Show Me The Money

In the past few years there has been tremendous progress in football fans’ knowledge of their clubs’ finances. Some might say that this is not a good thing and we should focus on matters on the pitch. That’s perfectly fair, indeed I would also personally much prefer to watch a great game, such as Borussia Dortmund’s recent demolition of Real Madrid, rather than investigate the minutiae of their balance sheets.

However, it is important that fans are aware of what is going on at their club, so that they understand the board’s strategy and any constraints that impact their activities, e.g. why a club might sell its best players every summer or why a club does not splash out on the world-class striker that might take them to the next level.

Traditionally, supporters have concentrated on a club’s profit and loss account, which is not surprising, because: (a) that is what the media tends to report – on the back of press releases from the clubs; (b) it is intuitively easy to understand, being essentially revenue less expenses (mainly player wages).

Nevertheless, the reported figure is an accounting profit, which is not necessarily a “real” profit, as it is based on the accountant’s accruals concept and this can be very different from actual cash movements. This was noted recently by, of all people, Simon Jordan, the former Crystal Palace chairman, on Sky’s excellent Footballers’ Football Show, as he claimed that the reported profit at football clubs was depressed by non-cash items.

"Jordan: The Comeback"

The perma-tanned, Spandau Ballet look-alike, actually has a point. As the old saying goes, turnover is vanity, profit is sanity, but cash is king. The main reason that football clubs like Portsmouth fail is cash flow problems. It does not matter how large your revenue is (or your profits are), if you do not have the cash to pay your players, suppliers or the taxman, then you are going to crash into the rocks.

Therefore, this blog is going to focus on the cash flow at each of the Premier League clubs in 2011/12 (the last season where all clubs have published detailed accounts). It will start with the familiar profit and loss account, highlighting the accounting shenanigans, and then reconcile this with the cash flow statement.

We shall then examine how football clubs really spend their money, revealing the different business models that are employed and explaining why certain clubs act as they do, including a review of the top seven clubs in the league (Manchester United, Manchester City, Chelsea, Arsenal, Tottenham, Everton and Liverpool).

Profit and Loss Account

The total turnover in the 2011/12 Premier League amounted to a hefty £2.3 billion, but still only produced an operating loss of £363 million, mainly due to wages of £1.6 billion, giving a wages to turnover ratio of 69%. There were also other expenses of £535 million and player amortisation, player impairment and depreciation of £544 million.

Only three Premier League clubs made operating profits last season: Manchester United £35 million, Swansea City £18 million and Norwich City £17 million. At the other end of the spectrum, Manchester City reported a massive operating loss of £104 million, followed by Aston Villa £58 million and Chelsea £46 million.

Clubs’ figures were boosted by £224 million profits on player sales (with the largest being Arsenal’s £65 million), though there is also £78 million net interest payable (most notably Manchester United’s £50 million), leading to £197 million loss before tax (and £179 million loss after tax).

Cash Flow from Operating Activities

The starting point for a football club’s cash flow statement is the operating profit (or more likely loss), which is converted into cash flow from operating activities via two adjustments: (a) adding back non-cash items such as player amortisation, depreciation and player impairment; (b) movements in working capital.

(a) Non-cash Items

First of all, we need to understand how football clubs account for transfer fees. Instead of expensing these completely in the year of purchase, players are treated as assets, whereby their value is written-off evenly over the length of their contract via player amortisation. As an example, Manchester United signed Robin van Persie for £22m on a four-year contract, so the annual amortisation is £5.5 million (£22 million divided by four years).

Similarly, tangible fixed assets like a club’s stadium and training ground are also depreciated, though their useful life is considerably longer. Player impairment occurs when the club decides that the value of a player in its accounts is too high, e.g. the player suffers a career threatening injury, loss of form or is in dispute with the management.

Incidentally, this also highlights why profit on a player sales is not a real cash figure, as this represents sales proceeds less the carrying value in the books. So, if van Persie were to be sold after three years for £7 million (i.e. £15 million lower than his £22m cost), there would still be a reported profit of £1.5 million, as his value in the accounts would be only £5.5 million (£22 million cost less three years amortisation at £5.5 million a year).

(b) Movements in Working Capital

Working capital is a measure of a club’s short-term liquidity and is defined as current assets less current liabilities. Changes in working capital can cause net income (in the profit and loss account) to differ from operating cash flow. Clubs book revenue and expenses when they occur instead of when the cash actually changes hands, e.g. if the club buys equipment from a supplier it would record the expense even before it pays the cash.

If current liabilities increase during the year, the club is able to pay its suppliers more slowly, so the club is (effectively) temporarily holding onto cash, which is positive for cash flow. On the other hand, if a club’s debtors increase, this means that it collected less money from its customers than it recorded as revenue, so that would be negative for cash flow.

In most years, the working capital movements will not be that significant, though it can be a high figure, e.g. £43 million at Manchester City and £39 million at Chelsea.

Adding back £544 million non-cash items and £(95) million working capital movements to the reported operating loss of £363 million does indeed make a big difference, as the cash flow from operating activities becomes a positive £87 million.

In fact, 12 of the Premier League clubs have positive operating cash flow (up from 3 with operating profits) with Manchester United leading the way with an impressive £80 million, followed by Norwich City £30 million, Arsenal £28 million and Tottenham £27 million. Even Manchester City’s negative operating cash flow of £53 million is only about half of their £104 million operating loss, mainly because their P&L includes an enormous £83 million player amortisation, arising from their big spending in the transfer market.

Cash Flow before Financing

The operating cash flow is in theory what is then available to the club to spend on buying players, investing in infrastructure or paying interest on loans and (occasionally) tax, though additional financing may be secured to cover any shortfalls.

(a) Net Player Purchases

This represents the genuine cash payments for player purchases less any sales and is often very different from the net spend reported in the media, largely because of stage payments, though it can also be affected by agents’ fees and conditional payments, e.g. based on number of appearances or trophies won. It is the only authentic figure publicly available for transfer fees, but it can also be misleading, as it may not cover the entire fee due to stage payments.

Paying transfer fees in stages can be a significant source of financing for some clubs, e.g. Juventus owed €93 million to other clubs (“for the acquisition of players”) as of June 2012, though they were in turn owed €41 million by other clubs.

On a cash basis, the highest net player purchases in the 2011/12 Premier League unsurprisingly came from Manchester City with £95 million (£123 million purchases less £28 million sales), followed by Manchester United £50 million, Chelsea £46 million and (shock, horror) struggling QPR and Stoke City, both with £23 million.

Four clubs actually made net player sales, i.e. used the transfer market as an additional source of funds: Aston Villa £16 million, Blackburn Rovers £12 million, Everton £11 million and Tottenham £6 million.

