Football Management

Commentary on the management of over 160 English football clubs by Dr John Beech, winner of the FSF Writer of the Year Award 2009/10 Twitter: @JohnBeech Curator of Scoop.it! Football Finance

Archive for the ‘Wages’ Category

Why I shall be especially grumpy this Saturday afternoon

Posted by John Beech on April 3, 2012

Football clubs ‘in poor financial health’” a headline on the BBC News website has just screamed (1).  Apparently “many clubs are continuing to spend too much, principally on players’ wages, as they always have done”.  What?  Surely not?  Well, OK, the said headline was in the Business section of the BBC website rather than their Sports section.

Begbies Traynor, who over the years have been Administrators of Chester City, Kingstonian, Lincoln City, Huddersfield Town, Northwich Victoria, Wrexham, Farnborough Town, Crawley Town, Scarborough, Bournemouth, Halifax Town, Southampton, and now Port Vale, have just completed a survey looking at the finances of Football League clubs.

Beneath the trite headline, there was some detail of interest.

Of 68 teams surveyed in those divisions, 13 have signs of distress such as serious court actions against them, including winding-up petitions, late filing of accounts and “serious” negative balances on their balance sheets.

That 19% compares to just 1% in the wider economy, the firm said.

In particular “the financially distressed clubs include three in the Championship, six in League One and four in League Two.”  Obviously the survey had been completed under conditions of confidentiality, so we can only speculate on which these thirteen clubs might be that are under short-term financial pressure, a temptation which I will resist, at least publically.

There are also the clubs which, to me, have potentially longer-term pressures because they operate on business models which may not be sustainable.  Two which have caught my eye with their recent publication of financial results are one likely to be relegated to the Championship, Wigan, and one about to be promoted out of the Football League, Southampton.

At Wigan (2), turnover was reported as up 16% on the previous year, although this, it was conceded, was “mainly due to the increased Premier League broadcasting rights contract”.   Worryingly though, net losses had risen from £4m to £7.2m.

Wigan fans might take some comfort from the fact that:

Net debt including bank borrowings and loans from David Whelan and his family remained virtually unchanged at £72.2m compared with £72.6m in the previous year Since the year end £48m of debt was converted to equity which significantly reduces the Club’s long term liabilities.

Chief Executive Jonathan Jackson commented:

This position would not have been possible without the continued financial support of Chairman, David Whelan. The post year end conversion of debt to equity has significantly strengthened the Club’s financial position and has, to a very significant extent, written off the debt owed to Mr Whelan.  The club cannot continue to make losses every year and we are continuing to shape all aspects of the Club to ensure the long term future remains positive both on and off the pitch.

Perhaps just a hint there that Mr Whelan’s pockets are not bottomless.  It was he who has called for control on players’ wages (3).  It was Wigan that managed to hit a wages/revenues ratio of an utterly unsustainable 208.3% in 2004/05 (posting passim).

Meanwhile over at Southampton another ‘debt for equity’ conversion was reported last Thursday (4).  The estate of former owner Markus Liebherr had ‘invested’ £33m over two seasons but had now converted these loans into shares.  (My reason for putting single quotes around ‘invested’ is that I do not see loans as investments.  If I had pushed my credit cards to their spending limits, would I talk in terms of MasterCard and Visa investing heavily in me?).

This conversion certainly takes the financial pressure off a club which last season made a net loss of £11m in gaining promotion from League 1.

The Liebherr family seem to be in that rare group of benefactors which includes Steve Gibson at Middlesbrough – those prepared to dig into their pockets deep and for the long term.  At Middlesbrough the club is “now free from debt owed to external providers” (5).

Looking along the South Coast from the perspective of a long-suffering Pompey fan (but who is number 1 a football fan rather than a club fan), a club in deep, deep trouble not least because it is still paying some players Premier League wages as it faces the drop, my eye caught on the wages/revenues ratio at Southampton, a very high 93%.

This counter-evidence in the discourse over the financial strengths and weakness of clubs is hardly typical.  While few clubs, correction, no English clubs, are as financially distressed as Portsmouth, the Begbies Traynor report paints a more typical picture.

As Portsmouth head for Southampton this Saturday, to be ‘entertained’ as the media like to phrase it, I’ll not be building my hopes up for a surprise Pompey victory.  The earlier derby this season may have been a draw, but Portsmouth now have a depleted squad, forced upon them by their financial circumstances (and as one might well argue, not before time).  No, I’ll be quietly fuming on the absurdity that the outcome on the pitch will have been determined ultimately by the lottery of how rich and how committed your club’s benefactor has been.  It may be a football match, but it certainly is being played in a context of competitive balance.  One club has been the subject of heavy financial doping, and is paying the price, and one is the subject of financial doping, but has so far kept the ‘habit’ under control.  One is a savage indictment of the failings of the benefactor model, and the other is fortunate enough to be able to say ‘OK so far’.

