Middlesbrough 2017/18: Babylon’s Burning

Does this man manscape?

To attempt promotion to the Premier League is an expensive business as revealed when Middlesbrough submit their accounts to the government registrar for the 2017/18 season and reported a £20.2 million operating loss

Only the receipt of parachute payments and some player sales prevented these losses from being too damaging for Boro, who are fortunate to have a benevolent owner in Steve Gibson to fund the club’s operations.

Key Financial Highlights for year ended 30 June 2018

Turnover £62 million (down 49%)

Wages £49 million (down 25%)

Pre-player sale losses £20.2 million (2016/17 profit £10.3 million)

Player sale profits £15.3 million (up from £11.3 million)

Player signings £66 million (up from £48 million)

Income

Nearly every club in its accounts splits income into three categories to comply with EFL League recommendations, matchday, broadcasting and commercial.

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Year on year Middlesbrough’s matchday income fell by 18% last season to £7.1 million.

Premier League attendances averaged 30,499 and this fell to 25,544 in the Championship despite Boro having a relatively successful season and reaching the playoffs before losing to Villa.

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Until parachute payments run out Middlesbrough are not hugely dependent upon matchday as an income source, as it only represents one pound out of every nine generated by the club last season.

Losing its Premier League status was a blow for the club and the town last season and being relegated in the first season after promotion means that Boro only are entitled to parachute payments for two seasons instead of three as would have been the case had they avoided relegation.

Income for clubs in the Championship from matchday varies depending upon ticket prices, attendances and the number of corporate seats each club is able to sell, with the likes of Villa and Leeds having an advantage in the latter two categories.

Such is the magnitude of the Premier League TV deal that Middlesbrough received over £41 million from parachute payments out of total broadcast income of £46.3 million in 2017/18.

Having another parachute payment this season will generate about £35 million, but Boro are promoted they will then revert to the EFL deal with Sky, which is worth about £2.3 million a year plus a £4.3 million ‘solidarity’ payment from the Premier League, this can then be topped up by £100,000 for each home fixture and £10,000 if the club are playing away if chosen for live broadcast.

A lot of clubs in the Premier League are reliant on the BT/Sky deal for the majority of their income and Boro are no exception, even in 2017/18 TV was still providing three-quarters of their revenue.

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So, looking at the Championship as a whole it appears that parachute payments have created a two or three tier division, with those clubs who have just come down earning the most and then this tapers for those who have been relegated for two or three seasons.

Getting commercial partners to sign up for deals is more difficult in the Championship than the Premier League as sponsors prefer to see the names of their products when a team is playing Liverpool or Manchester United compared to Barnsley or Burton.

In Boro’s case commercial income fell nearly 30% to £8.6 million, which is less than two seasons previously when the club was promoted to the Premier League, although there may have been promotion bonuses paid that season.

Nevertheless, commercial deals can be significant and Boro are earning over £170,000 a week from such arrangements, which puts them into the top half of the table in the Championship sponsor-wise.

Growing commercial income is the best way for a club to increase overall income as broadcast income is negotiated centrally and matchday income can only go up if prices are raised (not popular with fans) or ground capacity increased (time consuming and expensive).

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Earnings overall halved last season to £62 million and will fall by about a further £10 million in 2018/19 as parachute payments decrease, before returning to the £20m a year level unless ‘Boro are successful in being promoted by May.

Costs

Player costs

Running a football club is an expensive business and Middlesbrough’s main costs, like those of nearly all clubs, were in relation to players, in two forms, wages and amortisation.

Paying players a competitive wage is a challenge as owners and fans want promotion and to achieve that means acquiring top talent in an industry where small improvements in the quality of players doesn’t come cheap.

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Usually when clubs are promoted they give players improved contracts with relegation clauses should the worse happen and Middlesbrough appear to have applied this principle to a degree as wages fell by a quarter in 2017/18.

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Boro players still earned an average of £23,000 a week from our formula (we have no inside knowledge so this is an educated guess) as the club invested heavily in new signings as owner Steve Gibson tried to recruit players to help the club bounce straight back to the Premier League.

Earning so much from parachute payments meant that Middlesbrough ‘only’ paid out £79 in wages from every £100 of income last season, which is low by Championship standards, although this could rise substantially in 2019/20 should they fail to be promoted, unless there is a major clear out of highly paid players.

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Sanity is in short supply in the Championship when it comes to wage control, with the division overall paying out £101 in wages for every £100 of income and Birmingham last season under I’m A Celebrity favourite Harry Redknapp somehow paying out twice that sum.

Player Amortisation

This is how a club deals with player transfers in the profit and loss account by spreading the cost over the contract period. For example, when Middlesbrough signed Britt Assombalonga from Forest in the summer of 2017 for £15 million on a four-year deal, this works out as an annual amortisation cost of £3.75 million (£15m/4). The amortisation cost in the profit and loss account represents the total for all players signed for fees in previous seasons.

Middlesbrough’s total amortisation surprisingly increased in 2017/18 compared to their season in the Premier League due to the club investing heavily in buying players in a bid to achieve owner Steve Gibson’s desire to ‘smash the league’ and ‘go up as champions’.

Consequently ‘Boro have the highest amortisation total of any club in the Championship for last season, although this could be overtaken when Villa eventually publish their results. Even so it is clear that Gibson has backed his managers in the transfer market.

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Adding amortisation and depreciation together gives total player costs for Boro of £118 for every £100 of income.

Profit

Profit is income less costs, but it contains lots of layers and estimated figures. Middlesbrough, like all clubs, show a variety of profit measures in their accounts, so they need a bit of explanation.

Operating profit is income less all the running costs of the club except loan interest. It is a ‘dirty’ profit measure in that it includes one-off non-recurring costs that are a bit bobbins when trying to work out long term sustainable profitability.

Despite the benefits of parachute payments Middlesbrough lost nearly £100,000 a week last season using this measure, although it is far lower than when the club previously was in the Championship.

Total operating losses in the Championship in 2016/17 were £260 million, so Middlesbrough’s finances appear to be far healthier than those of their competitors.

If these profits were invested wisely in the playing squad then the club should have been in a strong position to compete this season, but this does not appear to be the case.

A bit driver of Middlesbrough’s financial success here is profits from player sales. The likes of de Roon, Rhodes and Ramirez were sold and this helped to reduce the losses to tolerable levels for Steve Gibson.

Stripping out player sale profits and other non-recurring items (redundancies, legal cases, debt write offs etc.) gives a more valid profit measure called EBIT (Earnings Before Interest and Tax).

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For Middlesbrough this was a loss of nearly £400,000 a week in 2017/18, despite the benefits of parachute payments.

Nearly every club in the Championship has significant EBIT losses, which were £392 million in 2017, as many owners gambled on spending big to try to secure promotion to ‘the promised land’ of the Premier League, which in reality is a series of severe spankings by big clubs interspersed with celebrating like a loon when beating the likes of Swansea and Bournemouth.

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If non-cash costs such as amortisation and depreciation (depreciation is the same as amortisation except this is how a club expenses other long-term asset such as office equipment and properties over time) then another profit figure called EBITDA (Earnings Before Income Tax, Depreciation and Amortisation) is created. This is liked by professional analysts as it is the nearest thing to a cash profit figure.

Middlesbrough’s EBITDA profit was £7.1 million which shows that the club is generating cash from its day to day activities, although as said before, this is mainly driven by parachute payments. This suggests the club was making money which could then be invested in player transfers.

Once trading costs have been paid, many clubs also have to pay interest on their borrowings, which cost Boro £30,000 a week in 2017/18.

Player Trading

Middlesbrough spent £66 million on new players in the year to 30 June 2018 as the club recruited Assombalonga, Braithwaite, Fletcher, Howson, Randolph, Shotton, Christie and Johnson in multi-million pound deals.

The large spend on players is why the amortisation charge in the profit and loss account is so high. Fans often point out that clubs also sell players and that net spend is a better measure of a club’s investment in talent.

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Steve Gibson did bankroll a net spend of over £20 million which showed his faith in the managers, although Boro fans might question the quality, if not the quantity, of the recruitment.

The player recruitment does seem to have been funded on credit though, as amounts owing to other clubs increased to over £56 million, compared to just £1.5 million in 2013.

In the footnotes to the accounts it shows that the big spending on 2017/18 has subsequently been reversed as the club had net income of £27.7 million in summer 2018 from selling Traore and Gibson.

Funding

Clubs can obtain funding in three ways, bank lending, owner loans (which may be interest free) or issuing shares to investors. Historically Steve Gibson has lent ‘Boro over £93 million as well as about £90 million in shares, although this did not increase during 2017/18. Instead it looks as if the club bought most of its signings during the season on extended credit terms, which will result in significant payments being made for them over subsequent years.

Summary

Middlesbrough went for broke in 2017/18 in trying to immediately return to the Premier League. The failure to achieve this objective has resulted in cost cutting in the present season but if the club is not promoted this season there will be a tough challenge ahead as income will halve again likely to lead to a player exodus to balance the books unless Steve Gibson is willing to invest substantial amounts of cash once more.

Rangers: Phoenix from the ashes or new dawn fades?

Rangers won the Scottish Premier League five times between 2003 and 2011, as well as reaching the final of the UEFA Cup in 2008, which on the face of it was an impressive achievement as the club went toe to toe with a resurgent Celtic during that period.

To compete with Celtic the club was however prepared to take steps that would ultimately lead to the liquidation of the club’s operating company and had to apply for membership of the Scottish Third Division. It would take four years out of the top flight before the club was once again able to face its rivals in a league match.

