The annual accounts released this week showed Watford made a profit despite significantly reduced revenues and have also paid off a large chunk of their debt – but with another season of Championship football looking likely, the end of parachute payments and less star players to sell, the club are also facing a tough future.

And it has emerged that one of the two potential groups of investors have walked away from the table while discussions with the other have slowed, thus reducing the chance of an immediate injection of funds.

The accounts, which cover the period ending June 2023, reveal that Watford made a £25m profit compared to a £17.7m loss in the previous year.

That was largely made possible by a £59.2m profit on player trading, with the sale of Joao Pedro to Brighton right at the end of the accounting period adding to sums received for the likes of Emmanuel Dennis in August 2022.

Despite relegation from the Premier League at the end of the 21/22 season contributing to a reduction in revenue from £128m to £66.2m, the Hornets still managed to turn an operating profit of £31m after a loss of £8.9m a year earlier.

As well as selling their playing assets, the club also significantly trimmed their wage bill, as it dropped from £78.9m in the 2022 accounts to £48.7m in the 2023 figures.

Looking ahead, though, Watford will need to generate more money as there will be no Premier League parachute payment for the 24/25 season so, unless they were to be promoted, they would have to become more self-sufficient.

Obviously they could use the sales of players again to help with that, and the likes of Yaser Asprilla, Ismael Kone and Ryan Andrews are all young talents who would have their suitors should the club make them available.

However, there is less chance of any of them realising anything close to the £30m received for Pedro.

There has been much talk recently of the potential for new investors to step into Vicarage Road, bringing with them sums that would certainly help bridge the gap as the club attempts to forge a path forward without parachute payments and with much lower income overall.

The Watford Observer understands there were two groups that had meetings and discussions with the club with a view to a minority investment, which could be increased over time.

One of them stepped away towards the end of 2023, while it’s understood conversations continue - albeit at a slower pace - with the second group.

However, it is believed their senior officials, in particular, had made it clear any personal exposure would be unwelcome.

Therefore, stories that appeared online elsewhere have been unhelpful and proved an unwanted distraction at a key time to both sides.

That now means Watford will continue to look for other ways to generate income in the short term.

The club had advised of its intention to be debt free by this coming June, reducing to £28m in these latest numbers, and the remainder being paid off this year.

Not included in this strategy were some Macquarie loans which are advances on transfer fee instalments due from the the sale of players considered as normal trading practice.

In those instances, Watford simply used the bank loan as a way of getting the full amount of the transfer fee rather than waiting for the buying club’s instalments – albeit paying a percentage of around 5% to 8% to the bank for their services.

It’s not possible to establish from the accounts which debts have been cleared, but it must be said that the debt reduction strategies have gone some way to easing their problems.

The Hornets still owe £51m to their parent company, Hornets Investment Ltd – which is basically club owner Gino Pozzo.

The accounts state that the parent company “will not seek repayment of the balance outstanding to them”, adding that “to do so would jeopardise the Club’s ability to continue as a going concern”.

They also comment that Pozzo has “entered into a financial commitment to financially support the Company for the next 12 months”, and as the accounts were signed on February 2, 2024, that effectively means the owner’s support will be there at least until early 2025.

Among other things that the accounts show is that circa 10% of the club’s total revenue goes towards interest charges.

Although a proportion of that is interest that is simply accruing and not being repaid to Pozzo as part of his commitment not to call in his debts, it does still mean that the club spent £5.6m last year simply servicing loans.

As with any company accounts, they also reveal the salary of the highest paid director, which in Watford’s case is chairman and CEO Scott Duxbury.

In the year ending June 2023, he was paid £948,000, a small drop in comparison to the £966,000 he was paid the previous year (21/22) when Watford were still in the Premier League.

To give some context to those figures, in 21/22 Tottenham chairman Daniel Levy was paid £3.26m, former Aston Villa CEO Christian Purslow received £1.075m and Brentford chairman Cliff Crown had a salary of £700,000.

There is some detail in the accounts of player transactions between Watford and Udinese, who are described as a “company under common control”.

They show that, on Watford’s balance sheet, there is still £19m owed to the Italian club.

Digging a little deeper into the transfer fees the club generated by selling the likes of Pedro and Dennis, the net profit of £59.2m was by far the club’s best figure ever.

However, in the bigger picture, taking into consideration all seasons under Pozzo ownership, Watford’s player trading position still shows an overall loss of £77.4m.

In other words, they have spent £77.4m more than they have received.

In 2020, player trading loss peaked at more than £120m, so while the £59.2m recorded last year is a Watford record and has been the major factor in the club’s accounts for 22/23 showing an operating profit of £31m, the club are still a long way short of breaking even in the transfer market during Pozzo’s ownership period.

Put very simply, selling Joao Pedro only roughly covered a little more than half the cost of buying Ismaila Sarr and Andre Gray.

In summary, player trading and reducing the wage bill has enabled the club to post an operating profit while, at the same time, reducing its overall debt.

For that they deserve much credit, as to do so while in the Championship is no mean feat.

Nonetheless, staying in the Championship with no more parachute payments means that unless Watford go back up this year, they will have to operate next season with likely revenue of around £30m to £35m – about a quarter of what they would have enjoyed in the Premier League and the lowest figure they have had to work with in a decade.