If any good at all is to come out of the ‘basket case’ circumstances Portsmouth finds itself in, it will be through a new and more sustainable financial model, which is why I fully support the community share offer from the Pompey Supporters Trust.  Post-commercial era football has totally lost it way.  Clubs have become the playthings of sugar daddies, and have, as in the cases of Portsmouth and Southampton, sugar daddies with no local connection.  Ownership has become a lottery, and fans have been betrayed as a consequence.  Football governance looks as it will receive only light-touch reform, but that is insufficient to set it back on a road where the results of games are determined in a context of competitive balance.  Financial Fair Play, whatever the extent to which it will actually prove successful, is a no brainer.  And fan ownership is the only way to ensure clubs are a part of the community whose name they are happy, and proud, to identify themselves by.

This posting is, for the moment, open to comments, but please bear in mind that this is not a fans’ forum – it is a personal blog, which is happy to encourage serious debate.  Trolls will have their comments deleted, as will those who favour the so-called banter of ‘scummers’ and ‘skates’.

Posted in Benefactors, Community, Debts, Financial doping, Governance, Insolvency, Ownership, Wages | Tagged: , , , , , , , | 5 Comments »

Wages and the distortion of the pyramid

Posted by John Beech on October 30, 2011

The data just published by Sporting Intelligence (sourced from internal PFA files) adds more fuel to my argument that the football pyramid is becoming utterly distorted in the sense that the scale of finance in the different tiers is being ludicrously stretched.  In a recent public lecture as part of the  Coventry Sporting Conversation series (a podcast is available here beginning at 02:05 mins.), I put the case that the lifting of the maximum wage started to stretch the level of financial activity across the tiers, and that when the Premier League broke away and negotiated its own broadcasting rights this process accelerated dramatically.

While the Sporting Intelligence data in its tabular form excited me, it was when I put into Excel and produced some graphs that I got really excited.  The full set of data on average players’ basic wages , together with UK average wages as a benchmark is shown here:


(All graphs can be enlarged by double-clicking on them)

At first glance it is obvious that things started to change with the appearance of the Premier League, but if we plot pre-Premier League and post-Premier League separately, the change can be seen as an acceleration of the existing trend:


The most striking features of the data emerge when you compare the average basic wages over time in each tier with the average UK wages.  The Premier League data confirms the stereotype of the ability to live the Ferrari-driving playboy lifestyle:

In 1984/85 the average Premier League player was earning two-and-a-half times the average UK wage, but by 2009/10 this had grown to 34 times the average OK wage, with no sign of slowing down.

On the other hand, life for a player in today’s League 2 is rather different from this stereotype:

Starting from a position in 1984/85 of below the average UK wage, things did slowly get better until the dawn of the Premier League.  Apart from a strange positive blip in 2003/04 (and no, I can’t explain it either), his lot has been scarcely different from the average UK worker’s wage.  Given that a footballer has a limited career, I wonder how a League 2 player ever manages to get a mortgage and buy a house, especially if he’s a goalkeeper – other data I have shows that goalkeepers are the worst-paid players.

This distortion in wages up and down the pyramid is simply a reflection of the disparity in revenues.  Of course higher levels deserve higher broadcasting rights and should be able to pay higher wages to attract the best talent, but when the size of the difference between tiers has become so vast, the traditional view of a club having some ambition and a local businessman to back them has long gone.  The only way upwards to the top is with an Arab prince or a Russian oligarch.  This is of course hardly news, but the data above makes abundantly clear that unless 92 Arab princes or Russian oligarchs come along, performance on the pitch will continue to be grossly distorted by the richness or otherwise of a club’s benefactor.  That is, unless change in governance takes place, and Financial Fair Play is imposed rigorously up and down the pyramid, financial doping is stopped, and a measure of sporting competitive balance returns to the game.

Posted in Benefactors, Financial doping, Wages | Tagged: , , | 18 Comments »

Groundhog Day for the Trotters?

Posted by John Beech on November 12, 2010

Reading through my Bolton file certainly makes for consistent reading, although ‘consistently inconsistent’ might be more accurate.

We have to balance the books” he told us as far back as 2003 (1), adding “We can’t afford to spend any money we haven’t got. We’re not going to go down that route.”  A fan of Mr Micawber then.  Unfortunately, less than a fortnight later it emerged that Burden Leisure, the parent company of Bolton Wanderers, had debts of about £38m and the wage bill had risen from £5.2m to £21.7m during the previous financial year (2).