The high profile recruitment of Steven Gerrard as manager in the summer of 2018 has whetted the appetite of fans and pundits, but is the club a phoenix from the ashes, or are its new foundations made of sand?

During the 1990’s Rangers were the dominant force in Scottish football, the wealth of owner David Murray allowed the club to recruit the likes of Paul Gascoigne, Tore Andre Flo, Brian Laudrup and Mo Johnston, and the club won nine titles in a row. Murray claimed ‘for every five pounds Celtic spend we will spend ten’ and the dynasty seemed unstoppable, but it was built on debt.

Celtic were however improving their finances thanks to the backing of Irish billionaire Dermot Desmond, with managers such as Wim Jansen and Martin O’Neill the battle for supremacy in the Scottish game became more balanced on the field, and the investment in infrastructure at Celtic Park plus more regular progress in UEFA competitions meant that the club’s income was ahead of that of their rivals.

Because Celtic were generating more money in the early 2000’s, it meant they could sign better players to compete with their rivals in terms of recruitment. Rangers were during this period generating large losses as they had a smaller capacity stadium and were generating less matchday income.

The only way to underwrite these losses was to borrow money, which the club did with enthusiasm such that by June 2004 Rangers owed £74 million to financial institutions.

Behind the scenes Rangers were also trying to compete with Celtic by some creative tax activities. This involved the creation of Employee Benefit Trusts (EBTs) where the club paid money into a trust.

The EBT then ‘lent’ money to players who in theory promised to pay it back, but there was no or little effort to ask for that money back from the players, who effectively therefore treated it as regular income.

The advantage to Rangers in taking this approach was that the club did not pay National Insurance contributions on the payments to the players, who also did not pay income tax on these loans from the trusts.

The players were happy because they ended up with the net pay they were seeking, so everyone was a winner…apart from the government.

This policy worked to the extent that Rangers won the Scottish Premier League five times from 2003 to 2011, but critics will argue they were abusing the tax system in the process and those titles were at best tainted and some even go as far as to say those achievements should have been stripped from the club’s list of trophies.

The global financial crash of 2007, created by the financial community who lent money to people and businesses who had no ability to repay the sums advanced, hit Rangers in two ways.

Owner David Murray’s business struggled and so was unable to provide the club with further financial support, and the main external lender, the Bank of Scotland, (now part of Lloyd’s Group) effectively went into public ownership following its own financial meltdown, and there was a far less relaxed approach towards Rangers from the bank’s new senior management as a result.

Furthermore, the UK tax authorities became increasingly unhappy with Rangers’ use of EBTs, which had been originally sanctioned for non-employees, which was not the case in respect of the club and its players. The tax authorities saw the approach taken by the club as extreme tax avoidance and pursued Rangers for a tax bill of up to £49 million.

An increasingly desperate David Murray therefore sold the club to Craig Whyte for just £1. Whyte promised to settle the tax issues and the bank loans but did neither and as more and more creditors were issuing writs for unpaid debts the club appointed administrators in February 2012.

This angered HMRC, who had wanted to appoint their own administrators to investigate Rangers’ affairs. HMRC therefore refused to agree to a deal with the administrators, leading to Rangers operating company going into liquidation, provoking a constitutional crisis in Scottish football.

A new company, Sevco Scotland, was set up and bought Rangers’ assets from the liquidator, although players were allowed to leave the club for free as their contracts were with the old club.

Most SPL clubs voted that SevCo, now called Rangers Football Club Limited, was not allowed to take the place of Rangers in the top flight, and instead the newly formed company was allowed instead to join the Scottish Third Division, giving people in small towns such as Peterhead and Elgin the opportunity to learn about seventeenth century Irish history through the songs sang by Rangers fans when their club visited.

  • Rangers had income of £19 million in 2012/13 in the Scottish Third division, which was more than double than that of the other nine teams in the division combined as the club unsurprisingly won the division and Rangers had similar success in the Scottish Second division the following season.

During this time Rangers was falling further behind Celtic in terms of generating income and signing players, which meant that when Rangers were finally promoted to the SPFL and had their first season there in 2016/17 they generated only a third of Celtic’s revenue.

Rangers have also returned to using debt as a means of funding the club, although as there is great suspicion from banks towards the club, the lending is almost exclusively from directors.

At the last count Rangers owed lenders £21 million in June 2018, although subsequently some of this has been written off as lenders converted the IOU’s from the club, which some consider to be worthless, into shares instead.

The arrival of Steven Gerrard has introduced a feel-good factor to the club, and there were million pound plus signings such as Barisic, Goldson and Murphy, along with loans from Liverpool as Stevie G used his contact book to try and improve the quality of the playing squad.

The club is now competing with their rivals in an SPFL that has greater uncertainty than has been seen for many years. For this to be achieved the board has admitted it will need a further £4.6 million to survive this season and has gone cap in hand to investors for extra funds.

The recent elimination from the Europa Cup will not have helped Rangers’ financial position although reaching the group stages has helped generate greater income than in 2017/8.

In addition largest shareholder Dave King seems to spend more time in court arguing with the likes of Mike Ashley and The Takeover Panel, who believe he should buy out remaining shareholders, than focussing on issues on the pitch.

Whether King has the wealth that he claims to buy the shares from these shareholders is as yet unproven, as are many issues in relation to the club’s activities.

Even if King himself does not have funds there appear to be other backers to underwrite the club’s losses, although this could lead to another power struggle.

Furthermore, there are squabbles and threats of litigation between the administrators, liquidators, former owners, HMRC and former players, which could result in large sums being payable by some of them, but the only guarantee is that the lawyers, as always, will be rich on the pickings between the disputes between these parties. The club however is unlikely to bear these potential costs.

One of Rangers’ fans most popular songs is ‘Follow Follow’, but given the club’s present predicament, perhaps this should be renamed ‘Borrow Borrow’.

Bolton Wanderers: What’s the frequency Kenneth?

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Ken Anderson, Bolton Wanderers Swiss/Monaco resident chairman, has been in the firing line recently from fans, players, other clubs, unpaid creditors and the local media.

Even before Anderson was involved with the club Wanderers had been struggling financially, despite once heady days in the Premier League and a benevolent former owner.

Nat Lofthouse, the Lion of Vienna, is no doubt spinning in his grave as a series of damning stories have been publicised over the running of the one club he played for during his whole career.

A look at Bolton’s most finances over recent years shows highlights the club’s decline that has led to the present debacle as Burnden Leisure Limited, the parent company that owns both the football club and a nearby hotel, has posted the following figures in the year ended 30 June 2017.

Burnden Leisure Limited Key Figures

Income £14.7 million (down 52%)

Wages £13.8 million (down 38%)

Trading losses £13.5 million (up 67%)

Player signings £0.0 million

Player sales £6.3 million

Borrowings £22 million (down 19%)

Income

Nowadays most clubs divide their income into three main categories, Bolton are slightly different in they own a hotel via Burnden Leisure and so have four sources of revenue.

Day to day income is rare for a football club, which realistically is only open when a match is played.

Earning money from matches becomes more important as clubs drop down the divisions due to lower TV revenues and this impacted upon Wanderers in 2016/17 as they spent a season in League One.

Revenue from matches held up in 2016/17, partially due to average attendances, despite relegation, rising from 15,194 to 15,887, but is significantly lower than the final season in the Premier League in 2011/12.

Some clubs in League 1 don’t publish their profit figures, but from the ones that are available Bolton were towards the top of the matchday income table.

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Overseas TV viewers don’t have a huge appetite for third division English football, and whilst there’s a bit more interest domestically there are few live matches shown either, which explains why broadcast income is so low in this division and has fallen 96% since Bolton were in the top flight.

Nevertheless, Bolton were in receipt of parachute payments for four seasons following relegation, but the ending of these, combined with a further drop into League One, was catastrophic for the club in 2016/17.

Hotel income fell by 16% in 2016/17, probably due to a combination of fewer away fans making overnight stays for weekends in Bolton as away followings tend to be lower, along with general economic trends in the hospitality market.

As the club was on live television far less often in 2016/17 and the nature of the opposing teams was less glamourous, it made it more difficult for the commercial department to sell sponsorship deals, and this was why commercial income more than halved.

Sponsors are often local companies and they are also less likely to be keen to have a large marketing and entertainment budget for events such as football given Brexit uncertainty.

Although a club such as Bolton doesn’t have the global appeal of the likes of Manchester United or Liverpool, it can still be seen when Championship games are broadcast internationally and so expect this to rise in 2017/18.

Some fans think that shirt sponsorship deals are worth a fortune to clubs, but in the Premier League these are sometimes worth no more than £1.5 million a season, in League One it is likely to be in the tens of thousands.

Merging all the income sources together results in Wanderers having the highest total in League 1, but if hotel income is excluded this fall to £8.3 million, which shows that it was a decent achievement for the club to be promoted that season.

At least by being back in the Championship Bolton will be earning more TV money, as the EFL deal and solidarity payments from the Premier League work out at about £7million a season compared to League One.

Costs

League One income is lower than that of the Championship, but costs don’t necessarily fall as swiftly.

Like all clubs, Bolton’s main expense is in relation to players, in the form of wages and transfer fees.

Wage costs fell by a third to £13.8 million and were about a quarter of the amount that Wanderers were paying when they were in the Premier League in 2011/12.

Included in the wage total is about £1.2 million relating to the hotel, which should be noted if comparing Bolton to other clubs in the division.

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League One clubs (excluding those that use a legal loophole to avoid disclosing their costs) had an average wage bill of £6.1 million in 2016/17 and whilst Bolton’s costs were twice this it would have partially due to promotion bonuses, as well as some players being on Championship contracts that didn’t contain large relegation reduction clauses.

