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GUEST BLOG: Where is our club heading? And how does the ‘self-funding’ model fit in with football 2018-style?

GUEST BLOG: Where is our club heading? And how does the ‘self-funding’ model fit in with football 2018-style?

25th January 2018 By Guest Blogger 32 Comments

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It’s guest blog time again on MFW and this week it’s the turn of lifelong City fan, Barry Brockes who has some questions for the City board regarding their current direction of travel.

Barry saw his first match in August 1956 and sits in the upper Barclay with his son where they have sat for the last 23-24 years. He’s an accountant who was responsible for Norwich Union’s (pre-Aviva) published accounts. 

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I have great difficulty in understanding how Club’s self-funding’ model is going to work in both the immediate and longer-term.

While acknowledging the financial commitment made by the three largest shareholders, it should not be forgotten that they will almost certainly make a significant profit should the Club be sold. As such I tend to regard their shareholding as an investment.

If Delia and her husband find a way of effectively passing control to her nephew, then any potential profit is being deferred either within the family or in some form of trust arrangement. While loans from directors have been made at zero interest rates and have undoubtedly helped keep the Club’s financial head above water I believe these have all been repaid.

I therefore think it should be recognised that the ongoing financial contribution of the directors to the running of the Club is zero.

In terms of moving forward, it seems that the Club will have to rely primarily on net player sales and ticket revenues to balance the books in terms of profitability and cash flow. We have recently been told that season ticket prices will again be frozen, with the Club appearing to regard this as a magnanimous gesture.

I think, in fact, most season ticket holders will feel that this does not equate to value for money compared to what was on offer for the same price in the Premier League a few years ago. The recent survey of ticket prices in the top two divisions also showed that our ticket prices are among the priciest in the Championship and more expensive than several Premiership clubs.

Turning to net player sales, we are gradually streamlining our squad to remove high-earners to boost the profit and loss account and consequently create opportunities for younger players on cheaper wages to develop and improve – and then be sold!

Unfortunately, we do not have a very good track record of generating surpluses from player trading, as for example at Southampton. It is a massive leap of faith by the Board that this policy will be able to run and run to meet the shortfall from ticket sales.

Obviously, something that will change things dramatically would be promotion. Despite some people’s views to the contrary I really don’t believe that the Club does not want this. However, if it did happen then there needs to be a much better and longer-term plan to hold onto and then sustain our place at football’s top table.

Despite a first relegation, Burnley is a classic example of how to do it. Unfortunately, our recent experience from being in the Premier League does not inspire confidence.

I assume that a ‘self- funding’ model means that the current majority shareholders do not plan to either make further loans to cover cash deficiencies or subscribe for further shares. Hopefully Steve Stone will have carried out a risk assessment as to what will happen in the future if we have don’t have a player that we can sell for sufficient money?

Would this mean that season ticket holders have to foot the bill or would Tom Smith or other directors be in a position to finance any shortfall? I think the answer to both these questions is ‘you must be joking’. The options are external finance, which presumably would be loan rather than equity capital, or as a last resort, administration.

It would be interesting to have the views of Steve Stone, or MFW columnists who claim to have a hotline to the Board, to explain how this approach is sustainable in the future.

****

Thanks to Barry for offering us his thoughts. If Steve Stone or indeed any of my colleagues who have an in on the Club’s inner sanctum would care to respond, then please feel free.


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Filed Under: Column, Guest Blog

Reader Interactions

Comments

  1. barry says

    25th January 2018 at 3:52 pm

    Sums it up nicely.
    The board will continue to sit on their hands (financially speaking)
    The season ticket holders will be left to pay more thsn their fair share.
    Delia and co are hanging on to their toy that they cant afford to run.
    its like a dog owner thay cant afford to feed the animal
    personally I’m not prepared to finance via season or match tickets their toy

    14
    Reply
  2. Robin Sainty says

    25th January 2018 at 3:55 pm

    The writer’s assumption is that our finances are in a downward spiral and that forced selling will be the norm going forward. That’s not the case. The issue is this summer’s transition from the last bit of parachute money to having to make do with the much lower TV income in the EFL.. The club realises that the next three windows are vital in restructuring the squad financially and its pretty clear that that process has accelerated this month, and with two high paid players out of contract in the summer further savings will occur naturally.
    There is no lack of ambition in the Boardroom in terms of a return to the PL, but as Steve Stone said in a recent interview “Not at any price”, which as a business owner myself is what I would want to hear from my managers, rather than “We throw money at it and hope it works.” Of course, we tried that before, which is why we are where we are.