Arsenal just about balanced their books with £57 million purchases and £56 million of sales, giving net player purchases of £2 million. It is worth noting that this is considerably lower than the £65 million profit on player sales reported in the accounts.

(b) Investment in Fixed Assets

Clubs invested £142 million in fixed assets in 2011/12, mainly for development of the stadium and training centre, with 77% coming from just four clubs: Tottenham £42 million, Manchester City £30 million, Manchester United £23 million and Wolves £15 million.

(b) Net Interest Paid

This is very largely interest paid on bank loans net of any interest received from cash balances. One figure stands out here and that is the £46 million paid by Manchester United, which is over three times as much as the nearest “challenger”, namely Arsenal with £13 million. Given that United still had £437 million of gross debt at the time of the 2012 accounts, way more than any other club in the Premier League, this is not too unexpected. It has also not proved to be a major obstacle to United’s financial stability, as their cash flow is more than sufficient to cover the annual interest payments.

We should also note here that interest paid is not necessarily equal to the interest payable figure in the profit and loss account, as interest is sometimes accrued (so not paid), thus increasing the size of the debt, e.g. this is the case with a number of Championship clubs, including Cardiff City, Leicester City and Ipswich Town.

(c) Tax

Even though nine Premier League clubs reported profits before tax in 2011/12, only four (Arsenal, Manchester United, West Bromwich Albion and Tottenham) actually paid any tax. This is a very complex subject, but, essentially, use of prior year losses and other allowances helped prevent tax payments.

After all this expenditure, we have cash flow before financing, which is perhaps the purest reflection of how a club has run its business. By this metric, the newly promoted Norwich City and Swansea City shine with positive cash flow of £18 million and £6 million respectively. Most clubs clearly strive to break-even with many hovering around zero net cash flow.

Interestingly, and maybe disappointingly, the three clubs with the largest negative cash flows feature strongly at the top of the league: Manchester City £(184) million, Chelsea £(72) million and champions elect Manchester United £(41) million.

Financing

However, that is before financing and this is where the owners play their part, either via issuing share capital (Manchester City £169 million) or making additional loans (Chelsea £71 million, subsequently converted to capital). Other clubs required funds from their benefactors, notably QPR £39 million, Bolton Wanderers £24 million, Liverpool £24 million and Blackburn Rovers £16 million.

On the other hand, some clubs actually used funds to reduce debt, including Wigan £39 million (converted to share capital), Manchester United £29 million, Newcastle United £11 million, Arsenal £6 million and Norwich City £5 million.

Cash Flow after Financing

After this financing, we can see that almost all clubs are within the range of £18 million positive cash flow and a manageable £18 million negative cash flow. The one exception is Manchester United, which is a special case as a result of the Glazers’ leveraged buy-out. In 2011/12 alone, United paid £85 million to support this transaction: £46 million interest, £29 million loan repayments and £10 million dividends to the owners.

Let’s look at how cash flow has impacted the actions of the seven leading clubs in the Premier League.

Arsenal

Long admired for their financial prowess, Arsenal have consistently reported large profits. Not only did they register the highest profit before tax (£37 million) in the Premier League in 2011/12 on the back of £235 million turnover (3rd highest in England, 6th highest in the world), but they have also made an incredible £190 million of profits in the last five years. Indeed, the last year that they made a loss was a decade ago in 2002.

However, much of this excellent performance has been down to profits from player sales (e.g. £65 million in 2011/12) and property development (e.g. £13 million in 2010/11), while the operating profit has been steadily declining with the club actually reporting an operating loss of £16 million last season.

That said, once sizeable non-cash expenses (amortisation and depreciation) and working capital movements are added back, the cash flow from operating activities was £28 million, which was actually the third best in the Premier League.

The problem is that Arsenal have spent very little of this on improving their squad: in 2011/12 the net expenditure on player purchases was just £1.8 million – only four clubs spent less than the Gunners. Most of the available funds have instead gone towards financing the Emirates Stadium: £13.1 interest and £6.2 million on debt repayments. A further £8.6 million was invested in fixed assets for enhancements to Club Level, more “Arsenalisation” of the stadium and new medical facilities and pitches at the London Colney training ground.

Arsenal have cleared all their property development debt, but still had £253 million of gross debt arising from long-term bonds that represent the “mortgage” on the stadium (£225 million) and the debentures held by supporters (£27 million). Once cash balances of £154 million were deducted, net debt was only £99 million, but the interest/debt payment schedule remains punishing.

Despite the high interest charges, it is unlikely that Arsenal will pay off the outstanding debt early. The bonds mature between 2029 and 2031, but if the club were to repay them early, they would then have to pay off the present value of all the future cash flows, which is greater than the outstanding debt.

Another logical result of Arsenal’s years of reported profits is that they are one of the few Premier League clubs that pay corporation tax: £4.6 million last season (the highest in the league).

"Mind over Money"

So Arsenal’s self-sustaining approach is clearly evident in the cash flow statement, though they did have a small negative cash flow after financing in 2011/12 of £6.6 million. The supporters would almost certainly prefer to see the club spending more on players, rather than areas off the pitch, but the reality is that the debt and interest payments are not going away anytime soon.

This was made very clear by Arsène Wenger, “We want to pay the debt back from building the stadium and that’s around £15 million, so it’s normal that at the start we have to make £15 million or we lose money.” In fact, as we have seen, it’s more like £19 million, but the point remains valid.

However, the lack of investment in the squad is still galling, especially with Arsenal’s cash balances standing at £154 million last summer (almost as much as the rest of the Premier League clubs put together) following many years of positive cash flow, e.g. 2010/11 £33 million, 2009/10 £28 million, 2008/09 £6 million, 2007/08 £19 million and 2006/07 £38 million.

In the future, cash should be boosted by commercial income rising with the recent Emirates shirt sponsorship agreement and a new kit supplier deal, but Champions League qualification will also be important.

Manchester City

Despite rapidly growing their revenue to £231 million (4th highest in England), City still reported a pre-tax loss of £99 million, largely because of a £202 million wage bill, though in fairness this was nearly £100 million better than the previous year’s £197 million loss. The improvement is due to success on the pitch (2011/12 Premier League winners and Champions League qualification) and new sponsorship agreements, especially the Etihad deal.

City can add back £90 million for non-cash expenses, mainly £83 million player amortisation, but they also have £39 million negative working capital adjustments, due to an increase in debtors, leading to £53 million negative operating cash flow (the worst in the league).

