It’s guest blog time again and a familiar ‘voice’ for MFW regulars. Dave Bowers’ thoughts from the other side of the Pond have become a regular feature, often his use of the stats making for an interesting read, and today he looks at some disturbing numbers that have nothing to do with possession and goals scored…
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A recent comment on Martin’s (always fantastic) match summary stated…
The financial challenge of losing our parachute payments is fierce. But let’s not fall into the trap of saying that all our key assets will be sold. One of Maddison or Pritchard would almost certainly have to go – but not both, and certainly not both plus others.
This struck me as quite a declaration. Had I fallen into this trap? I was sure from what Ed Balls had said at the AGM and my perusal of the yearly figures led me to believe otherwise.
So I decided to revisit the books.
The annual figures aren’t the greatest of reads. They take some deciphering (why doesn’t it just say “player sales”), items are repeated or stated in different ways. They also don’t coincide nicely with a season kicking off, the financial year ending half way through a transfer window. I’ve done my best to distill them.
Below I present a table capturing the key points. These numbers highlight the top income streams and expenses for the club. I’ve then broken out net player sales to show their importance.
My numbers don’t capture everything in the 40 page documents, so I’ve included a sanity check (what the company finally reported as profit or loss), to show the margin of error of my methodology.
Firstly, let’s look at the past three years. All numbers are in Millions.
| Turnover (excluding transfers) | 2015 | 2016 | 2017 |
| Gates | 10.7 | 11.5 | 9.2 |
| Broadcasting | 28.5 | 70.1 | 50.4 |
| Media | 0.1 | 0.1 | 0.1 |
| Catering | 4 | 4.3 | 4.2 |
| Commercial | 7.3 | 9.9 | 8.7 |
| UEFA solidarity + prize | 0.8 | 0.8 | 1.9 |
| Other | 0.5 | 0.8 | 0.5 |
| Total | 51.9 | 97.5 | 75 |
| Expenses | 2015 | 2016 | 2017 |
| Staff (player and non-playing) | 48.5 | 67.1 | 55.1 |
| Other | 27.4 | 40.4 | 35 |
| Total | 75.9 | 107.5 | 90.1 |
| Turnover – Expenses | 2015 | 2016 | 2017 |
| Profit/loss | -24 | -10 | -15.1 |
| Net Transfer Revenue | 2015 | 2016 | 2017 |
| Sales vs. purchases | 13.6 | 21.2 | 11.9 |
| Yearly profit/loss | 2015 | 2016 | 2017 |
| Turnover – Expenses + Transfer Revenue | -10.4 | 11.2 | -3.2 |
| The club reported…. | -5.3 | 9.4 | -2.7 |
What does this tell us?
- Broadcast revenues dwarf every other form of income.
- Our expenses consistently exceed our income by 10M’s.
- We have relied heavily on player sales to maintain solvency.
Now let’s estimate 2018. We know to expect 12M drop in TV revenues for our last parachute payment. We also know we’re saving approx. 8M a year in player wages. Let’s assume some savings for “other” costs as the club streamlines.
Then there’s transfers. From what’s publicly available from the sales of Murphy, Howson, Dorrans, and Rudd, minus our purchases, a 12M profit appears reasonable. Keeping all others in the same ballpark we get this…
| Turnover (excluding transfers) | 2015 | 2016 | 2017 | 2018 (est.) |
| Gates | 10.7 | 11.5 | 9.2 | 10 |
| Broadcasting | 28.5 | 70.1 | 50.4 | 38 |
| Media | 0.1 | 0.1 | 0.1 | 0.1 |
| Catering | 4 | 4.3 | 4.2 | 4 |
| Commercial | 7.3 | 9.9 | 8.7 | 8.5 |
| UEFA solidarity + prize | 0.8 | 0.8 | 1.9 | 1.3 |
| Other | 0.5 | 0.8 | 0.5 | 0.6 |
| Total | 51.9 | 97.5 | 75 | 62.5 |
| Expenses | 2015 | 2016 | 2017 | 2018 (est.) |
| Staff (player and non-playing) | 48.5 | 67.1 | 55.1 | 47 |
| Other | 27.4 | 40.4 | 35 | 30 |
| Total | 75.9 | 107.5 | 90.1 | 77 |
| Turnover – Expenses | 2015 | 2016 | 2017 | 2018 (est.) |
| Profit/loss | -24 | -10 | -15.1 | -14.5 |
| Net Transfer Revenue | 2015 | 2016 | 2017 | 2018 (est.) |
| Sales vs. purchases | 13.6 | 21.2 | 11.9 | 12 |
| Yearly profit/loss | 2015 | 2016 | 2017 | 2018 (est.) |
| Turnover – Expenses + Transfer Revenue | -10.4 | 11.2 | -3.2 | -2.5 |
| The club reported…. | -5.3 | 9.4 | -2.7 |
What does this tell us?