Love them or hate them, player wages are a regular topic for discussion amongst fans and based on a rough and ready formula we estimate that Bolton’s first team squad would have been averaging £335,000 a year.

You often hear fans saying that they ‘pay player’s wages’, but this isn’t the case in reality. The matchday income for Bolton for 2016/17 worked out at 25 pence for every pound of wages.

Transfer fees are dealt with in the accounts by something called amortisation. This takes the total transfer fees paid by the club and spreads it over the number of years of the contract signed by the player. So, when Nicolas Anelka signed for Bolton in 2006 for £8 million on a four-year contract it worked out as an annual amortisation cost of £2 million.

As the club’s finances have deteriorated in recent years it has had to reduce the sums paid for players and this impacted upon the amortisation total.

Bolton’s amortisation cost has fallen by 97% since being in the Premier League, which reflects the nature of loans and free transfers that are the most common methods of signing players in League One.

Bolton also paid £33,000 a week in 2016/17 in interest charges, partly due to an unusual arrangement with a company called Sports Shield BWFC Limited, controlled by Dean Holdsworth, which charged a Wonga-Tastic 24% interest per annum before going into liquidation.

It looks as if the interest due to Sports Shield will not be paid following a dispute with the club, so there should be a £1m reversal of interest charges in the 2017/18 accounts.

Further costs related to Ken Anderson, the club owner who was previously barred from being a company director in the UK for eight years.

As someone who used to work in the insolvency industry, you would have to irritate the authorities a huge amount just to get a telling off, so his behaviour in achieving an eight-year ban (which expired a few years ago) must have been spectacular in terms of poor governance and transparency. David Conn, The Guardian’s superb rottweiler like investigative journalist, uncovered some of Anderson’s past that does not paint him in a particularly good light.

Bolton’s ‘rogue chairman’ Ken Anderson puts EFL ownership rules under scrutiny | Football | The Guardian

Anderson was paid £525,000 for his services via Inner Circle Investments Limited, a company he set up in 2015 with an investment of £1 of shares.

By having such an arrangement, it allows him to legitimately say that he is not being paid a salary by Wanderers.

Inner Circle Investments Ltd appears to be little more than an investments vehicle, as the only asset it owns is a 95% share in Burnden Leisure.

In addition, £125,000 was paid to another member of the Anderson family, which appears to Ken’s son Lee Anderson, via something called the Athos Group. A trawl of Company’s House reveals that Athos Group is a services company that seems to have no executive called Lee Anderson. It would therefore appear that Lee was paid for consultancy or other work, such as modelling BWFC leisurewear.

Profits and Losses

There is a common misconception that football clubs, especially those in the Premier League, are a licence to print money. Research shows that clubs in the Premier League only started to make profits from 2014/15 when Sky and BT increased the sums paid for broadcast rights by 70%. Clubs outside the top flight, especially in the Championship, lose large sums, and Bolton are no exception to this.

Over the course of the last decade Bolton lost £178.5 million, despite spending the first half of that period in the Premier League. These losses were initially absorbed by Eddie Davies, before he became too ill to continue. This is where Dean Holdsworth and Ken Anderson stepped in, although it seems the former was all fur coat and no knickers when it came to covering the day to day running costs, and the two fell out, resulting in Anderson obtaining majority control.

Ken Anderson deserves credit if he’s therefore been underwriting the trading losses, and cutting costs.

His critics will no doubt point to the sale of players to offset these losses, the muddy waters on this should clear when the 2018 accounts are published.

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If you are going to run a football club in the Championship then expect to incur substantial losses, as shown above. Ken Anderson has said that he’s not rich enough to take the club forward and is seeking external investment, but surely he must have known how much it costs to run a club in the Championship before becoming involved in Bolton.

Recent non-payment of wages (which Anderson claims to have now paid out of his own pocket), player strike threats and news of players loaned to Bolton having their wages paid by the host club, combined with a transfer embargo from the EFL suggest the club is struggling to pay the day to day costs.

Player trading

Bolton’s player purchases and sales history in recent years is a textbook analysis of a club that has fallen through the divisions.

In the Premier League the club was able to buy and sell players in multi-million-pound deals. Once relegated the initially the club buys players in an attempt to bounce back into the Premier League, and if this becomes unlikely then the purchases decrease and sales rise as the club needs to flog off the talent to pay the bills.

Funding

Football clubs can borrow from three broad sources, third party loans, director’s loans (which may or may not be interest bearing) and shares, which can in theory receive dividends if the club makes a profit, but in most cases don’t.

Whilst Eddie Davies was around Bolton were beneficiaries of his benevolence as he lent money interest free to the club he loved. This, as Tom Jones once said, is not unusual for local lads who have been successful in business, as clubs such as Huddersfield, Stoke, Brighton and Brentford will testify.

Another former director, Brett Warburton, (of the crumpet making baker family) has lent Bolton £2.5 million, but is charging interest at a rate that is far higher than he is likely to earn on his ISA.

Davies lent the club about £175 million, effectively summarised in the above table. He then in 2016 wrote off nearly all the sum due.

In September 2018, shortly before his death, Davies lent the club a further £4.8 million to allow it to pay off a loan due to Blumarble Capital Limited, a company with two employees and relatively few assets, apart from, according to its last recorded balance sheet, a loan due from another company of £4.8 million (almost certainly Bolton) and some cash.

Blumarble effectively bought the loan from the liquidators of Sports Shield and have charged interest at 10% compared to 24% on the original loan.

Blu Marble was threatening to put Bolton into administration at the time. Eddie Davies’s loan came via a company called Moonshift Investments Limited based in the British Virgin Islands tax haven.

Ken Anderson has repeatedly said in his ‘notes from the Chairman’ column that Bolton have lower debts than most clubs in the Championship. This is true, but the credit for this should surely go to Davies rather than Anderson in writing off so large a sum, so it’s difficult why Anderson is so proud of himself over this issue.

Conclusion

Bolton’s is a sad tale, a once proud club whose name is continually being dragged into the mud. Fans just want to be able to see their team play some decent football with the certainty that there will still be a club in a month’s time, and that certainty is not presently guaranteed.

Ken Anderson claims that all is right, and that people should ignore his past in terms of running companies into the ground and being banned from being a director. Perhaps he is correct, all is Hunky Dory and HMRC, Stellar Football Limited (one of the world’s most successful sports agencies) the Insolvency Service, Forest Green Rovers, The Bolton News and all of the club blogs and fan groups have it wrong in terms of the club’s finances.

Straight answers are what are required to allay fears, but Anderson’s approach is one of snide whatabouttery in his Chairman’s notes column in the club program and website, which will I suspect result in a further loss of goodwill to a club that needs support from everyone in the game.

Anderson’s motives are unclear. If he wants to run the club then surely he should expect that it will lose money in the Championship, so whining about having to cover wages makes him no different to any other club owner in the division.

His other ambition may have been to flip the club by selling it at a profit to someone else, here we will have to wait and see the outcome.

As for his financial rewards from involvement with the club, they are high by League One standards but the club was promoted so he can argue were deserved.

If there were not subsequent alleged issues involving winding up orders and non-payment of staff or other clubs for loan fees payments to him become more difficult to justify.

One way to stop the brickbats is for Anderson to publish the 2018 accounts. Bolton will have had to submit them to the EFL for Profitability and Sustainability reasons (the new posh words for FFP), so there’s little reason to delay submission to Companies House. This could stop the criticism in its tracks if all is as rosy as Anderson claims, over to you Ken…

Manchester City and Der Spiegel: Second Skin

The Der Spiegel allegations in relation to Manchester City seem to have tongues wagging at present, but are City’s activities illegal, deceptive or just pushing the boundaries of what is within the regulations?

Never mind that, the good news is that legendary City fan Eddie Large is making a comeback with Sid Little

What are the FFP rules?

The short version is that clubs are allowed to make an FFP loss (which is an accounting loss excluding infrastructure, academy, women’s football and community scheme costs) of €5 million over three years. These losses can be extended to €30 million if the club owner is willing to inject the difference into the club by buying shares.

The long version is 108 pages long and not recommended unless you are on a particularly long train journey or a masochist.

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What are the punishments for breaking the rules?

UEFA has a full schedule of punishments from finger wagging, fines, wage caps, reduction in squad sizes for UEFA competition to the ultimate sanction of being banned from UEFA competitions.

Are these punishments legal and within EU competition law?

UEFA is confident that the rules are watertight, but they’ve not been tested in court to date. As we’ve seen with the QPR case, which cost the EFL £3 million (and presumably QPR similar) and took four years to resolve, the objective of the legal and accounting professions is to delay and argue as long as possible to maximise their fees. Manchester City were by all accounts prepared to use whatever legal means possible to prevent a competition ban.

Are there weaknesses in the rules?

All rules have strengths, weaknesses and loopholes. The rules were partially created by two employees of Deloitte, Martyn Hawkins and Alex Byars, who were sent on secondment to UEFA. Byars was then recruited by Manchester City in January 2012 and spent three years there, and Hawkins was recruited by City at the same time and is now the club’s Finance Director.

The Independent

It’s common in all industries to recruit from those with expert knowledge, so no wrong doing here from a legal standpoint, but if anyone is going to know where the bodies lie in terms of the weaknesses of FFP it is likely to be someone who was involved in writing the rules.

Smart thinking by City or an attempt to dodge FFP? It depends on which football team you support.

How can the rules be abused?

UEFA did fine City £49 million for FFP breaches in 2013, as well as imposing transfer and wage caps for two seasons. City appear to have accepted and applied these rules, and as a result had a refund of two thirds of the fine in accordance with the terms of the initial punishment.

