This article analyses Norwich City finances in respect of the 2020/21 season.
Season review
Norwich City was back in the Championship after only a year away following relegation from the Premier League. The Canaries have become synonymous with the phrase “yo-yo club” and once again lived up to this tag, immediately bouncing back to the Premier League as Championship Champions.
Norwich City finances were obviously hurt by both relegation and the financial impact of COVID-19 as revenue halved. Despite this, the lucrative sales of Buendia, Godfrey and Lewis (all accounted for in the 2021 financial year), saw the club record a £21.5m profit (before tax). This means the club has recorded a profit of £23.6m over the two years hit by COVID-19, an outstanding result.
Norwich City Finances – Revenue
Revenue more than halved from £119m to £57m (52%) as the club felt the impact of both relegation and COVID-19.
Matchday
Matchday revenue was almost non-existent at £0.1m, falling from £7.6m (98%). The return of fans and its Premier League status will see matchday revenue likely exceed 2020 levels.
Broadcast
Broadcast revenue fell from £92m to £50m (45%). This decline was driven by its relegation from the Premier League, with the club in receipt of parachute payments. As Norwich City was promoted, the club will cease to receive any further parachute payments.
In addition, broadcast revenue was inflated by a portion of its 2019/20 Premier League distributions being recognised in the 2021 financial year due to the delay in the season finishing.
Broadcast revenue is likely to exceed £100m in 2022 following The Canaries return to the top flight.
Commercial
Commercial revenue took a substantial hit, falling from £20m to £7m (66%). This was driven by contractual declines in its sponsorship deals due to relegation and the lack of fans at Carrow Road reducing commercial opportunities. The return of both fans and Premier League status, plus new shirt (Lotus), kit (Joma) and sleeve (JD) sponsors will boost commercial revenue.
Norwich City Finances – Revenue summary
The Canaries saw revenue plummet following relegation. However, Norwich City will soon see revenue shoot back up after winning the Championship. Revenue is likely to exceed £120m in 2022.
Norwich City Finances – Operating costs
Operating costs fell from £110m to £85m (23%) as the club reduced costs following relegation.
Wages
Norwich City reduced its wage bill by £22m (25%) to £67m. This would have been driven by departures and contractual relegation wage drop clauses. It would also include promotion bonuses payable. Brentford for example, incurred promotion bonuses of £12m. Norwich City did not disclose its figure.
The club’s wages to revenue ratio temporarily exceed 100%, rising from 75% to 117%. This is a fair bit above UEFA’s recommended maximum of 70%. The club will be confident its levels will be much closer to this in 2022 as revenue more than doubles.
Norwich spent heavily on its return to the Premier League and therefore its wages is likely to rise, perhaps exceeding 2020’s £89m figure.
Other costs
Other operating costs fell from £21m to £19m as the club incurred promotion related operating costs but saved on matchday related costs as matches were played behind closed doors. This is likely to rise in 2022.
Norwich City Finances – Operating costs summary
Norwich’s business model appears flexible for both the Premier League and Championship and the club reduced its costs significantly upon relegation. Included in the above costs is promotion related costs, which would not have occurred had the club not been relegated, highlighted the strength of its underlying business even without promotion.
Norwich City Finances – Transfers
Norwich City was relatively active in the transfer market in 2020/21 with some significant outgoings. Departing the club in the 2020/21 summer transfer window was Godfrey (£25m) and Lewis (£15m) for a combined £40m. Joining the club were Hugill (£3.0m), Placheta (£2.7m), Gibson (loan – £2.1m), Dowell (£2.0m), Sörensen (£1.0m), Giannoulis (loan – £0.9m) and Mumba (£0.3m) for a combined £12m. This led to a net transfer income of £28m.
Amortisation
Following this spending, the club’s player amortisation charge rose from £8.6m to £10.7m (25%). Greater spending in the 2021/22 season will see amortisation charges rise substantially.
Profit on player sales
Norwich City included both 2020/21 transfers and also the sale of Buendia, as it fell within the 2021 financial year. This saw the club generate a profit on player sales of £60m, compared to only £1.6m in 2020. This £58m increase almost entirely offset the £62m reduction in revenue, hence the profitable year given the £25m reduction in operating costs.
Due to this, the club had no significant sales in the 2022 financial year, as the only major outgoing, Buendia, has already been recorded. Therefore, the club has a £58m hole in its player trading, which will coincidentally be absorbed by the return of Premier League revenue.
Transfer debtors / creditors
Norwich City is a net transfer debtor, being owed more in transfer fees than it owes. The Canaries are owed £54m in transfer fees while only owing £23m. This position may change following spending in the 2021/22 summer transfer window.
Norwich City Finances – Transfers summary
Norwich City has a very successful youth academy and recruitment process for young talent which has reaped benefits off the pitch in recent years. The club still has a number of lucrative talents which will command decent fees should the club need to generate income if relegated again.
Norwich City Finances – Profitability
Norwich City has been profitable in three of the last five seasons, including the last two. This has been despite the financial challenges brought by COVID-19.
Operating profit / loss before player trading
Before player trading, Norwich City saw an operating profit of £10m turn into a loss of £27m, a £37m swing. This was due to revenue more than halving following relegation. The return of this revenue following promotion will reverse this and lead to a return to profitability (depending on wage levels).
Operating profit / loss after player trading
After player trading, operating profits rose from £4.2m to £22.3m (435%) following the sales of Buendia, Godfrey and Lewis. This profit level will likely stay relatively flat as the fall in player sales will be offset by rising revenue.
Profit / loss before tax
Due to finance costs of £0.8m, Norwich City recorded a profit before tax of £21.5m. This was a £19.4m increase from the £2.1m profit recorded in 2020.
Norwich City Finances – Profitability summary
Norwich City has recorded back-to-back profits despite COVID-19 and relegation via a combination of good cost control and player sales. The club, like most, will believe it has ridden the worst of the storm and will now concentrate on building on its return to Premier League and retaining its status against the odds.
Norwich City Finances – Assets / Liabilities
The profitability and existing cash reserves of Norwich City meant the club required only short-term financing ahead of receiving Premier League payments to manage cash flow.
Cash flow
Norwich City’s cash reserves fell from £44m to £17m as the club cash reserves were depleted from the impact of relegation. Cash outflows from operations (£43m) and capital expenditure (£4m), were offset by cash inflows from transfers (£6m) and financing (£15m). This financing was in relation to short term debt secured against its first Premier League receipt to manage cash flows and is fully repayable by September 2022 and has therefore not been included in our debt below.
Debt
Taking the above point into account, debt levels remained flat at £4m, of which the majority relates to a bond issue to fund training ground improvements.
Norwich City Finances – Final Remarks
Norwich City is a well-run club with a solid financial grounding. The club has been up and down between the Premier League and Championship, with the club’s ability to flex its costs appropriately being key to managing this and putting it in a position to thrive even if promotion isn’t achieved immediately following relegation. Should the club unfortunately be relegated again, it will be confident of an immediate return, but secure on its financial stability if not achieved.
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