Are you sitting down?
The text for today’s sermon is taken from Albert Einstein:
“Everything should be as simple as possible – but no simpler”
He probably wasn’t talking about football finance, but it wouldn’t have been out of place. It must be good for fans to have an understanding of how money works in football, and some simplification is helpful for all of us. But over-simplification can be worse than useless.
Just a quick example before we move on to bigger things. A ‘free transfer’ can be very expensive indeed, once wages and signing-on fees are added to the equation. And those factors are present in every deal, adding (sometimes hugely) to any headline transfer fee. Is Rudy Gestede at £8m or Rickie Lambert at £3m a better deal? As Sherlock Holmes would remind us, we don’t remotely have enough data to judge.
I don’t know how much those two are being paid. But bear this in mind as we go on: if a player is on £45k a week – and many in the Premier League are earning far more than that – then that individual alone is costing the club over £2m a year in basic pay. We’ll come back to the implications of that.
Surely we don’t need to worry, I hear, since we hit the £100m jackpot on that glorious day at Wembley? I’ve lost count of the number of messageboard and Twitter postings I’ve seen from City fans to that effect.
If you’re still sitting down – and awake – here are some figures. The good news is that our promotion is actually worth some £120m or more. Our income for this season will be around £65m, with around half of that amount to follow in ‘parachute payments’ for a couple of years if we’re relegated.
However, other facts put a rather different perspective on things. Firstly, the money comes in tranches over those three or four years – we don’t have a pile of cash now. Secondly, we’ll have clearly made a loss last year, keeping a strong squad despite our income falling by more than half. (If anyone has run a business which lost that much of its revenue, you’ll have an idea of the pain.)
Why did good players choose to stay at City, or come to us, when our wages were severely cut after relegation? For some, such as Bradley Johnson, there was an admirable element of loyalty. But I guarantee they only stayed because we promised major bonuses, and restored wages, if we got promoted. That’s a very large bill which we’re delighted to pay – but it will come out of new money, not old.
Let’s work through some of those figures about wages. For a people business, it’s reasonable to think of as much as 60% of income going on wages and salaries. But football has to add transfer fees to that. For a club that needs to buy players, the wage bill alone should logically be a good deal less than 60% of income.
My usual disclaimer at this point: I’m not ITK. I have no involvement in, or detailed knowledge of, how our club organises its finances but I’d be amazed if we have the kind of transfer kitty that people imagine. Any sensible business – and I believe we’re one – would have a total budget for player expenditure, ie transfers + wages etc . Around 60% of income would be a responsible figure.
Let me now pose a question: how much do you think the third-lowest paying club (ie 18th in Premier League wage table) spent on wages last year? If you’re still sitting down, the answer is £45m. They also spent a little over £15m on buying new players.
That £65m doesn’t look quite so massive now, does it? One of the lowest wage bills, modest transfer outlay – and they were left with hardly any money to run the club. Norwich’s position, with a large chunk of money already earmarked for bonuses and so on is worse.
To those who say “just pay it, ffs” when a transfer fee is suggested for a player we might want, I’d hope this kind of information would give pause for reflection.
How come clubs like Bournemouth are spending freely, you may ask. The answer is straightforward, and is the same as for Chelsea and Man City. Their transfer spending doesn’t come out of the TV revenue – it’s additional money provided by their super-rich owners. They are spending beyond their means.
It doesn’t mean we shouldn’t be spending. With a repeat of my earlier disclaimer, I imagine by the end of the window we’ll have spent substantially more than we have as I write this on Sunday night.
Our chief executive doesn’t decide which players we’ll target; he supports his manager’s judgement and recommendation. But is it important that he’ll get us the best value for money? Bet your bottom dollar it is.
Good work Stewart.
The often quoted figure is that QPR received £64m for finishing 20th last season, whilst the relegated teams from the year before, got just £25m.
That 40% wage reduction our players incurred following relegation ended up (thankfully because we were promoted) being nothing more than a wage deferral exercise, which, undoubtedly, helped cash flow last season. However, be under no illusions, the club will have incurred a loss.
Even with this season’s Premier League payments, the ready cash available this summer will be no where near as big as many believe.
Fag packet analysis, yes, but, sobering nevertheless.
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You can’t beat a spot of hardcore finances first thing on a Monday morning to get the brain cells revved up after a lazy weekend!
The Canary coffers have certainly taken an adverse sting from Ricky’s time which maybe has made Mr. McNally a little more cautious than previously. I’m not worried that we haven’t seen a flood of transfers – the ones we have made over the summer (Dorrans, Mulumbu and Brady) have turned out to be top drawer.
We probably suffer from small town – remote geographical location ‘blindness’ in terms of being perceived by foreign players certainly who would rather the golden pavements of the capital (or Soke-on-Trent) – more fool them. Shaqiri may have shifted a few shirts in the Potteries but he’s struggle to get in our midfield.
