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A closer look at the accounts reveals some unnerving facts. Post-2018 things could get bleak

3rd January 2017 By Gary Field 8 Comments

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As we look back on 2016 – a painful one in so many ways – there’s one stand out lowlight for me and I’m not talking relegation. That had a sense of inevitability when we lost so convincingly, at Bournemouth, way back in January.

No, I’m talking about “that” interview with the Times; just a matter of days before the AGM, when the majority shareholders took it upon themselves to confirm their succession planning together with the Norwich way of doing things – being both debt-free and self-funding.

I’m no accountant but the problem for me is that I’m starting to find the self-funding and debt free mantras both a little tiresome and, more importantly, a tad unbelievable.

Being “debt free” is, or should I say, was, a snapshot at a moment in time – in our case, taken from our accounts at the end of June. However, by the time the accounts are actually released several months later, they’re already effectively out of date.

As for being self-funding, clearly, it makes sense, to a point, to only spend what you’ve got.

However, what’s actually far more important to any business than being debt free is cash flow. Because, in simplistic terms, available cash inflows determines your ability to meet your outgoings.

It’s stating the obvious that relegation has a huge negative impact on cash inflows.

Just to put some perspective on this, the £68 million TV cash received last season, becomes £42 million this season, £30 million next season and, if promotion isn’t achieved by May 2018, we’ll then be in receipt of Premier League solidarity payments, plus Football League TV distributions – totalling about £6 million per annum.

That’s a meagre £500,000 a month. Or, to put it another way, that’s over £5 million a month less than we were receiving in the Premier League just last season.

Which begs the question as to whether the “self-funding” model is actually truly sustainable if the club is going to yo-yo between the Championship and the Premier League? Whichever way you spin it, the variance between TV monies of £6 million per annum and £100 million, if you’re promoted to the Premier League, is huge.

However, there’s something else puzzling me, because, if you ferret around the now fairly standard layout of the Club’s accounts, in between the Key Performance Indicators and principal business risk management objectives and policies, you’ll find ‘Business review and future outlook’. Within that section there’s a sentence not previously seen:-

“This means that aside from a working capital facility provided by Barclays and Preference shares classified as debt, the Club has no debt, either external or owed to its shareholders.”

Which rather begs the question “when is a debt not a debt?”

A quick trawl through Companies House shows that the Club has five charges outstanding – four of which have been accrued since September 2013, with the most recent being on 22 December 2016.

These charge documents all extend to twenty plus pages and require some legal insight to fully understand. However, they’re the assignment of future specified Premier League TV instalment monies by the Club to Barclays Bank.

Of course, the simple explanation may be that nearly all transfers have fees paid in instalments – absolutely nothing unusual there – and all the Club seems to be doing (at first sight) is aligning future fee instalments with future TV receipts. The buying club is also effectively receiving a bank guarantee.

The charge agreements also incorporate offset provisions, which means that future incoming receipts (for example payments from Southampton for Nathan Redmond) can be used to offset against outgoings to other clubs.

However, before this gets filed under “nothing to see here” you have to question why the first charge, which related to central funds from 2014-15 and central funds payable in August 2016 only relating 2015-16, haven’t been discharged from secured sums and is therefore still showing as outstanding?

The precise timings of the receipts Premier League TV monies has always been something of a mystery. A proper explanation may go some way to removing any doubts that exist. But, in the meantime, with all these charges outstanding, I can’t help but wonder just what will happen if the Club doesn’t get promoted before 2018 when the parachute payments cease?

There’s something for you all to ponder!

And, while you do so, may I take this opportunity to wish Rick, Gary, all fellow MFW writers and, most importantly, you, the readers, a very Happy New Year.


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Filed Under: Column, Gary Field

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Comments

  1. Richard Bales says

    3rd January 2017 at 8:16 pm

    Thanks Gary for lifting the veil but 2018 is optimistic. In the reported comments from the AGM, I recall a brief reference to forecasted cash-flow,which returned us to a net debt position by the end of this season,despite parachutes. Debate should have focused on cash projections and ‘so what’s the plan?’ but results,contracts and Strictly allowed the Board to sidestep. The wolves are already at the door ( or more correctly in our case, at the table).

    Reply
  2. Greg says

    3rd January 2017 at 11:10 pm

    Unfortunately the club takes it direction from the owners who would rather see a debt free feels nice family club bumbling along in the Championship than take any degree of risk. Thats why the CEO who took Wolves to mediocrity was brought in and we have a mediocre manager and a mediocre ground. A family feel club was all well and good a few years back but the world has moved on and its time for Delia to do the same. Sell up and go please Delia, Michael and the other underwhelming board appointments you are past your sell by date – like the awful pies, coffee and City Stand.

    Reply
  3. pab says

    4th January 2017 at 7:49 am

    Very interesting, Gary.
    Delia’s complacent comments were made after enjoying several seasons of Premier League cash and season ticket sell outs. But to be fair, she has admitted she is clueless when it comes to financial matters.
    How quickly things are in danger of changing if we don’t yo-yo back up …. Nephew Tom may yet end up inheriting a debt-ridden headache.

    Reply
  4. Cityfan says

    4th January 2017 at 12:11 pm

    Excellent article. Shame it’s already attracted the usual ‘Delia is this/the board are that comments.
    Sticking to the issues you’ve raised (i.e. The Facts) it is an interesting question over what constitutes debt. Relegation, despite parachute payments, almost certainly means going into debt for a club like us. Wages will be astronomical for us comparatively as we have tried to secure players by offering incentives for promotion. Most of the parachute payments will be taken up by that. Therefore any other expenditure is likely to take us into debt – i.e. simply existing. It’s going to take a canny financial officer to get us through the 17/18 season if we don’t get promoted this year.

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  5. Gary Field says

    4th January 2017 at 3:07 pm

    1 – Richard. Thanks for mentioning the comments from the AGM.

    Four seasons out of six in the Premier League seems to have resulted in a wage structure that’s generous to players in comparison to their piers in the Championship. That presents a whole range of problems in terms of moving players on.

    4 – Cityfan. Linked to my comments above, the cash burn is huge and I suspect that the parachute payments won’t even cover the wage bill, even allowing for relegation clauses in players contracts.

    Reply
  6. Paul says

    4th January 2017 at 3:44 pm

    A charge is not a debt. A charge is security for a debt – it may or may not be required in order to pay whatever is outstanding. The fact that there are charges in favour of Barclays is not surprising I would have thought?

    Reply
  7. Gary Field says

    4th January 2017 at 10:34 pm

    6 – Paul. Thanks for your reply. As the charge is an assignment of the right to receive future TV receipts, by the Club to the Bank, presumably at a cost, the Club must be receiving something in advance, I guess cash, otherwise why do it?

    Reply
  8. Paul says

    5th January 2017 at 10:21 am

    (As you very probably know – in which case, apologies) – all charges involve some sort of “transfer” of rights – but only as security for payment of some other debt/liability – ie you get the property back if you satisfy the underlying debt in some other way. In this case, I don’t know what the underlying liability is. Might it be simply the provision of working capital/overdraft facilities? If it is a substantial liability which will inevitably have to be paid using tv money – then I agree – the tv money has already been “used” and won’t be available for other purposes …. On any view, we’re going to be a lot poorer if we don’t get promoted – and on that point we can all easily agree!!

    Reply

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