Football finance expert Kieran Maguire believes there is reason to be apprehensive by Burnley’s most recent club accounts amid an uncertain financial picture at Turf Moor.
The accounts were released last week and showed the scale of club debt following the leveraged buy-out by ALK Capital, which concluded in December 2020. As part of that deal ALK borrowed £ 65million from MSD Holdings and the accounts reveal a significant portion of that will need to be paid back should the Clarets be relegated.
The club’s cash reserves have reduced from £ 80m to £ 50m as of last June and the picture is likely to have changed since. Burnley have also taken out a £ 12.5million loan from Australian firm Macquarie Bank on a transfer installation due from Newcastle United for the Chris Wood deal.
READ MORE: Burnley take out £ 12.5million loan for Wood Newcastle United transfer instalment
The striker moved to St James’ Park in January after Newcastle activated a £ 25m release clause in his contract. The second installation is due in February 2023 and the Clarets have opted to take out a loan to ensure they have the money now, rather than wait 12 months.
It means the transfer installation will instead be paid to Macquarie Bank and there will be an interest attached, expected to be around eight per cent. The process is not uncommon in football as clubs often believe having money available can provide flexibility in the transfer market, while it is common for transfer fees to be paid in instalments, as is the case with the Wood deal.
But the decision to take out the loan, coupled with the accounts, means Maguire is wary of the financial situation at the club, something which would be heightened should the Clarets be relegated given around 90 per cent of their turnover came from broadcast money and the wage bill of around £ 86m makes up 76 per cent of their outgoings. Although the club would benefit from parachute payments should they end up in the Championship, there would also be a need to sell players.
Maguire, speaking to Lancs Live said: “The issue for Burnley is that the parachute payments would effectively be used to repay the loan and that would put pressure on wages and the Burnley would have to sell players. An £ 86million wage bill in the Premier League isn’t sustainable in the Championship and you will likely need a financial re-set at the club and to do that you sell players so you look at Pope, McNeil, possibly Taylor and others.
“We have also seen the club take out that loan from Macquarie and under normal circumstances I don’t have an issue with it as it happens quite regularly. But for a club that had £ 50m in the bank as recently as last June to all of a sudden to be taking out payday loans, you go ‘they have burnt through a lot of cash very quickly’ and that is where the unease starts.
“You only borrow money and therefore pay interest, normally around eight or nine percent, so you are only going to pay that if you are in need of the cash. If you had £ 50m in the bank then in theory you wouldn’t need it.
“Have they burnt through the cash spending a lot on wages? That is not the Burnley style. They have not spent a huge amount in the transfer market either so that suggests the money has gone elsewhere. So has it been used to fund payments to previous owners? And we don’t know what is the case there but it doesn’t make you feel overly comfortable. “
Burnley’s accounts were always going to show a high debt figure given the nature of the takeover and the amount of borrowing involved. Chairman Alan Pace has always stated his belief in the financial model and the Clarets posted a comparatively small operating loss of just over £ 5m, the third lowest in the top flight. Pace has not commented publicly on the accounts – which were not posted on the homepage of the club website or publicized on club social media – since they were released and the club declined to comment when approached by Lancs Live.
ALK have invested in infrastructures around Turf Moor and spent money in the transfer market, and they are prepared to take more recruitment risks to try and build Burnley as a Premier League club, while Pace has consistently reiterated his desire to keep the club on a sound financial footing. Relegation would further hit the finances and Pace has already said it would mean departures of some of Burnley’s top talent.
It is the risk of a leveraged buy out – as Maguire concludes: “I teach leveraged buy outs and they are high reward when they work and high risk when thy don’t. And it is not looking good, if I was a Burnley fan and they were in the Championship next season, would I think they could keep the core of their squad and go back up as they did in 2016? I don’t think I would be confident. “
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