Villarreal CF Financial Analysis - 2019-2020

Villarreal published its financial reports of 2019/20 last month. Let’s take a review…

Fallen by 26%, the club’s revenue has been heavily affected by COVID-19 and its corresponding impact on economy. The revenue of 2019/20 amounted to €86 million, lowest among the last 4 years. Meanwhile, expenses of €141.5m were increased by 8%, and the loss was mitigated by net profit in transfer market of €46.3m. Cashflow as well was worsen with negative operating cashflow of €35.9m and total outflow of €8.7m. But is it the worst?

Profitability -

The revenue was divided into the following categories in the report: Match day (competition prize and membership), Broadcasting and Commercial. Compared to the previous season, income from all categories have been decreased. Income from matches and competition was down by 85%, broadcasting by 12% and commercial by 1%.

The table above categorized matchday incomes by each competition. Obviously, the main reason for the decrease was failed to qualify for UEFA competitions, which would be improved in season 20/21. Also, we can tell that the revenue from tickets and membership were declined, which could be worse in this season since the venue has been closed for 6 months now instead of 3 months in the last season.

According to the data published by La Liga, the broadcasting income from domestic matches was €67.8 million, in the seventh position in the league last year. The total broadcasting income of La Liga clubs seems not being heavily affected by the pandemic situation, which is partially due to that 19/20 was the first year of the upgraded broadcast package. Obviously, this is the last straw for most of the football clubs in terms of revenue. And I’m afraid it still will be in this season. That’s why the matches can be rescheduled but not be cancelled (as the French did earlier).

The good news is that the team has been qualified for the 20/21 Europa League and is doing well so far (the next round against Salzburg would a good test for Unai). As reported, the club has already collected €10.46m from UEFA this season, including 2.92m for participation in group stage, 3m for 7th best team before group stage, 3.04m for 5 wins (570k for each) and 1 draw (190k) in group stage, 1m for group champion and 0.5m for qualification of knock-out stage. By winning the cup, another 13.5m would bee added as the best result.

The last category of the revenue is commercial, including sponsorship, commodity sales, and others. For Villareal, the main sponsors include PAMESA Ceramica (and other Roig’s business), JOMA (extended to season 20/21), Coca Cola and San Miguel. The amount of sponsorship was not disclosed and didn’t seem to change much.

Now comes to the expenses, which lots of fans have been worried about. Although the club announced a salary-cut plan for 20% of the first team’s wages in case of that the league would not be completed for the last season, in June the game resumed without an audience meaning that the salary-cut plan was changed to 1% or €0.6m in total. That’s why we see a record high salary expense of €82.8m on the book, almost equal to the revenue (96%).

The table above illustrates the details of staff cost, of which salaries of first team increased mostly by €11m. In the last season, Villarreal incorporated several important players, including Paco Alcacer, Raul Albiol and Alberto Moreno. The salaries of them were reported as 4m, 2.5m and 2.4m, which explained the increase in first team’s total figure.

What will be for this season? The table above shows the arriving and departing players. Those players highlighted in green had a contract extension recently, of course, along with a pay raise. The only good thing for waving off two legends is to ease the burden of staff cost. And the club has put it into good use, such as bringing in Emery;s team, Parejo, Coquelin, Rulli and Pervis, as well as keeping young talents at home. By summing up of the cost of these players, it’s estimated that the personnel expense would not vary significantly from the last season. However, the club proposed a budget of €73.3m for personnel expense of season 20/21, which seems difficult to reconcile (please help me out in the comments).

Besides revenue and staff cost, no other items in profit or loss changed a lot, except for player transfer. The net profit on disposal of players was 46.3m for season 19/20, which was increased by 71.5%. And it’s the savior for the club’s financial performance as we mentioned at the beginning.

The figure was a record in the club’s history as well, half achieved by selling Fornals. As the report disclosed, the club earned a net amount of 35m in transfers of players in the current period and 10.7m from transfers in previous periods as conditions established in the contracts had been met this year. Without these, the club would suffer from a loss of 46m before taxation in the last season.

For season 20/21, the club estimated a profit of 11.5m in transfer market. We assume that some negotiation around certain players would have been initiated, Caseres for instance. And some youngster from cantera might be put on the table as well.

Last year, we pointed out the risk of loss in squad quality. Fortunately, we have brought Parejo and others to the team at a bargain. Also, the youth system has been a success in development of talents for the first team, avoiding the club from relying on the transfer market.

Liquidity –

The balance sheet shows that the club has borrowed €15m from financial institutes by the end of June 2020, which is due in one year. Further details were not disclosed in the report. But considering the significant increase in accounts receivable from 35.8m to 68.6m, or 92%, the club needs extra funding to maintain its daily operation.

We further examined several liquidity ratios. The net debt shown above have been a record high among the last seven years. And the relative ratios to EBITDA and Equity have been increased for the third time since return to La Liga. Plus, the current ratio was worsened (from 0.76 to 1.01) due to untimely payment from clubs who we sold players to.

Statement of Cash flow also reminded us of the liquidity issue caused by the pandemic. For first time since return to La Liga, the cashflow from operating activities was negative in season 19/20, which was mitigated by proceeds from player sales and external borrowings. And the situation would not be eased if the pandemic continues.

Kind of a conclusion –

1) Broadcasting income is crucial to the club, especially during this special period

2) Profitability would be improved as a result of decline in staff cost and amortizations

3) Cashflow became an issue and a constraint on any investment.

Thank you for your reading. Any advice or comment will be welcomed. Endavant!