Hearts accounts: Benefactor question to player trading

The Heart of Midlothian PLC annual report and financial statements cover the year ended June 30, 2023 and, as expected, prompted plenty of intrigue and discussion as they took into account the team's return to European group stage football for the first time since 2004. There is also the continued benefactor donations which always provokes comment.

While not financial experts, Hearts Standard rummaged around the accounts to look at some of the key talking points brought on by the latest financial figures.

READ MORE: Hearts reveal £20.8m record turnover as staff costs increase £4m

The key numbers

The first thing fans will search for in the annual accounts is whether the club made a profit or loss. Hearts recorded a profit of £298,000 for the financial year, down from £1.749million the previous year. That was despite a record turnover of £20.8million which included income from competing in Europe with eight games through the Europa League play-off and Conference League group stages. The club also registered a "strong commercial performance" with a £2.1million year-on-year increase. That turnover is a staggering achievement for the club. In 2014 it was just £6.55million. By 2018 it had risen to £12.131million and it is an incredible recovery from 2021 when it had dropped to £7.692million following Covid.  

A total of £6.167million was donated to the club with £1.627million arriving from Foundation of Hearts and a further £4.54million from benefactors.

"From a financial perspective, season 22/23 was strong," Ann Budge, the club's chairwoman, said in her strategic report. "We reported record turnover of £20.8m, a 42% increase on the prior year. Whilst an element of this increase was due to our participation in the Europa Conference League group stages, which enhanced our gate receipts and our football prize monies, we also benefited significantly from our growing commercial operations – hospitality, retail, sponsorship and advertising.

"The increase in revenue, along with the ongoing support from the Foundation of Hearts and our benefactors, allowed us to substantially increase the investment in our playing budget and our backroom support teams and facilities. To keep pace with our turnover growth, we also continue to invest in strengthening our commercial and administrative support teams. Staff costs increased by £4.1m during the season, which demonstrates this ongoing and essential investment."

Staff costs rose to £15.381million with an increase in the playing budget as well as the number of staff employed by the club, both in a full-time and part-time capacity. Other operating charges saw an increase from £6.673million to just over £9million. Hearts were required to make significant outgoings in preparation for the aforementioned group stage European football and £845,000 was spent on acquiring player registrations with a further £1.4milllion on the repayment of loans and financing obligations. 

READ MORE: The making of Hearts' 150th anniversary kit: UEFA rules, release video, huge demand

Benefactors role

No aspect of the Hearts financial accounts gets as much focus as that of the donations from benefactors. Not so much the revenue generated and donated by the Foundation of Hearts, the club's majority shareholders, with thousands of fans continuing to pledge each month, but that donated by James Anderson, widely known as the club's principal benefactor.

A number of fans have raised concerns regarding the club posting a minimal profit despite a significant donation. There is a view that if there was a much bigger profit some would question why it wasn't invested in the team. The wider point, however, is completely understandable. A donation of £4million for the second year running is massive. Where does it fit with Hearts, as a fan-owned club, being self sustainable?

Hearts account for the donation as part of their projections. If such a donation wasn't forthcoming they would cut their cloth accordingly. 

In the accounts there is a note which states the "directors have prepared cash flow projections through to 30 September 2024. The projections include: The committed long-term support of the company’s principal benefactor".

The benefactor's donation touches all areas of the club, including the front of shirt sponsorship with MND Scotland which was carried on for this season. Chief executive Andrew McKinlay said at the time: "I’m delighted to confirm that this new agreement, delivered in partnership with benefactors, will provide the club with an even more substantial source of income".

A valid question, however, would be what plans are in place should Anderson no longer provide donations beyond September 2024? One which will likely be posed at the AGM next month.

Budge loan

Of the £1.4milllion made for the repayment of loans and financing obligations, £1million went to Bidco (1874) Limited, a company owned by Ann Budge. The chairwoman provided short-term facilities of just over £2million along with a £1million loan facility to help with running costs and aid the club during Covid. It was "renegotiated into a Consolidated Loan Agreement between Bidco (1874) Limited and Heart of Midlothian plc with effect from 30 August 2021". 

This year's accounts state that "as per the Agreement, monthly loan repayments commenced in November 2022. In the current year, repayments of £1m were made."

Staff investment and player trading

In the accounts, Hearts note that payments to acquire player registrations was £845,000. The club signed Lawrence Shankland, Jorge Grant, Kye Rowles, Orestis Kiomourtzoglou, Alex Cochrane and Yutaro Oda. All were under contract elsewhere. Zander Clark and Alan Forrest were added following the expiry of their contracts, while James Hill, Garang Kuol and Stephen Humphrys arrived on loan. 

Interestingly Kio wasn't mentioned in the strategic review. The club sold him this summer, recouping a six-figure fee, but doing so after June 30 when the accounts ended.