Later that month the Bolton financial model became clear – put your faith in a benefactor (3), but not some ‘johnny foreigner’, a thoroughly pukka British benefactor, Eddie Davies, a life-long Bolton fan, who lives in, erm, the Isle of Man.  As Gartside put it, “Without Ed’s support we would be watching a very different standard of football…  We can now sit down with the banks and have serious talks about restructuring our debts.

These themes – living within your means and depending on a good old British benefactor – constitute the consistency in that regularly recur in the years since.

This week we have seen the latest Burden Leisure figures published (4) – turnover from football operations was £54.0million, which was £2.2million higher than the 2009 total of £51.8million; the retained loss for the year was £35.4million; and the cost of retaining existing players resulted in the cost of wages increasing by 14% in the year to a total of £46.4 million from the 2009 total of £40.9million.

No wonder then that one of Gartside’s favourite themes of late has been the need for a salaries cap in the Premier League.  Bolton have certainly been one of the better behaved clubs in this respect, managing to keep wages/revenues at under 60% from 2004/05 to 2008/09 (see table here), an achievement shared only by Manchester United, Tottenham, Arsenal and Liverpool.

So ‘where is the inconsistency?’ you ask.  The calls for restraint on wages and keeping within ones income are fine and deserve to be more widely supported.  The living on debt mountain sustained by a rich benefactor are not – they are forms of financial doping, attempting to disrupt competitive balance by the use of unearned money.  The inconsistency is beautifully expressed by Gartside himself, suggesting that UEFA’s Financial Fair Play protocol is not quite what is wanted: “There are ways of tweaking it that would suit the English game better.  Owners should be allowed to invest in equity.  So if you, as an owner, want to buy a striker for 10 million (pounds) that shouldn’t be a problem. But what you then can’t do is pay him extortionate wages that take you out of the breakeven situation.”  His logic is one that escapes me.

Posted in Costs, Debts, Ethics, UEFA, Wages | Tagged: , , , , | 2 Comments »

Bubbling away in the background…

Posted by John Beech on July 31, 2010

Hidden away in last month’s budget (1) was a proposal that could be causing some concerns for football club finance directors.  Para 2.25 states:

The Pay As You Earn (PAYE) system is a fundamental part of the UK tax system. The Government wishes to explore how it could be improved in order to reduce costs and make the system easier for employers and HMRC to administer. As an initial step, the Government intends to consult with employers and payroll providers on mechanisms that could support more frequent or real time PAYE data.

A detailed discussion document (2), aimed at kicking off the consultation process (which is scheduled to be completed quickly, by 23 September), has just been issued, and Para 4.31 suggests that the use of real time information has the potential for:

enhancing compliance with tax laws by using real time information to assist in tackling late or under payment of the deductions some employers make

Late or under payment of taxes?  Football clubs?  Surely not!

Another document , Tax consultations announced at Budget (June 2010), downloadable from the HMRC website here, introduces the consultation under the simple heading of PAYE improvement.  All this falls short of proposals in Alistair Darling’s budget (3) of March this year, aimed at “Employers that operate Pay As You Earn (PAYE) schemes to account for income tax and National Insurance Contributions (NICs) and have a history of serious non-compliance in terms of paying late or not paying“; these would have included “provisions allowing HMRC to require security in the matters that can be covered in PAYE regulations. It will also set out the new offence of failing to provide security. Similar provisions will be made for NICs through regulations using existing powers.

The Budget does however say that (Para 2.112) “The Government will now consult on introducing a power for HMRC to require financial security where PAYE & NICs are at serious risk of non payment, rather than legislate in the upcoming Finance Bill as announced at the March 2010 Budget“, so financial security is not necessarily off the agenda

So, because of a timely change in government, football clubs may have had a narrow escape from the prospect of having to up-front security if they already had a bad track record of payments to HMRC (too many to list, but Club round-up might include some possibles).  HMRC may well be just a tad disappointed.

Nevertheless, HMRC may well end up with stronger powers to ensure PAYE and NICs are paid on time, a situation which too many football clubs are entirely unfamiliar with.  Certainly the days of being able to negotiate late payment of already overdue debts look to be coming to an end.

Posted in HMRC, Politics, Wages | Tagged: , , | 4 Comments »

Whelan and Wigan

Posted by John Beech on May 4, 2010

With reform of football being part of the current zeitgeist, and political parties showing some interest in the topic at least until Thursday evening (see The Times They Are A-Changin’ 3, it does not come as a complete surprise that the Premier League, in the form of certain of its club Chairmen, should begin to stick their heads above the parapet and start using the R word – that’s as in Reform, rather than Relegation.  Wigan Athletic’s Dave Whelan has made the early running.

