Blackburn Rovers: Look what you could have won

Key Figures

Rovers became the first Premier League winners to be relegated to the third tier in May 2017, and their annual accounts aren’t going to put a smile on fans’ faces either.

Income £14.9 million (down 32%)

Wages £22.0 million (down 13%)

Loss before player sales £13.7 million (down 17%)

Player purchases £1.3 million

Player sales £11.1 million

Borrowings £112.8 million

The club was acquired by Venkateshwara Hatcheries Pvt Ltd in October 2010, so this analysis concentrates on the club’s finances under their ownership.

Income

2016/17 was the first season Blackburn did not have the benefit of parachute payments.

Not all clubs have announced their results for 2016/17 yet, but most clubs are showing higher income than in the previous season. The average income of the 17 clubs that have reported to date (which excludes some big hitters such as Newcastle and Dirty Leeds) is £31 million.

In 2015/16 the average for a Championship club was £23 million. The main reason for the increase is due to a combination of higher parachute payments, a new TV deal in the Premier League, which drips down to the Championship in what are called ‘Solidarity Payments. Championship clubs earn about £4.3 million a year from solidarity payments, plus their earnings from the Football League TV deal which are worth a minimum of a further £2 million.

Like all clubs Rovers earn their income from three sources, matchday, broadcasting and commercial/sponsorship.

The table shows how much Rovers benefitted from being in the Premier League in the first couple of seasons under the Venky’s ownership, but also how much the club was reliant on parachute payments for the next four seasons.

Matchday income in 2016/17 was down 6%, as crowds fell by an average of 1,500 to 12,600 as the club slid to relegation.

Rovers are in the bottom quartiles in terms of matchday income and combined with no parachute payments, in the era of FFP this puts them at a disadvantage when competing for players.

Broadcast income was down 50% to £6.7 million. This was due to the Rovers’ four-year receipt of parachute payments finishing the previous season, combined with the club rarely appearing on Sky at Ewood, which is worth £100,000 a match. As a consequence, the club has the second lowest broadcast income total in the division.

The impact of parachute payments for the top six clubs in the chart is very evident. Norwich earned £7.50 from broadcasting for every £1 earned by Rovers.

Things will be far worse in League One, as solidarity payments are only worth about £650,000 in this division.

Commercial income fell only by 3%, which, given Rovers relative lack of appeal to commercial partners, is probably a reasonable effort. What is unclear is how much of this is from the club’s holding company Venky’s London Limited.

The accounts do contain a mysterious note tucked away on page 29 of the accounts, by which time most right-minded people will have lost all interest.

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The note shows that Rovers received £3.7 million from the parent company, if this is included in commercial income then there’s not a lot of money being generated from other commercial relationships.

Overall broadcasting income is still the biggest contributor to Rovers’ coffers, although it is not contributing three quarters of the club’s income as when the club was in the Premier League.

Costs

The main costs at a football club are player related, wages and transfer fee amortisation.

Rovers wages have more than halved since they were in the last in the Premier League, but the rate of decrease is not as fast as the club’s fall in income.

Wages fell by 13% and are quite low by Championship standards, where the average for last season was about £27.1 million. Clubs such as Sheffield Wednesday, Brighton and Forest, all of whom also do not receive parachute payments, paid out significantly higher sums for wages last season.

Whilst Rovers’ wage bill is towards the bottom of the scale in the Championship, they are still paying out a lot of money compared to the club’s income.

The above graph shows how much the club has been paying out in wages compared to income. In 2016/17 Rovers paid out £147 in wages for every £100 of income. This means that the owners, the Venkys, whilst as popular in Lancashire as a fart in a spacesuit, were not only subsidising the wages to players, but also paying for all the other costs incurred by the club too, such as ground maintenance, electricity for the floodlights and insurance etc.

Since acquiring the club Rovers have generated £228 million of income but spent £248 million in wages under the Venky’s.

