ALK Capital’s takeover of Burnley took place in December 2020, but we had to wait until the club’s June 2021 accounts were released late Wednesday evening to get the full picture of what’s going on at Turf Moor.
Why? Well, ALK bought the club through a leveraged buyout, taking out a substantial loan from MSD Holdings and using club money in the bank to fund the £170million deal.
One of the most notable figures confirmed is the amount of the loan taken out by ALK, which stands at £65m. It is the implications of how and when this is repaid that requires our attention.
The loan was guaranteed to be repaid in December 2025, with ALK only paying interest until then. However, this deal is only in place if Burnley stays in the Premier League. If they are relegated, they will have to pay a “significant proportion” of the £65million soon after the end of the season, with the repayment schedule brought forward.
Burnley sit 16th in the Premier League, two points above the relegation zone. It’s a precarious position heading into the home stretch of the season.
If anyone needed more clarity that ALK didn’t fire Sean Dyche to start planning for a fresh start in the Championship, then that’s exactly why. It was chairman Alan Pace’s latest roll of the dice to try and save Burnley by putting a new voice in charge and hoping for a response from the players – the one Mike Jackson got, after taking 10 points from his four games in charge . .
However, if Burnley cannot finish above Leeds United or Everton, things change significantly. Should Burnley fall and not return straight away, a further significant reduction in the loan balance would also take place the following season. In other words, another big chunk of that £65million would have to be paid back.
How Burnley handle this situation would depend on how much parachute payments – money given to clubs relegated from the Premier League for the next three years they play in the English Football League – would be available to them after MSD took his share to repay his loan to ALK. A clause in the loan agreement means MSD can demand early repayment if Burnley are relegated. Afterwards, it will be a question of reducing the salaries of players and staff, which will be done in large part by relegation clauses in their contracts.
Player swaps should also be a source of net income, which is common for many clubs relegated from the Premier League. Nick Pope, Maxwel Cornet, Wout Weghorst and Dwight McNeil are the four most obvious names clubs would consider buying at discounted prices. A fire sale is possible.
Further sales, if necessary, are reportedly being considered, which could signal the departure of promising 21-year-old centre-back Nathan Collins at a significant fee. However, apart from him and left-back Charlie Taylor, few players in the squad would demand a decent transfer fee.
The situation is not helped by the fact that Burnley have nine players out of contract this summer after agreeing a new two-year contract with Jay Rodriguez earlier this week. James Tarkowski, Ben Mee and Matej Vydra are said to be salable assets but will be free agents in a few weeks.
And all this before talking about the money available to strengthen and replace players who leave the club.
The strategy is much more risky than under the previous owner. The previous owners ran a tight ship with limited expenses for players, low salaries, no loans and no payments to administrators. As a result, the club built up a huge bank balance, which rose from £41.6m to £80.6m between the end of June 2019 and July 2020. However, it had fallen to £50.2m. pounds sterling at the end of July 2021, with ALK using club money to help fund the takeover. Pace and his administrators, however, are still not receiving any payment from the club.
But the fall in the club’s bank balance is not the only key figure revealed. The real cost of Pace’s leveraged buyout is illustrated by how much money Burnley FC Holdings Limited owes other companies. That sum is £102million and we have to remember that Pace and his fellow investors are supposed to pay the club in instalments, so there’s more to come.
That £102million is presumably owed by Calder Vale Holdings Limited, the Pace takeover vehicle set up in October 2020 to buy Burnley. Calder Vale is owned by another Pace company, Jersey-based Velocity Sports Limited.
Burnley FC Holdings owe £65million, the MSD loan used to buy the club and its subsidiary. Burnley Football and Athletic Co, which dates back to 1897, owes £37million, which is the full amount of money ALK took from the club’s bank account to help pay for the takeover.
Overall, Burnley recorded a pre-tax loss of just under £3m, which is the first time they have not posted a profit or break even since 2016. They have, however, received good news, in the form of a tax credit for £432,000, reducing the pre-tax loss to £2.6 million.
A significant change in the accounts is incoming and outgoing interest payments. No loans under the old regime meant that interest came in: £80,000 in 2020 for example. But the MSD loan means the money comes out. The accounts relate to the period ending seven months after the ALK takeover and they already show interest payments of £2.8million.
