2018/19 Inter accounts cover a season when they finished 4th in Serie A and 3rd in their Champions League group, thus dropping to the Europe League before going out in the quarter-finals. In May 2019, Antonio Conte replaced Luciano Spalletti as head coach. Some thoughts follow.

This was the third year under the management of Chinese shareholders, Suning Holdings Group, after they acquired a 69% majority stake in Inter in June 2016 from Erick Thohir’s Indonesian consortium, ISC. In January 2019, Lion Rock Capital bought a 31% minority share from ISC. Inter loss before tax widened from €10m to €40m, despite revenue rising €80m (28%) from €290m to €370m, as expenses increased by over €100m, including €26m provision for Spalletti exit, and profit on player sales fell €10m to €39m. Post-tax loss up from €18m to €48m.

General outlook

Main reason for €80m increase in Inter revenue was return to the Champions League after 6-year absence, which led to significant growth in broadcasting, up €59m (62%) to €153m, and match day, up €11m (32%) to €47m. Commercial rose €15m (10%) to €166m, mainly sponsorship. As a technical aside, this “international” definition of Inter €370m revenue is different to the one used in the club’s accounts, which also includes €40m gain on player sales and €7m increase in asset values, giving a total club record revenue of €417m.

Inter had major cost growth, due to squad investment, as wages rose €37m (23%) to €193m, while player amortisation was up €7m (8%) to €85m. Other expenses increased €29m to €96m, mainly player loans, and depreciation rose €8m to €21m. Net interest fell €6m to €29m. Following the deterioration, Inter €40m pre-tax loss is the second worst in Italy, though over €100m better than Milan’s shocking €143m. It would have been “only” €14m if Spalletti had not been sacked. No fewer than 8 clubs lost more than €15m, including Juventus €27m.

The situation is much the same after tax, though Inter’s €8m tax charge resulted in a larger €48m deficit. The worst losses have been posted by Italy’s traditional “big four”: Milan €146m, Inter €48m, Juventus €40m and Roma €24m. Highest profit made by Atalanta €24m. They made €39m profit on player sales, largely Pinamonti to Genoa €19m and Vanheusden to Standard Liege €10m. This was not bad, but represented a €10m decrease from previous year’s €49m, and was significantly lower than profits reported by Roma €129m and Juventus €127m.

Inter are no strangers to losses, having only delivered a profit once in the last decade. However, it is evident that Suning are striving to operate a more sustainable business model, as losses have been much smaller in last 3 years, compared to huge deficits under former owners.

It is worth noting the impact of exceptional items. In particular, €33m profit reported in 2014 would also have been a massive loss without €139m for the sale of the brand to Inter Media & Communications. On the other hand, 2015 €140m loss was inflated by numerous write-downs. Unlike many leading clubs, Inter have not often made big money from player sales. In fact, the €185m profit from this activity generated in the last 5 years is only a little higher than the €174m reported in the preceding 5-year period. 

Inter EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation), a proxy for cash operating profit, continued to improve, rising from €67m to €81m in 2019. This was as low as minus €90m in 2010. If we were to include player sales, this metric would be €121m. In fact, Inter EBITDA of €81m is by far the highest in Serie A, more than twice as much as Juventus €36m. Even more impressively, it is over €130m better than their city rivals Milan (minus €51m).

Revenues

Inter revenue has grown by a striking €167m (82%) in the 3 years since the Suning takeover from €203m to €370m, though €96m has come from Regional (Chinese) sponsors. That said, TV income rose €60m, mainly due to Champions League qualification, and match day was up €19m. As a result, there is clear water between #Inter’s €370m revenue and the clubs behind them: Roma €236m, Milan €228m, Napoli €207m and Lazio €124m. However, the nerazzurri are still a hefty €124m below Juventus’ €494m.

Excluding player loans, Inter’s revenue has doubled in the last 3 years. In fact, their €185m growth over that period is the highest in Italy, even more than Juventus’ €119m, thus narrowing the gap by €66m. Milan’s revenue has actually fallen by €8m since 2016. Nerazzurri’s remain in 14th place in the Deloitte Money League, which ranks clubs worldwide by revenue, though they have closed the gap to the 13th placed club (Atletico Madrid) to just €3m. Note: Deloitte exclude player loans in their revenue definition.

Nerazzurri’s broadcasting revenue increased €59m (62%) to €153m, mainly due to return to Champions League €52m, though domestic TV rights also rose €7m (9%) to €87m. Includes RAI archive €10m & Inter TV €4m. Second highest TV income in Italy, though well behind Juventus €207m. Increase in Inter domestic TV revenue is due to the higher 2018/19 deal plus a changed distribution mechanism: 50% equal share; 30% performance (15% last season, 10% last 5 years, 5% historical); and 20% supporters. Benefited from equal share increasing from 40% to 50%. Inter earned €51.5m from European competitions: €48.3m from the Champions League after finishing third in the group stage plus €3.2m from the Europa League where they reached the quarter-final. This was similar to Roma €58m and Napoli €57m, but only around half Juve’s €96m.

In the Champions League, the Milan giants benefited from new UEFA coefficient €17.7m, but received lower prize money €7.8m as Juve and Roma progressed past the group stage and a smaller TV pool €7.7m, as finished 4th in prior season’s Serie A. All teams received €14.5m participation fee. Inter have only received €67m from Europe in the last 5 years, almost all of which (€51m) came last season. This is miles behind Juventus €451m, Roma €285m and Napoli €188m, due to them consistently qualifying for the Champions League in recent seasons.