    10
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    • JohnF says

      25th January 2018 at 4:54 pm

      Football is not a normal business and the self funding model will have a short life once the parachute payments stop.
      Costs in the Championship are increasing at a rate which will soon overrun our homespun plan.
      Who amongst the board members is going to do a Marcus Evans and subsidise the club to the tune of £7 million pa. ( Clubs own estimate ).
      Unless we are relegated, which is a strong possibility, billionaire owner is urgently required.

      13
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      • Jim Davies says

        25th January 2018 at 6:46 pm

        Marcus Evans may put £7M a year into our neighbours, but he’s taken a lot out, such as the ownership of their training ground, and he doesn’t invest anything in the way of buying in quality players. I don’t want his sort of ownership.

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        • JohnF says

          25th January 2018 at 11:27 pm

          The point I was making is who is going to make up an annual shortfall of £7 million. It’s not optional and without a generous benefactor well slip down the leagues.

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    • David Bowers says

      25th January 2018 at 7:22 pm

      Hi Robin, forces selling will absolutely be the norm and in your position I’m really surprised you’re saying differently.

      As I laid out here https://norwichcity.myfootballwriter.com/2017/12/14/guest-blog-in-transition-patience-the-key-or-is-the-simple-truth-were-out-of-money-and-out-of-time/ the non staff cost last year were 35M. Our revenue post parachute payments will be 32M, based on a few fair assumptions (no extra gate receipts, ELF tv payments remain the same etc…)

      That means we can barely pay the back of house staff, let alone players. So no downsizing of players wages will reach the required costs.

      We have to sell regularly going forward. Probably to the time of 15-20m a year.

      The numbers don’t lie.

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      Reply
      • JohnF says

        25th January 2018 at 11:32 pm

        What do we do when the assets are sold? We purchased Maddison and Pritchard through premiership revenues. I’m afraid the well has dried up.

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    • John says

      26th January 2018 at 12:11 am

      Those of us who know the writer are aware of his background in business and finance and like David Bowers also explains there is no wage level where we can be self-financing without increased income. Barry has explained the last resort financing options very clearly and it appears to be a case of when rather than if in terms of these options being necessary. Maybe those with the ear of the Board can ask for their thoughts. This reality might explain their silence at the AGM

      7
      Reply
  3. Alex B says

    25th January 2018 at 4:52 pm

    A good read and summary
    As city supporters we all want what is best for the club and most state their undying love for city.
    In some cases such as with the board they become blinkered in what they want for the club and how to get it.
    I commented the other day that the Smiths would like city to operate like Southampton bring in players cheap and sell at a vast profit and tomake money via the Academy, but Southampton are unwritten by the Liebherr family and the Chinese consortium that purchased a large stake in the club.
    I also stated that any player that shows potential from the age 12 onwards will be tapped up by bigger clubs with city only getting a small fee and possibly a sell on clause as with Angus Gunn when he joined Man City.
    Unless city gets promotion in the short term it is at the risk of losing it Academy status and with that the potential of signing the next Bellamy, Maddison, Lewis to name just a few.

    10
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    • Jim Davies says

      25th January 2018 at 6:41 pm

      The Angus Gunn situation was a bit outside the norm of selling young Academy players. He moved to Manchester because his parents went there, due to Susan Gunn’s artistic career. If the year hadn’t moved, he almost certainly would have progressed through our Academy all the way to the first team squad anyway. Not a “Southampton” situation at all.

      1
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      • Alex B says

        25th January 2018 at 10:40 pm

        Hi Jim
        You misunderstood me I was saying that the original money city got for young Angus was very low(£250k) and the tribunal set up other payments for different levels of international progress also a set percentage of any future sale.
        The total amount is possibly way short of what city might have got if he stayed at city and proved himself.
        I am hoping Man City will allow him another season loan to Norwich.

        1
        Reply
  4. OzCanary says

    25th January 2018 at 4:59 pm

    I would add one thought. Do our Board Members receive income from their position? If not what value should be placed on this against their financial commitment?

    1
    Reply
  5. Robin Sainty says

    25th January 2018 at 5:57 pm

    In answer to Oz, no they don’t. The only payments to board members has been the amount paid to Ed Balls when he acted as CEO for several months after the departure of David McNally. Given that he was putting in 16 hour days at the club and having to cancel all other work it was agreed as a compensation for loss of income.