- We’ll survive this season based on the transfers in the summer.
- Again, player sales kept us solvent.
Finally, let’s estimate ’19 and ’20. These numbers are obviously more speculative, but we do know we’ll lose 30M in TV revenue, leaving us with ~8M. We can assume continued aggressive reduction in all costs. Of course, this is based on us remaining in The Championship.
Here comes the cliff edge, hold on to your pants.
| Turnover (excluding transfers) | 2015 | 2016 | 2017 | 2018 (est.) | 2019 (est.) | 2020 (est.) |
| Gates | 10.7 | 11.5 | 9.2 | 10 | 10 | 10 |
| Broadcasting | 28.5 | 70.1 | 50.4 | 38 | 8 | 8 |
| Media | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 |
| Catering | 4 | 4.3 | 4.2 | 4 | 4 | 4 |
| Commercial | 7.3 | 9.9 | 8.7 | 8.5 | 8.5 | 8.5 |
| UEFA solidarity + prize | 0.8 | 0.8 | 1.9 | 1.3 | 1.3 | 1.3 |
| Other | 0.5 | 0.8 | 0.5 | 0.6 | 0.6 | 0.6 |
| Total | 51.9 | 97.5 | 75 | 62.5 | 32.5 | 32.5 |
| Expenses | 2015 | 2016 | 2017 | 2018 (est.) | 2019 (est.) | 2020 (est.) |
| Staff (player and non-playing) | 48.5 | 67.1 | 55.1 | 47 | 40 | 30 |
| Other | 27.4 | 40.4 | 35 | 30 | 30 | 25 |
| Total | 75.9 | 107.5 | 90.1 | 77 | 70 | 55 |
| Turnover – Expenses | 2015 | 2016 | 2017 | 2018 (est.) | 2019 (est.) | 2020 (est.) |
| Profit/loss | -24 | -10 | -15.1 | -14.5 | -37.5 | -22.5 |
| Net Transfer Revenue | 2015 | 2016 | 2017 | 2018 (est.) | 2019 (est.) | 2020 (est.) |
| Sales vs. purchases | 13.6 | 21.2 | 11.9 | 12 | ||
| Yearly profit/loss | 2015 | 2016 | 2017 | 2018 (est.) | 2019 (est.) | 2020 (est.) |
| Turnover – Expenses + Transfer Revenue | -10.4 | 11.2 | -3.2 | -2.5 | -37.5 | -22.5 |
| The club reported…. | -5.3 | 9.4 | -2.7 |
What does this tell us?
We have a ~30M+ gap to fill in 2019 and perhaps another ~20M+ gap in 2020.
- Even with aggressive staff savings income barely covers wages, let alone the other costs of running a club.
Any company faced with these figures will be looking at the levers they can pull to close the gap. Our basic ‘income’ lever is largely stuck. We can’t raise ticket prices, sponsors won’t be looking to pay more, etc… Costs can be cut, but never to the extent required. The only method of creating 10M’s is player sales.
Which leads us to the question. How do we generate ~50M in player sales in the next two years? Maddison alone won’t fill that hole. We’ll sell him. It may be in January while others are desperate, or in the summer when we are. We’ll sell others too. We must.
If I continued to estimate beyond 2020, even with aggressive cost savings we’ll need to generate 10-20M per year in profit from player sales. How do we ramp up the academy to do that in any reasonable period while keeping a team?
The savings that I speculate (for instance reducing non-staffing costs to 25M) have tangible impacts too. Job losses, reduction of services, things done on-the-cheap. Not the Norwich City you see today.
If this all sounds quite dire, it’s because it is. The ideas of “patience” and “transition” are hiding the simple truth – we’re out of money and we’re out of time. Moxey didn’t get much right, but he understood that our goal must be “promotion, promotion, promotion” and anything else has serious consequences.