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If a club thinks it is going to exceed the allowed losses it could, if it so desired, do one of two things.

(a) Artificially inflate income

Clubs have three main sources of income, matchday, broadcast and commercial. The first two are difficult to inflate, but commercial income could be boosted in relation to deals signed with sponsors who are connected to the club owner.

This is what is alleged in the Der Spiegel leaks, in relation to commercial contracts, such as the one with Etihad Airways, where the claim is that of the £60m a year sponsorship from Etihad, £52 million of this was coming from Abu Dhabi United Group, owned by City’s owner, Sheik Mansour. These claims have been denied.

The other claim is in relation to the sale of image rights to another company, Fordham Sports Image Rights Limited. (FSIR)

FSIR had by 30 June 2017 accumulated losses of £74.6 million in five years, which is an achievement for a company with two employees. These losses have been mainly funded by the company issuing shares for £59 million.

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At this stage you might be wondering what is the link to Manchester City?

Fordham Sports Image Rights Limited used to be called Manchester City Football Club (Image Rights) Limited and its registered address was the Etihad Stadium in Manchester.

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A look at the list of officers of FSIR includes Simon Cliff and John Macbeath.  They both resigned in July 2013. Simon Cliff is presently the legal counsel at Manchester City and was appointed to the board in May 2013 and John Macbeath is a non-executive director of the club, former interim chief executive and was appointed in January 2010.

FSIR is presently controlled by David ‘Spotty’ Rowland, a former Conservative party treasurer and major donor. Rowland is notoriously camera shy and isn’t known to be a football fan, although he once tried to buy Hibernian in the 1980’s.

Why Rowland would bankroll the losses of a company involved in sports image rights is unclear.

The allegation appears to be that FSIR paid City for the player image rights in 2012/13 when FFP was first applied, as well as other sales to parts of the City group empire, as a means of reducing losses.

City sell image rights

What has happened to the image rights subsequent to the sale to FSIR is unclear, but it is odd that the company has made such huge losses since 2013.

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(b) Reduce FFP costs

Manchester City are a subsidiary company of City Football Group Limited, which also has interests in football clubs in New York, Melbourne, Tokyo and Uruguay. City’s critics believe that this allows the group to allocate central costs (marketing, IT, legal etc) to the other football clubs and reduce the costs borne by Manchester City, helping it comply with FFP losses in the process.

A look at the income and costs of both Manchester City and City Football Group shows the following

Again, the conclusion is likely to be dependent upon your confirmation bias. A City fan would say that Manchester City generates 92% of income due to participation in lucrative competitions and that many overhead costs, such as rent, are fixed, and so would be borne to a greater extent by other members of the City group to a greater extent. Those who think there has been foul play will point out that Manchester City only bear 80.7% of the wage bill, and that the club would surely pay far higher wages than those in the MSL and A-League.

Conclusion

No one comes out of this with reputation intact. For those who are against City and their owners there is plenty of circumstantial evidence that there have been strange relationships and transactions taking place, but in the three days of reporting from Der Spiegel to date, no smoking gun. Some of the activities would be seen as good business practice in other industries, and football has a moral code of convenience whenever deeds are undertaken by a club to which one has a particular dislike.

City themselves, with the effective riposte of ‘Fake News’ to the allegations, give the impression of a club that does not want a light shone on it in terms of transparency and governance. If transactions have been undertaken with third parties that are unusual then the best thing, if innocent, is to show the evidence and the club could come out of this smelling of rose.

Der Spiegel’s allegations, whilst containing a few new snippets, doesn’t reveal any slam dunk information (although at the time of this being blogged only three days out of four of the story have been published).

Football is a grubby industry, and every time you hear about stories such as these which paint the game in a poor light (which apply to many, many clubs) it’s inevitable that you fall a little more out of love with the game, but not enough to stop watching, subscribing, discussing and consuming, and clubs, along with the likes of the Premier League, UEFA and FIFA, are fully aware of this.

 

The benefits and perils of taking a football club onto the stockmarket.

Football clubs have a choice of ownership models, here we will look at the two most common corporate identities for investors.

On 23rd August 2018 Manchester United plc became the first football club in the world to be worth $4 billion. We know this because their share price finished that day at a record high price of $24.60 on the New York Stock Exchange, where the club’s shares are publicly traded.

OnO

At around about the same time as United went through this price threshold there were rumours that Liverpool and Chelsea had been subject to takeover bids for about £2 billion, but the actual price is unknown, because both these clubs are private companies.

United’s share price boost at this time was partly based on the view taken by the markets that if Chelsea and Liverpoil were worth £2 billion then United were worth more than that and factored the difference into the share price.

Many people queried the logic of Juventus signing Cristiano Ronaldo, and whether the club would benefit from a €110 million transfer fee and wages for a 33 year old player.

Since joining Juve, the doubters have been proved wrong as the club’s value has more than doubled from €600 million to €1,400 million as the market digested the impact that CR7 has on the global commercial desirability of the club with sponsors.

The Juventus share price rise was a classic case of the market responding to a single factor in relation to a company, and that factor was Cristiano Ronaldo and his squeaky clean image that is so popular with sponsors of both the individual and the club for whom he plays.

When rape allegations in the media in relation to Ronaldo appeared the share price went into a hasty reverse.

What goes up…

A cynic might say that a short seller (someone who sells shares they do not own in the hope that the price will go down and they can buy them back at a lower price) would be very pleased with the accusations made, as it has allowed these people to make a fortune in the markets.

In the 1980’s and 90’s many clubs in the UK, as diverse as Spurs, Millwall, Southampton, Hearts and Sheffield United changed their status from private to public. Within 20 years the vast majority had reverted to being private companies, chastened by their experience to the additional scrutiny and costs of being members of a stock exchange.

All businesses, including football clubs, need finance. Before the first ball is kicked, the first ticket sold, the club will need to buy the land on which to play their matches, build a stadium, employ a manager and coach, sign players and so on. Cash will only come into the club at a later date as matches are played, commercial deals signed and broadcasting rights are sold.

Finance comes from two sources. Clubs can borrow from either banks, private institutions or owners or they can generate cash from issuing shares to investors.

Prior to being acquired by the Glazer family in 2005, Manchester United plc had its shares traded on the UK stock exchange and was debt free.

The situation changed when the Glazers borrowed substantial sums from financial institutions to fund the acquisition of shares from the market and take the company private.

Because United was seen by lenders as being a risky investment, banks charged interest rates of up to 16.25% on the borrowings. This has resulted in United paying out £767 million to banks since being acquired by the Glazers.

Interesting, very interesting

Critics argue that this money would have been better spent being invested in the squad rather than paid to banks, although it could be argued that the local branch manager of Barclays probably had a better chance of nutmegging a defender and sticking one into the net at the Stretford End than the likes of Memphis Depay or Bebe.

Like a puppet on a string…but who was the puppetmaster?

The alternative to borrowing money is for a company to issue shares to investors. A share normally allows an investor to vote on key decisions each year such as who are the company directors. There are broadly two types of company, although recently some clubs have gone down a third route of being community owned.

Public companies are able to issue shares to anyone, through what is called an IPO (Initial Public Offering). The company issues a prospectus, where it sets out its intentions in terms of a business strategy and budget.

The benefit to the club is that it can raise money from anyone and everyone, thereby broadening the number of people who are willing to invest and raising more money. This money could be invested in the playing squad, improved facilities for fans and so on.

The benefit to shareholders of buying shares in a public company is that they can easily sell their shares on an open market and know the price of those shares from day to day. From a fans point of view they could own anything up from a single share in the club.

The shareholders are not however involved in the day to day running of the club and are not consulted on strategic or operational decisions, which are delegated to the board of directors and the manager/coach.

Therefore, if a fan thinks that buying 100 shares in their favourite club will allow them to have a say in transfer, ticket price and away shirt colour policy they are wrong.

There are significant downsides to being a publicly quoted football club.

(1) The club is subject to greater compliance costs, as it is necessary to abide by the rules set down by the relevant stock exchange as well as more complex and detailed company law requirements.

Millwall estimated these costs to be about £100,000 a year when they made the decision to return to being a private company in 2011. At one stage Millwall had 78 billion shares in issue, but each one was worth 2/100 of a pence each, making the costs of maintaining records for each shareholder and sending out communications via the post prohibitive.

No one likes our share price, we don’t care.

(2) The club may have to answer to analysts and commentators in the media to a greater degree on its financial dealings. Analysts give advice to their clients as to which companies they should invest in, and so tend to want to know the intricacies of the club’s finances. The club directors may feel this is time wasted and prefer to focus on the day to day running rather than being grilled and observed with keen interest by a bunch of bankers.

(3) The majority of shares in publicly quoted companies are owned by institutions such as pension and insurance companies. These shareholders have little interest in the club as a sporting institution, their aim is to maximise a short-term financial return rather than the longer-term success of the club.

(4) For an owner, going public means potentially losing control of the club. The Glazers at Manchester United have prevented this by having two types of shares in the club. Class ‘A’ shares carry one vote each and are the ones traded on the New York Stock Exchange. Class ‘B’ shares carry ten votes each and are owned by the Glazers. This allowed the Glazers to generate £140 million in 2012 by taking United public. Half of this was used to pay down debt and the other half went to the Glazers.

The ‘A’ shares represent about 25% of the total number of shares in Manchester United, but carry just 3% of the votes. This allows the Glazers, provided they do not fall out with each other, to make whatever decisions they see fit without worrying too much about unhappy third-party investors.

The alternative is to be a private company. Here shares are not traded on a market and are not easily transferred from person to person. Most clubs have what are called pre-emption rights, where anyone wanting to sell must first offer the shares to existing shareholders before selling to a third party.

