I'm aware that it is not your normal operating model. I've seen it reported a number of times down the years that the club does not spend anything before accounting for all the known operating costs first, as it's part of the criteria for maintaining zero debt other than that associated with the stadium.
The basic methodology is to take our on hand cash at the start of the season, subtract the total known operating costs, and the rest is the potential budget available for the year subject to any requirements to balance the books to make up for any previous shortfalls. A key point to generating profits is that we do not include any revenue that has not yet been received into the accounts, regardless of whether we know the amount to be received or not. This would include any fixed price revenues such as sponsorship or PL prize money regarding the equal share portion paid to every PL club. Much of our non match day revenues are paid at the end of the season, which where the surplus pre-tax profits are then banked.
The biggest issue I have is the failure to adjust our budget with regards to our known revenues that have not yet been received, particularly as most of these are received at the end of the season where they have no impact on our ability to spend on the team.
The other major issue still remains our lack of cash flow. Until this current TV deal 60% of our annual revenue was generated by our football operation - match day gates, prizemoney etc, and 40% was generated by non-football revenues such as commercial sponsorships and TV revenues. This ratio was the opposite of the average amongst the top20 clubs with the highest annual revenues in UEFA. The current TV deal was so large that our non-football revenues now amount to the greater part of our annual revenues, but only because of that single increase.
Since the move our major increases in revenue has come from such things as increased ticket prices, increased primary sponsorship via kit deals, and increased TV deals. There are usually small fluctuations based upon season prizemoney and player trading. The strategy seems to have been based around the capability to cover known season debt, and the lack of any appetite to do any more than what is needed as the bare minimum.
Interestingly I have seen a couple of articles that have said that part of the strategy by the BoD in recent times has been in response to the outcry about the continued generation of profits and lack of increased investment into the team. The response was to put into action a plan to decrease pre-tax operating profits by directly increasing player wages. This strategy started with the increased TV revenues but was not adjusted when we failed to retain top4/CL revenues. Instead the corrective action was placed upon the football operations to compensate or to correct.
This was much the same burden placed upon the football operations to generate extra cash flow during the initial decade of the stadium project, and in both instances the immediate solution was to use player trading to generate the extra revenues needed. The irony in this being that player trading on our scale is not sustainable, but was used to bail out our traditional values 'self sustaining financial model'. Our operating model has not been adapted or adjusted at any time since the stadium project commenced and now we are suffering the impacts of the failure to act in both a timely and appropriate manner from being penny wise - pound foolish.
