The Success and Sustainability Tightrope: The Luton Town Financials for the 2021/22 Season

Every year the financial sustainability of football clubs comes under intense scrutiny, with each high-profile administration, and in some sad cases liquidations, further enhancing the basic knowledge of the football fan. It wouldn’t have been long ago that your Average Joe had no consideration for their own club’s finances, not only because there was a lack of education and media exposure, but also because the game has changed so immeasurably that the risk vs. reward dynamic for each club’s owner progressively tips towards the reward being deemed worth the disproportionate risks.

Luton Town knows all too well the negative consequences of taking those financial risks. Yes, there is a lot to be said that the consequences were drastically inflated by the overly heavy-handed nature of the penalties imposed upon our football club, but there is also a lot to be said for the reckless decision-making made by those who previously held the club under their stewardship.

Our current custodians, as Gary Sweet affectionately names themselves, have clearly transformed the club to be unrecognisable to that of the Luton Town which found itself in the doldrums of the fifth tier of English Football, but there remains a tightrope to walk. The tightrope of club success and financial sustainability is incredibly difficult to navigate, but it's 2020 who are widely regarded, not only amongst the Hatters’ fanbase but by fellow football fans and financial aficionados alike, as one of the best navigators around.

With the release of the audited financials for the year ending 30 June 2022, representative of the 2021/22 Sky Bet Championship season and the surrounding months, I take a look at the most recent chapter in the financial history of Luton Town.

Club Income

The return of fans to Kenilworth Road saw the club’s turnover for the year increase significantly (39.5% to £17.7m), as matchday revenue saw a return to normalised levels. Matchday-related revenue, which includes ticketing, hospitality, and catering, had dropped to £1.1m in 2020/21 from a previous high of £4.1m the season before, but this recovered to £4.9m in 2021/22. Understandably, the Chelsea FA Cup fixture and the Championship Play-Off Semi-Final are referenced as having a significant positive impact here.

As expected, “central distributions”, relating to income from the EFL which include broadcasting and media income, make up the majority of Luton’s total revenue, with £10.5m seen entering the Club’s coffers (up 9.4% from £9.6m the previous year). This increase shows the impact of positive on-pitch performances have on Sky’s increased willingness to show Luton matches outside of the seemingly bi-annual Luton v Millwall selection. The remaining £2.3m of the Club’s turnover comes from commercial streams, assumed to largely be related to sponsorships.

It’s worth noting that whilst on the surface the revenue numbers are positive (although as the saying goes, “revenue is vanity”) there is no true like-for-like comparable from an accounting perspective. The 2021/22 accounts represent the Hatters’ first year since our return to the Championship with fans attending for the duration, so a better picture of sustainable revenues can be gathered when we see next season’s accounts.

The Cost Challenge

With increased revenues largely coming as a result of a return of matchday activity, then increased costs come as no shock. The return of matchday staff (102 of them in fact, bringing the total to 177) saw aggregate employee remuneration jump 26.3% to £17.8m. After other non-labour costs, the Club made an operating loss before player trading of £7.5m. Now, an operating loss of £7.5m for a corporate business would certainly raise some questions, but it seems the football industry has become accustomed to results like these. By way of comparison, from those 2021/22 accounts currently published, Luton are at the less insane end of the operating loss spectrum (see our rivals from up the M1 making an operating loss of £70.8m in the 2020/21 season!).

As a result of these costs for third season in a row Coventry have lost about £100k a week pic.twitter.com/Jy3Tv1Nceb

— Kieran Maguire (@KieranMaguire) March 5, 2023

It was important to specify the operating loss before player trading as this shows the day-to-day accounts of the operating business that is Luton Town Football Club. The inclusion of player trading into profit figures has two schools of thought, one is that any profit made on player trading has to be deemed exceptional as it is difficult to judge whether that level of profit made is sustainable in any given year, the other is that some (in increasing numbers) heavily rely on this player trading profit figure and include the development and selling of players high up on the Club’s agenda. For Luton in particular, the latter is certainly true. After accounting for the profit the Club made on player trading in 2021/22 (£1.1m to be precise, see Player Trading Breakdown for more info), the operating loss was reduced to £6.4m.