Private companies usually have a single or a few shareholders, who are often board members too. As such they benefit from not being answerable to outside parties, more relaxed company law and accounting filing rules but the club has fewer methods of raising finance.

Regardless of being public or When a business makes profits, which historically has been a rarity for football clubs, those profits belong to the owners.

The owners then have the choice of either reinvesting the profits back into the club or taking them out in the form of dividends.

Very few owners have taken the dividend route, one of the most famous however was Blackpool in 2011, where after being promoted to the Premier League, owner Karl Oyston saw fit to pay himself £11 million in dividends from the money generated that season. This has led to huge subsequent protests from Blackpool fans who felt that the money should have been used to improve matters on the pitch, as the club slowly fell through the divisions.

Manchester United, being a public company since 2012 and therefore the demands of the market, have paid dividends of over £64 million since that period.

Whilst this has caused grumblings amongst the United fanbase who have been happy that the club is paying less out to finance providers in the form of interest, but if this is simply being replaced by dividends will not be happy, neither will Jose Mourinho, having seen his transfer requests this summer rejected by Ed Woodward and the board, all of whom receive dividends on their shareholdings…

 

Manchester City and Etihad Airways: Economy plus?

History

The 2007/8 Premier League season could not finish fast enough for Manchester City. The final match under Sven-Göran Eriksson was a nine-goal thriller at Middlesbrough, where unfortunately City conceded eight of them.

The club’s reputation at the time was that of the Keystone Cops of English football, a bunch of mavericks in blue where the wheels were always on the brink of falling off.

In those days their hated local rivals at Old Trafford looked upon City with mocking contempt rather than as an enemy, saving their true loathing for Liverpool and Leeds United.

Behind the scenes things were even worse. Whilst City fans were excited at the start of 2007/08 at the prospect of new Thai owner Thaksin Shiniwatra’s promises of big spending and success, an investment in the likes of Rolando Bianchi, Felipe Caicedo and Elano didn’t prove to be successful, and the money from the new owner came from unreliable sources.

City borrowed £46 million in the one year of Shiniwatra’s ownership. Whilst borrowing money has some benefits, these loans came at a price, as City’s interest costs more than doubled to £10.7 million.

The acquisition of the club by Sheik Mansour in September 2008 saved City in more ways than one, as by this stage Shiniwatra had more pressing issues to deal with in the form of corruption charges from his homeland, and he disappeared from the scene with few regrets from City fans.

Mansour transformed City, with an initial scattergun spending policy on marquee signings such as Robinho and an audacious attempt to sign Kaka. At this time transfer fees and wages were an irrelevance to the owners.

This impacted upon City’s financial performance, which moved from a profit of £17 million in 2006 to a loss of £190 million in 2011.

These losses were sustainable because Sheik Mansour was willing to underwrite the losses through a combination of interest free loans and shares. Had FFP rules been in existence at the time then the investment would not have been possible. This allowed the Abu Dhabi owners to pump nearly £1.2 billion of cash into the club.

The threat to the Elite

The owner’s huge investment startled the existing elite of European football, who now saw City as a potential threat to their cartel at the top table of UEFA competitions.

These established clubs put pressure on Michel Platini, the UEFA president, to introduce some method of reducing the rise of ‘new money’ clubs such as Chelsea, City and PSG.

After much internal haggling and huge amounts of money being spent on accounting and legal fees by UEFA, Financial Fair Play rules relating to non-payment of transfer fees were introduced in 2011-12, and then extended in the 2013/14 season in the form of a breakeven model.

The rules are now so complex that the latest version takes up 116 pages of legal and accounting pontification and windbaggery.

UEFA claim that FFP can be summarised in one sentence “Financial fair play is about improving the overall financial health of European club football”.

We would describe that one sentence in one word, and that word is ‘Bollocks’. Businesses go bankrupt due to a lack of cash, not profit, which is an arbitrary accounting concept open to sleight of hand, estimates and manipulation.

The initial rules restricted clubs’ losses to €45 million over three years ending in that period, and then €30 million from 2015/16.

How does it work?

A breakeven model calculates losses as income less expenses. Clubs have three main sources of income, matchday, broadcasting and commercial.

It’s difficult (but not impossible) to manipulate matchday income, which is the number of tickets sold multiplied by the ticket price, and the same is true for broadcast income, which is negotiated and distributed centrally by individual leagues and UEFA itself.

Commercial income is different as represents deals signed by clubs and their business partners. The prices for these deals are open to negotiation.

In the years prior to the Abu Dhabi takeover City’s commercial income was far less than their rivals from Old Trafford, whose ability to negotiate deals on the back of the popularity and success brought by Sir Alex Ferguson was ruthlessly exploited by United’s American owners.

This is where eyebrows have been raised in relation to Manchester City. Etihad Airways, the national airline of Abu Dhabi, replaced Thomas Cook as shirt sponsor in 2009. This had an immediate impact on City’s commercial revenues, which increased by 126%.

In 2011 the Etihad deal was expanded to include naming rights for what had been previously known as the City of Manchester stadium, (less affectionately called the Council stadium by United fans, due to City renting it from the local government authority) which became the Etihad stadium, along with surrounding training facilities called the Etihad campus.

The agreement was for ten years, at an estimated value of £400 million, which included shirt sponsorship as well as the naming rights.

At the time the largest fee for naming rights was £2.8 million a year by Arsenal for the Etihad. Other clubs had tried and failed to secure high value sums from sponsors. Newcastle United had to accept two dozen pairs of Donnay socks and a signed Dennis Wise photograph as St James’ Park was briefly renamed the Sports Direct Arena, the main company controlled by owner Mike Ashley.

The accusation levelled at City is that the Etihad deal has been used to reduce the club’s losses and help it in satisfying FFP rules.

Because of the Etihad deal City’s commercial income initially matched that of United but has subsequently fallen behind as their rivals have managed to partner themselves with everyone from Japanese Tractor partner Yanmar to mattress partner Milly, although the latter may prove useful as Jose Mourinho’s tactics send United’s global fanbase to sleep.

City’s partnership with Etihad does however mean they have the second highest amount of commercial income in the Premier League, and the fifth largest of any football team globally.

 

Such was the extent of the Etihad deal that there were accusations of ‘financial doping’ from the likes of Arsene Wenger.

UEFA had tried to minimise the impact of deals signed by clubs with organisations connected to the owners through ‘related party transaction’ rules. A related party is one that is controlled by the club owner or a close relative.

In addition, UEFA have set up a Club Financial Control Body (‘CFCB’), the Supermen and Superwomen of financial investigations, effectively a group of accountants so powerful they wear their underpants over their trousers, to ensure that clubs do not overstate the value of commercial deals.

City tried to set up their deal with Etihad in such a way that it complied with the FFP rules, but such were their losses were put on the FFP naughty step in 2014, with the following penalties

  • A £49 million fine, part of which was conditional on improving the club’s business model. City duly received a rebate of two thirds of this sum.
  • An agreement to not increase the wage bill (excluding bonuses) for two seasons
  • A squad reduction for UEFA competitions from 25 to 21 players
  • A reduction in the amount spent on player signings, limited to a net £49 million spend.

City managed to comply with the sanctions and kept their wage bill, which had been £36 million before Shiniwatra in 2007 and zoomed to £233 million by 2014, in check until UEFA were satisfied that the breakeven target was being achieved. This coincided with Pep Guardiola’s arrival and gave City more wiggle room.

PSG were given a similar fine, in what was seen as a victory for the existing elite of European clubs.

Clubs can however dispute any rulings by the CFCB, and this is likely to trigger a long and expensive legal action, where the winners will be the accountants and lawyers.

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In 2015, under pressure from, you guess, a series of lawsuits from unhappy club owners, UEFA relaxed the FFP rules, allowing clubs to negotiate a voluntary deal althgouh this does involve an eventual breakeven target

Summary

The City and Etihad partnership was borne to an extent out of necessity on the part of the club, to satisfy UEFA FFP rules. If the value of the deal initially was excessive given the global position and reputation of City in 2011, then today, with the club having won the Premier League three times since Sheik Mansour acquired the club, the £400 million deal, which has been renegotiated since its original signing, is probably about right, and some even claim it is below the market rate, for Pep Guardiola’s team in the current market.

 

Newcastle: Opportunity Knocked

Introduction

Regular reference is made about the ‘Big Six’ clubs in the Premier League and the disproportionate amount of wealth, transfer spend and media exposure that they generate.

These clubs (Manchester United and City, Spurs, Arsenal, Liverpool and Chelsea) seem to have created a glass ceiling which is almost impenetrable to break (with the notable exception of Leicester in 2015/16 as they jostle for Champions League (CL) positions, having taken 60 out of 62 places in the CL since 2004/5.

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One of my chums on Twitter, called @TheGingerPirlo_ , asked about Newcastle United, a club who had been successful in the early 2000’s, and an assessment of Mike Ashley’s reign of terror, misery ownership on Tyneside compared to what has happened at Spurs during the same period. Should Newcastle have been one of today’s ‘Big Six’ instead of Spurs?

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The guv’nor of football finance, Kieron O’Connor at the Swiss Ramble, has already given his always brilliant assessment of the two clubs’ monetary performance and position on Twitter, but here’s further analysis for those who want any additional information.

Ashley acquired control of NUFC on 15 June 2007, after initially acquiring 41% of the club the previous month.

On that momentous day Rihanna (and Jay Zed) were number one in the pop charts with Umbrella, Tony Blair was prime minister and still reasonably popular, Sid the Sexist in Viz was a virgin and Michael Owen was Newcastle’s record transfer signing…some things haven’t changed since then.