He is reported by euFootball.biz as saying on the subject of debt “People say the Premier League has got to be curtailed in what it can do and what it can’t do but it’s no use just saying ‘Don’t interfere’….As a league, you just can’t have clubs going into administration. Let’s get a figure, 20 or 25 per cent, and say that you can’t borrow any more than that percentage of your turnover.” (1).  For the clubs that fail to comply he suggests “If you do that you get penalty points. That would clamp on everything. That gives the bigger clubs greater scope to borrow money and it puts a restriction on smaller clubs like us, Hull and Portsmouth“.

Not only has he failed to spot that Portsmouth’s nine point deduction did not actually punish them by condemning them to relegation – they are relegated already even if the nine points were to be magically restored – but he fails to appreciate that points deduction is essentially dysfunctional as a sanction (see my research on this here if you have any lingering doubts).

He also seems to have conveniently forgotten how Wigan, a Northern Premier league club until 1978, comes to be in the Premier League.  Whelan bought he club in 1995 when they were in the old Division 3, then the fourth tier.  The club’s accounts give an interesting picture of how they have climbed to the top.  The club managed to grow its turnover slowly but steadily, reaching a level of just over £4m in 2004/05, the season in which they won the Championship.  Since then, turnover, having made the obvious initial leap with greatly enhanced broadcasting revenues through PL membership, has continued to rise steadily, reaching £46m for 2008/09. the most recent season for which financial data is currently available.

Has the meteoric rise been financed from revenues, without the acquisition of large debts?  In Whellan’s words “The club owe me something like £50m to £60m and I’m turning that into shares so that if I sell them it doesn’t affect the football club. I’ll never get all my money back” (2).  I’m sure it’s his natural modesty that stops him mentioning in this statement of his own largesse, putting him in the same mold as, well, if not quite Abramovich then almost in the league of Middlesbrough’s Steve Gibson, that it comes entirely coincidentally with his appearance at No.1 in the new Sunday Times Sport Rich List (3).

But what of Wigan’s debts?  Their accounts make no mention of any directors’ loans, suggesting that a more accurate statement would have been that the club owes Whelan’s companies £50m to £60m.

Wigan’s long-term liabilities were £8m in 1999/00, and have grown steadily since, standing at £47m in 2008/09, together with current liabilities of £42m.  With a turnover of £46m for the same period, it’s rather hard to see where he has plucked this figure of 25% of turnover being the upper limit of debt that he is so strongly advocating.

Wigan Athletic is then perhaps not a model of best practice for others to follow.  Neither is it with respect to the other plank of UEFA’s Financial Fair Play Protocol – keeping wages to within 60% of revenues.  For 2008/09 Wigan’s ratio was 81.5%.  In 2004/05 when they won the Championship and gained promotion to the Premier League, they spent over £8m on wages and salaries against revenues of just over £4m – the ratio was actually 204.3%, which makes ‘cheating’ Portsmouth’s profligacy with money it ‘didn’t have’ and a ratio of 109% seem almost modest.

Not that any of this necessarily detracts from the argument Whelan is making; it merely raises questions about the advocate.  Debt is undoubtedly out of control in the majority of Premier League clubs, and some means of reigning in that in, and preventing its recurrence, is sorely needed.

To me however the source of the problem lies not in the principle of debt per se – there is absolutely no sound argument that can be made, for example, against Arsenal borrowing money to finance the Emirates with a sound business model to sustain the debt – but in the source of the money borrowed.  When ‘benefactors’ ‘invest’ in clubs, there is no rigorous examination of whether the debt is sustainable, and the lender is in effect the guarantor of the loan!

A debt cap certainly has its attractions, but until clubs are only allowed to incur debt by borrowing from independent sources who will scrutinise whether there is an effective business model in place to ensure that the debt is repaid, we will continue to see wide-scale financial doping, and the occasional ‘victim’ of ‘benefactors’ who either can’t or won’t continue pouring money into their club.

Posted in Benefactors, Debts, Governance, Premier League, UEFA, Wages | Tagged: , , , , , | Leave a Comment »

English excesses exported?

Posted by John Beech on February 16, 2010

With Deloitte’s annual publication of its Football Money League, identifying what Deloitte euphemistically calls the ‘richest’ clubs (it is based on revenues and conveniently ignores debts), we have become used to English clubs being at the vanguard of high revenues.  In its most recent version published almost a year ago (1) there were seven English clubs in the Top 20.  In addition to Manchester United, Chelsea, Arsenal, Liverpool, Tottenham, Newcastle (doubtless set to disappear from the next list) and Manchester City (equally doubtless set to have roared up the Top 20), Germany and Italy have four representatives each, Spain and France two clubs each, and Fenerbahce slipping into the list at no.19, which was historically occupied by one of the Auld Firm.

