Warwickshire County Cricket Club 2020 Accounts

Warwickshire's accounts for the year to 30 September 2020 are available here

These are the first county cricket club accounts I've seen which cover the period of the coronavirus pandemic.  I've covered previous Warwickshire accounts,

2019 

2018 

2017

This post continues the analysis and considers whether there's a future for the counties in general and Warwickshire in particular.  As it's quite a long post I'm starting off with a summary.

Summary

Given the  pandemic, Warwickshire's 2020's results weren't too bad.  The board is confident the club can navigate 2021 and as I believe Warwickshire is one of the weaker counties financially I'm increasingly optimistic most counties will get to 2022, perhaps a little battered, but basically intact.  But if the virus results in reduced crowds for 2022 (and beyond?) continued financial hardship will take a toll.  Problems may be particularly marked for test match staging counties who have budgeted on significant match day revenues to finance outstanding borrowings.  If that does happen Warwickshire might be the county most in jeopardy.

The smaller counties are less susceptible to reduced crowds but are dependent on the ECB continuing to be able to provide the agreed £4m a year of revenue share.  But I'm fairly confident this will be the case.  As we get to see accounts for other counties and the ECB a clearer picture will emerge. 

Detailed Results

Warwickshire made a loss for the period of just shy of £0.6m.  Cash outflow was more grievous, at £2.3m but this was driven by two one off items, the payment of creditors and a large dividend paid to the catering joint venture partner, Compass.

In previous years I've tried to arrive at a "normalized cash flow" for Warwickshire by taking the profit for the period, adding back the depreciation charge (a notional accounting figure for erosion of fixed assets such as stands etc) and replacing it with the cash spend on assets.  For the year to September 2020 this gives a result of £0.3m cash inflow!  This allows us to update the graph from the 2019 accounts review.

 Put in Context

I see a profit of £nil after all costs including depreciation as the aspirational target for county cricket clubs, as then the county is putting aside sufficient profit each period to be able to replace all its stands and other fixed assets when they reach the end of their useful lives. (If a county is making more money than £0 on a consistent basis it's failing as it isn't the aim to be making a profit). By contrast having a modified cash "break even" can be seen as the minimum requirement for a county. If it can't achieve this, money is consistently flowing out of the club, which is not sustainable. So for Warwickshire to have a positive modified cash flow for 2020 (a better result than they achieved for any year between 2016 - 2018) is a good effort. In part it was down to the county controlling its costs, including a reduction in salaries paid to the executive management team of over £0.25m. Additionally the joint venture arrangement for catering meant some of the pain of the pandemic was shared by Compass.

But more important than Warwickshire's own good housekeeping was the support for the club from external entities. The next section to this post sets out some of these contributions to Warwickshire's survival. 

A Friend in Need

• The ECB was the biggest single contributor to Warwickshire's financial security.  This blog is often critical of the direction of English cricket, but it can't be denied the ECB has come through for the game in 2020.  First and foremost there was a full programme of international cricket.  This secured contract revenues from Sky and allowed the ECB to pay Warwickshire (and presumably all the other counties), £4.2m.  2019 payments from the ECB only amounted to £1.7m so the 2020 payments represented a near 150% increase and included the "inducement" to take part in The Hundred, even though the start of the tournament has been deferred until (at least) 2021.
• Secondly, the ECB insured 2020 ticket money received in advance.  Again this made a big difference to Warwickshire, I assume a significant slice of the cricket income of £4.3m shown in the accounts is down to the ECB's prescience.
• Birmingham City Council also made a contribution, deferring debt repayments of £2m, due in 2020.  The council's loan has been, once again, rejigged so the first payment is now deferred until March 2023 (15 years, I think, after the first repayment was originally scheduled.)  This gives Warwickshire a breathing space to recover from covid 19. The council's flexibility is one factor in the directors' opinion that "the Group has sufficient liquidity to meet its obligations as they fall due, even in the event that a second season is played behind closed doors."
• The government's furlough scheme also helped out  - I assume it makes up the bulk of the £1m included in "shop and other".
• And finally the members, good old us, chipped in.  The club says about 2/3rds were able to convert their 2020 subscription into a donation, which I estimate would have added to £0.3 - £0.4m to the club's revenues.
  

 What Does The Future Hold?