Nevertheless, City spent much more than anybody else on player purchases (net £95 million) and £30 million on fixed assets, mainly on the Etihad Campus, including the City Football Academy, plus some stadium refurbishment.

"The minute you walked in the joint..."

They also have to pay £6 million interest, despite no debt from the owners Abu Dhabi United Group, as the club still has some old loan notes and finance leases.

That business model produces an enormous negative cash flow before financing of £184 million, which is then almost entirely covered by financing from the owner in the form of new share capital.

In the future, City should continue to grow their commercial income, while we have also seen a slowing of their player investment in the light of UEFA’s Financial Fair Play regulations.

Chelsea

Very similar to Manchester City’s strategy, but the football club actually reported a £1.4 million profit in 2011/12 after their Champions League success, though this was also due to an £18.4 million exceptional gain after the cancellation of preference shares owned by British Sky Broadcasting and £29 million profit on player sales. Net turnover rose to £256 million, but the £176 million wage bill was only surpassed by Manchester City, giving rise to an operating loss of £46 million.

Chelsea’s large non-cash expenses of £61 million are added back, but they also have £43 million negative working capital adjustments, mainly due to a large decrease in creditors, leading to £27 million negative operating cash flow.

Again, they spent heavily on players (net £50 million) and invested £5 million in fixed assets. Cash was also boosted by £6 million from the acquisition of a subsidiary, Chelsea Digital Media Limited, which was transferred from a joint venture to a 100% owned subsidiary.

"From Russia with Money"

All that produced a hefty negative cash flow before financing of £72 million, the second worst in the league, which was covered by an additional loan from the parent company, Fordstam Limited, owned by Roman Abramovich. As per previous years, this loan was subsequently converted into share capital, so the football club has no debt.

That said, it is not really true to say that Chelsea is debt-free, as these loans still exist in the holding company, amounting to £895 million as at June 2012. They are interest free, but are repayable with 18 months notice. It must be considered unlikely that Abramovich would ever call in this debt, but it is theoretically possible.

It looks like Chelsea are trying to reduce their wage bill to ensure they break-even, but their revenue will be under some pressure, as last season was boosted by the Champions League triumph, though new commercial deals were signed in 2012/13, notably Gazprom and Audi.

Liverpool

Despite their accounts only covering 10 months, due to a change in accounting date, Liverpool’s reported revenue of £169 million was still the 5th highest in England. Deloitte estimated that it would be £189 million for a full year. However, the Reds’ loss of £41 million was the second worst in the country, due to a £109 million wage bill (£131 million on an annualised basis) and £10 million of termination payments to coaching staff.

The £35 million operating loss was improved by adding back £46 million non-cash items (mainly £34 million player amortisation, but also including £9 million for player impairment), offset by £12 million working capital movements, to give negative operating cash flow of around £1 million.

Only five clubs had higher net player purchases than Liverpool’s £14 million, though this still placed them behind QPR and Stoke City, both with £23 million. This figure is a little misleading, as Liverpool spent relatively high on player purchases (£45 million), but largely compensated for this expenditure with £31 million from player sales.

"May you live in less interesting times"

Liverpool also made £3.7 million interest payments, though this was significantly lower than the sums paid during the dark days of the Hicks and Gillett era, which were as high as £45 million in 2010.

The £21 million negative cash flow before financing was fully covered by additional bank loans, leading to a small positive cash flow of £2 million.

Liverpool’s debt in the last annual accounts was £92 million, split between £70 million bank loans and £22 million to the owners Fenway Sports Group, but since then John W. Henry and his fellow investors have put in £47 million to reduce bank debt in August. These loans are interest-free, so interest payments should further reduce (at least until new loans are taken out for stadium development).

Redevelopment of Anfield should boost match day revenue in the future, though it will require substantial funding. In the meantime, Liverpool continue to sign impressive commercial deals, e.g. Chevrolet and Paddy Power, though lack of qualification for the Champions League places them at a severe financial disadvantage to other leading clubs.

Tottenham Hotspur

Tottenham made a £7.3 million loss before tax after revenue fell to £144 million (from £164 million the previous year), due to only qualifying for the Europa League instead of the more lucrative Champions League. The wage bill was held at £90 million, leading to an operating loss of £11 million.

Adding back £35 million for player amortisation and depreciation plus £3 million for working capital movements, due to a rise in creditors, means that cash flow from operating activities was a healthy £27 million.

This was boosted by net player sales of £6 million (player sales £33 million, purchases £27 million) with Spurs being one of only four Premier League clubs to generate cash from this activity.

"Stadium Arcadium"

At the moment Spurs are investing almost all their surplus cash in fixed assets, having spent £42 million last season on plans for a new stadium (Northumberland Development Project) and the new training centre in Enfield. This was more than any other Premier League club spent on infrastructure in 2011/12. In addition, they paid £4.5 million interest, as debt climbed to £86 million, made up of bank loans and securitisation funds.

After the significant investment off the pitch Tottenham’s cash flow before financing was a negative £13 million, partly financed by £8 million additional bank loans, leading to negative net cash flow of £5 million.

Tottenham’s financial future will be dictated to a very large extent by what happens with the stadium development, though they would be greatly helped if they could again qualify for the Champions League. The club estimated that the 2011/12 Europa League campaign brought in £31 million less revenue than the previous season’s foray into the Champions League.

Everton

Everton made a loss of £9 million from revenue of £81 million and a wage bill of £63 million (10th highest in the Premier League). The operating loss of £19 million was improved by adding back £14 million of player amortisation and depreciation less a working capital adjustment of £2 million, giving a negative cash flow from operating activities of £7 million.

Everton’s need to box clever is highlighted by the fact that even after net player receipts of £11 million (sales £23 million, purchases £13 million), they do not quite manage to break-even with negative cash flow after financing of £2 million. All other things being equal, they need to sell a player every season to stay afloat.

This is due to £4 million interest payments and £0.9 million repayment on assorted loans. The club’s debt stands at £49 million with an £11 million overdraft plus £24 million loan notes (borrowed against future season ticket sales) and £14 million loans (borrowed against future TV money). The lending arrangements with Barclays Bank expire on 31 July 2013, so these will have to be renegotiated in a few months.

Manchester United

Despite having the highest revenue in England (£320 million) and incidentally the 3rd highest in the world (only beaten by Real Madrid and Barcelona), United made a £5m loss before tax in 2011/12. This had very little to do with the club’s underlying business, as United’s £35 million operating profit was actually the highest in the Premier League, even after a £162 million wage bill.

No, the negative bottom line is due to £50 million net interest payable which is the consequence of the Glazer family’s leveraged takeover that placed over half a billion pounds of debt on the club’s balance sheet in 2005.

