Celtic's Pandemic Economics
By James Dailey
The Start of the Modern Era
In an alternate history, a pandemic hits the world in early 2004, and Celtic have just come off the enchanted 2002-2003 season, including the heartbreaking loss of the league and the Cup final to Porto. The Martin O’Neill era was near its apex, with that vintage of Celtic probably the best since the Lisbon Lion era 9 in a row. Surely the Club would have leveraged that tremendous on-field success and the legacy of Fergus McCann’s financial prudence to be relatively well positioned to endure a pandemic – right?
Celtic’s public filing of financial information at the conclusion of the 2002-2003 season, dated 30th of June 2003, showed cash in the bank and on hand of £753,000. To put this is formal financial terms, we would have been in deep doo doo. In this time of widespread hardship and anxiety, I thought I could provide fellow supporters a welcome distraction and some reassurance about our Club.
Pandemic Reality
When I wrote the “The Celtic Business Model” piece in January, I certainly did not anticipate that a global pandemic was already unfolding. Much of the catalyst for my decision to write that piece related to how much of an outlier Celtic’s financial management was/is within the world of football. I used my little alternative history exercise to highlight how most of the rest of the football world is managed – even the most successful clubs. Most clubs are in serious trouble, which makes the recent SPFL charade even more of an absolute farce.
As with many companies, Celtic’s financial disclosures have evolved over the years, so it can be difficult to do a full long term “apples to apples” comparison. What I have tried to do with this analysis is offer readers some context for what Celtic’s financial situation may look like as we all hopefully emerge from the pandemic. As with any financial modeling or analysis, assumptions are key, and the ones I have used will most assuredly not be precise, but I believe it to be a worthy exercise, nonetheless.
The Celtic Reality
I will start by sharing where Celtic were entering the pandemic. Per the interim financial disclosure as of 31st December 2019, there was £37,604,000 cash in the bank and on hand. In addition, there appears to be some money (about £7.5 million) expected sometime within the year– possibly either related to the sale of Tierney last August or the compensation for Brendan Rodgers’ departure last season, but I am speculating.
Next, I will provide some historical context for Celtic’s financials. I have taken snapshots of the 2002-2003, 2009-2010 and 2018-2019 seasons, all which Celtic failed to qualify for the Champions League group stage.
*Note – disclosures for a period of years around 2009-2010 season did not breakdown staff into categories.
On an operating basis, generally the Club appears to have been run to target around breakeven in seasons we do not qualify for Champions League group stage, with extra revenue from the seasons we did qualify effectively “banked” for 2016-2017 and 2017-2018. Contrary to a common narrative that Celtic are a “selling club,” total net player transfers over the past 10 seasons has been close to zero.
Outside of the growth in cash, I have several other observations. With the tremendous evolution in sports science and analytics since 2002-2003, I think it is alarming that Football-related staff is down over that period. I also believe that it is worthwhile to consider the change in the various metrics since 2002-2003 in real terms – meaning adjusting for inflation. I have used official annual UK inflation statistics to adjust those 2002-2003 amounts and compare them to last season’s:
I think what you will see with this comparison is that outside of wages, the balance of the other data is generally in line with general inflation. Do not get me started on my disgust with how executive pay across the corporate world has basically been a leveraged “reward” for managers who have simply benefited from inflation!
Now let us focus on the Salaries line item and staffing data from above, as I believe they are key variables when we consider how the Club will manage through the pandemic. Based upon information on the Celtic website, I estimate there are 36 first team and 27 reserve players. Using what I believe are reasonably conservative compensation estimates for those players, my guestimate is that along with the coaching staff, that group’s total annual salary amount is around £30 million plus or minus a million or two. If I assume that about 75 of the 155 total Staff- Football figure are non-player or coach (let’s call them “Support”), and I add that figure to the 874 in Staff- Other, the total is 949. Next, I subtract the £30 million in estimated player/coach salary from the £56,094,000 total salary figure and get £26,094,000. A simple average can then be derived by dividing that figure by the 949, and I get about £27,500 per year per person – seems like a reasonable estimate. This delineation offers a framework for breaking down those salaries which are possibly covered by furlough, versus those that may not.
Harry Brady recently suggested on a recent episode of ByTheMinute Celtic podcast that the Club’s monthly “burn rate” may be around £3.5 million per month. Based upon my assumptions and analysis, I hope that figure is a bit high. An unadjusted monthly wage bill would be around £2.5 million per month, and we know that “significant reduction in salaries” were agreed to by first team players, staff, and coaches, as well as executives.
Assuming that this monthly salary amount is now between £1.5-£2.0 million per month, and another £1 million to “keep the lights on” with other operating expenses, we can do a simple calculation on cash reserves. I should also mention that the Club has a £2 million revolving line of credit, which had not been in use prior to the pandemic, so that would increase liquidity from £39 million. There is also the potential that the additional £7.5 million owed the club is collected. At a £2.5-£3.0 million monthly burn rate, the math is simple.
Conclusion
The Club has valuable players it could also sell if needed, so I believe Celtic are in a relatively rare position of financial strength compared to the wider football world – most look more like our 2002-2003 or 2009-2010 vintages. However, as visionaries like David Low have stated recently, the football world is likely to look dramatically different on the other side of the pandemic. I am confident Celtic are well positioned to survive as a corporate entity but believe our relative competitive standing as a Club is far less certain.
I hope to tackle that topic in a future piece.
Also, I welcome any constructive feedback any readers may have regarding the assumptions used.