Spurs’ record signing at the time was Dimitar Berbatov, a signing that has since been exceeded 18 times.

Finances pre Ashley

In the eleven years prior to Ashley taking over Newcastle, the club’s league position compared to that of Spurs was as follows.

Newcastle’s average league position was 8th, compared to that of Spurs’ 10th, and the Toon had had four top four finishes during that time period, whereas Spurs highest finish was 5th. Newcastle finished above Spurs on seven occasions during the period in question.

Since Ashley took over, the situation has reversed.

Newcastle have finished below Spurs in each of the 11 seasons since Ashley took over, with an average position of 14th, compared to 5th for Spurs.

When Ashley acquired Newcastle, the key financial figures for both clubs for the previous year was as follows:

Income

Spurs overall had revenue of £103 million compared to £87 million for Newcastle. The main reason for this was that Spurs had a higher league finish coupled with decent cup runs (UEFA Cup QF, League Cup SF, FA Cup QF) as well as the attraction to commercial partners of being based in London. Newcastle’s additional capacity at St James’ Park meant that they had an advantage in terms of matchday income. The retirement of Alan Shearer and a major injury to Michael Owen meant that Newcastle had a relatively poor season on the pitch.

Costs

The main operating costs for a club relate to players in terms of wages and player amortisation (transfer fees spread over the contract term, so Berbatov signing for Spurs for £11 million on a four-year contract works out as an amortisation fee of £2.75 million a year).

This may cause Newcastle fans to drop their bacon sandwiches (this is of course less likely to be an issue for Spurs fans) but in 2006/7 their club’s wage bill was 43% higher than Spurs at £62.5 million. There was little difference in the amortisation charge.

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Spurs therefore only spent £42 in wages for every £100 of income, whereas for Newcastle it was £72.

Spurs had a successful time in the transfer market and made a profit on player sales of £18.7 million, mainly due to the sale of Michael Carrick to Manchester United, whereas Newcastle lost £1.9 million.

Newcastle also had a number of additional expenses that year. The sacking of Glenn Roeder cost £1.1 million in compensation, the takeover by Ashley led to a number of directors leaving the club, which added a further £2.2 million to expenses, and £2.9 million in relation to some aborted takeover bids and financing a stadium expansion took one off costs to £6.1 million. This was however offset by a £6.7 million compensation claim against FIFA and the FA relating to Michael Owen suffering an ACL injury in the previous year’s World Cup.

What is clear is that Spurs, under the astute leadership of Daniel Levy, controlled their costs well and this meant that the club was profitable, unlike Newcastle, where the Hall/Shepherd era was coming to its final throes, which made losses under practically every performance measure.

Profits/losses

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Of the above profit measures, we believe that EBIT and EBITDA are the most relevant ones, as they exclude one off transactions such as profits on player sales and compensation for sacked managers. Spurs were making broadly £30 million more than Newcastle in 2006/7 under both these measures, so Ashley was inheriting a club that whilst it had been more successful on the pitch in the previous decade compared to Spurs, had some warning signs in its finances.

The Ashley Years: 2008-17

Income

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Newcastle continued to have an advantage in terms of matchday income for the first two seasons under Ashley, but relegation in 2008/9 reversed this picture and Spurs have reinforced this ever since. This is mainly due to participation in UEFA competitions, combined with increasing prices for matchday packages as White Hart Lane is a popular destination for football tourists.

In 2006/7 Spurs generated £863 per matchday fan per season, compared to £608 at Newcastle. By 2017 Spurs had increased theirs to £1,433 per fan, helped by four matches at Wembley in the Champions League & Europa Cup. Newcastle, playing in the Championship made only £458 per fan, as the likes of Burton and QPR were clearly less attractive than Monaco and Bayer Leverkusen.

With Spurs new stadium coming on stream in 2018/19 at eye watering prices, and another year in the Champions League, expect the gap here to grow even further.

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Broadcast income was neck and neck between the two clubs in Ashley’s first year of ownership, but again relegation in 2009 changed the dynamic between the two clubs and that has been magnified ever since by Spurs.

With BT Sport paying huge sums for Champions League rights, along with approximately a £2m increase per domestic place in the Premier League, Spurs are likely to generate £100 million a year more from broadcasting than Newcastle as long as they continue to qualify for Europe.

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In terms of commercial income, Spurs have a geographical advantage due to being London based, and therefore more appealing than Newcastle to global brands and partners. Newcastle have suffered too due to the Sports Direct and Wonga factors. Other sponsors are reluctant to be seen alongside the logo of the carrier bag of choice of those who like to wear velour onesies and use payday loans to fund their daily purchases of wifebeater from Bargain Booze.

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Spurs generated total income of £616 million in the decade before Ashley arrived, compared to £709 million for Newcastle.

In the decade since Ashley took control, the reversal is depressing for Toon fans. Spurs income has risen 175% to £1,696 million whereas Newcastle’s has increased only 39% to £986 million, representing a huge lost opportunity.

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Costs

Spurs have overperformed in terms of on the field performances compared to the wages they pay. The other ‘Big Six’ clubs pay substantially more, so it is credit to the negotiation skills of Daniel Levy in agreeing wages with staff that are lower than that of Spurs peer group (except for the pay of the highest paid chief executive in the Premier League…Daniel Levy, who earned £6m in 2017/18)

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In Mike Ashley’s first season as owner Newcastle’s wage bill was 32% higher than that of Spurs. His reluctance to invest in players (and pay them accordingly) as new TV deals were agreed resulted in a reversal of this situation, even when compared to the relatively parsimonious (compared to the rest of the Big Six) wage levels being paid at White Hart Lane.

Overall Ashley has paid out a beastly £666 million in wages over the decade compared to £950 million at Spurs. You pay peanuts, you get Xisco, Titus Bramble and Stephane Guivarc’h…and relegated twice.

At the same time Spurs have keep their wages relatively low compared to income, but by boosting income levels it allowed them to increase the wage total.

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The same reversal of spending had arisen in relation to player amortisation.

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Ashley’s reluctance to invest in the transfer market is very evident. There was a £3m difference between the two clubs in the year before he took over, but since then Spurs have had a total amortisation charge of £364 million, nearly twice that of Newcastle’s £192 million.

If clubs fail to invest in player recruitment, then this has a knock on effect when it comes to selling players at a profit.

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Spurs have benefitted from signing the likes of Modric and Bale and then selling them to Real Madrid, but they were prepared to invest in the first place. Newcastle, by rummaging around the bargain bins on a more regular basis, were more likely to struggle to make a return on those players as many failed to make the grade. Overall Spurs have made a profit of £324 million whereas Newcastle have only made £180 million.

One area where Newcastle have benefitted from Ashley’s ownership is that he paid off the club’s loans and lent the club money interest free. This has resulted in Newcastle only paying £8 million in interest over the decade compared to £55 million at Spurs.

The downside of this is that because it is his own money he had been lending, Ashley has been overly cautious in financially supporting the club once his initial enthusiasm waned.

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Spurs have borrowed money most years, and this has been used to fund infrastructure projects as well as the transfer market. Under Ashley, Newcastle have borrowed a net £4 million in the last 7 years, and this was mainly in 2016/17 as the owner needed the club to return to the Premier League to have a chance of selling it for his desired price of £400 million.

Transfer Market

Both clubs have a reputation for caution in the transfer market and this is reflected in the figures. Newcastle have outspent Spurs in terms of recruitment three times in the last decade (and this is likely to be repeated in 2018/19 too), but overall Spurs have spent £564 million in the period compared to just £331 million by Newcastle.

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Net spend is a topic that gets many Newcastle fans into an anti-Ashley frenzy, and here they have some justification.

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In the first eight years of Mike Ashley’s ownership, there was a net overall spend of just £5.6 million, whereas Spurs net spend was £81 million, despite the sales of Bale and Modric.

Summary

First of all credit should be given to Spurs for having a plan, they wanted to move to the next level in the Premier League, and through excellent recruitment and good cost control they’ve managed to become a club that is expected to challenge for UEFA cup competitions each year.

Ashley’s ownership of Newcastle is baffling. If he wanted to make a fortune by selling the club at a healthy profit, then refusing to invest in the assets that generate the best return, in the form of players, has come back to bite him in the bum.

When he acquired the club in 2007 it was in a prime position to challenge for the top four regularly. Whether he took the eye off the ball (Daniel Levy’s investment in Spurs is 24/7) due to the other elements of his business empire, or a belief that his successful methods in running his retail empire could be transferred to a football club, is unclear.

With the Big Six clubs being worth at least £1 billion each, and Ashley hawking Newcastle around for about £350 million, his period of ownership has cost him hundreds of millions due to his focus on spending as little as possible to keep the club in the Premier League instead of one of ambition on the pitch.

The last decade has been a lost one for Newcastle, and the problem is it is a situation that cannot be seen to be reversed under the present management, and even a new owner, given the wage constraints of the Premier League’s STCC rules which are aimed at reinforcing the status quo in terms of the Big Six, will face an almost impossible task at breaking through the glass ceiling.

The Ashley Years Table

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QPR FFP Fine: Everything Counts in Large Amounts

Imagine someone stealing £170 million from you, and the culprit eventually is fined a tenth of that sum having spent all the money elsewhere. That’s how Derby County and their fans are feeling following the EFL Financial Fair Play verdict against QPR.

On 24 May 2014, in the 90th minute of the Championship play off final against Derby County, (Sir) Bobby Zamora scored the only goal of the game to achieve promotion for Queens Park Rangers.

Had QPR complied with FFP properly, it is highly unlikely that Zamora would have been part of the QPR team, after the club was relegated the previous season from the Premier League, along with the likes of Rob Green, Joey Barton, Nedum Onuoha on big wages from the higher division.