In fact, after adding back £46 million of player amortisation and depreciation less a minor working capital adjustment, United’s cash flow from operating activities is a highly impressive £80 million (in the previous year this was an almost unbelievable £125 million). To place that into context, this is £53 million more than the widely praised Arsenal. Quoting Staines’ finest, Hard-Fi, United are a veritable “cash machine”.

Over the last few years, relatively little of this wealth has been spent on improving the squad. Indeed, between 2009 and 2011, United actually had net sales proceeds of £3 million – though this was admittedly greatly helped by Ronaldo’s £80 million sale to Real Madrid. However, in 2011/12 the Glazers turned on the taps with United allocating £50 million to net player purchases, only surpassed by their neighbours Manchester City.

They also invested £23 million in fixed assets, mainly land and buildings around Old Trafford.

However, what really stands out is the £46 million interest United had to pay. This is by far the highest in the Premier League with Arsenal the only other club having to make a double-digit interest payment (£13 million). In fact, United pay about the same amount of interest as all the other Premier League clubs combined.

"Brass in Pocket"

A £3 million tax payment resulted in £41 million negative cash flow before financing, while £29 million loan repayments and £10 million dividends to the Glazers (to repay loans borrowed from the club in 2010) meant £80 million negative cash flow after financing – the worst in the Premier League.

It really is a game of two halves at United with £80 million of operating cash flow converted into negative cash flow after financing of £80 million. That £160 million swing can be broadly split between £72 million healthy spend (player purchases £50 million and property investment £23 million) and £88 million unwanted spend (interest £46 million, debt repayment £29 million, dividend £10 million and tax £3 million).

Although debt has been significantly reduced from the horrific £773 million peak in 2010, it still stood at £437 million (net £366 million after deducting £71 million cash) as at 30 June 2012, mainly senior secured notes attracting interest rates between 8.375% and 8.75%.

Looked at another way, without the burden of the Glazers’ debt, United could afford to spend £80 million every season on new players. And that is before the amazing new commercial deals with Chevrolet (shirt sponsorship) and Aon (training ground naming rights) kick in, not forgetting the likelihood of a major uplift when the kit supplier deal is re-negotiated (Nike runs to July 2015).

"Come on, Alex. You can do it."

Obviously, United have not done too badly in recent years, but they might well have done even better with those additional funds being made available to the manager, especially in Europe, where they have struggled for the last two seasons. Arguably, that’s the best argument in favour of the Glazers, namely that they have made it easier for other clubs to compete. Without their grasping presence, United would, quite literally, be laughing all the way to the bank.

That said, there are signs that this financial burden may be easing, as half of the proceeds from last August’s IPO were used to reduce debt to £367 million by December 2012, so annual interest paid should fall, though it is difficult to estimate a precise figure, given the many factors involved, such as exchange rates on the USD element of the debt.

If the club uses the additional revenue from its own commercial growth and the new Premier League TV deal (worth at least another £30 million a season) for more debt reduction, then the interest payments will become less significant, freeing up even more cash – though that might just be used to pay the Glazers dividends…

 "Running up that Hill (A Deal with God)"

Of course, the new Premier League TV deal that commences next season will benefit all clubs in the top flight and should make a real difference to their ability to generate cash, especially in conjunction with the new Premier League Financial Fair Play (FFP) regulations. These state that clubs are only allowed to make a total loss of £105 million providing this is covered by the owner (and £90 million of that is injected into the club in the form of equity).

Furthermore, clubs with wage bills above £52 million will only be allowed to increase their wages by £4 million per season for the next three years, though that restriction only applies to TV money, so clubs are free to spend any additional income from ticket sales or commercial deals on wage growth.

One of the objectives behind these regulations is that, in contrast to previous deals, the increase in TV money will not simply disappear into the players’ wage packets. This could markedly improve clubs’ cash flow, though there is a chance that any surplus may be simply used to pay dividends to the owners, as opposed to, say, reducing ticket prices, investing in youth development or improving facilities for the fans.

"A Change is Gonna Come"

Similarly, UEFA’s FFP regulations will encourage clubs to live within their means and are even more stringent. Wealthy owners will only be allowed to absorb aggregate losses of €45 million (£38 million), initially over two years and then over a three-year monitoring period, as long as they are willing to cover the deficit by making equity contributions. The maximum permitted loss then falls to €30 million (£25 million) from 2015/16 and will be further reduced from 2018/19 (to an unspecified amount).

To coin a phrase, this will be a whole new ball game for football clubs’ business models with the financing of large deficits by wealthy benefactors expected to significantly reduce. Whatever happens, those wishing to understand a football club’s finances and consequently the impact these have on its strategy should, as always, follow the money. That means not just focusing on the profit and loss account, but also dipping a toe into the mysterious world of the cash flow statement.

Borussia Dortmund - Back In The Game

Last season was truly memorable for Borussia Dortmund’s many supporters, as their beloved Schwarzgelbenretained their Bundesligatitle and also secured the first double in the club’s 103-year history by winning the DFB Cup too. Not only did they avoid the dreaded second season syndrome, but they actually did so in record-breaking style by setting the highest points total (81) and the longest unbeaten run in a single season (28 matches). Germany’s leading sports magazine, Kicker, compared this achievement with Bob Beamon’s “unbelievable” long jump record in the 1968 Olympics.

They have admirably managed to cope with the loss of key players each season, so when they sold influential captain Nuri Şahin to Real Madrid in the summer of 2011, his place in midfield was effectively taken up by Shinji Kagawa, whose return from injury meant no loss in momentum. Similarly, when the Japanese international was sold to Manchester United this summer, Dortmund had already signed his replacement, the highly talented Marco Reus from Borussia Mönchengladbach.

In the club’s own words, Dortmund’s performance in Europe was “not as impressive”, as they finished bottom of their Champions League group behind Arsenal, Marseille and Olympiacos, betrayed by their young team’s lack of experience at this level. However, they appear to have remedied this weakness (so far) this season with fine victories over Real Madrid and Ajax plus much the better of an away draw with Manchester City.

"Götze - super Mario"

All this has been done with Dortmund playing an exciting, attractive brand of football that has been appreciated by fans everywhere. Under charismatic manager Jürgen Klopp, this is a side that attacks with pace and defends with great intensity, proving that teams can win with style.

They have also achieved the seemingly impossible task in football of combining victories on the pitch with financial success, though it is equally true that sporting success has helped lead to improved economic results. In 2011/12 Dortmund’s revenue rose by an imposing 42% to a record €215 million (€189 million excluding player sales), while pre-tax profits surged to a hefty €37 million. Despite higher bonus payments, the wage bill of less than €80 million can still be described as “merely average” for the Bundesliga.

