. The big gaps came in sponsorship, Celtic £10m, Newco £2.8m, Retail, Celtic £13m, Newco £4m and stadium operations, Celtic £7.6m, Newco 3.5m.
Newco remain, but their own board’s admission, in a perilous position, but there is a workable way forward. Revenue is within touching distance of operating expenses, shaving £5m in costs would get them there, and a significant portion of that would be taken care of if they stopped futile court actions against Mike Ashley.
They would have no money to buy players without first selling, but every other club in Scotland, bar one, is in the same boat and most manage quite successfully. Ambitions would need to be tempered; becoming the top team in Scotland could only be achieved through, scouting, coaching and generally good housekeeping. Of course, no amount of good housekeeping would make them likely to be the top team in Scotland, but they have more money at their disposal than Cluj have ever seen, so such dreams are not impossible.
There are also inordinate risks of running at such a loss. It is more likely that next season they will fail to reach the Europa League group stage than overcoming Celtic, significantly increasing the burn rate.
My guess is that Dave King will continue to bankroll losses for as long as he can afford. When he eventually goes, there is a chance a less flamboyant character will take control and deliver that harshest of medicines: living within your means. They have done remarkably well to market their chances: the brilliant city trader, the exotic Portuguese, the A-list celeb. There are surely limits to how many times you can resurrect failed aspiration. They question is, are Newco viable as perennial runners-up?