I believe Einstein had a general interest in football with a special soft spot for Accrington Stanley but it’s all relativity.
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Excellent piece Stewart, which is worth baring in mind during this bizarre part of the season, where all you want is that extra one or two to make the difference. Players that will continue to make the difference when inevitable injuries and suspensions take hold. For me reinforcement in attack, wing and central defence would be ideal, but whether it’s realistic or not, time will tell.
We will see others go out to try and get that financial balance right. I expect we’ll get a good mix of excitement and disappointed, either way, I’m confident that the club is currently well run upstairs, enabling it to be VERY well run on the pitch.
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“Our income for this season will be around £65m…”
NCFC income for this season will be around £95m (i.e. broadly similar to 2013/14.)
If you meant “tv income” then you are close, but then you would be excluding all the other income-streams that are available to football clubs (tickets, merchandise, sponsorship, catering)
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Thanks for the comments.
East of Hampstead (4) – Yes, I’ve simplified things including our non-TV revenue and the ways we have to spend it. But the TV money is the dominant part of our income, and I believe the juxtaposition of that revenue with our primary area of spend (i.e. players) tells the basic picture of football finance.
Cheers.
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Stewart Lewis
Thank you for the reply.
Could you please clarify if you adjusted the wages figures in your piece by the same 30% you cut (“simplified”) NCFC’s income?
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the £30M in “other income” is pretty significant. The TV money is £60M I believe only if we finish rock bottom of table and are televised the minimum number of times. For every single position we finish higher in the table I understand we earn an extra £1M+ in ‘prize money’. Ok, so its not money in the coffers upfront but is all additional incentive for “every spare penny going into the playing budget”.
Somehow Isaac Newton’s belief of “what goes up must come down” may seem appropriate to clubs who are not willing to aggressively “go for it” this season.
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In calculating the worth of promotion surely it’s the difference between Premiership earnings ( including future parachute payments ) and any residual parachute payments to which you would have got by staying in the Championship – God forbid!
On relegation NCFC were entitled to £24m in 2014/15, £19.2m in 2015/16 and £9.6m in the next two years. The parachute payments are changing this year so that relegated teams receive somewhere around £64m over three years instead of four years. However if a club is relegated after one year they will only get two years payments rather than three. Bad news for Bournemouth and Watford!!
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East of Hampstead/Pab (6/7) – Thanks for the follow-up.
Yes, in a way I HAVE discounted the wage figures, by (i) not including transfers and all their associated fees, and (ii) not including the promotion bonuses and so on which have to come out of the new money.
Depending on what we spend in the next week and the Jan transfer window, I’d estimate our total staff expenditure this season to be £70-80m. That’s to say, between 75% and 85% of our total revenue from all sources. It’s a crazy figure.
BB (8) gives us some instructive detail. I was trying not to get into the changing parachute payment system from next summer, which adds a whole layer of complexity!
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I think Einstein would have been fascinated by the financial black hole at QPR.
It’s amusing how many an armchair expert casually demands for 10-15 million pounds to be thrown at anyone in the hope it will stick. Many seem to know the price but not the value of things.
I hope to God we don’t morph into a Chelsea/Man City super-galactico, all-consuming Godzilla-type of club. It’s truly depressing to witness that type of glossy ‘evolution’.
I’ll leave the monetary ins and outs to you and Mr. McNally, and stick to the cheesy science-football puns.
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Major G (10), and belatedly Cosmo P (2) –
I’m sure Einstein would have been fascinated by football finance, including particles of money that disappear as soon as you look at them.
I’d also like a word with him about the phenomenon of time slowing down when you have a 1-0 lead.
Chelsea and Man City are something else. Their proper source of revenue – the TV deal – gives them each £100m per year. Their annual wage bills (before the recent signings of Sterling, Pedro etc) were respectively £195m and £205m.
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Stewart – my flabber is well and truly ghasted at those figures. I wouldn’t be surprised to see Stamford Bridge and the Etihad declared as independent sovereign states any day – their wage bills could run most small countries.
I’m confident we’ll get back-up for the CF’s and CH’s before the transfer sands run out but without paying silly money – Murray or Gayle for 3-4 million would be sensible. A decent CH is more of a conundrum – injury aside, I think RM/SB can handle 90% of what we face in the coming months.
We may not have the overseas links of a Hughes or a Koeman, but I’d put a pound or two on Alex Neil getting the most from any incoming so we can make a big bang in the Premier universe.
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Big money signings are meaningless e.g. QPR. As with any business its about the right people giving their job 100% and pulling together it appears that’s what we have. I’d wait until January and see where we are then. Most important that we trade within our means. As fans we support the team no matter what division. Big money signings will jeopardise team spirit and togetherness, breed discontent and could financially destabilize the club.
I’ve never seen us play so well 3 games in succession and wouldn’t swop any player for the time being. Trust in Alex ‘Einstein’ Neil, his theory seems ‘relatively’ good.
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