Back onto wages, however, as it is the single biggest annual expenditure for the vast majority of football clubs. Many of you will be familiar with the concept of wage to turnover* ratio, but for those that aren’t, it essentially measures how much is spent on wages, for every pound received in income. The Championship has set an unsustainable standard in recent years with the majority of clubs now spending more than £1 for every £1 received in income (i.e., making a loss before you even consider other non-negotiable expenses required in order to run a football club).

For Luton, the all-staff wages to turnover ratio for 2021/22 was 1.01x. So, £1.01 was spent for every £1 received in income. I underline “all-staff” as its defined in the accounts that directors’ payments make up £831k of the £17.8m wage bill, so if you exclude directors this reduces the ratio to 96p per £1 of income. It's widely known that Luton operates a specific player wage cap, with varying reports on what number this is, but it is likely to be somewhere in the 60p to 70p region. That is, 60-70p is spent on player-specific wages per £1 of income received. Thus, the 20-30p discrepancy in the 96p number above would be spent on wages relating to various other members of staff, think ticket office, club shop, stewards, finance, HR, etc.

Clearly, in blunt terms, the £1.01 number is completely unsustainable for a corporate business. But again, football has its unfortunate nuances. Throughout all the discourse around football finances, especially surrounding those clubs making sky-high losses over prolonged periods of time, the single most important question is this. Does the club have an investor base that has a) the financial capability to support the club and b) the mental stamina to continue funding the losses? Thankfully for Luton, we have the special board and investor base that we do.

*turnover, in this case, being pre-player trading so income is purely from the Luton Town operating business.

The Importance of Power Court

The income and cost summary provided above shows just how important Power Court is to the financial sustainability of the Club going forwards. As much as we love the beauty that is Kenilworth Road, the Club is restricted by its limited capacity in selling tickets, offering better corporate experiences and just providing general other matchday revenue streams. Whilst we made a loss in the 2021/22 season of £6.4m, moving to Power Court (albeit it is hard to definitively quantify from the outside) would bridge much of that loss in excess revenue with little extra cost (apart from additional matchday staff to manage the higher attendance numbers) being required.

Whilst we’re still waiting for a more complete update direct from the Club on the progress of Power Court, the accounts did provide a promising brief update:

“In order to fulfil the Board’s aspiration to operate a truly sustainable business model, the move to a new stadium remains imperative. The planned stadium at Power Court, in Luton town centre, will significantly increase capacity and corresponding revenue.”

“Despite tremendous economic headwinds, the project to deliver the new stadium is still progressing, with detailed design now complete. A significant portion of the required funding was also secured as a result of the sale of land at Newlands Park during the financial year which was recorded within the financial statements of 2020 Developments (Luton) Limited, a fellow group undertaking.”

Some positive news indeed!

Player Trading Breakdown

Now back to player trading. These financial accounts cover an extremely interesting timeframe in Luton’s transfer exploits given the player turnover that occurred between 1st July 2021 and 30th June 2022. Gary Sweet summarised in the strategic report:

“The squad went through a major transition with the likes of James Collins, Matty Pearson, George Moncur, and Ryan Tunnicliffe all moving on. The club had kicked off an early recruitment drive, signing Fred Onyedinma, Allan Campbell, and Carlos Mendes Gomes before the end of June 2021 (2020/21 accounts). Cameron Jerome, Reece Burke, Henri Lansbury, Admiral Muskwe, and Amari’i Bell all joined later in the summer, all on permanent contracts”

“Keen to build on the exploits of the 2021/22 season, the club began its recruitment for 2022/23 early once again, with the arrivals of Alfie Doughty from Stoke City, Cauley Woodrow from Barnsley, and Matt Macey from Hibernian, all before the end of June”

So how much did this all cost? Well, we can measure this via the move in intangible assets on the balance sheet. When a club signs a player, you do not physically pay to own the human being (because that would just be immoral!), but you pay for the legal right to exclusivity for that player to play for your football club. In the year ending 30th June 2022, there were £2.8m in “player registration additions”, which seems about right for the seven players I think/know we paid fees for (Onyedinma, Campbell, Mendes Gomes, Muskwe, Doughty, Woodrow, and Macey). On the disposals side of things (i.e., players who left the club), the players who left the club during the period (as outlined above) all originally cost the club an aggregate of £2.2m.