These figures provide the most tangible evidence yet that Dortmund have made a remarkable recovery from their financial difficulties of a few years ago when they flirted with bankruptcy. In 2002 the club was forced to sell its famous Westfalenstadionto a real estate trust, having squandered the funds from its flotation on the German stock exchange.

Worse was to come as the club splashed out on expensive signings and high wages, effectively gambling on regular qualification for in the Champions League to fund this massive spending. When this was not achieved, they only succeeded in building up huge debts, leaving the club in a “life-threatening situation”.

"Hummels - Mats entertainment"

The club was saved by the “never say die” spirit of their supporters, whose “We are Borussia” campaign resulted in Dortmund’s community of citizens, companies and public authorities combining to help repair the finances. This included some very understanding creditors and bank managers, who deferred stadium rent and interest payments until 2007.

Dortmund also had to take out yet another loan to help pay the players’ salaries, while they were forced to shore up the balance sheet in 2006 with significant capital increases, which enabled the club to obtain a more manageable debt structure and improved interest rate terms. In particular, the club took out a 15-year loan of €79 million with Morgan Stanley, which facilitated the repurchase of the remaining stake in their stadium from the property fund.

The restructuring process was completed two years later, when €50 million of cash received after signing a new 12-year marketing agreement with Sportfive was used to fully repay the Morgan Stanley loan many years ahead of schedule. The club promised that this move would not only further reduce its liabilities, but would free up funds to improve its sporting competitiveness. Two Bundesligatitles later and it’s fair to say that the club has been true to its word.

"Lewandowski - Pole dance"

Dortmund have learned from their past mistakes (and excesses) and adopted a far more sustainable business model in the past few years. They now employ a solid financial strategy, based around the over-riding principle of “achieving maximum sporting success without taking on more debts.” The focus is primarily on youth, as explained by managing director Thomas Treß, “We learned that you have to invest in your youth, to develop your own stars, adding to your team with young players of potential.”

This investment in relatively cheap, promising young players, rather than he expensive finished article, has been assisted by the foundation in 2011 of the BVB Academy, a modern training centre to develop players between the ages of 19 and 23. Dortmund’s youth academy has been a veritable production line for the first team, turning out talent like Mario Götze, Marcel Schmelzer and Kevin Großkreutz, while other youngsters like Mats Hummels and Sven Bender have been further developed at Dortmund. Most of these players have signed long-term contracts with Dortmund until 2016 or 2017.

Bayern Munich’s outspoken president Uli Hoeneß took a pot shot at his rivals’ approach, “They had to do it that way, because they don’t have the money.” Well, exactly. Very few clubs have the financial power of Bayern, but it is surely better to make your suit from the cloth available, rather than spend money you don’t have on a fancy new outfit that falls apart a couple of years later.

Dortmund’s revised, more sensible approach has been epitomised by their dealings in the transfer market. In the five years leading up to the fateful 2004/05 season, the club’s net spend was a chunky €97 million, before their debt problems forced them to offload players, generating surpluses over the next three years, followed by very modest spend, so that “transfer income and expenses are balanced.” Over the last nine years, the club had net sales proceeds of €5 million – a stark contrast to their extravagant era.

Under sporting director Michael Zorc, Dortmund’s scouting has been focused on “value development”, so that “transfers should create substantial earnings potential”, as well as “sustainable sporting competitiveness”. This means that the young talent is likely to leave “to secure large transfer income”, though the club acknowledges that this strategy creates a conflict between financial considerations and sporting criteria. This can lead to a lack of squad depth, hence the uncertain start to this season in the Bundesliga.

In fact, over the last three seasons no fewer than nine clubs in Germany’s top flight have spent more than Dortmund’s net €2 million. In fairness, very few Bundesligaclubs spend big on transfers with the obvious exception being Bayern Munich, who spent €116 million in the same period. Dortmund’s chairman, Hans-Joachim Watzke, accepted this discrepancy, “I must point out that we continue to operate in different spheres. Bayern spent €70 million this year, including €40 million on Javi Martinez.”

Thomas Treß added, “We are not able to compete in the European soccer market with British or Spanish clubs in respect of transfer pricing.” That’s true, but you can also add a few more countries to that list, as can be seen by the above graph, which highlights the massive difference with other leading Europe clubs. At one end of the spectrum, we have Dortmund with €2 million; at the other end, three clubs, fueled by oil-rich owners, have splashed out around a quarter of a billion pounds: Chelsea, Manchester City and Paris Saint-Germain.

This summer saw a slight change of emphasis with the €17 million capture of Marco Reus, though even this was compensated by the €16 million received for Kagawa. Bayern’s former sporting director, Christian Nerlinger, conceded, “With this transfer they have established themselves as a major rival for the championship.” Dortmund claimed that this signing demonstrated that they were “the team to be for young, ambitious Bundesliga players”, though in fairness there were special circumstances here, as Reus grew up as a Dortmund fan and his parents live in the area.

Nevertheless, the suspicion remains that if they receive the right offer, Dortmund will continue to sell their best players, such as the prolific forward Robert Lewandowski. Watzke recently denied this, “We won’t give up Robert for any money in the world. We don’t want to open a bank”, but few would be surprised if the Polish international were to leave next summer.

Indeed, player sales contributed nearly half (€17 million) of Dortmund’s very impressive 2011/12 pre-tax profits of €37 million, which were €27 million higher than the previous season’s profits of €10 million. After tax was taken into consideration, profits increased from €5 million to €28 million. That was much more than the previous five years when player sales produced profits on average of less than €5 million a year.

Operating profit grew by €17 million to €24 million, as revenue grew by an amazing €51 million (37%) from €139 million to €189 million, more than off-setting increases in the wage bill (£18 million) and other expenses (€17 million). Other operating income, largely due to payments from national associations for the release of Dortmund’s players, also improved by €3 million to €8 million.

As a technical aside, I am using the Deloitte definition of revenue here in order to facilitate comparisons with other European clubs, so have excluded transfer income of €26 million. Adding that to my revenue of €189 million gives the €215 million announced by Dortmund. The profit on player sales of €17 million is then obtained by deducting transfer expenses of €9 million and is largely due to the sales of Kagawa to Manchester United and Lucas Barrios to the Chinese club Guangzhou.

It is clear that “Borussia has developed itself economically and on a sporting level continuously over the last few years”, as Watzke put it. The profits made in the last two seasons represent a spectacular turnaround, as the club had previously reported losses in five of the last six years, including €55 million in the annus horribilis of 2004/05 and €23 million the year after.