The interest on the loan is LIBOR (London Interbank Offered Rate) plus eight percent. LIBOR is the rate at which the major global banks lend to each other and increases with the length of the term. US private equity firms tend to use six or twelve month LIBOR. The six-month rate is currently 1.8%, which would take Burnley’s interest rate to 9.8% or £6.5million a year.
Unsurprisingly, Burnley’s total revenue fell for the 2020-21 season from £134m to £115m. The comparison is difficult, however, given that the 2019-20 accounts covered 13 months and the last set just 12 – and that’s before considering the unforeseen impact of COVID-19 on the club’s revenue.
But income from media rights, Burnley’s biggest source of income, also fell from £113.5m to £103.9m. However, with almost no matchday income, media revenue made up 90% of the club’s turnover, down from 85% in the last set of accounts.
Due to the fact that a quarter of the Premier League’s central media revenue distribution is made up of merit payouts, where Burnley finish in the table plays a big part in how much they bring in. In 2017-18, when they finished seventh, media revenue was £121.5m. In 2018-19, when they finished 15th, Burnley earned £115million, a figure boosted by UEFA money from their Europa League campaign. In 2019-20, a 10th place finish brought in £113.5million and 17th place last season was worth £103.9million. Both of these payments were slightly reduced by Burnley’s share of the rebate the league gave to broadcasters after the 2019-20 season was suspended for three months.
Matchday revenue (£4.6m to £355,000) and catering sales (£2.1m to £115,000) understandably saw significant declines as fans were unable to attend matches until the last home game of the season and only then in a reduced capacity.
There was also a decline in business activity from £11.8m to £9.2m. This is an area that ALK aimed to improve upon arrival. It may be unfair to criticize their efforts after just seven months, particularly during a pandemic, but it shows the challenge of making Burnley everyone’s favorite underdog.
Much will depend on what ALK learns from the business review it undertook last year. The first decision after the review was to end the shirt-and-sleeve partnership with Asian betting company LoveBet. ALK says he has plenty of ideas to increase Burnley’s commercial income. Only time will tell how successful they can be.
Retail sales fell slightly from £1.8m to £1.6m, but £1.8m was also the figure in the 2018 and 2019 accounts, suggesting it there could be a finite number of people willing to buy club merchandise.
Burnley’s total wage bill has steadily increased during his time in the Premier League. It reached £100m in 2019-20, although that was due to the club extending its financial year to 13 months to better reflect the pandemic-stretched campaign. A fairer 12-month comparison with 2018-19 put the figure at £94million.
Last year Burnley’s wage bill fell to £86m – the first time it has fallen since 2016, when the club returned to the Premier League with a wage bill of £61m. Investments over several years in the recruiting department and the academy, which achieved category 1 status, were the main reasons for the increase in costs.
However, despite the drop, the total number of staff has actually increased from 251 to 267. This increase in staff has been seen off the pitch, with the number of players, coaching and training increasing from 156 to 133.
Due to reduced turnover, Burnley’s salary to turnover ratio has fallen from a respectable 70% to 75%, which is more concerning but not unsustainable if they remain in the Premier League.
A lack of investment in the transfer market as former chairman Mike Garlick prepared the club for a takeover swelled the bank balance but meant new signings were scarce. Burnley signed Dale Stephens, Will Norris and Collins during the financial year, with those transfers largely offset by the departures of Jimmy Dunne, Josh Benson and Ben Gibson.
This relative inactivity can be seen in the fall in the club’s amortization bill – £32.3m to £21.4m – and the profit from the exchange of players, which fell from 14, £7m to £5.1m. Amortization is the accounting method of amortizing the cost of new players over the term of their contracts.
These figures do not include the signings of Cornet or Weghorst or the sale of Chris Wood, but a note tells us the net spend on transfers since June 2021 is £1.3million.
What these accounts highlight is how crucial the survival of the Premier League is for Burnley. If they don’t succeed in their quest to stay awake, the alarm bells will ring. Pace maintained the takeover is sustainable from day one and plans are in place for relegation. They could be tested much sooner than he had hoped.
(Top photo: Pat Scaasi/MI News/NurPhoto via Getty Images)