Although now a year out of date, the list might serve as an indicator of the salaries clubs would be prepared to pay in 2009/10.  A list (2) of the Top 50 Players Wages for 2009/10 published by the excellent futebolfinance website (now added under the Links tag above) suggests that either English clubs are reigning in their wild costs or their profligate spending has started to catch on abroad.

Of the five most expensive players, four play for Real Madrid or Barcelona, with Eto’o of Inter squeezing his way into this otherwise Spanish forward line.  Of the top 19 players, who earn 6.5m euros a year or more, eight play for English clubs, two for Italian teams, and nine for Real Madrid or Barcelona.

Of the Top 50, 20 play in England, 17 in Spain (mostly for the familiar two, but with single representatives from Seville, Valencia and Atletico Madrid), 9 in Italy for a selection of the bigger clubs, and 4 in Germany (all for Bayern Munich).

Too much might be made of this data, but there is certainly a suggestion that Real Madrid and Barcelona are pushing ahead in the high salary stakes, seemingly unconcerned by the problems that the debts of their English counterparts have brought to the fore recently.  Real’s willingness to spend, financed by bank loans, suggests that once again others in football follow the English way, perhaps not altogether wisely in this case.

Finally of interest in the futebolfinance list to followers of English football is that there are seven players from Chelsea in the Top 50, and six Manchester City players compared to four from Manchester United. The only other English clubs to feature are Liverpool with two and a lone Arsenal player just scraping in.

Posted in Costs, Wages | Tagged: , | 1 Comment »

A good news story?

Posted by John Beech on January 11, 2010

I don’t suppose, if I’m honest, that this a blog you would rush to in order to read ‘good news’ stories, packed with fluffy tales of people being, erm, nice.

From Crawley Town, a club which has been through a fairly crazy time financially in the last few years, comes a story which warms the heart.  Manager Steve Evans and assistant Paul Raynor have agreed to take a ‘salary holiday’ for November and December to help the club towards a debt-free future (1).  Evans said “It’s not asked upon, it’s not forced upon…It’s purely a gesture back from the management team to say a big thank you to the people who have sorted the club out… I’ve sat in board meetings over the last three or four months and I’ve seen the unbelievable finances coming in from two very committed directors.  As a gesture I said I’m quite happy to put my salary in the mix for a couple of months. Sitting with a coffee in the office with Paul Raynor, he agreed to do the same. The nice thing from our point of view is that we have owners at the top of the football club who’ve sorted it out in a really dignified, professional way and more importantly opened their chequebooks.

Now we are talking the salaries of a Manager and Assistant in the Conference, not footballers in the Premier League.  Such a gesture shows a committment to their club, all the more suprising in an industry where managers seem to have very little job security.  All credit to them.  How many others would do the same?

Well, there was Carl Heggs in the dying days of King’s Lynn (2).  And the staff at Bournemouth during their lowest ebb this summer (3).  Oh, and likewise at Weymouth (4).  And going back a bit there was Carlton Palmer taking a pay cut of 50% at Stockport County (5).  I’m sure that is certainly far from being a full list.

Come to think of it, as well as undoubtedly being a good news story with respect to the individuals concerned, it’s a pretty shameful story of the football industry as a whole, where being paid your salary is not something you can always bank on.

Posted in Human Resource Management, Organisational culture, Wages | Tagged: , , | 1 Comment »

Watford’s woes

Posted by John Beech on December 16, 2009

As I write, the danger of having to seek Administration is imminent.

The immediate cause of this possibility lies with the resignation of Jimmy and Vince Russo, together with Robin Williams, from the board of the parent company, Watford Leisure (1).  As a result, trading of shares on the AIM has been suspended, a precaution that was inevitable once the Russo brothers demanded immediate repayment of a £4.8m loan made by their company Valley Green Salads.  This company had additionally subbed Watford Leisure £1m as recently as 26 November, barely three weeks ago (2), with the warning that the loan “will only be sufficient to cover the company’s cash requirements until 22 December 2009“.

Watford is interesting and unusual example of the unsustainability of the benefactor model.  As well as the Russo brothers, major shareholders included Lord Ashcroft, the controversial Belizian who thinks he is British (or is that the other way round?) and Graham Simpson, former Chairman.  And of course there is Elton John, who returned as Honorary Life President in March (3), having previously resigned in November, shortly before Simpson’s departure as Chairman.  With all these potential benefactors around, plus Graham Taylor on the board, it’s surprising that the club should be in such dire financial straights.  I sense boardroom disputes which might be likened to Chelsea’s era with Ken Bates and Matthew Harding.