The accounts also neatly highlight what sort of transfer fees are still potentially to be paid or to be received, due to various clauses within the transfer agreement. Firstly, in respect of players sold, the Club may receive up to £2.7m in “bonuses” from other clubs that have bought players from us, and are defined as being contingent on a “range of factors”. Conversely, the Club may need to pay up to £1.9m in respect of players currently under contract. That is, should various clauses be met, with examples given in the accounts as “players making specific numbers of appearances and gaining international honours”, then Luton will need to pay the respective clubs a portion of that sum.

One last point on player trading that I found interesting. Within the strategic report, Gary Sweet specifically highlighted:

“The lingering economic effects of the pandemic led to a depressed transfer market and player trading profits were significantly down on recent seasons. As a result, the club’s operating loss increased from £1.9m to £6.4m”.

Two takeaways from that are 1) this shows how important player trading is to Luton’s financial sustainability, with buying low and selling high a key strategic initiative of the Club (which is understandable) and 2) does this mean that there were some players that the Club was willing to sell last summer, but just couldn’t because the economic situation meant they couldn’t attract the sort of fees they were after? This will be something interesting to watch unfold over the course of next summer to see if anyone leaves the club for a big fee…

Other Notable Findings

Lastly, on the 2021/22 accounts, I wanted to briefly outline some interesting other findings:

• The Club comments on losing its league status (i.e., getting relegated from the Championship) as one of the key risks and goes on to confirm there are relegation clauses in some, or all, of the players' contracts and that situational planning is in place for this eventuality.

• The owners’ property company, 2020 Developments (Luton) Limited, previously had a loan extended to it by the Club of £3.5m. This was repaid in the 2021/22 season, and the property company returned the favour by extending a loan of £1.8m to the Club. There’s no clarity on what exactly this relates to within the accounts, but my prediction is the Club originally supported 2020 Developments with costs associated to Power Court (and formerly Newlands Park), with the sale of the Newlands Park site meaning the property company could repay that loan and help the Club with its business operations.

• Other than some very small motor finance leases, the Club has no common external debt. The Club does however have £4.5m of Covid-19-related loans from the EFL “to support the operation of the club during the pandemic” which will need to be repaid over the next two years. This will however be repaid via deductions from future EFL and Premier League Solidarity income. The loan is also interest-free, so nothing concerning here.

The Financial Impact of Events of 2022/23

To finish off, it’s good to think about what has happened since the closing of the accounts (i.e., since 1st July 2022) and what impact specific events may have on the Club’s financial sustainability…

Firstly, on matchday revenue. Last year we benefitted from a financial bonus in the form of an FA Cup tie with Chelsea, which we know we haven’t had this season. We also had a Championship Play-Off Semi-Final last season, which we hope to see again in the coming months, but what about a potential Wembley trip for the Play-Off Final?

Another point of interest is our transfer activity since 1st July. We've signed John McAtee, Aribim Pepple, Louie Watson, Jack Walton, and of course most notably Carlton Morris, our apparent club record signing, and so I’d expect to see signs of additional transfer outlay in next year’s release. Of course, it’s likely that not all of this will be an upfront cost.

Then we have Southampton’s poaching of Nathan Jones. Again, there are many reports on how much we received for releasing Nathan from his contract with us, but will this cover all of the aforementioned outlay above? On the player front, we also sold James Bree and Harry Cornick, albeit likely for nominal fees, so this will help with covering the transfer outlay.

One thing we do know is that we’re lucky to have an incredibly supportive board, who have a realistic and achievable plan in place to both navigate the choppy waters that is financial sustainability in football but also to try and continue on the path of success that will hopefully culminate in Luton Town being a Premier League club in the not too distant future. That tightrope that 2020 are trying to walk is by no means easy, but I think they’re doing just fine…