In comparison, Bayern Munich, the “alpha male” of the Bundesliga with 22 league titles and four Champions League victories, have made profits 19 years in a row, consistently bettering Dortmund’s results off the pitch – except last season, when the Schwarzgelben’s€9.5 million was slightly higher than the Bavarians’ €8.8 million. Bayern will also have to go some to match Dortmund’s €37 million in 2011/12.

Dortmund re-entered Deloitte’s Money League in 2010/11 in 16th position with revenue of €139 million, even without the benefit of Champions League money. Their 2011/12 revenue of €189 million would have placed them 11th, assuming no growth at other clubs.

That is more than respectable, but the problem is that it is far below the leading clubs, such as Real Madrid €479 million, Barcelona €451 million, Manchester United €367 million and (crucially) Bayern Munich €321 million. The magnitude of Dortmund’s accomplishment in overcoming Real Madrid last week can be seen by the relative revenue figures last season with Madrid’s €514 million being nearly three times as much as Dortmund’s record €189 million.

Bayern’s revenue of €321 million is by far the highest in Germany, giving them a major competitive advantage over their rivals: Schalke 04 €202 million, Dortmund €189 million, Hamburg €129 million, Werder Bremen €100 million and Stuttgart €96 million (all 2011 figures, except Dortmund 2012). Moreover, only Dortmund have kept pace with Bayern’s insatiable revenue growth: since 2007, they have both increased revenue by just under €100 million. Schalke also grew revenue by €88 million, but their 2012 figure is very likely to fall back after the absence of Champions League revenue, which was worth €40 million in TV distributions alone in 2011.

Even though Dortmund’s revenue has been going great guns, rising 80% (€84 million), while Bayern’s actually dipped €2 million last season, the gap between the two clubs is still a mighty €132 million. This is nonetheless a lot better than the colossal €218 million shortfall in 2010, when Bayern’s revenue was literally three times as much as Dortmund’s.

Even so, Dortmund’s revenue growth has been hugely impressive, more than doubling from €90 million five years ago, especially as it was relatively flat during the three years between 2008 and 2010 at around the €105 million level. Last season all revenue streams contributed to the €51 million rise to €189 million: TV €28 million (mainly Champions League participation) to €60 million; commercial €19 million to €97 million; and match day €4 million to €31 million.

As we can see, the largest revenue category is commercial income. In fact, in 2010/11 Dortmund had the highest percentage of their total revenue from commercial (57%) of any Money League club. Although this has fallen to 51% in 2011/12, mainly due to Champions League money, this is still a very high proportion for a football club.

To place that into context, it is worth comparing the revenue mix with Arsenal, where commercial activities contribute only 23% of total revenue. In contrast, match day is worth 41% at the North London club, compared to only 17% at Dortmund. Looked at another way, the majority of Dortmund’s revenue is generated from companies, while fans bear most of the burden at Arsenal.

In fact, Dortmund’s striking commercial revenue of €97 million means that they are only behind the four marketing behemoths of the football world: Real Madrid €187 million, Bayern Munich €178 million, Barcelona €167 million and Manchester United €130 million.

The club’s commercial strategy is to secure long-term partners, as seen by their agreement with marketing partner Sportfive, who have signed with the club until 2020, by which time they will have been the club’s marketing partner for 20 years. All three main sponsorship deals are long-term in nature: shirt sponsor Evonik, whose agreement has been in place since 2006, extended from 2013 to 2016; stadium naming rights partner Signal Iduna also extended from 2016 to 2021; while new kit supplier Puma signed up until 2020.

Another objective is to sign up many secondary sponsors, known as “champion partners”, and a lengthy list now includes the likes of Opel, Sparda Bank, Sprehe, Wilo, Brinkhoff’s, Flyer Alarm, Hankook, Yanmar and West Lotto.

Dortmund have managed to grow all aspects of their commercial revenue: sponsorship and advertising rose 16% to €58 million, mainly due to new partners and an increase in the VIP hospitality occupancy rate to 100%; while merchandising and catering was also up an impressive 41% to €37 million.

Over a third of merchandising revenue is now earned through the online shop, while a fifth fan shop was opened in the city of Dortmund in September 2011. According to a survey by PR Marketing, die Borussen sold between 250,000 and 500,000 replica shirts in the 2011/12 season with only eight clubs selling more. Catering revenue also rose 9% to €10 million.

Despite these successes, Dortmund’s commercial income is still only around 55% of Bayern’s, partly due to the €38 million revenue the Bavarians earn from the Allianz Arena, though their sponsorship and advertising is also €23 million higher. Our old friend Uli Hoeneß said that Dortmund would need to have a more consistent track record of winning trophies if they hoped to match Bayern’s global appeal, but in truth they’re doing very well compared to almost every other club on the planet.

Evonik, a chemical company, has increased its shirt sponsorship to €10 million, according to the Frankfurter Allgemeine Zeitung, though this is still lower than deals struck by some other German clubs: Bayern (Deutsche Telekom), Schalke (Gazprom) and Wolsburg (Volkswagen). It is also a long way behind the mega deals at the likes of Real Madrid and Barcelona, though it does include hefty add-ons for sporting success. The Evonik chairman said that he was very pleased with Dortmund as a partner, due to their large crowds and title wins (“in a very exciting way”).

German clubs have proved very adept at securing valuable shirt sponsorship deals. Although the total value of such deals is higher in the Premier League, the average value of each deal is actually higher in the Bundesliga, as it has two fewer clubs (according to a study by International Marketing Reports).

Signal Iduna, the naming rights partner, has also increased its annual payment from €4 million to between €4.5 and €5 million after the deal extension.

Dortmund’s new kit supplier, Puma, is reportedly paying €6-7 million a season from July 2012, replacing Kappa, whose deal was only worth €4 million. Rather wonderfully, the new shirt has the inscription “Echte Liebe” (true love) on the inside of the collar. That’s good news, but it is still far below Bayern’s €25 million deal with Adidas (and, for that matter, Real Madrid’s €38 million agreement with the same company).

Paradoxically, BVB are  helped commercially by the weak digital television market, which means that German clubs are televised more frequently on terrestrial channels than their counterparts in England, Spain and Italy, thus providing more exposure for their sponsors. As the old saying goes, it’s an ill wind that blows no good.

However, this also means that television income is not very high in Germany, as can be seen from the 2010/11 Money League, where Dortmund sat in 19th position. Their revenue of €32 million was around one sixth of the €184 million earned by Barcelona and Real Madrid, who benefit greatly from their individual domestic deals.

In 2011/12, Dortmund’s TV revenue rose €28 million to €60 million, very largely due to the €25 million from the Champions League with the remainder coming from the DFB Cup, which they won compared to a second round exit the previous season.