Financially things had been looking reasonable. In 2006/07 the club had recorded a profit of almost eight million pounds. Most recent results however had recorded a loss of £5.1m for 2007/08.  The crucial wages/revenues ratio had risen to a very worrying 81%.  Gates have fallen following demotion from the Premier League, and the club does not seem to have adjusted their budget to cope with this. There had been redundancies in April (4), but they proved too little to late.  Maintaining the playing squad was unsustainable if the benefactors were unable and/or unwilling to ‘carry on benefacting’.

Apart from the obvious and immediate concern of Administration, there is the fact that Vicarage Road is security for the £4.8m loan.  The separation of stadium from club casts a long shadow, as Rotherham and Leeds, for example, can vouch, and would make any recovery very problematic.

Posted in Benefactors, Debts, Insolvency, Wages | Tagged: , , , | Leave a Comment »

Latest insolvency news

Posted by John Beech on October 1, 2009

  • Accrington Stanley
    The Supporters Fund is in a stand-off with the club (1).  It seems to have a position of strength and seems well placed to take over.
  • Bromsgrove Rovers
    The club is planning to go into Administration (2 and 3).  It seems there is a hidden struggle over future ownership of the club.
  • Hyde United
    The club hopes to hear this week if its appeal against the HMRC winding-up order will be successful (4).
  • Portsmouth
    The continuing delay in getting new funding is creating major cashflow problems for the club (5), with the result that the players have not yet been paid this month.  And neither has the executive board either.

But some good news too:

  • Crawley Town
    The club has settled with HMRC and the winding-up proceedings have been dropped (6).  [More on this soon]

Posted in Debts, HMRC, Insolvency, Wages | Tagged: , , , | Leave a Comment »

Scary plans at Chester City

Posted by John Beech on September 30, 2009

Alerted by a posting on the Supporters Direct blog titled Strange goings on at Chester City, I’ve been looking at an Excel spreadsheet (1), downloadable from the club’s website, of the club’s forecast for its Profit & Loss Account for 2009/10.

Highly commendable that the club should make this available, but it certainly isn’t going to reassure anyone.

Key number is ‘the bottom line’ of course – the projected profit or loss.  Homing in on this, you find, unless it has been corrected since, a projected Profit of an amazing £660k!  But wait – that can’t be right, not with a projected Income of only £649k, can it?  (That, by the way, includes a parachute payment of £215.5k, or almost exactly a third of the projected Income.) And a projected Expenditure of just over £1.3m?!?!

No, of course it isn’t right.  The spreadsheet has been set up to calculate profit (or loss) by subtracting Income from Expenditure, rather than the rather more conventional accounting standard of subtracting Expenditure from Income.  Oops!  The projected Profit of £660k, it transpires, should in fact be a projected Loss of £660k – quite an error by any standards.

With that kind of howler, it’s difficult to have much credence in any of the figures.

Even if we take the figures themselves seriously, it hardly paints a healthy plan.  Planned expenditure on ‘Playing Squad / Loans In’ is a staggering 92% of Income!!!

And all this from the man the Chester Evening Leader was hailing as the club’s ‘saviour’ back in June (the URL to the source now produces 404 page not found for some strange reason).

In case you haven’t seen, the club today sacked their manager Mick Wadsworth (2), who complains that the club is ‘full of negativity‘.  Once corrected, their projected Profit & Loss Account certainly is.

Posted in Costs, Debts, Uncategorized, Wages | Tagged: , , | 1 Comment »

Apparently there’s only one Gary Neville…

Posted by John Beech on September 28, 2009

… and he deserves every penny he receives as wages.  Well, so a flurry of recent press reports would suggest (see for example in the Daily Mail [1] or The Sun, in what I think is the original source of this story with legs [2]).

To be fair to Neville, I can’t actually find the word ‘deserve’ within quotation marks in any of the various versions of the interview that I have seen.

What he does present is an argument which explains the high wages rather than justifies them.  It is, and I am putting words in his mouth, the not unfamiliar argument that, in a free market, prices are determined by the market – an argument that the ‘going rate’ is determined by supply and demand coming into balance.

I can’ really argue with that – the market is to a very large extent a free one, having become that progressively with the abolition of the maximum wage in 1961, the George Eastham case of 1963 and more recently the Bosman ruling of 1995.  It’s not absolutely free, as Sol Campbell is finding – it would seem he can’t seek new employment until the transfer window reopens in January – but it is free enough to make the market pricing case with a reasonable degree of conviction.