The (financial) importance of Champions League qualification has never been higher, as revenue rose 54% in 18/19, due to new commercial deals. However, the TV pool element, which has been good for Italian clubs in the past, has been largely replaced by UEFA coefficient payment. This change in distribution rewards the traditional big clubs, as UEFA coefficient ranking is based on a club’s 10-year performance in Europe, so Inter €18m are still ahead of Napoli €13m & Roma €12m, though well below Juventus’ €30m. Europa League much lower, eg Milan €3m.

Matchday

Inter match day income rose €11m (32%) to €47m (including membership cards), mainly due to five home games in Europe worth €7m. This was the 2nd highest revenue in Italy, a fair way below leaders Juventus €71m, but comfortably ahead of Milan and Roma (both €34m). According to Soccerway, Inter average attendance in 2018/19 was 56,639, though the club has quoted a figure of 61,000. Either way, this is the highest in Italy, ahead of Milan 54,660, then a big drop to Juventus 39,193 and Roma 38,622. Inter and Milan have been working on a project to build a new stadium, but restrictions set by local authorities would prevent their plans to knock down the iconic San Siro. Discussions continue on a joint development with the rossoneri.

Commercial revenues

Inter commercial income rose €15m (10%) to €166m, mainly due to sponsorship growth. This revenue stream has more than doubled in the 3 years under Suning. It is now 2nd highest in Italy, only surpassed by Juventus €187m, but is far above the closest challenger, Milan €76m. Nerazzurri’s commercial growth has been driven by substantial money from Regional (Chinese) Sponsors, accounting for €97m (26% of total revenue): Suning €26m (including training ground naming rights), unnamed Chinese company €25m, iMedia €25m and Fullshare & King Down, €10m apiece.

Inter have Pirelli as shirt sponsor: €10.5m base fee, though European participation bonuses took this to €19m in 2018/19. Looking to improve when expires in 2021 (Juve Jeep deal worth €42m). Nike kit deal is €10m a year, though club has now taken retail & licensing inhouse.

Player loans

Inter income from player loans income more than halved from €9.1m to €3.7m, mainly from Christian Ansaldi and Gabriel Barbosa. This is an important revenue stream for some Italian clubs, e.g. Juventus €30m, Atalanta €13m, Milan €13m, Genoa €9m and Fiorentina €7m.

Wage bill

Inter wage bill increased by €37m (23%) from €156m to €193m, largely player salaries, though the wages to turnover ratio has dropped from 54% to 52%, due to steep revenue growth (down from 89% in 2010). Wages have risen by 55% (€68m) in the last three years.

Although the €68m Nerazzurri wages growth since 2016 is a lot, it has been significantly outpaced by Juventus, whose wages surged €106m in the same period, which means that the gap has further widened. However, their increase was around twice as much as Napoli, Roma and Milan. 

As a consequence, Inter €193m wage bill is now the 2nd highest in Italy, just ahead of Milan €185m and Roma €184m. However, Juventus €328m wages are still 70% (€135m) higher. Following the decrease to 52%, Inter wages to turnover ratio is one of the lowest in Serie A, only surpassed in 2018/19 by Atalanta 50%. Four clubs have reported ratios above 80%: Bologna (the worst at 88%), Genoa, Milan and Sampdoria. Juventus are also higher at 66%.

Player amortisation

Nerazzurri player amortisation, the annual cost of writing-off transfer fees, rose €7m (8%) from €78m to €85m, which means that this expense has more than doubled in just three years (from €39m in 2016). Inter player amortisation of €85m is the second highest in Italy, but a long way below Juventus €149m. It is just ahead of Roma €83m and Milan €80m.

Expenditure in transfer market

Nerazzurri have really ramped up their expenditure in the transfer market with average annual gross spend rising from €56m 2010-16 to €143m in the last 4 years, including smashing their transfer record with €65m purchase of Romelu Lukaku. Net sales in this period were €82m.

In fact, over the last 4 seasons, Inter have the highest net spend in Serie A with their €328m ahead of Milan €306m, Juventus €210m and Napoli €119m. In contrast. Roma had net sales of €41m.

However, in terms of gross spend, the usual order is restored with Inter €573m being second to Juventus €843m. They were closely followed by Milan €514m, Roma €444m and Napoli €413m. In 2018/19 player purchases included Martinez €25m, Lazaro €22m and Politano €21m.

Financial debt

Inter gross debt fell €60m to €461m, comprising €287m bonds (4.875% interest rate), €149m shareholder loans & €25m bank loans. Debt has risen almost €200m in 3 years. Would have been higher without Suning converting €145m debt into reserves including €40m in 18/19. Nerazzurri €461m gross financial debt is the 2nd highest in Italy, just below Juventus €473m (partly incurred for new stadium). The only other Italian club with debt above €100m is Roma with €255m.

The hefty debt comes at a price, as Inter net interest payable is €29m (€36m payable less €7m receivable), though €6m lower than 2018. Mainly €16m on bonds and €10m on shareholder loans. Highest in Italy, just above Roma €28m, though twice as Juve €12m and Milan €10m. Nerazzurri also owe €135m in transfer fees, though are in turn owed €132m by other clubs, so net payable is only €3m. To give some perspective, gross transfer debt is lower than Juventus €221m, Roma €164m and Milan €140m. As a result of their large losses, Inter failed UEFA’s Financial Fair Play (FFP) regulations in 2015, entering into a settlement agreement covering the next four seasons, including a €6m fine and transfer restrictions. They were released from this agreement in May 2019.

Nerazzurri CEO Alessandro Antonello described the financial results as “extremely positive with the highest revenues in our history. This ensures the club can continue its plans to invest in strengthening the team, in infrastructure and all other strategic assets to keep growing.”

 

Source: Swiss Ramble