In this post I set out some thoughts on whether cricket's counties would survive the coronavirus pandemic. Warwickshire's accounts for 2020 generally support its upbeat conclusions . But there remains a possibility things get worse for cricket before they get better and that some counties may struggle to survive the transition.  The risks, I can think of, are,

• The return of spectators.  Although we are hopefully past the worst of the pandemic it's far from clear when, if ever, coronavirus will be a thing of the past.  We might have a period where there are some spectators at games but with restrictions on numbers and behavior.  It has to be borne in mind the government is very tolerant of certain coronavirus spreading industries, pubs, restaurants and airlines, even going so far as to actively subsidize transmission of the disease. But sport (along with cultural activities more generally) isn't treated so indulgently, as evidenced by the decision to prevent games being watched by crowds of 2,000 in 20,000 seater stadiums.  I reckon Warwickshire received £3 / £4m from the ECB's insurance of ticket revenues in 2020. But its unlikely gate receipts for 2021 will be insured, giving Warwickshire and other test match hosting counties a potential significant fall in revenue.
• The ECB failing to make payments.  Smaller counties might not be too fussed by limits on attendances as match day revenues are not a significant source of income.  But if the ECB was unwilling or unable to provide the agreed £4m of annual funding they would certainly struggle.  Clearly the ECB won't be able to sail through the pandemic unscathed, in September it announced 20% job cuts, alongside headlines forecasting losses of £100m.  I tend to be optimistic on the ECB's future, it certainly has some exposure to match day revenues via staging fees paid for test matches, but its main source of revenue is TV funding, which seems secure.  Similarly I think there are plenty of opportunities for the ECB to trim the fat.
  
• Risk on risk,  the pandemic has demonstrated the limitations of the diversified business model followed by most counties.  The ancillary businesses, be they conferences, pubs or gyms are all face to face activities and might suffer from similar "long covid" issues as match day revenues.  
  

 

Warwickshire's Own Problems 

For a long time Warwickshire has been financed by a £21m loan from Birmingham City council  And in February 2020, about the time we were all saying "I don't think this coronavirus will amount to anything do you?" the county entered into another loan, this time for £3.5m, financed by Australian bank, Macquarie.  The loan is secured against ticket revenues for 2022  - 2023.  So I'm guessing there's one Macquarie employee who is pretty anxious for the crowds to come back to test match cricket.  But even though Macquarie's security might not be as good as they thought I assume the loan and the interest on it will still need be paid.  The question is why was this additional funding required?

In my post on Warwickshire's 2019 accounts I wrote "The balance sheet shows Warwickshire with £4m available cash at 30 September 2019.  Therefore the county should be able to fund the first £2m debt repayment to Birmingham City Council in 2020"

Well turns out I was wrong and pretty much at the time I was writing the 2019 review the club was borrowing more money at a higher interest rate than was payable on the council loan.  It's hard to know what to make of this.  It's possible the loan was taken out because Warwickshire was ahead of the game, saw the risk coronavirus posed and entered into some additional financing.  But I still find it unnerving that after 2019, which a was a perfect year for cricket's finances, Warwickshire was borrowing more.  

Perhaps this emphasizes a point I've overlooked in the past, by taking the figures shown in the counties' balance sheets as representative of the picture across the whole year.  I'm not implying anything unethical, just that most counties have financial year ends between 30 September and 31 January.  At this point in the year they are probably cash rich, with money earned during the summer. But winter is coming.  This reporting effect is, perhaps, particularly marked for counties, like Warwickshire, which have a September year end.  It's noticeable that the Warwickshire Finance Director as well as referring to the council and Macquarie loans also mentions an overdraft facility. At 30 September 2020 there was no draw down of the facility but it may well have dipped into the overdraft subsequently taking overall debt to £25m plus.  Warwickshire really does need the world to start getting back to normal and I think any shortfall in ECB funding or continued restrictions on crowds could put the county in a very tough spot come 2022. 

It was apparent from their previous set of accounts that Warwickshire, Yorkshire and Lancashire all had a good 2019.  However, it did seem the two northern counties had done rather better than Warwickshire.  It remains to be seen whether that trend continues and Yorkshire and Lancashire pull away or if, post coronavirus, the other "major" test match grounds are subject to the same problems faced by Warwickshire.