He does get a bit carried away though when he says “There’s a product there that people love. Fans are crucial but without the player you have nothing.”  Take away the player and you have another player waiting to fill his boots.  Take away the fans and their wallets?  Well, we would be turning the clock back to pre-1885, and the best Neville could hope for would be a phoney job employed by the club’s Chairman.

The issue of whether Premier League players deserve the wages they are on is a fine one for the pub, but the real issue is whether the free market that sets them is sustainable.  In the case of the Premier League it is built on Debt Mountain (height – £3bn).

My totally unsolicited, and no doubt unwanted, advice to Gary Neville and his fellow players in the PL would be to invest their ample wages rather than spend them – it isn’t likely to last, whether they deserve it or not.

Posted in Premier League, Wages | Tagged: , | Leave a Comment »

Is football really not ‘dying on its feet?’

Posted by John Beech on September 25, 2009

Sports Minister Gerry Sutcliffe, in a slight toning down of his attack on the way English football and football clubs are run, has said “Football is a success, nobody is saying it’s dying on its feet” (1).

It would be nice to be able to come out in whole-hearted agreement with this prognosis of the English game, but I find it hard to do so, at least with respect to the management aspects of clubs.

Perhaps I have become jaded – in a recent posting on a chat forum, someone commented with reference to this blog ‘The Dr’s a cheery soul isn’t he‘ (2).  The next poster suggested however ‘He was probably the life and soul of the party when he started studying insolvent football clubs, and has been ground down over the years‘ (3).  A not entirely inaccurate surmise!

But, joking aside, my prognosis of the English patient is that he is suffering from a chronic (i.e. long-term) illness, the symptoms of which are giving me, at least, increasing cause for concern.  These include, with differing degrees at the various levels of the professional game, and, of course, at individual clubs:

  • an ever-rising debt mountain;
  • increasing dependency on benefactors, who themselves are under increasing pressure due to the credit crunch;
  • working on the false assumption that ‘soft debt’ will never become hard debt;
  • a cavalier attitude to the payment of PAYE and National Insurance to HMRC;
  • using HMRC, in effect, as a benign bank, when the signs are clear that it is no longer prepared to be benign;
  • the increasing incidence of seeing the club’s fixed assets such as the ground and the training ground pass out of the club’s hands;
  • allowing costs (mainly the wages bill) to escalate at a faster rate than the rise in revenues;
  • allowing other (external) stakeholders to have an undue influence on the game;
  • failing to recognise fans as stakeholders;
  • an obsession with the short-term;
  • a reluctance to introduce ‘negative performance’ payments, so that the wage bill automatically drops should relegation occur;
  • an assumption that part-time management at the very top of the club’s organisational structure is sufficient;
  • an inability to act collectively within the league structure to resist the expansion of financial disparity between top and bottom of the pyramid.

Add to this an at worst bellicose, and at best indifferent, attitude to the sensible recommendations of the Burns Report, and a real attitude problem to the more sensible recommendations of both the UK government and UEFA, and you start to get the picture of a patient who is ignoring his symptoms.

Frankly, I think there are too many individual clubs that are dying on their feet, or, more specifically, it is the companies that own the clubs which are dying on their feet.  The very real danger is that the collapse of the company will drag the club out of existence.  How long before we have another Accrington Stanley (heaven forbid, even at Accrington Stanley), Aldershot or Maidstone United?

Unless there is a sea-change in the way clubs are managed, the number of dead companies will only increase.  If nothing is done, it is just possible that we will see the sector die.  The patient’s last words will probably be ‘Platini’s to blame‘, still accepting no responsibility themselves for their predicament.

On the other hand, they may decide to clean their Augean stables and, with alacrity, put their houses in order.

Which would you put money on?

Posted in Costs, Debts, Governance, HMRC, Insolvency, Organisational culture, Wages | Tagged: , , , , , | 2 Comments »

Lessons from Livingston?

Posted by John Beech on September 9, 2009

The immediate saga of the descent of Livingston, following its rise from being an amateur works team, Ferranti Thistle, to its life in senior football as , first Meadowbank Thistle, then, following a franchise-style relocation, to Livingston, and for a brief period the joys of the Scottish Premier League, through an Administration in 2004, sale to an Italian consortium and a period of outrageously bad management, has ended, with the club relegated to the Scottish Third Division (1).

There are a whole set of lessons to be learned, many of them of ‘the Emperor has no clothes’ obviousness, and English clubs would do well to take note.