The Championship is a car crash of a division, and in 2015/6 the wages/income ratio was 101% for the division as a whole.

It will give Rovers fans little solace in the year they were relegated, but at present they stand at the top of the wages control % table for 2016/17.

Brighton, who are second in the table, had £9 million of promotion bonuses in their wage total which distorted the figure, and also had the enjoyment of being promoted last season.

Amortisation is how clubs deal with transfer fees in the profit and loss account. When a player signs for a club the transfer fee is spread over the life of the contract. Therefore, when Rovers signed Jordan Rhodes for £8 million from Huddersfield on a five year contract the amortisation charge of £1.6 million a year for five years (£8m/5). The amortisation fee in the profit and loss account therefore includes all players who have been signed for a fee (assuming they are still in their initial contract).

Wolves total amortisation charge was £0.7 million, a decrease of 2/3 on the previous season and less than a tenth of the initial years under the Venky’s.

Whilst some will see this as prudent cost cutting, it also suggests that the club have been signing players at the bargain bin level, which means that the chances of selling them at a profit is also diminished.

Losses

Losses are income less costs. The bad news for Rovers is that the club lost a lot of money last season from day to day trading. The good news is that they sold Grant Hanley (to promoted Newcastle) and Shane Duffy (to promoted Brighton) at a combined profit of £10.4 million to offset the day to day losses, which will help the club in terms of FFP compliance.

Operating losses are income less the running costs of the club (wages, maintenance, insurance, amortisation etc. and they are before deducting interest costs. In 2016/17 this worked out as £13.7 million, or £263,000 a week.

In the seven seasons under the Venky’s, two of which were in the Premier League, and four of which the club were in receipt of parachute payments, Rovers have lost £136 million.

The club have managed to sell players on a regular basis at a profit of £38 million during this period, but it still leaves a substantial loss.

Under FFP rules, Championship clubs can make a maximum FFP loss of £39 million over three years in the Championship. Rovers have a pre-tax loss of £25.9 million over the three year period, mainly due to gains on player sales of £30 million, which prevented them breaching FFP.

Fortunately, some costs, such as infrastructure, academy and community schemes, are excluded from the FFP calculations. Rovers have a category one academy, which costs about £5 million a year to run, so this, combined with other allowable costs, should ensure the club has some leeway in terms of meeting the FFP target.

In League One the FFP rules are different, with players wages being not allowed to exceed 60% of income, but the rules are slightly relaxed for relegated clubs.

Player trading

The accountants treat player trading in a weird way in the accounts. We’ve already shown that when a player is signed, his transfer fee is spread over the life of the contract. When the player is sold, the profit is shown immediately, and it based on the player’s accounting value, not the original transfer fee.

This creates erratic and volatile figures in the profit and loss account.

If we instead focus on the actual purchase and sales, the following arises

Under the Venky’s Rovers have bought players for £47 million and generated sales of £57 million. Whilst this has been good for FFP purposes, the chances of the production line of players that can be sold for substantial fees continuing is remote, as evidenced by a footnote to the financials for 2016/17.

The note shows that Rovers had no transfer income during the 2017/18 summer window.

Debt

When the Venky’s took over Rovers, the club had debts of £21 million. Since then the debts have increased nearly every year, and now stand at just under £113 million, and would have been far higher had it not been for player sales in the last two seasons.

Summary

Under the Venky’s, Rovers have both been relegated and squandered their parachute payments. From an independent observer’s perspective the decision making of the owners seems baffling. They seem happy to underwrite losses running into hundreds of thousands of pounds per week for no benefit, financial or in terms of brand awareness of their main business in Indian poultry.

At least Rovers time in League One looks like being a brief one, as losses would potentially increase given the lack of TV money their compared to the Championship. If the club is promoted, the financial strategy of the owners is best described as ‘unpredictable’. Will they do a Fosun at Wolves and go for broke to be promoted, or try to get Rovers on an even keel financially?

Data Set

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