    Reply
    • Jim says

      26th January 2018 at 8:58 pm

      16 hour days. Come off it. He should be ashamed of taking that money (which for 3 months was equivalent to a years salary as an MP (he’d also just received his payoff from that job so what earnings he lost I don’t know?)). Particularly when the two key decisions taken during the period were to amend Neil’s contract and recruit Moxey. Both of which ended up costing us a fortune.

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  6. martin penney says

    25th January 2018 at 6:04 pm

    Terrific article Barry and I thoroughly enjoyed reading it.

    I have NO hotline to the Board and am totally proud of that fact. I would feel slightly uncomfortable if I did have, tbh. They’re not the kind of people I mix with. Not through choice, just reality. I’m a geezer. Always have been and always will be – eg I’m not easily impressed by a certain type of person.

    To balance my response I also think Robin makes a couple of great points too. His views are always well reasoned and keep my expectations where they should be!

    Thanks for a terrific read.

    11
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  7. pab says

    25th January 2018 at 6:39 pm

    Shame Ed Ball’s 90K salary for three months summer work was not linked to performance. He renegotiated a better deal for Alex Neil which then meant it cost more compensation to sack him, and then he oversaw Moxey being appointed – which was another disaster.
    Our squad under self funding will only get younger and cheaper. How long it will be good enough to maintain championship status is anyone’s guess.

    5
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  8. Barry Brockes says

    25th January 2018 at 8:44 pm

    I think it is a reasonable assumption that while the Club is not in the Premier League then our finances are heading south( like Ipswich!). Despite Robin Sainty’s rose coloured crystal ball I don’t believe that even if all our current high earners are jettisoned we will be able to rely just on ticket sales and other commercial income to survive. Hopefully forced selling will not be the norm and we can generate sufficient income by judicious and planned sales of players.
    I am encouraged by his recent quote from Steve Stone preaching prudence. I trust that he has learnt from the experience of our last Premier League relegation when he was Director of Finance and Company Secretary. In the 2016 accounts the Strategic Report said “The Club’s future strategy remains that of investing all available surplus cash in to the playing squad and hence maximise the chances of returning to the Premier League at the earliest opportunity”. Although it was the Board’s report it was signed by Steve Stone. Hopefully he has more influence now and future planning covers various different senarios rather than the “all eggs in one basket ” one.

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    • Gary Field says

      26th January 2018 at 10:43 am

      Despite suggestions to the contrary above by others, football is no different to any other business – it runs on cash.

      Once the parachute payments end NCFC will still have a turnover of circa £30m pa – which is actually at the top end of the Championship spectrum for clubs not benefiting from parachute payments.

      The relevant questions then become, what level of wages can we pay and how competitive will the Club be in the Championship? The opinions seem varied; ranging from League One bound to Championship play off fringes.

      1
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      • John says

        26th January 2018 at 1:04 pm

        Gary Field you are correct in saying that our future turnover will be at the high end of the Championship but the majority of clubs with lower income make significant losses (hence Evans has to bail out Ipswich to the tune of £7m per year), Barry’s article asks how are we going to fund this deficit which if we had a wage budget to match Ipswich would be in the region of £4m p.a. The alternative would be to have a budget £4m less than that of Ipswich and hope that ticket sales remain high. The question remains what is the plan? And it is good to see a forum where both sides of the coin are well argued

        6
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        • Gary Field says

          26th January 2018 at 10:40 pm

          John, although I dislike comparisons with ‘that lot’, Ipswich have consistently spent in excess of their annual revenues (£23m expenses vs £18m revenues last season) which is why I’m bemused about Big Mick bemoaning about parachute payments.

          If we’ve got income of circa £30m pa are you suggesting our wage bill will be only £4m pa? I may have misunderstood but, sorry, I don’t follow your logic there. OTBC.