The club saw the number of players, coaching and football support staff grow by 13 to 130 while administration and commercial staff increased by 26 to 146. Part-time matchday staff went from 105 to 121. The staff costs, which topped £15million, to income ratio increased slightly, from 54 to 57 per cent

As well as the first-team, Hearts continued to invest in the B team, women's team and academy.

One area the club are aiming to improve on is player trading. Hearts posted a £370,000 gain on player sales in the 2022/23 accounts. In a conversation with Hearts Standard earlier this season, sporting director Joe Savage admitted it was an area the club have "not done well enough on".

"We’ve not managed to player trade, we’ve had a lot of interest in our players but we’ve not quite had the offers where we thought 'we can’t turn that down'," he said. "We’ve had a couple of cheeky bids where he is worth way more than that, I’m not accepting that.

"People look down on Scottish football, the standard, the level. If you ask for a certain price clubs turn round and say they are not paying that because we don’t think he is worth that but we think he is worth that.

"Going forward player trading has to be a key part but in order to player trade we need to make sure if we sign somebody to replace him that we think they are going to be good. If you are selling a key part of your team you need to make sure the money is right for you then to invest that somewhere else."

READ MORE: How recruitment works at Hearts - transfer process, missed targets, scouting markets

Euro benefits

"Our on-pitch success in the previous season saw us qualify for European Football for the first time since [the] 2016/17 season," Budge said. "Despite the challenges posed by a heavily congested fixture list, our team, our staff and our fans, warmly embraced our European adventure. Memorable journeys took us to St Gallen, Riga, Florence, and Istanbul, where we secured six points in total, scoring in all of our away games. This journey not only offered valuable lessons for our future European endeavours but also brought substantial financial gains to the club, courtesy of prize money, broadcast revenues, and packed stadiums, as is clearly demonstrated in our financial results."

Hearts were perhaps taken aback by elements of competing in Europe and the group stages. There were logistical challenges as well as areas which required significant investment.

“We generated in excess of £5m of revenue,” Jacqui Duncan, Hearts’ finance director, said of European football at last year's AGM. “There is still some money to come in so still a bit to count. We will probably be looking at a profit around the £3m mark from Europe. There were travel costs, the cost of enhancing the squad to cope with European and domestic matches, and the UEFA regulations. Because we were determined to play the matches at Tynecastle, we probably spent close to £500,000 to get the stadium ready. UEFA didn’t come cheap.”

The benefits could be seen in the substantial increase in UEFA solidarity and prize money. Hearts brought in £7.391million compared to £3.108million the year previous. When Hearts last qualified for Europe in 2016, the UEFA solidarity and prize money from the 2016/17 accounts was £2.578million. Four home European games will also have contributed to an increase of £1million in gate receipts.

"Our aspiration for season 2022/23 was to repeat our success of the previous year and secure at least a third place finish in the Scottish Premiership," Budge said. "While this narrowly eluded us, our fourth place finish has ensured our participation once again in the qualifying rounds of European football in season 23/24."

Hearts were primed to reap the real benefits of European football this campaign if they had finished third ahead of Aberdeen having already made the aforementioned significant investment. It is a missed opportunity which still rankles within the club and the support.

READ MORE: Inside Hearts academy: Best signing and recruitment change

Hotel latest

Hearts continue to invest in the club's infrastructure with a hotel and conference rooms set to complete the Main Stand.

"We were delighted to receive board approval for the completion of our Main Stand development, when plans for the fit out of the second floor were approved," Budge said. "This will see the club benefit from an additional six conference rooms to support our growing conference and events business stream and will also see us open an entirely new hospitality venture, when we open the 25-bedroom Tynecastle Park Hotel.

"This exciting project is being led by our in-house hospitality team and will see us offer even more facilities for our supporters, especially our travelling supporters, while also allowing us to tap into the buoyant Edinburgh tourist market. The construction / fit-out work is being led by our in-house stadium manager and it is expected that the 4-star hotel will open for business during the second half of the 2023/24 financial year."

The accounts in 12 months' time...

Trying to predict anything in football for 12 months' time is a very difficult task. Without European football, the revenue from UEFA will, of course, decrease as well as aspects of the operating costs. There will be a slight uptick in prize money with participation in the League Cup semi-final, while the club will be aiming to improve on player trading. As stated previously, benefactor donations will still be a feature of next year's accounts. 

In the short-term, the AGM next month will be fascinating as the club's hierarchy are quizzed on various elements relating to the accounts and the direction of the club on and off the field.

As for this year's account, Budge said: "Financially, this was an excellent year for the club - with record revenues, reinvested in further developing our playing squad and our staff teams, continuing to improve the Club’s infrastructure, and enhancing Tynecastle Park."