In 2013/14 QPR signed players of the calibre of Charlie Austin, Danny Simpson, Richard Dunne, Gary O’Neill and Matt Phillips, as well as Niko Krancjcar, Ravel Morrison, & Beoit Assou-Ekotto on loan, as Harry Redknapp did what Harry Redknapp does best with a large amount of someone else’s money.

That season QPR’s wage bill was £195 for every £100 of income the club generated, even though the club earned over £28 million in parachute payments, having been relegated in 2012/13.

The wage bill of £75.4 million was only £3m less than that of the previous season in the Premier League. It works out as an average wage of £39,000 a week. The average total wage bill that season for the other 23 clubs in the Championship was £19 million, a quarter of that of QPR.

QPR’s accounts for 2013/14, published in November 2014, revealed that QPR Holdings Ltd made an operating loss (which is income less the day to day costs of running the club) of over £65 million, which works out at £178,000 a day, whilst in the Championship for 2013/14.

So what about Financial Fair Play (FFP), the rules which were supposed to prevent clubs from spending too much money on players and wages?

Under FFP rules for that season the maximum loss allowed by a Championship club was £3 million, or £8 million if the owners put made up the difference. Clubs that broke the rules were either subject to a transfer embargo (which has impacted the likes of Leeds United, Blackburn Rovers and Nottingham Forest in that division) or if promoted to the Premier League an FFP Fine/Tax is payable, with the proceeds going to charity.

Under EFL rules the fine was based on a sliding scale until losses exceeded £10 million above the FFP limit (which works out as a £6.7 million fine) and then 100% of the losses above this amount

Under these rules we estimate the QPR FFP fine would have been something along the following

Operating loss (65.2)
Add back allowable expenses
Promotion bonuses (estimated) 10.0
Infrastructure costs 1.3
Academy/community (estimated) 4.0
FFP loss (49.9)

This works out as an estimated fine of about £46 million.

The QPR approach was initially one of creative accounting. The owners wrote off £60 million of debt due to them by the club, and this was offset against the losses in the profit and loss account, meaning that in the eyes of the club the loss was only £9 million and that there was effectively no FFP tax to pay.

We’ve argued since day one of FFP that for most rules there are loopholes, accountants and lawyers are well practiced at finding them, and this was phase one of QPR owners’ attempt to avoid any penalties.

This approach was presumably rejected by the EFL, as it makes a mockery of the rules, which were aimed to preventing owners trying to buy promotion through their personal wealth.

QPR’s owners include Tony Fernandes (estimated wealth $745 million), Ruben Gnagalingam ($800 million)  and Lakshmi Mittal ($18.6 billion) then took a different approach, seemingly taking the view that rules applying to other clubs were beneath them.

There was no reference to FFP in the 2014 accounts, but a year later, hidden away in the footnotes, was a reference to QPR challenging the legality of the FFP rules.

Since then, not a lot has happened, apart from time passing, and the advisors on both sides clocking up huge sums in fees as they argued over the small print.

Dragging out a ruling is a classic ploy, raising petty objections (arguing over what constitutes allowable expenses for FFP purposes, or which of the Tellytubbies would win in a fight*) and requesting further information that they know will take time to produce, with the sole aim of delaying any potential decision, and therefore payment, hoping the other side loses the will to keep on fighting and will settle for a smaller sum.

I have a mate who is a tax accountant in Swansea. If he knows a client is likely to have to pay more tax he writes an appeal letter in Welsh, as he knows there are a relatively few people who speak the language at HMRC, and so it will take a long time to reply, which will drag out the time until payment is made. If a rebate a due, he writes in English at it elicit a speedier response.

Sources close to the events advised PriceOfFootball.com a couple of years agao that a compromise deal was likely, with QPR likely to pay a much reduced fine, and both sides would claim a victory.

Rumours were that at EFL board meetings where the matter was being discussed the members became so nervous that no minutes were kept on the topic, for fear of this being used by the opposition to further find minor points to quibble about (at £1,000 an hour in fees probs).

An independent arbitration panel was created, with both parties seemingly committed to agreeing to the final decision

In October 2017 the arbitration panel published their decision, ruling against QPR and fining them £40 million, who instantly appealed to further delay any cash beng paid over (thus allowing their lawyers and accountants to upgrade from Range Rovers to Maserati brochures), dragging out the process again.

The ruling had consequences for Leicester and Bournemouth too, who had initially piggybacked on QPR’s claim that FFP was illegal. Both clubs settled with the EFL earlier this year and agreed to pay fines of £3.1 million and £4.7 million, less than had been initially forecast.

We now have the final ruling, after a carefully worded press release from EFL, the main points being:

  • QPR have dropped their objection to the previous ruling
  • QPR fined £17 million as an FFP Tax but it being paid in instalments over ten years.
  • QPR have transfer embargo in the January 2019 window
  • QPR pay EFL’s legal costs of £3 million (plus presumably their own costs too).
  • QPR owners convert £21 million of debt into shares.
  • The FFP fine will be excluded from QPR’s losses when calculating the 2018/19 figures.

Is this a fair settlement?

As a result of being promoted, QPR earned £148 million in broadcasting income and parachute payments between 2014/15 and 2017/18. Derby fans will no doubt take the view that this money could have ended up in the coffers of their club had QPR not flouted the rules.

The debts of QPR to the owners were effectively worthless as the club has no means of paying back the owners, so converting one piece of junk paper in the form of debt to another in the form of shares is accounting sleight of hand, no more than that.

The above table shows that prior to the ruling, assuming the club was worth £100 million (which is generous) then the loans due to the owners were last valued at £52 million, meaning their shares were worth £48 million. The total due to the owners if the club was sold would be £100 million.

By converting £22 million of loans into shares, the debt figure falls, and is offset by an increase in the value of the shares. The total value of the owners’ investment is still £100 million.

The aim here is simply to make the headline fine in the media reports appearfar larger than it is in reality. The press release is as best disingenuous , assumes that all football fans are financially illiterate and will swallow the headline figure of 

Charities that could have received £41 million in the FFP tax, (and there has been discussion from QPR fans, rightly, that Grenfell survivors should be top of this list) will now receive £17 million, which, as some will not be received until 2027, is far lower than even this amount in reality.

If, as is rumoured, the £17 million fine is being paid over ten years, and using an imputed interest rate of 7.4% per year (which, according to HSBC, is their small business loan rate), then sticking the figures into a nerd calculator (see below) shows that the cash cost of the fine to QPR is the equivalent of £9.46 million being paid by the club in 2014 as a fine.

The interest rate chosen is by the way far lower than the interest rate which is being charged by QPR owners themselves of 1% a MONTH on some loans , and 2% a MONTH on others.

The comments from Shaun Harvey that ‘the board was conscious that the financial burden placed on the Club was manageable so as not to put its future in doubt’ is best filed under ‘bollocks’.

Tony Fernandes has previously stated that he was committed to the club irrespective of the decision, and he and his partners certainly have the resources to pay the fine and could have put the cash into the club in the form of shares or a loan to do so if they wished.

If you look at QPR’s accounts for recent years, the club borrowed £222 million, mainly from the owners, between 2013-17.

So there would appear to be little reason, apart from sulkiness or a loss of interest in the club, why the owners could not have invested a further £41 million either in shares or interest free loans to allow the correct amount of the fine to be paid.  The claim that by spreading the fine over ten years will allow the club to avoid administraction is yet another smokescreen.

As for the transfer embargo, the club has sufficient notice to accelerate signings by a few months. The terms of the embargo are more on the lines of  one player in and one player out rather than an inability to sign anyone. So this is a light tap on the wrists, along with the rest of the ruling.

Sadly, if you’re a Derby fan, as far as the EFL is concerned, grab your ankles.

For other clubs thinking of showing two fingers to the rules, the EFL has shown as much backbone as a jellyfish.

*Tinky-Winky, anyone who says different is clearly insane.

New TV Distribution Rules: Everyone’s A Winner…?

On the same day that lots of people were getting giddy about Amazon buying one of the Premier League TV rights packages for 2019-22 for an ‘unspecified price’ (i.e. peanuts) the Premier League owners also sneaked through a new formula for the distribution of PL monies between clubs, in what was a textbook example of a slick PR operation choosing a good day to bury bad news for anyone outside of the Premier League.

Q: What’s the problem?

Some of the ‘Big’ clubs feel that they get a raw deal from the existing way that broadcasting monies are split in the Premier League, so want to change the rules.

Q: What’s their particular beef?

At present the Premier League divides money into five pots.

(a) Domestic broadcast money from BT/Sky of £1.7 billion a year is split into three pots

  • 50% is split evenly between all 20 clubs
  • 25% is split based on the number of times the clubs are shown live on TV.
  • 25% is split based on the final league position.

(b) Central advertising for sponsorship of the Premier League is split evenly between all 20 clubs.

(c) Overseas broadcast money worth about £1bn a year is split evenly between all 20 clubs. It is this issue that is creating the aggravation.

Q: What’s wrong with splitting the money evenly?

Nothing, except the ‘Big Six’ (Manchester United and City, Liverpool, Arsenal, Chelsea and Spurs) claim that viewers overseas are only interested in seeing their clubs on the box and so should get more of the cash.

When the Premier League was set up in 1992 (and football was invented) the overseas TV rights were so miniscule that nobody cared about them, so the club chairmen were happy with an even split.

Q: Surely a more democratic split of monies makes the game more competitive?

Yes it does, and the Big Six were happy to go along with this, until Leicester City spoiled their little cartel and won the Premier League in 2016. This caused the owners of the big clubs to soil themselves and try to ensure it did not happen again.