Enjoy Maddison while you can.
When it’s laid out as starkly as that there can be no doubt that we must revert to being a selling club – in truth we always have been apart from, say, 2010-14 when on-pitch success obviated that need.
The previous manager was allowed to waste many millions on a poor choice of recruits in a half-hearted attempt to keep us in the PL. It didn’t work and now we’re literally paying the price.
Don’t get too attached to Maddison or Pritchard. Or Ben Godfrey, Sean Raggett, Jamal Lewis or next season’s first choice GK Remi Matthews. The better they play for us, the more other clubs (quite possibly including some direct rivals) will come in for them. None will be here for longer than it takes for them to become established as saleable commodities.
This is probably why the much-vaunted idea from on high of self sustainability and an absolute refusal to entertain the idea of outside investment sticks in my craw – it surely cannot be viable in the bearpit of modern football administration.
Good stuff Dave.
Nice, I do like some financial forecasts which lead to heavy snow turning into packed ice without any obvious helpings of grit. The whole essence of our model (aka selling off anything that entertains) dictates we have to lose these players.
Its very Orwellian of the board to give it nice titles like, “self sufficient” and mantras of “promotions from within”.
Skint, having to flog everything fun in the process and watch attendances dwindle back to 1996 levels of 15,000 when you could sit anywhere in the ground and no one would blink would be more to the point.
Hmm, I think I enjoyed Stewart’s positivity more than this for an early morning read!!
One thing I did note, you mention aggressive cost savings a number of times – we can’t keep doing that indefinitely, there will come a time there’s no more to cut.
Well, if Stewart’s dream came true (and I’m all for it) it would certainly punt this issue down the road a few years.
Dave’s articles are characterised by important facts and stats – this is no exception. It echoes what Steve Stone and Stuart Webber have openly talked about since the re-structure (a refreshing change from Jez Moxey who smothered everything with platitudes).
Where Dave tends to come unstuck is in his determination to undermine any view less pessimistic than his own. Again, today is no exception. The comment he quotes at the start is mine. As Dave is well aware, it related specifically to next summer. To reject it, Dave compares it with his calculation of the funding hole through to summer 2020 (ie £50 million).
Assuming we don’t go up and find absolutely no additional source of income, the funding gap next summer is substantial and well beyond the normal range of available savings – but it’s more like £20m than £50m. It will be part-filled by the end of player contracts (Dave doesn’t mention, for instance, the expiry of the lucrative contracts of Wes and Tettey), but it will also require a substantial injection from player sales. Looking at current valuations for players of their ability and age, I reiterate my comment that we’ll have to sell Maddison or Pritchard, but not both.
It is obvious too that if we do reach that 2019 scenario the Board is going to have actively to seek new investment. They will have no choice, since otherwise they will have a huge fans’ revolt on their hands.
Here’s hoping!
Hi Stewart,
I think Stone is right, we are fine through to the end of the season. I think that’s very literal. Once we enter next season we’ll see debts accruing. Due to the nature of football’s transfer windows we have to front-load our profit to cover the season’s costs. That means at the end of this season we’ll end up needing to sell 30M+ worth of players.
“Assuming we don’t go up and find absolutely no additional source of income, the funding gap next summer is substantial and well beyond the normal range of available savings – but it’s more like £20m than £50m.
I’m very interested in how you came to the sum of 20M needed instead of the 37M (and I assume 50M is a typo since I didn’t suggest that for next summer).
While I don’t mention specific players by name, I do estimate roughly the same amount of savings in wages as this season’s exodous, which included a lot of well paid players. And by 2020 I suggested a staffing cost hugely lower again. A very aggressive cut .
I think the numbers are fair. Even my numbers were off by 30-40%, we’re still in trouble. That’s not pessimism, it’s reality.
Thanks, Dave. You’re now saying that we need to make a surplus of £37.5m on transfers in the summer 2018 window. While the figures are certainly serious (and I’m grateful for you spelling out graphically much of what Stuart Webber, Steve Stone and myself have be saying for several months), I’m not sure that figure is justified by the facts.