They received around €28 million from the Bundesligadistribution, a small increase on the previous season. TV revenue in Germany is largely divided among clubs via a points system based on their league position over the past four years, though some money is also allocated per the number of games televised live.

Performance is weighted in favour of the more recent years, so last season a factor of 4 was applied to 2011/12, 3 to 2010/11, 2 to 2009/10 and 1 to 2008/09. However, a form of equality is then applied, as the club with most points from this algorithm only receives twice as much money as the club that has the lowest number of points. In this way, as top club in 2011/12 Bayern Munich received €24 million for performance (excluding live fees), which was double the €12 million for last placed Augsburg.

The Bundesligarecently announced an increase in the value of their TV rights with the domestic deal for the four years from 2013/14 to 2016/17 rising 52% from €410 million to €628 million and the overseas rights increased by a similar rate to €72 million. The new total of €700 million will take it ahead of La Liga (€655 million) and Ligue 1(which actually fell to €642 million). The Bundesliga’schief executive, Christian Seifert, was ecstatic, “ We didn’t expect results like this, it clearly exceeded our expectations”, while Bayern’s chief executive, Karl-Heinz Rummenigge, described it as “a milestone in the history of the Bundesliga.”

Nevertheless, the TV rights for German football are still lower than Serie A(€944 million) and only half the Premier League deal (€1.4 billion). That is before the new English deal from 2013/14, which is estimated to be worth at least €2.2 billion, i.e. three times the “historic” Bundesliga deal.

Dortmund’s share of the TV revenue should rise to around €40 million, but this is still a lot less than the money earned by English clubs. Last season’s Premier League winners, Manchester City, pocketed €75 million, while even the bottom club, Wolverhampton Wanderers, received €49 million. The new Premier League deal is likely to deliver €110-120 million to the leading English teams.

Once again demonstrating their innovative spirit, Dortmund were the first German club to offer their own TV package, BVBtotal!, in January 2011, run jointly with Deutsche Telekom.

Dortmund’s allocation from the Champions League was worth €25.4 million in 2011/12, considerably more than the €4.5 million they received from the Europa League the previous season, even though they went out at the group stage. However, this was still a lot less than the €42 million Bayern received for reaching the final.

Interestingly, Dortmund (€17 million) still received more than Bayern (€14.8 million) from the TV (market) pool, due to the methodology used to allocate this element, which is as follows: (a) half depends on the progress in the current season’s Champions League, based on the number of games played; (b) half depends on the position that the club finished in the previous season’s domestic league. As three German clubs reached the group stage this season, the split will be: Dortmund 45%, Bayern 35% and Schalke 20%. The Champions League will be worth even more, as the overall prize money for the 2012 to 2015 three-year cycle has increased by 22%, but it will be higher for German clubs, as their TV deals have risen considerably, thus boosting their market pool.

"Grosskreutz - we need to talk about Kevin"

The Europa League is much less lucrative, though German clubs benefit from relatively high TV deals, so last season Schalke earned the same (€10.5 million) as the winners Atlético Madrid, even though they were eliminated in the quarter-finals.

Therefore, Dortmund will be gratified that Germany’s number of places in the Champions League has increased from 3 to 4 (at the expense of Italy), due to the improving UEFA coefficients. However, this might prove to be a double-edged sword, as it could mean that Germany’s TV pool has to be shared between more clubs.

European money has clearly made a substantial difference to Dortmund’s revenue, but Watzke has claimed that the club is not economically dependent on Champions League money and they could survive three seasons without it, thanks to their long-term sponsorship contracts – though they would have to make cuts.

Last season Dortmund’s incredible average attendance of 80,500 was the highest in Europe, ahead of Barcelona 79,600 and Manchester United 75,400. This was easily the largest average in Germany with the next highest teams being Bayern 69,000 and Schalke 61,200. The Dortmund fans’ interest shows no sign of slowing down, as they have just established a new Bundesliga record for season tickets for 2012/13 at a mighty 54,000 – and that was capped to ensure an adequate supply of tickets on the day of the match.

It is therefore a little perplexing to see that Dortmund have one of lowest match day revenues in the Money League with only €28 million in 2010/11 (€31 million in 2011/12), while the likes of Real Madrid, Barcelona, Manchester United and Arsenal all collect more than €100 million. There are two obvious reasons for this huge discrepancy: less matches and low ticket prices.

There are two fewer home games every season in the Bundesliga, while last season Dortmund only played three Champions League home games, bringing in €4.4 million, and one in the DFB Cup. This resulted in a total of 21 home games compared to 28-29 for the leading English and Spanish clubs.

Dortmund’s high attendances (and small match day revenue) can be partially attributed to the large number of standing places for which season tickets are priced as low as €187 (€109 for youths). Nearly 25,000 of these can be found on the famous Südtribüneterrace, known as the “Yellow Wall”, which is the largest standing area in European football and provides each home game with an intensely passionate atmosphere. Occasionally, that enthusiasm can go too far, such as the hooliganism seen at the recent Schalke derby when there were 200 arrests and water cannon had to be used.

It is surely no coincidence that the Bundesliga has the lowest ticket prices of Europe’s five major leagues and consequently the highest attendances. This is an important part of football culture in Germany, as seen recently when Dortmund fans staged a protest against Hamburg’s steep prices for away standing tickets, leaving their block after 10 minutes. Klopp gave them his support, “The league needs to think just how far they want to push prices.”

There are no such problems in Dortmund’s imposing stadium, now officially named Signal Iduna Park, which is the largest football ground in Germany and the sixth largest in Europe. This is obviously an extremely valuable asset that can also be used to host international matches, when the capacity is reduced to 67,000 by converting the standing areas to seats. The Times described it as the “most beautiful stadium in the world”, writing, “Every Champions League final should be held in Dortmund. The place was built for football and its fans.”

Even though the wage bill has risen by 67% (€32 million) since 2010 to stand at €80 million, this is still very much under control, as revenue has grown at an even faster rate of 80% (€84 million). In fact, the important wages to turnover ratio has actually fallen to a very creditable 42% from the peak of 48% in 2009, which is even better than the 50% targeted by the Bundesliga.

The €18 million increase in the total wage bill in 2011/12 was largely due to sporting success, namely higher performance-related bonus payments, though there was also a rise in administration staff. Treß emphasised that the club had a “very flexible cost structure”, so any lessening in performance on the pitch should mean a smaller wage bill. The wage bill is not analysed in the accounts, but the cost of the football squad has been estimated at €60 million.

