City invest hope in rising income after publication of £121m losses

Manchester City expect to carry a £120m annual loss for two years and their wage bill seems on course to top £150m in next October's end-of-year results.

But the club's conviction that they can maintain the 50 per cent year-on-year revenue growth revealed in yesterday's annual accounts leaves them convinced that they will bring their losses down rapidly enough to avoid a Champions League ban under Uefa's new break-even regulations.

The club's annual accounts for the 12 months to 31 May 2010 revealed yesterday that a wage bill of £133m has propelled their losses up to £121m, though it is the "post balance sheet events" detailed in the accounts which presage the financial hit yet to come. These "events" include the summer signings of Jérôme Boateng, David Silva, Yaya Touré, Aleksandar Kolarov, Mario Balotelli and James Milner. The net expenditure on these six players was £96.6m, to which the wages must also be factored into next year's year-end results: £120,000 a week in Touré's case. Even if all six of those players was earning a conservative estimate of £100,000 a week, the annual wage cost of each would be £5.2m – £31.2m in total, to go onto the annual wage bill.

Robinho's departure to Milan removes a £9m to £10m liability and others may follow him in January but manager Roberto Mancini may wish to bring in new players, too. So it is not inconceivable that the vertiginous increase in the wage bill may continue on, up above the £140m Chelsea were paying out in 2007-08. Little surprise that chief executive Garry Cook declared in his message accompanying the publication of yesterday's accounts that, "It is safe to say that player acquisition on the scale we have seen in recent transfer windows will no longer be required in the years ahead."

It is also safe to say that the club face a monumental challenge in bringing down their outgoings rapidly enough to conform with the new Uefa financial fair play regime. This allow clubs to run at a total loss of ¤45m (£39m) in the seasons 2013-14 and 2014-15 and ¤30m (£26m) in the three seasons thereafter. What might seem a long way off is actually almost upon us. Financial results for 2011 and 2012 will be the ones Uefa examine when deciding whether a licence to play in Europe is granted for 2013-14.

It sounds like bad news for City, though the mood at the club remains positive in the light of turnover figures which, had they not been clouded by the perennial debates about wealthy foreign owners, would be widely hailed as reflective of a serious commercial turnaround under the leadership of Cook. In the first full year of Abu Dhabi ownership, City has recorded a 400 per cent hike in sponsorship deals to £32.4m, an 18.6 per cent increase in ticketing revenue and a 60 per cent increase in retail sales. As they have sowed, so City have already commercially reaped. Their commercial strategy is actually not entirely dissimilar to the one the oil industry uses: pay out heavily up front and start making money 10 years down the line. Except that Uefa is not willing to wait that long. They indicated yesterday that they may not be prepared to grant City huge leniency. "It's about the numbers," one source said.

City have already set about demonstrating to Uefa that Sheikh Mansour bin Zayed al Nahyan's revolution at Eastlands has been about vast investment in the fabric of the club; not just in the transfer market. The club initiated a two-and-a-half hour meeting with Uefa officials in Geneva on Thursday to demonstrate that they are investing in fans' facilities and building up a commercial base so rudimentary when Cook took over that there were only two main commercial partners and not even a human resources department.

The fair play regime has certainly altered City's perspective. Before it loomed on to the horizon, they were less obsessed about the numbers on the balance sheet. Now there is an acknowledgement from the highest level at the club that they must finish the investment stage faster and start reaping the income.

The serious money lies in increasing the capacity of Eastlands beyond the current 48,000 capacity to 60,000. The club has already undertaken a 14-month study of facilities around the world.

Some of the figures in yesterday's accounts – a 13.1 per cent increase in match-day hospitality revenues to £6.1m and a 6.1 per cent increase in home attendances, making City the third best supported side in the Premier League – reveal why the board are interested in housing more spectators. Any such investment made by Sheikh Mansour would fall outside of the aegis of owner investment accounted for within the financial fair play rules.

But stadium redevelopment will not happen quickly enough to fend off Uefa. The club will not discuss precisely why they are confident of maintaining a turnover trajectory which has seen last season's income of £87m rise to £125m in yesterday's results, though The Independent understands the more immediate possibilities appear to include making use of the substantial land around the stadium – even though a lease to a supermarket is not an objective; a stadium naming rights deal; more income from hospitality facilities and more Middle East and North African commercial partnerships. Hikes in general ticket prices are not a part of the plan.

The solutions do revolve around football as well. Though City anticipate financial fair play having a deflationary effect on the transfer market and salaries as clubs help each other fall into line, the development of more young academy players is integral to bringing down the wage bill when older players such as Patrick Vieira and Touré eventually fall off the salary roster.

The club's business plan does not bank on immediate Champions League qualification, but Mancini is intelligent. He knows how badly the additional television and sponsorship revenue is now needed. City, facing Newcastle at home tomorrow, might have more money than any other Premier League club but the pressure in those richlands is unceasing and unsparing.

How City Lost £121m

* The bad news

£121m – Loss for year to May 2010

£133m – Wage bill for year to May 2010

£96.6m – Transfer fees post May

£31.2m – Salary commitments post May

*The signs of hope

£32.4m – Corporate partnerships up £25.9m or 400 per cent

£18.2m – Ticket revenue, up 18.6 per cent

£9m-10m – Saving due to Robinho's exit

£6.1m – Income from match-day hospitality, a 13.1 per cent rise

£53.9m – TV money, up from £48.2m after Premier League fifth place

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