          Reply
          • John says

            3rd February 2018 at 1:22 pm

            The £4m is a bit back of an envelope but based on the information available to general shareholders and season ticket holders. I understand ITFC make losses of £7m per annum, they have a team that makes mid-table every year, we would expect to pay the same but we do have extra ticket sales which at a very rough guess comes to an extra £3m in surplus (after VAT and additional costs). This taken from £7m gives the £4m that I feel we need to make up. Maybe we have income that other clubs do not have. The question is – after the dust has settled and the parachute payments and high earners have gone will we bring in enough income to cover expenditure? i think no and others think yes but it will be quite marginal. If we have the 8th biggest budget in the League I would not be unhappy

      • David Bowers says

        26th January 2018 at 1:52 pm

        Gary, the cost of running the club, according to the club’s reports, before paying any wages, for the last there years were:

        27.4M
        40.4M
        35M

        So with a revenue circa 30M, that means we have almost zero, to less than zero, to pay players wages.

        For the last three seasons our wages have ranged from 48M to 67M.

        Question for you – How does the club realistically get both the wages and running costs below 30M?

        5
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        • Gary Field says

          26th January 2018 at 10:46 pm

          David, the simple answer is you can’t have a wage bill in excess of £50m pa with revenues of £30m pa (max).

          To be fair, most Championship clubs don’t, but most do make losses. No easy answer to that conundrum.

          1
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  9. Paul Rich says

    25th January 2018 at 10:44 pm

    Is the podcast on iTunes? Thanks

    Reply
  10. Inside Right says

    26th January 2018 at 12:44 pm

    Barry’s initial comment is hard to argue against. The canine analogy is perfect.

    I’m stunned how easily pleased some fans are. We’ve gone from spending quite large sums of money to spending very little. How can one get excited about spending £200K on a player? When Chase bought Neil Adams for a very reasonable £250k he was slated, but now it seems ok.

    The self funding model is one of naivety, at least in the sense of promotion. That is not on the agenda I can assure you. It’s all about downsizing and consolidation.

    The football has been tedious this season and having more cheap European players means more of the same. It’s all about transition they say. Transition to what? The thought that we can achieve more with much, much less is pure fantasy. It’s true that the club has not spent income wisely in the past, but now we have the other extreme.

    The ‘Webberlution’ seems fine to those who want an economic Championship vision, but for those who want more than that, it offers nothing of substance.

    8
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    • Alex B says

      26th January 2018 at 1:24 pm

      Nothing like being a died in the wool pessimist – I prefer to give the newish system a chance and, yes, that makes me an optimist.

      So we haven’t spent millions, we don’t have recognised championship players and I hope that the Smiths will see the errors of their ways and either open the purse strings or bring in fresh investment so the club can progress at a faster rate to get another chance at the Premier League.

      All the players City have recruited have the potential to add something to the squad till the end of the season and hopefully gain experience for a tilt next season at (swear word to you) promotion.

      Reply
      • Inside Right says

        26th January 2018 at 2:05 pm

        The proof will be in the pudding as they say and if the doubters can be proved wrong – including me – than so be it, but there is no evidence that the Smiths have seen the error of their ways. That is why I’m not optimistic, for two main reasons.

        1. No serious investor will touch NCFC while Delia is here, unless her veto is removed and I cannot see that.
        2. The Smiths have said absolutely nothing regarding selling their shares, other than passing on their shares to Tom.

        When you look at points 1 & 2, I don’t see how the club can progress to the EPL, but as I have mentioned many times, that is not on the majority shareholders agenda.

        6
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        • Alex B says

          26th January 2018 at 2:50 pm

          Just maybe they want promotion so they can eventually sell for a larger inflated price and are trying to do it on the cheap.

          With all the calls for investment and for the Smiths to sell we haven’t heard for a while from Mick; he has left the defence of the Smiths to others on the site.

          Reply
          • BecclesBoy says

            26th January 2018 at 9:04 pm

            Quick question Alex – Why would the Smiths suddenly (after 20+ years) realise the error of their ways? It hasn’t happened so far, and according to everything Mick writes it won’t happen anytime soon……..

            4
  11. Adam says

    26th January 2018 at 8:17 pm

    Just wanted to say what a simple and well written article. These are unknown times. Although I’m not a negative person I’ll be surprised if enough of these youngsters/unknown’s make the lasting impact that we need. How many of these type of signings in the past have forced their way into the first 11? The list of players like Butterfield from Barnsley is frighteningly long.

    3
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  12. Chris says

    27th January 2018 at 10:40 am

    Very good article. Points extremely well made. Particularly surrounding smiths role going forward.

    1
    Reply
  13. Dean Keaton says

    28th January 2018 at 9:43 pm

    Delia goes or it’s L1 within 3 seasons. You pay peanuts, you get monkeys. Forever thus.

    1
    Reply

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