Even after this growth, Dortmund’s total wage bill of €80 million is still only about half of Bayern’s €158 million, though the gap has come down a fair but from 2010 when it was as high as €118 million. In fairness to the Bavarians, their revenue is also substantially higher, but that does not make it any easier for BVB to compete.

This point is even more relevant on the European stage, where some of the leading clubs can boast wage bills far higher than any in Germany, e.g. Barcelona, Real Madrid, Manchester City and Chelsea are all above €200 million (though the Spanish figures are inflated by other sports). To provide an English comparison, Dortmund’s wage bill is about the same as Sunderland, Everton and Fulham, which shows just how extraordinary their achievements have been.

That said, the price of success is that Dortmund’s wage structure will come under pressure, as their policy of signing stars to long-term contracts will mean higher salaries, as seen with Götze’s improved deal.

Dortmund’s executives have also been handsomely rewarded for the club’s success with Watzke earning €2.2 million in 2011/12, including a €1.4 million bonus, and Treß trousering €1.4 million, including an €875,000 bonus.

The other staff cost, player amortisation, is incredibly low at €8 million, which is a perfect demonstration of Dortmund’s conservative transfer policy. As a comparison, player amortisation at big spending Manchester City and Real Madrid is around €100 million, while Bayern book €33 million.

To explain this concept, football clubs do not expense transfer fees completely in the year of purchase, but treat players as assets. So the cost of buying players (in accounting terms) is spread over a number of years by writing-off the transfer fee evenly over the length of the players’ contract via amortisation. As an example, Marco Reus was bought for €17 million on a five-year deal, meaning the annual amortisation is €3.4 million.

In contrast, other expenses of €74 million seem fairly high, though this does include €25 million for match operations, €17 million advertising, €12 million materials (primarily merchandising) and €11 million administration. Note: I have excluded transfer expenses from my definition.

There is further strong evidence of Dortmund’s financial recovery with the decrease in net debt (financial liabilities) from €150 million in 2006 to €42 million in 2012, including an €18 million reduction last season alone. This is made up of €47 million gross debt, largely a state-backed loan for stadium expansion of €32 million (repayable in 2026) and a €12 million fixed-interest loan (repayable in 2013), less €5 million cash. The average weighted interest rate of the long-term liabilities is 5.5%. The club also has access to an additional €15 million overdraft facility.

In fact, the balance sheet is quite strong with net assets of €155 million, including €183 million of property assets, namely the stadium, former offices at “Am Luftbad” and the training ground at Dortmund-Brackel. In addition, the club possesses what it describes as “hidden reserves” among the playing staff, following its policy of recruiting young talent with a lot of potential. Their value in the books is only €26 million, while their real worth in the transfer market is considerably higher – €211 million according to the Transfermarktwebsite.

Dortmund have generated positive net cash flow for the last two years: €7.8 million in 2011 and €6.4 million in 2012. As a sign of the board’s confidence, the club has proposed a dividend for the first time since it went public in 2000 with a total payment of €3.7 million scheduled to be discussed at the Annual General Meeting in November.

"Weidenfeller - the Roman empire"

The Bundesligaitself is in fine shape, as Klopp explained, “We have the most competitive and the most attractive league in Europe with the best stadiums. The fans are great.” This is reflected in the situation off the pitch: only the Premier League (€2.5 billion) has higher revenue than the Bundesliga (€1.7 billion), while the German league is more profitable at an operating level (€171 million) than its English counterparts (€75 million) with all other major leagues reporting losses.

As part of the German rules, clubs have to provide a balanced budget before each season in order to receive a license, which forces them to act in a sustainable manner, as seen by an average wages to turnover ratio of 50% (compared to 70% in the Premier League).

In addition, the “50+1” rule, which dictates that members must own a minimum of 50% of the shares plus a deciding vote, theoretically prevents the club being subject to the whims of an individual owner and taking on excessive debt. This has very largely worked, e.g. debt levels in the Bundesliga are less than a third of those in the Premier League, but the system is not completely foolproof, as seen by the problems experienced by Dortmund and Schalke among others.

A club as well run as Dortmund should be one of the main beneficiaries of UEFA’s Financial Fair Play (FFP) regulations, which encourage clubs to live within their means. As Watzke explained, “If FFP is implemented and rigorously enforced, we have a chance to be one of the strongest teams in Europe.”

Even the losses made between 2008 and 2010 were within UEFA’s limits: the allowable losses are an aggregate €45 million for the first two years (then three years), but this is only €5 million if losses are not covered by the owners, which might be more relevant here. In any case, they can exclude certain expenses, including depreciation on tangible fixed assets and expenditure on youth development and community activities, which I estimate would be worth around €13-15 million.

Watzke himself has gone further, imploring the regulators to act tough, “UEFA must find the thin line between sponsorship and excessive back-door funding – they must show strength to expel big clubs. No tycoon should be allowed to pump crazy money into a club with sponsorship from five companies he controls. If that happens, financial fair play will fail.” Of course, some might find such a talk a little rich, given Dortmund’s own checkered history, especially as they were given a €2 million loan at the height of their problems by Bayern Munich (of all people).

"Bender - Sven you're young"

As to the future, Dortmund are cautiously optimistic. Watzke sees “additional growth potential” with net profit for 2012/13 likely to be “in the single digit million range”, assuming exits at the group stage of the Champions League and the second round of the DFB Cup.

The chairman said that Dortmund were at the fifth stage of a five-point plan: “The first was the struggle for survival, the second restructuring, the third was development of a sporting philosophy, the fourth implementation and the fifth is sustainability.” This is not just a reference to the club’s financial status, but also the ability to maintain their performance levels on the pitch. It will indeed be a tough challenge to establish themselves in Europe, while also figuring prominently in the race for the Bundesligatitle.

The club has attempted to ensure management stability by extending the contracts of the “holy trinity” of Watzke, Zorc and Klopp to 2016, but there are no guarantees in football. If Klopp were to leave, that might be a hammer blow to Dortmund’s ambitions. No manager is irreplaceable, but whoever followed the magnetic Klopp would certainly have a tough act to follow.

"Rolls Reus"

In the meantime, we should simply enjoy the fabulous spectacle at Dortmund, where they have proved that a football club does not have to throw money at the problem, but can win in the right way. First-class management, astute scouting and a belief in youth development have delivered trophies to some of the best fans around, while the team’s dazzling displays have gained admirers throughout Europe.

That’s some accomplishment, especially as they have combined their sporting excellence with a remarkable recovery from near collapse to a solid financial position. Coldplay may not be everyone’s cup of tea, but the lyrics from their breakthrough single seem strangely apposite; “Look at the stars/Look how they shine for you/And everything you do/Yeah, they were all yellow.”