Despite the obvious need to reduce costs, for instance, you reckon our staff cost savings in 2018-19 will be less than in either of the previous years, and the saving in other costs will be zero (despite having come down by £10m in the previous two years). That’s so much of a worst-case scenario, I’m not sure it deserves to be called “reality”.
Our point of discussion is whether, at the end of this season, we’ll need to sell both Maddison and Pritchard. I’m still not convinced we will. Even if there’s more to do than sell Maddison, there should be less painful ways to do it. Strange as it sounds, for instance: if Raggett is what we think he is, then we’ll actually have a surplus of centre halves and could let one or two go.
In short: we’re agreed that the club faces a tricky situation the if we don’t go up. How tough it is, and how effectively Stone and Webber manage costs in that situation, will make a big difference. There’s sometimes a fine line between reality and pessimism.
“You’re now saying that we need to make a surplus of £37.5m on transfers in the summer 2018 window.”
I always said that – “We have a ~30M+ gap to fill in 2019 and perhaps another ~20M+ gap in 2020.”
2019 being the financial year that covers next summer transfers.
“Despite the obvious need to reduce costs, for instance, you reckon our staff cost savings in 2018-19 will be less than in either of the previous years”
By less you mean near identical (7.1 vs 7.0)? I didn’t estimate more because in previous years we’ve been ridding ourselves of players signed in the PL and they’ve been desirable. I don’t see anywhere near as many big wages on the books and I don’t see the desire to buy the ones remaining who are on high wages (Naismith). The other issue is that previously we had a big squad and could just let people go. Now, anyone who goes we’ll need to replace, so you only save the delta between the two wages. Personally if we shed the same amount of wages again this summer I’d be impressed.
Yes, I kept “Other” the same. Could it shave off a couple of mil. Perhaps. But again the fat has already had two years of trimming and a lot of those types of costs are physical – you still need ground upkeep. Unfortunately this is the area the financial reports are most vague.
I do disagree that this isn’t what Stone and Webber have been saying though. They’ve said “challenges”. The reality is that personally, I don’t see any way of creating 50M transfer profit in two years. I think we’re heading very quickly towards bankruptcy and that’s backed up by cold hard numbers and here’s why it’s blindingly obvious…
It costs us between 25-30M to run the club before paying a single member of playing or non playing staff a penny. Our entire revenue while in the Championship is 32M (and that’s very predictable revenue). It can’t be done.
Thanks, Dave.
We could trade points ad nauseam. Suffice to say that Webber and Stone were the first to say that if we fail to go up this year, at least one major asset would need to be sold. Can anyone imagine Jez Moxey being so open?
I have more faith in them to optimise our financial situation than I’ve had in anyone since McNally in 2009.
Fair enough – cliff comes a calling. So where does the extra dough come from? Debt? New investment? Who wants to bankroll a club that much money over a period of time without guaranteed promotion? Essentially with Delia as MS we’re stuffed.
One caveat is, Webber must have realised this, I’ve read somewhere he was fully aware of the task at hand when he signed up, so surely, it being his job as DoF, he would actively be looking to address this gaping hole in finances by seeking someone to come in to at least offer a cushion in 2019, 2020 and beyond?
I would also say debt is inevitable in the football business, it’s purely how it’s handled. We’ve become too terrified of the word that it’s stalled us from taking calculated risks in the past as we maintain that ethos of a “debt free family club”. Our risk taking in the last few seasons has fallen between the horses, it’s been too grey. We’ve spent over the odds on players not really worth it, rather than using brains to suss out gems in lower leagues and using the Cat 1 academy to develop them, same goes for managerial appts – when we were failing in the past we’ve opted for cheap options or safe bets in keeping with that aforementioned ethos.
This is too backwards looking I admit, but as I mentioned above, I hope Webber, with his influence, can at least sew the ‘outside investment’ seeds in the boardroom because, as those figures clearly point out, Norwich City is going to look a very different club in 3/4 years and if this isn’t addressed in a methodical manner befitting of a modern age we’ll not only become mid table ‘also ran’ but instead of looking up, be looking at relegation battles on a seasonal basis.
Hilary, you are of course correct. The number of people wanting to buy the club now are likely fewer and more opportunistic.
Ideally Delia would have taken us to the Prem then sold a profitable business with huge room for growth. Her legacy as savior of the club would have been solidified and she could have had a stand or a statue.