Q: I thought the smaller Premier League clubs were against such a split?

They were, in October 2017 a vote for the Big Six plans to redistribute overseas money partly on a merit (league position) basis was delayed/deferred. According to inside sources at the PL this would have resulted in 65% of the overseas money being split evenly between clubs and 35% on merit.

If this had been approved the broadcast distribution between clubs would have been as follows:

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The proposal would have resulted in 12 clubs being better off and 8 worse off than under the original rules. The reason why it was 12 and 8 rather than 10 and 10 is that less money would have gone to clubs relegated (who receive parachute payments) and ‘solidarity’ payments to the other clubs in the Football League Championship, League One and League Two.

This is because the Football League agreed to a deal with the Premier League such that a fixed percentage of money given on an equal basis to Premier League clubs would be allocated to parachute and solidarity payments. Reduce the amount of Premier League money split evenly and therefore the amount that filters through to the EFL clubs by about £48 million.

The reason why a vote did not take place at the Premier League chairmen meeting was that Richard Scudamore, the often maligned but actually pretty decent Premier League chairman, realised the proposal would not get the 14 votes required for a change in the rules and so managed to put off a decision being made.

Since then the Big Six have been quietly fuming at not getting their way and there has been a muttering and unfulfilled threat of quitting the Premier League and joining a European Superleague if their wishes were unfulfilled.

They clearly believe that the Premier League’s success is all due to their clubs. This is very harsh on Scudamore and his team, who have marketed the Premier League superbly, partly on the grounds of it being more competitive and unpredictable than other leagues.

In 2017/18 Burnley and Palace have beaten champions Chelsea, Swansea have beaten Liverpool, West Brom and all three promoted clubs have beaten Manchester and practically everyone has beaten Arsenal.

Scudamore has spent the last six months trying to keep all 20 club owners, if not happy, then at least not moaning too much, and he’s succeeded.

Q: Why should the Premier League give money to clubs in the Football League?

It’s an issue that clearly vexes Liverpool’s American owner John Henry. He was quoted in an interview with Associated Press as saying “it’s much more difficult to ask independent clubs to subsidise their competitors beyond a certain point”.

Henry clearly thinks that clubs in smaller towns and cities are an irrelevance and whether they survive or die is of little consequence for him. Point out the Liverpool signed the likes of Kevin Keegan from Scunthorpe, Phil Neal from Lincoln City and Ian Rush from Chester and he would probably look confused (as after all soccer began in 1992).

Q: Why were the other Premier League clubs opposed to the change?

Many of them would have ended up with less money and the Premier League would have become less competitive too.

Q: What are the agreed changes?

Under the rules which kick off in 2019/20, any INCREASE in overseas TV money will be split on a final league position. This means that the existing level of overseas cash will still be distributed evenly.

To stop the clubs at the top running streets ahead of the lower/midtable clubs, there is a cap such that the club who wins the Premier League cannot have more than 180% of the Premier League TV money than the side finishing bottom, under the present rules it works out at about 161%.

Q: Who will be the winner and losers then under the new rules and why did smaller clubs vote in favour?

Whoever came up with the new rules (and I have my suspicions who it may have been) has created a distribution method in which no one is worse off, as it is only the additional overseas money that is split on the new method. Everyone is therefore guaranteed their former income.

The teams who will lose out, as already mentioned, are those outside of the Premier League.

Under the old rules, if the Premier League generated an extra £100 million, £27 million of this would ‘leak’ out to the EFL clubs as follows:

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The Premier League clubs would each therefore receive an extra £3.65 million whereas the likes of greedy clubs such as Grimsby, Barnet and Forest Green Rovers in League 2 would receive an extra…err…£32,000 each per season, enough to play the average wage of one Liverpool player for all of three days.

John Henry could claim that these lower league clubs have done nothing to deserve any extra money, and under the new rules, his wish has come true.

The Premier League will now keep £100 million out of each extra £100 million generated from overseas income. Having crunched the numbers (and this was beyond me so I was lucky to use the talents of some university boffins for assistance) shows how an extra £100 million would be distributed using both the present (2018/19) and new (from 2019/20) rules.

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As can be seen from the above, 14 clubs would be better off under the new rules than using equal distribution, as no money goes to the Football League.

Funnily enough 14 votes were needed to pass the new rules and they were duly approved. If overseas money increased by a larger amount, say £750 million a season, then 15 clubs would be better off than under an equal share basis.

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Q: But what about the EFL clubs, couldn’t they vote against this?

The EFL clubs were the ones who negotiated and voted for as agreed set percentage of equally distributed Premier League monies. At the time they were delighted with the result but may be regretting it now.

It’s not the first time in this country in recent years that people have voted for something that makes them economically worse off though.

Conclusion

If you are a Premier League club owner things are looking great. There’s more money coming into your club from the Premier League and in addition UEFA have announced an extra £780 million of annual prize money each season too for clubs that qualify for the Champions League and Europa League.

This money won’t go to players, as under the Premier League’s Short Term Cost Control rules wages can only increase by £7 million a season plus any money generated by the clubs themselves through commercial and matchday income.

The money won’t go to the EFL either, so who does that leave as potential beneficiaries apart from club owners themselves?

Aston Villa and FFP

 

 

It’s the hope that hurts you most

Executive Summary

Villa easily satisfied FFP in 2016/17 due to parachute payments and player sales despite spending £88 million on players.

They should easily satisfy it in 2017/18 as player trading position reversed and sold more than they bought.

Will need major belt tightening in 2018/19 as parachute payments fall from £34m to £15m and FFP loss limit falls from £61m to £39.

If you want the long version read on…

Introduction

There’s nearly as many questions about Financial Fair Play (FFP) these days as there is about Katie Price’s love life, and the answers are usually equally confusing.

I’ve been asked to look at Villa’s FFP position, and this will involve an element of guesswork in places, as some figures are not yet published or have never been in the public domain.

The Rules

In the Championship FFP is based on a rolling three-year period, with the aim of keeping losses to an ‘acceptable’ level.

Presently the rule is that a club can have an FFP loss of £13 million for every season it is a member of the Championship within the three-year period, and £35 million for each season in the Premier League.

Therefore, for Villa, for 2016/17 the allowable FFP loss was £83 millon (2x£35m + £13m) falling to £61 million in 2017/18 and £39 million in 2018/19.

The known losses

According to Villa’s accounts, the club lost £81.3 million in 2015/16 and £14.4 million in 2016/17 giving a grand total of £95.7 million, so it initially looks as if an FFP breach had occurred, but we now enter the world of murky accounting and additional FFP rules.

Good costs

To add to the confusion, some costs are excluded when calculating FFP losses. This is because they are considered ‘good’ as they represent an investment in the future of the game or its facilities.

These costs include:

  • Academy running expenses
  • Community support schemes
  • Infrastructure costs (usually depreciation on the stadium and training facilities etc)
  • Promotion bonuses to staff should the club go up to the Premier League.

Looking at Villa’s accounts for 2016/17

  • The club has a tier one academy, it looks as if this cost was £5.9m for Villa. (£5m in 2015/16)
  • Community support was £2m (£2.2m in 2015/16)
  • Infrastructure cost (depreciation) was £2.9m (£48.5 million in 2015/16 due to a bit write off of the value of Villa Park).

This means that Villa could have had an FFP loss of £31.8 million (£61m allowable three-year loss less £29.2m FFP loss incurred in last two years) for 2017/18.

Squeaky bum time

Have Villa managed to get in under this figure of £31.8 million for 2017/18?

I would say they have, but there is not a lot of room to spare.

In 2016/17 the loss of £14.4 million was AFTER selling players at a profit of £26.6 million. Villa have made significant sales in 2017/18 and it looks as if they’ve made a profit on these of a further £15 million.

Now for the bad news, Villa’s broadcast income for 2017/18 is down by about £7 million from £41 million to £34 million due to a reduction in parachute handouts. It’s likely the club’s other income will fall by £2-3m too as commercial deals expire.

The wage bill will still be high, and the figure for 2016/17 of £61 million was the third highest in Championship history, only beaten by Newcastle (who were promoted) in 2016/17 and QPR in 2013/14 and are now facing an FFP fine of between £40-50 million.

Expect the wage bill to be trimmed a bit but Villa have recruited John Terry and signed some loan players who are on big money. I’ve gone for a 10% reduction in wages to £55 million

Villa also spent a fortune on players in 2016/17 of £88 million on players. The cost of these are spread over the length of the contract signed. So if we assume players are on four year deals this is a cost of £22 million a season unless the player is sold.

These two costs put together are likely to be in the region of £70 million, and expected income is about £65 million, taking into account the fall in parachute payments.

Villa’s overheads in 2016/17 were £91 million excluding amortisation, of which £61m was wages, so lets assume that if there have been cutbacks for 2017/18 there are £25m of non-wage overheads.

Putting this together we have

£’m
Income 62
Wages (55)
Amortisation (22)
Other overheads (25)
Estimated accounting loss (40)
Add back:
Gain on player sales 15
Allowable FFP costs 10
FFP loss (15)

Therefore over the three years to June 2018 Villa will have a rolling FFP loss of £44.2 million, well within the £61 million limit.

2018/19

This is where I fear Villa will face its biggest challenge. The allowable three-year FFP loss will fall to £39 million from £61 million and parachute payments from £34 million to £15 million. Put those together and it’s a financial squeeze of £41 million.

In addition, they may struggle to get players on big wages such as Ross McCormack off the payroll. Even if he goes out on loan Villa will be picking up the majority of the tab.

It suggests that the club may have to sell Grealish and Chester to ensure they don’t exceed the limit.