One that interests me in particular is the one Livingston themselves may yet have to learn the hard way – to cut your cloth according to your circumstances (see, for example, my earlier posting 2). Directly following on their lost appeal against demotion to (Scottish) tier 4, the club have announced that they will retain their full-time status (3). To be fair, they have no choice because of existing player contracts, but this could have been avoided by ‘bad-performance’-related clauses in these contracts – in other words, wages would drop if the club dropped. Last March, Sunderland, for example, announced that their players would take a 40% drop in wages if relegation occurred, which fortunately for both club and players was avoided (4). Increasingly clubs in the top four tiers are introducing such clauses, but I have no information on the state of play in tiers 5 and 6.

A progression for many clubs at the level of the Conference, Conference North and Conference South, has been promotion, a switch to full-time status, subsequent relegation… and then what? A year ago I started trying to log basic data on these progressions, but I must admit that I have failed to get anything like a full data set. What specifically I’m trying to log for all clubs in tiers 5 and 6, and those who have passed through them and back down, is

  • when they changed from amateur to part-time
  • when they changed from part-time to full-time
  • what ‘part-time’ actually meant as percentages of players on different statuses
  • (if and) when the clubs reverted to part-time status, and, again, the percentage split among the squad

This I can then compare with the movement of the clubs between tiers through promotion and relegation.

Any offers of information would be most gratefully received. Rather than send them as comments to this posting, please email them to me at the address below (not clickable to avoid spammers). If I can get a reasonably complete set of data, I will publish it on the blog.email address

Posted in Costs, Wages | Tagged: , | 1 Comment »

The transfer deadline…

Posted by John Beech on September 1, 2009

… is Christmas Day for the better players and their agents.

As the pressure mounts to sign players before the deadline is reached, clubs tend to make better and better offers as they vie with one another to get the striker or defender they so desperately need. All this does is ensure even more money goes through the game and into players’ and agents’ pockets, adding to the clubs’ wages bills, pushing them nearer to debt (or in many cases into deeper and deeper debt, which may prove unsustainable).

It also adds to the disparity between the tiers as the clubs with the fattest cats as their owners reach for their cheque books.

Exciting it certainly is, but it’s a new tradition that is harming the game.

Bah humbug, say I!

Posted in Costs, Debts, Transfers, Wages | Tagged: , , , | Leave a Comment »

Everton and Mr Micawber?

Posted by John Beech on July 16, 2009

According to the Liverpool Post, Everton Chairman Bill Kenwright “laments club debt despite record turnover” (1). It’s tempting to shout ‘Mr Micawber!’ at him, with a dash of ‘The Emperor’s got no clothes!’, but, while that may be sound yet obvious advice, the problem of debt in a Premier League club deserves deeper analysis.

Details of Everton’s financial position emerged at a Shareholders’ Forum last night, which the club reported live on its website (2), a welcome change from the usual culture of secrecy (see [3]) that surrounds so many clubs.

The basic financial details (bearing in mind that the accounts are still subject to audit, so there might be some corrections to come) are:

  • Annual turnover now a record figure of almost £80 million, up 5.3% on 2007/08 and up 55% on 2006/07
  • Commercial income up from £6.7m to £7.4m
  • A wages bill of £49m, up slightly from the previous year’s £44.5m, but only 62% of turnover, one of the better percentages achieved by a Premier League club

On the face of it, all seems healthy, but:

  • Debt levels have increased by £16m over the last three years

This is good cause for lamentation!

There are a number of reasons why football clubs, in general, can find themselves in this position:

  • They fail to concern themselves with long-term debt, focusing only on operating profit or loss.
  • The drive for success on the pitch clouds financial judgment, and unrealistic aspirations result in the risky strategy of borrowing money on the assumption that improved playing performance will allow the money to be repaid, an assumption which may turn out to be unfounded.
  • Rather than try and manage costs against projected revenues, they automatically see the solution as getting more investment, which is unsustainable as a business model.

Readers are invited to add their own examples of clubs which make all three mistakes, although a rather shorter list would be one of those which make none of them.

Behind these three reasons lies a deeper reason. Clubs do not of course operate as normal businesses. Because they operate in league structures, their businesses strategies are to a large extent shaped by the strategies followed by the other members of the league they play in. If other clubs pay silly money for and to players, there is little option but to follow suit, and the vicious downward spiral is reinforced.

Unless the constant inflation of both transfer fees and payers’ wages is tackled at the league level, and specifically at the level of the highest tier in the league structure, there is going to be a lot more weeping and wailing and gnashing of teeth, not to mention lamentation.

Posted in Costs, Debts, Governance, Revenues, Transfers, Wages | Tagged: , , , | Leave a Comment »

 
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