It’s a good analysis, thank you (I write as a retired accountant and totally appreciate how much work you’ve put in to trying to make these figures understandable by those who don’t have a financial background).
To really see where we are though we could do with a similar view of other clubs in our division. It’s where we stand compared to Derby, Forest, the two Sheffields, Leeds possibly, that really matters.
Assuming we don’t win the play-offs again 17 other clubs, at least, will be in the same boat as ourselves next season, i.e. no parachute. Few of those will be debt free. And few of them will have income from 20,000 loyal season ticket holders – which we will even if we don’t make a challenge this season. Even in the dark days that led to League One – when Peter Grant and Glen Roeder managed to serve up the direst football I’ve ever seen at CR – our support held up remarkably well.
Meanwhile those clubs with parachute payments will be using them primarily exactly the same as we have i.e. to cover expensive contracts left over from their days in the PL. (The advantage of parachute payments is, in my view, frequently overstated. If it is such an advantage why are only about 1 in 3 of the promoted clubs ones who have them?)
Incidentally, I don’t think there is a refusal to accept outside investment per se. But I suspect that the Wynn Jones’s want strings attached designed to stop complete outsiders with no previous love for the club making predatory offers. And that would make it a very unattractive proposition for most potential investors.
And finally, as Martin says we have always been a selling club. Well, a buying and selling club really. We bought Ron Davies, Dave Watson, Steve Bruce, Robert Fleck, Dean Ashton, Bradley Johnson, Jonny Howson and countless others. We’ve bought Pritchard and Madison, and sooner or later we will sell them again – and buy someone else. That’s how it’s worked for decades, and how it will continue to work.
Thanks Keith. My simplification of the numbers has left out items such as manager/director payoffs as well as loan income/outgoings. But those are variable (or one off) and wouldn’t change the picture too largely. I’m also sure Steve Stone can do some creative accounting to avoid taxes (writing off assets, or whatever you accountants do!).
You (and Martin) are both right, we have always bought and sold. Even recently. But the last few years has been buying and selling on our own terms with the value of assets bought and sold going up. I think we still have a few gems to sell, but going forward we’re very reliant on finding unidentified talent and turning a profit very quickly.
That’s an excellent post Hilary, it really is.
“Essentially with Delia as Major Shareholder we’re stuffed.”
As much as I don’t want to feel that way towards her on any personal kind of level, I would take your comment as a recognised truth.
No timely turkey puns from me, but stuffed we are.
And then it all eventually passes on to the Young Pretender. I originally had “high hopes” of him but I doubt Tom will cut any immediate mustard. Not with the black dog(s) on his shoulder, anyway. Their collective heads are in the sand.
Joe Strummer of The Clash once famously said the future is unwritten. Unfortunately it appears ours has been written for us by somebody who has been pictured wearing an 1p5wich scarf.
A great post.
Hi Dave
You paint a very bleak future for the club, and as I have mentioned a few times over this season our blinkered owners are only looking at what is possibly best for them.
Their quotes of no new investments and they are poir millionaires shows that their other quote about only doing the best for the club falls on deaf ears.
We have as I have been informed a world respect Economist surely and I might be wrong he must have met at times investors that might want to take a punt at city?????.
Investors usually look at med to long term so if putting in said £50m to get the club promoted and reaping the riches of the premiership that is the gamble would make.
A Russian investor purchased 51% of Bournemouth when they were nearly bankrupt and out of the league look at them now you also have a few other clubs that have taken the offered hand out and
Prospered.
I am not advocating the Smiths hand over the club to an Oligarch but it would be great if one could help pave the way to a more secure future.
I realize I need to make something clear. When I write 2018, that’s based on the NCFC financial year running until June 30th. So it’s actually the 17/18 season.
’19 is the 18/19 season
’20 is the 19/20 season.
When I say we’re set to be okay in 18, that basically covers us up to the end of this season. It does not cover costs through to the end of next calendar year.
My supporting days go back to Ron Davies and Hugh Curran and we have consistently sold our best players, which means that The Championship is our natural level. When we have been promoted a risk-averse strategy has meant that we soon return to our level. Who knows if Dean Ashton had been bought in August, rather than January, or two decent centre backs signed before the begining of the 15/16 season we may have had the chance of establishing ourselves as a Premier League club. As Hilary has said, you have to speculate to accumulate.